Grit Real Estate Income Group (GR1T), LON:GR1T, published its results today (31st October) for the year to end June 2024. GR1T is a pan-African real estate company focused on investing in, developing and actively managing a diversified portfolio of assets, underpinned by predominantly US dollar- and Euro-denominated long-term leases with high quality multinational tenants.
The company is based in London, headquartered in Mauritius and registered in Guernsey and has been operating for a decade. GR1T manages assets in 12 African countries, and is involved throughout the real estate value stream from development, through project management into property and asset management. The company also manages African real estate across eight asset classes, including office, shopping malls, retail, medicare, data centres and hospitality. The company has more than 600 tenants.
Portfolio growth up 9.8%
The company’s portfolio revenue grew 9.8% over the year, with its subsidiary Gateway Real Estate Africa (GREA) driving the charge. GREA, which GR1T owns just shy of 55%, was founded in January 2018 and is a private real estate development company specialising in the turnkey construction of accommodation for multinational corporates and retailers wishing to expand their operations on the African continent.
Bronwyn Knight, GR1T’s CEO said in a statement: “A key milestone was our acquisition of a majority stake in GREA, our development associate. While this acquisition had one-off impacts on this year’s financial results, it optimises our cost base, simplifies our reporting, and strengthens our capability to drive targeted, tenant-led developments.”
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She continued: “Additionally, it bolsters our group’s robust platform, positioning us to capture growth opportunities in targeted sectors through the establishment of specialised sub-structures. These will be supported by long-term funding partners who share our commitment to unlock and generate high quality impact investment in Africa.”
Net operating income was up 7.9% year-on-year to USD971.2m (GBP747.5m), driven by the annualised contribution of assets brought into operation during the financial year. However, the company said, growth was offset by the impact of two disposals, BHI and LLR which completed during the year.
Africa’s demand for high-end real estate
The company reported total income-producing assets rose by USD109.2m, reaching USD971.2m, again on the back of GR1T’s GREA acquisition and consolidation. Africa has the world’s youngest population, with a median age of 19-years and a large proportion of the population is of working age and with a growing middle class with higher disposable incomes is a future important consumer market. This population is expected to double by 2050, and will hit 2.5 billion people by that date, and this population is rapidly moving into the cities, with urbanisation is going to be the largest in the world.
Africa’s blessing, as well as its curse, has been its wealth of natural resources, especially strategic minerals, oil and gas and agricultural commodities – essential for global growth and corporations (as opposed to the military expansion of European nation states in the eighteenth, nineteenth and twentieth centuries) are beating a path to the continent. As such the demand for high-end real estate is going to increase in the next decades which is good for GR1T and its subsidiaries.
Underpinning this trend, property values across the continent are increasing, and GR1T’s reported property values grew by 11.1% over the year, however the share price has disappointed. Opening the day at 12.414p and fell to 12p by lunchtime. Over one-year down 44% and down 40% year-to-date.
Debt costs weigh on GR1T’s performance
Like many real estate companies (which fund a lot of their development and project management activities through borrowings) the current interest rate climate has meant that real estate companies debt burden has become more onerous, in GR1T’s case its weighted average cost of debt went up from 8.4% to 10%, which has “affected the group’s financial flexibility, said management. This greater inflexibility led to GR1T being conservative with its dividends, with total dividends declared for the year of 1.5 cents/share. To mitigate interest rate changes, GR1T maintained USD200m in hedging instruments, however over the year these hedges became more expensive.
Management has been cutting costs, reducing administrative costs by 14% y-o-y and is moving towards a target administrative expense ratio of 1% relative to total income-producing assets.
While GR1T faces challenges from rising interest rates and global economic uncertainty, its long-term outlook remains positive, underpinned by Africa’s demographic dividend, urbanisation, and increasing demand for quality real estate. The company’s strategic focus on high-quality, income-generating assets and its experienced management team position it well to capitalise on the continent’s growth potential.