Mauritius-based Grit Real Estate Income Group claims to have delivered a robust operational performance, despite reporting over a third of loss in earnings and deciding to withhold dividends for the second consecutive year due to the impact Covid-19-related concessions and valuation reversions have had on the group’s financial position.
Grit – which has listings in London and Mauritius – released its results for the full year ended June 30 on Friday and reported a 37.7% drop in distributable earnings per share for the period to $5.97 cents (2020: $9.58 cents).
Despite delisting from the JSE last year, the company’s performance remains relevant for South Africans, as the Public Investment Corporation (PIC) owns about a 25% share in the company and the Eskom Pension Fund owns about 5% – making these companies Grit’s largest South African institutional investors.
“As a result of ongoing Covid-19 related uncertainties during the reporting period, valuation declines were experienced across the property portfolio, resulting in the value of total income-producing properties dropping from US$823.5 million in the prior financial year to US$801.9 million, resulting in a total return per share decline of 11.3% (2020:15.8% decline),” Grit said in a statement.
Grit embarks on cost-conscious exercise
The group has decided to withhold dividends for the period – having done the same in the previous comparable period – in an effort to preserve cash.
“We cancelled or suspended several announced pipeline acquisitions to protect balance sheet capacity and have negotiated a temporary extension of the Group’s LTV (loan-to-value) and ISCR (interest service coverage ratio) covenants,” Grit CEO, Bronwyn Knight said.
The group’s cost-cutting exercise went as far as issuing a 10% pay reduction for its board and senior management, which saw it reduce administrative costs by 13%, ultimately shaving off about $4 million from the income statement.
“In line of all coming to the party to say, our shareholders are going to suffer because we can’t pay distribution and we want to reduce our LTV – we all need to be taking pain simultaneously,” Knight said.
Strengthening balance sheet
Despite the impact of the coronavirus pandemic on the group’s balance sheet, the group has managed to show resilience. Grit, which has a presence in eight African countries – outside of South Africa – managed to increase its net operating income by 3.5% to $55.3 million (2020: $53.5 million) and achieved a 92.5% contractual rental collection, up by 3.9%.
However, the Africa-focused property fund did see an increase in its LTV ratio to 53.1% in the current period from 50.2% in the previous year. The increase is said to be due to valuation pressures experienced primarily in the retail sector. Grit says it aims to reduce its LTV to below 45%.
“We expect Grit’s LTV to benefit from improvements in our property valuations over the medium term, the acceleration of our asset recycling strategy and target of recycling 20% by property portfolio value by the end of 2023, which we continue to pursue, and our perpetual note issuance, which has now been concluded,” Knight said.
In line with Grit’s aims to reduce its retail exposure due to the difficult conditions faced by the sector on the continent, the group plans to sell its AnfaPlace Mall – which constitutes 8% of its asset value – in Casablanca, Morocco. The sale will assist the group reach its LTV targets and also positively influence distributable earnings per share.
“We don’t like the big retail for Africa. So the strip mall convenience type stuff, absolutely. But the big mall retail for Africa, I don’t think necessarily has a place in some of these markets, so the idea is to exit big mall retail,” Knight told Moneyweb.
“Our strategy remains effective, and I am increasingly confident that we are well positioned and that the steps we are taking will not only safeguard Grit for the near term but ensure that we proactively seize the opportunities that arise to return to growth, acceptable shareholder returns and an attractive cash dividend,” added Knight.
Growth into Africa
Earlier this month, Grit also announced the finalisation of the long-awaited acquisition of a Kenyan manufacturing facility from Orbit Products Africa Limited (Opal) for US$53.6 million on a leaseback basis. The sale, although finalised post the reporting period, should have a positive impact on the group’s financial position moving forward.
Knight told Moneyweb that the group currently has no ambitions to explore growth in Africa outside of the eight countries it already exists in. Instead it’s looking to leverage off the platforms it currently exists in.
“We’ve got a strategic relationship with the Botswana development corporation (BDC) …so we see really good traction for growth in that particular market. Kenya from a light industrial East-Africa hub perspective, we see a massive amount of growth, [as well as ] Senegal and Ghana from an industrial perspective,” Knight added.