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Grit Real Estate looks to raise $215.6m

Grit Real Estate Income Acacia Estate GR1T

Grit Real Estate Income Group, the pan-African property investor, has announced a proposed open offer and placing to raise $215.6m.

It is looking to place up to 414,647,283 new ordinary shares at US$0.52 per share, the open offer being on the basis of 1.3011 new ordinary shares for every one existing share.

The group intends to use the proceeds to lower its loan to value (LTV) and acquire majority stakes in developer Gateway Real Estate Africa (GREA) and asset manager Africa Property Development Management (APDM). A general meeting will be held on 14 December 2021 for shareholders to approve the proposed acquisition.

The issue price of $0.52 represents a premium of 4% to the average closing price across the group’s two listing platforms – London Stock Exchange and the stock exchange of Mauritius (LSE: £0.3468; SEM: US$0.53).

As at 19 November 2021, Grit said it had received written confirmation from existing shareholders and new investors of their intention to subscribe, in aggregate, for in excess of $65m, which when combined with Grit’s ability to deliver ordinary shares in consideration for the proposed acquisition, in aggregate, is 68% of the total target issue.

The net proceeds are expected to reduce Grit’s overall indebtedness and leverage levels and provide future capital for further expansion in its core and expanded business. The group’s loan to value (LTV) ratio will fall from 53.1% as at 30 June 2021 to a pro forma level of 33.6% if the issue is fully subscribed.

The proceeds of the issue will also enable Grit to acquire a controlling shareholding in GREA and a majority shareholding in APDM, GREA’s external management company. Following completion of the proposed acquisition, Grit will own a combined direct and indirect majority interest in GREA (51.66%) and a direct majority interest in APDM (78.95%).

The group said the acquisition is expected to “materially accelerate” its ability to access development returns from risk mitigated development projects from GREA’s attractive pipeline of development opportunities and give Grit the additional management resources and control required to lead the further development of GREA, via APDM. The acquisition of a controlling interest in APDM offers Grit the potential for new revenue and fee income streams, asset and facilities management with respect to the Bureau of Overseas Buildings Operations (OBO) – the Department of State and the US Government’s worldwide overseas building program.

From the increased capital allocation to development projects, the group said it expects to see an increase in its total targeted shareholder return over time from 12% to 13-15% per annum.

Details on GREA and APDM and benefits of the proposed acquisition

GREA is the only development company covering every region in Africa and with a multi-asset class focus, delivering real estate solutions for international global tenants within Grit’s existing and target client lists. Gaining control in one transaction materially accelerates the Grit’s ability to access development returns from risk mitigated development projects. GREA’s existing pipeline is fully funded through the existing shareholders’ equity contributions and is expected to deliver strong NAV growth as projects are completed over the next 24 to 36 months.

GREA has access to an extensive further pipeline of OBO (US diplomatic housing) and data centre development opportunities, which are expected to be accretive to NAV, are extremely resilient asset classes and offer exposure to highly rated tenants to underpin future income levels.

Acquiring a majority stake in APDM offers Grit the potential for new revenue and fee income streams, asset and facilities management with respect to OBO and other asset classes and accelerates Grit’s strategy of increasing its exposure to the provision of professional services to its clients and other third parties.

The proposed acquisition would diversify the group’s geographic exposure (and, in particular, will reduce the company’s current overexposure to Mozambique).

Upon gaining control of GREA, Grit would have the ability to execute additional value creating activities which include:

  • Grit balance sheet optimisation. When combined with Grit’s balance sheet, GREA’s current low leverage is expected to result in a material reduction in consolidated Grit Group LTV metrics from completion. The larger scale and reduced dependence on hospitality and retail, together with a reduced overall exposure to Mozambique, would facilitate the possible issuance of a corporate bond by Grit in the near future, terming out the maturity profile and reducing costs. Grit said it was exploring the possibility of a bond issue following completion of the proposals.
  • Disposal of non-core assets. Grit is pursuing strategies to reduce exposure to the retail sector and would use GREA to push through such asset disposals. Such asset recycling would be expected to free up capital that can be recycled into new project opportunities within GREA.
  • Cost savings. Elimination of dual cost structures and redeploying staff could yield cost savings.

GR1T : Grit Real Estate looks to raise $215.6m

 

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