Grit Real Estate, the pan-African real estate company, has raised $156.7m through an open offer and placing.
Part of the proceeds, $80.6m, was made through the issue of 155,027,444 new ordinary shares to the shareholders of development company Gateway Real Estate Africa Limited (GREA) and its asset manager Africa Property Development Management Limited (APDM) as consideration for the sale of their stakes in GREA and APDM to Grit.
The remainder, $76.1m, will be used to pay off debt and reduce the group’s loan to value (LTV) ratio, which had reached 53.1% at 30 June 2021.
A total of 97,185,369 shares were issued from the Open Offer and 49,156,943 shares in the Placing, while 155,027,444 shares will be issued to selling shareholders of GREA and APDM on completion of the acquisition in early 2022.
Peter Todd, non-executive chairman of Grit, said: “We are pleased by the success of the issue, and, on behalf of the board, I would like to thank existing and new shareholders for their support. The success of the issue reflects our confidence in both reducing Grit’s overall levels of debt and driving further expansion in our core and expanded business, which we expect will deliver enhanced value to our shareholders. The Grit board expects to resume dividend payments in the current financial year, distributing out of net operating income generated from our existing property assets.“
Following admission of the new ordinary shares, Grit will have a total of 477,577,858 shares in issue.
Details on GREA and APDM and benefits of the proposed acquisition
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.
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 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 raises $156.7m