Grit Real Estate Income Group’s annual results were impacted by the high interest rate environment and the transitional period for the company, which saw it acquire developer Gateway Real Estate Africa (GREA).
The group’s EPRA net reinstatement value (NRV) fell 8.3% US$72.8 cents per share over the year to 30 June 2023, driven by a 4.5% drop in the value of its portfolio (due to disposals), write offs against property projects and transaction costs related to the acquisition of GREA (the developer) and loan refinancing.
The portfolio was valued at US$862.0m, a fall of just 0.8% excluding disposals and increased interest in GREA.
Revenue increased 1.9% (and 7.3% excluding disposals), while net operating income was up 5.7%.
High interest rates impacted the group with the weighted average cost of debt (WACD) increasing from 7.1% to 7.97% for the year. Hedging protected the company from a large part of the 3.6% increase in base rates over the year.
Notwithstanding the hedges, group finance costs increased by US$11.3m, representing a 46.5% increase as compared to the prior year.
Asset management fee income grew to US$1.4m and Grit’s proportionate share of on-going asset management and development management fee income from APDM (the asset manager it acquired with GREA) amounted to US$3.1m for the year.
Administrative expenses increased by 40.3% due to a combination of high inflationary pressures, onboarding costs surrounding the increased investment in APDM and GREA, the full year impact of the income generating Kenyan office and the Group’s investment towards future growth (in the setup costs of Bora Africa). The administrative expenses as a percentage of total income producing assets amounted to 2.4%. This is higher than the medium-term objective of 1.8%, which the Group aims to achieve through cost reduction initiatives and an expected increase in the asset base as a result of the acquisition of GREA.
Taking into account higher administrative expenses (due to costs surrounding the acquisition of GREA and APDM and inflationary pressures), adjusted EPRA earnings dropped by 77.0% to US$0.72 cents per share. Distributable income dropped 15.6% to US$4.29 cents.
The board has not declared a second half dividend, due to the amount spent on the acquisition of GREA and APDM and debt reduction (US$90m). Therefore, total dividend for the year was US$2.00 cents per share (46.6% pay-out of distributable earnings).
The company said that it would consider either a special dividend or an increased dividend in the first half of this year depending on the progress made on new developments by GREA.
Debt levels were reduced by US$28.3m in the financial year to US$396.7m. Group LTV dropped by 2.4 percentage points to 44.3%.
Chairman Peter Todd said: “Management and the Board will continue to focus on ongoing reduction in LTV, the asset recycling programme, and the expansion of Grit’s investments in specialist development focused investment vehicles. The Board has identified a cost optimisation programme on Group administrative expenses, targeting a sustainable US$4.0 million reduction by December 2024.
“Grit 2.0 positions the Group for growth, and with strong current cash collection, increased leasing activity, resilient assets and the potential for stronger NAV and fee income growth, the Board affirms the total return target of between 13% and 15% per annum over the medium term.”
Bronwyn Knight, chief executive, added: “The financial year to 30 June 2023 was a transitory year for the Group characterised by disposals of non-core assets, reducing debt and debt refinancing risks and substantial progress on the acquisition of a majority interest in GREA, the Group’s development associate. GREA successfully delivered the award-winning Precinct office park and Artemis Curepipe Hospital developments in the year and is on time and on budget on the ENEO Tatu City call centre facility, expected to be completed mid 2024.
“Global interest rate volatility provided headwinds to our strong property portfolio operating performance, where a 5.7% increase in net operating income (excluding properties sold) was impacted by significantly rising finance costs. Our focus will remain on sustainably growing distributable income and enhancing capital growth while continuing to target key portfolio metrics such as lowering the LTV, vacancy and cost factors and further strengthening the balance sheet and liquidity position through focused asset recycling initiatives.”
GR1T : Grit Real Estate results impacted by transitional period