- Pan-African property group plans $216m raise
- Grit shares currently trade at less than half BV
Shortly before it listed in London in July 2018, a tweet from the account of pan-African property investor Grit Real Estate (GR1T) encouraged prospective shareholders to “tap into Africa’s growth clusters and earn US dollar returns at emerging market rates”.
Unfortunately for all involved – including blue chip institutional holders M&G, Ruffer, GAM and Henderson Global – the stock has been a flop, having fallen 69 per cent since its debut.
First came a dip in NAV in the first full year of public trading. Then the pandemic put big dents in the group’s retail and hospitality-focused assets, resulted in a $115m (£86m) hit to the portfolio’s valuation and a rise in the loan-to-value ratio to 53.1 per cent by June. At 35.4p, the shares trade at less than half book value.
Although Grit’s board expects asset values to rebound and for the portfolio to carry on generating cash, high gearing has left it in hock to its debt providers who are currently blocking dividends.
Rather than wait for valuations to recover, the group has opted to “take action now” by boosting its stake in development associate Gateway Real Estate Africa (GREA) to 52 per cent, and GREA’s external management company Africa Property Development Management (APDM), to 79 per cent.
This week, Grit outlined plans to fund the deal by raising up to $216m via an open offering and placing at $0.52 a share. Ahead of a vote on 14 December, it already has backing from 53 per cent of shares, and demand for two-thirds of the capital raise. If approved, Grit says the deal will help reduce gearing to 34 per cent, juice growth targets and cover a dividend yielding 9.6 per cent for 2022.
The transaction includes related party transactions with Grit chief executive Bronwyn Knight, who will receive $2.7m in shares for selling her interests in GREA and APDM. Grit co-founder Greg Pearson will also be paid $4.8m in shares for his stake in GREA, where he is the sole director and de facto CEO. Grit’s board, which includes Knight, has been advised by broker finnCap that the terms of the interested party share deals, which are subject to lock-ups, are “fair and reasonable so far as shareholders are concerned”.
Grit, which joined the premium segment of the LSE in February, has long sought to downplay the risks associated with emerging market property investing. A tenant base made up of multinationals on euro- and dollar-denominated leases is a plus, but despite the tempting terms, it’s harder to tell what risk investors are taking on through these transactions. We’re on the fence.
Last IC View: None
