African property fund left ‘frustrated’ after virus blow

GRIT Real Estate, a hard currency fund investing in under-developed African countries, argues its share price has been over-sold in the pandemic as lockdowns and restrictions have been less prominent in some of its markets.

Heavily-discounted GRIT Real Estate (GR1T) has reinstated its dividend but fund manager Bronwyn Corbett remains ‘frustrated’ the specialist African property investor has been dragged down by its very different real estate peers.

The £159m portfolio of property in underdeveloped African countries, not to be confused with the tiny Global Resources (GRIT ) mining trust, has languished at a 57% discount since last year as the real estate sector was battered by the coronavirus pandemic.

Over the past year the share price has tumbled 42% as the investment company was forced to write-off rent, extend replacement plans, saw unlet space spike, and its loan-to-value (LTV) jump. A week before Christmas fund manager M&G bailed out the company by underwriting a $10m share issue, with the money being used as a ‘support facility’ or overdraft when auditors requested the company held more liquidity or cash.

Despite a tumultuous year, the Guernsey-based but London-listed specialist fund managed to reinstate the dividend in the second half of 2020, although at a much lower level that the previous year; 1.5 US cents versus 5.25 cents, as earning per share tumbled 44% over the period.

While it managed to collect 91% of rent over the period, it has seen vacancy rates increase 2% to 8%, mostly in its retail portfolio which makes up 23% of the portfolio.

Retail, which includes shopping centres in Kenya and Mozambique, has been the biggest weight on the portfolio and a 3.7% slide in valuations saw the fund shoulder a £14.8m write-down.

This was offset by an 11.1% jump in hospitality valuations, a 4.5% rise in light industrial valuations, and offices ticking up 2% - sectors which make up over half of the portfolio.

‘The LTV the fund has ticked up as we have seen some valuation fall during Covid-19 on quite a few of our properties,’ she said.

However, she added the closed-end fund still has $90m of headroom’ before even the lowest covenant is broken on any of the GR1T’s loans.

‘The portfolio valuation was hit in June last year because of the material uncertainty but we’re not anywhere close to breaking covenants,’ said Corbett.

She argued the fund, which earns its income in ‘hard’ currencies such as the US dollar, had been lumped in with beleaguered real estate funds investing in developed markets during the Covid-19 crisis without consideration for the different way in which African countries have dealt with the pandemic.

‘It has been a bit frustrating,’ said Corbett. ‘It is easy to benchmark us as just a real estate stock because there is a lack of understanding about investing in Africa and a lot of the share price fall [during the pandemic] took place upfront because of uncertainty. And because we’re not a very liquid stock, it has proven to be a challenge.’

Corbett argued that if investors look beyond the ‘real estate’ tag and considered the economic environment in Africa and the stocks the fund is invested in, they would be pleasantly surprised by both.

‘We are invested in more under-developed African countries and there they didn’t go into proper lockdown,’ said Corbett.

‘These are different types of countries and they are used to dealing with diseases such as Ebola.’

One area that GR1T invests in that has seen a nationwide lockdown is Mauritius where it is heavily exposed to hospitality through its holiday resorts rented to Beachcomber, its largest tenant making up 11.8% of the portfolio’s income.

Corbett (pictured) said she was confident with the hospitality exposure thanks to the ‘large conglomerate’ tenants and the fact the Mauritian government has bailed out the sector.

‘Mauritius has been locked down since March last year and has had one case since April,’ she said. ‘Mauritian hospitality is the biggest employer in the country and the government has bought 200,000 vaccines and are vaccinating front line staff, which hospitality staff are being classed as, to allow a partial reopening.’

Corbett is hoping investors see the merits in investing in Africa and said they should consider that it is ‘different to developed markets’.

‘[African countries] are out of lockdown, and there is a recovery in markets, that leads to a recovery in valuation and has given us the ability to start paying dividends again,’ she said.

‘We will top up the dividend provided we have see the risks settle down.’

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