LSE-listed real estate company Grit Real Estate Income Group has acquired a 77.95% controlling stake in Africa Property Development Managers (APDM), the asset manager of property development company Gateway Real Estate Africa (Grea), through a vendor placement at the issue price of $0.52 an new ordinary share and a cash consideration.
On April 11, Grit said the controlling interest in APDM would immediately afford it significant influence over Grea’s operations by virtue of the services APDM provides to Grea under its asset management contract.
APDM provides development management, asset management, advisory and administrative services to Grea under the terms of an asset management and advisory services agreement.
Additionally, Grit has increased its stake in Grea from 19.98% to 26.29%, which it will further increase to 48.6% through several additional acquisitions.
Among these, Grit will acquire an additional 8.72% of Grea by July 31 for $19.44-million, with a further option to acquire a final 13.61% of Grea by December 15. These acquisitions, if all completed, will take Grit’s total direct shareholding in Grea to 48.6%.
Grit said it had a clear path to owning – directly and indirectly – 51.66% of Grea by December, following the issue of a free 10% incentive carry to APDM, which will be issued upon meeting minimum performance requirements.
These minimum performance requirements are measured and issued at year five, and if not achieved at that point, again at year seven from Grea’s inception or, alternatively, upon a defined exit event, which the option exercise is expected to be. Grea’s five-year anniversary from inception is in December.
“We continue to be well-positioned to capitalise on the significant recovery potential across Grit’s unique high-quality property portfolio. We expect significant further potential value to be created through increasing Grit’s capital allocation to limited, risk mitigated development returns through servicing existing and target tenants,” said Grit CEO Bronwyn Knight.
She added that the acquisition of Grea would provide a range of benefits for Grit, including a fully-funded existing pipeline, which she expected to deliver strong net asset value (NAV) growth as projects were completed over the next 24 to 36 months.
“Grea additionally has access to a further extensive pipeline of NAV-accretive US Bureau of Overseas Building Operations diplomatic housing and data centre development opportunities. Both asset classes are seen as exceptionally resilient and offer exposure to highly rated tenants to underpin future income levels,” Knight said.
She noted that Grit’s cost of debt was much lower than that of Grea, which provided an opportunity to amortise and replace Grea’s expensive construction debt facilities with cheaper debt funding, recycling operational cashflow into new projects as opposed to debt repayments, she concluded.