Grit Real Est. Regulatory News (GR1T)

The board of Directors (the "Board") of Grit Real Estate Income Group Limited, a leading pan-African real estate company focused on investing in and actively managing a diversified portfolio of assets underpinned by predominantly US$ and Euro denominated long-term leases with high quality multi-national tenants, today announces its audited results for the financial year ended 30 June 2022.

Bronwyn Knight, Chief Executive Officer of Grit Real Estate Income Group Limited, commented:

Grit has weathered the challenges over the Covid-19 period and, despite recent global uncertainty, is producing a robust underlying portfolio performance supported by Grit's family of strong partnerships across the African continent. Grit is increasingly well placed to deliver further positive sustainable value for our shareholders and positive impact for the people of Africa. Our resilient and defensive business and investment potential is backed by our high quality assets, strong cash collection, increasing leasing activity, achieving contractual rent escalations, reducing debt levels and with the potential for progressive dividends and stronger NAV growth going forward.

Furthermore, Grit's targeted acquisition of a controlling interest in Gateway Real Estate Africa is expected to be a key milestone for the Group, reinforcing our solid growth and positive impact strategy with a high-quality team and attractive accretive pipeline of developments, whilst also further reducing Grit's LTV.

Grit has recently delivered its long-term sustainability-linked refinance of existing debt into a single facility, bringing with it a more streamlined and efficient Group loan management process and has made good progress on its asset recycling programme.

The Grit Group is committed to, and passionate about, developing smart business solutions through impact real estate that goes beyond buildings. No matter what the challenges we encounter in Africa, as a team of spirited warriors we always find the way.

Financial & Portfolio highlights as at 30 June 20221

Notes

Summarised results commentary:

Corporate highlights

Notable Post balance sheet events

FOR FURTHER INFORMATION, PLEASE CONTACT:

NOTES:

Grit Real Estate Income Group Limited is the leading pan-African real estate company focused on investing in, developing and actively managing a diversified portfolio of assets in carefully selected African countries (excluding South Africa). These high-quality assets are underpinned by predominantly US$ and Euro denominated long-term leases with a wide range of blue-chip multi-national tenant covenants across a diverse range of robust property sectors.

The Company is committed to delivering strong and sustainable income for shareholders, with the potential for income and capital growth.

The Company holds its primary listing on the Main Market of the London Stock Exchange (LSE: GR1T and a secondary listing on the Stock Exchange of Mauritius (SEM: DEL.N0000).

Further information on the Company is available at http://grit.group/

Directors:

Peter Todd+ (Chairman), Bronwyn Knight (Chief Executive Officer)*, Leon van de Moortele (Chief Financial Officer)*, David Love+, Sir Samuel Esson Jonah+, Nomzamo Radebe, Catherine McIlraith+, Jonathan Crichton+, Cross Kgosidiile and Bright Laaka (Permanent Alternate Director to Nomzamo Radebe).

(* Executive Director) (+ independent Non-Executive Director)

Company secretary: Intercontinental Fund Services Limited

Registered office address: PO Box 186, Royal Chambers, St Julian's Avenue, St Peter Port, Guernsey GY1 4HP

Registrar and transfer agent (Mauritius): Intercontinental Secretarial Services Limited

SEM authorised representative and sponsor: Perigeum Capital Ltd

UK Transfer secretary: Link Assets Services Limited

Mauritian Sponsoring Broker: Capital Markets Brokers Ltd

A Company presentation for all investors and analysts via live webcast and conference call

The Company will host a live webcast on Friday, 28 October 2022 at 12:00pm Mauritius / 09:00am UK / 10:00am South Africa. Pre-registration for the Company's live webcast of the full year results is required at the following link: https://www.investormeetcompany.com/grit-real-estate-income-group-limited/register-investor

A playback of the webcast will be accessible on-demand within 48 hours via the Company website: https://grit.group/financial-results/

CHAIRMAN'S STATEMENT

Grit is a prominent, woman led real estate platform providing property investment and associated real estate services across the African continent. The Group recognises its role in transforming the design of buildings and developments for long-term sustainability, especially with Africa rapidly urbanising, and focuses on impact, energy efficiency and carbon reduction in its activities. In addition to environmental responsibility, the Group prides itself on achieving more than 40% of women in leadership positions at Grit and significant support to the numerous communities in the countries where we operate through extensive CSR and upliftment programmes.

The financial year ended 30 June 2022 provided encouraging signs of recovery in the property sectors worst affected by the Covid-19 pandemic and the lifting of international travel restrictions buoyed an improvement in especially the hospitality and retail asset classes. Global inflationary pressures, exacerbated by the Russia-Ukraine war, have resulted in upward pressures on interest rates and availability of debt funding both globally, but especially in Africa. These financial results have also been impacted by the material corporate actions, the residual effects of the Covid pandemic and more recently, rising interest rates and significant volatility in exchange rates to the US dollar, specifically the Euro.

However, the Group is increasingly well positioned, backed by strong cash collection, increased leasing activity, resilient assets and with the potential for stronger NAV growth going forward. The Group's contractual lease escalations are also predominantly inflation-linked and are helping to offset the impacts of rising interest rates in the portfolio, whilst also helping to underpin our growing dividend.

The Group has seen a growth of 3.5% in Net Operating Income from properties in the financial year to 30 June 2022 and notably has collected 92.8% (FY21: 92.5%) of the value of its contracted revenue in the year. Management's continued focus on counterparty relationships and active tenant and asset management resulted in a higher occupancy rate of 95.3% (FY21: 94.7%) predominantly due to new leases concluded in the corporate offices and retail portfolios. The retail sector across Africa appears to have stabilised and when combined with acquisitions and investments in the period, the reported value of investment properties has increased 6.9% in the financial year.

Decisive, course correcting action taken

During the year under review, the Board implemented a decisive course correcting strategy that enabled Grit to reduce its overall debt exposure to more acceptable levels and place it on a robust growth path. The Company issued new shares worth US$76m in December 2021, and in combination with the targeted asset recycling strategy, has positioned the Company well for sustained recovery. During the period, the Group acquired an increased stake in Gateway Real Estate Africa ("GREA"), the leading African focused real estate developer, combined with operational control over GREA's external asset manager, Africa Property Development Managers ("APDM") during the period, are expected to contribute meaningfully to Grit's ability to deliver enhanced profitable growth through GREA's extensive and attractive pipeline of accretive development opportunities.

Grit has also agreed a pathway to securing a controlling interest in GREA. The potential optimisation of Grit and GREA's balance sheets upon gaining control, which are expected to deliver further additional value to Grit's shareholders and reduce the overall LTV for the Group given GREA's low gearing levels.

In March 2022, Grit concluded the fully funded US$37.7m (including VAT) acquisition of the Orbit Complex in Kenya. The Orbit transaction is accretive to Grit's net asset value and earnings from inception, with further redevelopment and expansion opportunities expected to enhance the yield and average lease term. The upgrade is in line with Grit's strategy to increase its exposure to Kenya and the broader light industrial sector and its proximity to Grit's Imperial Warehouse logistics facility strengthens the node as a prime supply chain hub. The total expected investment across the sale and leaseback and redevelopment and expansion is expected to be US$53.6m and is funded through US$25.0m senior debt financing from the IFC, a division of the World Bank, and a preference note issued to Ethos Mezzanine Partners GP Proprietary Limited and BluePeak Private Capital GP. This transaction is expected to be the first in several strategic collaborations with the IFC across Africa and positions Grit to execute on its focus of increasing its exposure to industrial sector assets through the establishment of an industrial asset platform.

In July 2022, Botswana Stock Exchange listed diversified real estate company, Letlole La Rona Limited ("LLR") co-invested in the Orbit Complex by way of a US$7.2m investment and positioned itself as a co-investment partner for further industrial sector investments.

Capital recycling

In the prior financial year, the Board set an asset recycling target of 20% of the value of the property portfolio, equivalent to approximately US$160m worth of property assets, by 31 December 2023. As at today's date, we have achieved gross property disposals of US$28.2m. The Group has continued to make further good progress on its targeted asset disposal strategy post financial year end and will update shareholders in due course.

During the period under review, Grit successfully sold ABSA House in Ebene, Mauritius and sold a 4.9% stake in LLR. Following the year end, the Group sold a 30% stake in the Orbit Complex to the Group's listed associate LLR.

Proceeds from asset recycling will principally be applied towards Group debt reduction and replenishment of liquidity reserves over the short term, with redeployment into higher-yielding secured strategic pipeline projects over the medium and longer term that are expected to further enhance the resilience of the Group's portfolio and result in increased distributable income and improved capital value to Grit's shareholders.

Financial results

The financial results to 30 June 2022 have been impacted by the material corporate actions, the residual effects of the Covid-19 pandemic and more recently, rising interest rates and significant volatility in exchange rates to the US dollar, specifically the Euro. The Group's contractual lease escalations are predominantly inflation linked and are providing some offset to rising interest rates in the portfolio.

EPRA NRV per share declined 22.5% to US$79.4cps (versus prior year NRV of US$102.4cps) predominantly due to the dilutive equity issuance in December 2021 and non-property related impairments.

The Company issued shares worth US$76.3m in an equity placement in December 2021, which was lower than targeted at that time. As a direct result, the acquisition of a controlling interest in GREA was restructured and the direct LTV benefits of financial consolidation delayed. Grit's LTV improved from 53.1% in the prior financial year to 46.7%, predominantly as a result of the proceeds raised in the capital raise but also complemented by the improvement in portfolio valuations and improved cash collections. LTV is expected to fall by a further 3.9% upon the consolidation of GREA should the Company successfully conclude the acquisition of a controlling interest in GREA.

Dividends

The Board remains committed to reducing LTV levels to below its near-term target of 45% and then to its medium term target of between 35% to 40% with capital recycling initiatives providing further impetus. Considering the success of the Group's corrective actions, in particular the reduction of Group LTV to 46.7%, I am pleased to announce that a final dividend of US$2.0 cents per share has been declared. This brings the total dividend for the year to US$4.50cps, following the interim dividend of US$2.50cps declared for the six months ended 31 December 2021. The full year distribution represents an 89.8% pay-out of distributable earnings.

The Board additionally today announces that it is complementing second half distribution with a limited share buyback programme given the current compelling inherent value, as it looks to support liquidity in the shares on both LSE and SEM.

Changes to the Board

Other than formally acknowledging that Cross Kgosidiile was no longer an Independent NED, in February 2022, there were no changes to the Board during the year under review.

Climate change, sustainability and diversity

Grit is a leading impact real estate solutions platform providing property investment and associated real estate services across the African continent. Grit recognises the importance of climate change and continues to focus on ensuring that the Group and our portfolio remains resilient. We continue to make significant inroads in reducing our carbon footprint across operations through initiatives to reduce electricity consumption and we are embarking on our journey to define its pathway to net zero carbon based on global best practice.

In addition to recognising its leadership role in environmental responsibility for the long term, the Group prides itself on achieving more than 40% of women in leadership positions at Grit and significant support to the numerous communities in the countries where we operate through extensive CSR and upliftment programmes.

More information on Grit's Environmental, Social and Governance initiatives is available in the Responsible Business Committee's report.

Updated Group strategy

Post the targeted acquisition of a controlling interest in GREA, the Group will continue to deploy its resources within the following principal strategic areas:

Outlook

The decisive course correcting action by the Board and management has yielded encouraging signs of growth, with many of the benefits initiated during the year under review expected to flow through in the current year and sustained over the long term. Notwithstanding these early signs of recovery, the Board recognises the increased global instability, driven by higher interest rates, inflation and shortages of staple foods and fuel, largely due to the Ukraine/Russia conflict.

A higher inflationary environment supports revenue growth as a result of Grit's inflation-linked contractual escalations, although real increases will be done in collaboration with tenants to ensure long-term sustainability. The Group is however well positioned for recovery in a post-pandemic environment, backed by strong cash collection, increased leasing activity, resilient assets and the potential for stronger NAV growth going forward. Upon the expected final completion of the acquisition of a controlling interest in GREA, the Board's total return target will increase from the current 12% to a range of between 13% and 15% per annum.

Management and the Board will continue to focus on ongoing reduction in LTV, the asset recycling programme as well as the expansion of Grit's investment in GREA.

CHIEF EXECUTIVE'S STATEMENT

Grit has evolved into a real estate solutions provider across Africa, from being a property investor. In addition to sound property fundamentals, a significant catalyst for Grit's growth - and evolution - continues to be our focus on people and relationships. From the outset, we built our business on strong, transparent counterparty and stakeholder relationships. This ability and know-how are what differentiates Grit - no other company delivers what Grit delivers on the African continent through the expertise of its people.

The Grit Group are people-centred pioneers, proudly African and woman led, driven by delivering positive impact through authentic partnerships. We recognise our role in transforming the design of buildings and developments and creating smart business solutions for long-term sustainability, especially with the African landscape rapidly urbanising.

During the Covid-19 period, Grit's management and Board committed to key initiatives to ensure the stabilisation of operations, balance sheet enhancement and improved liquidity. This focus has resulted in the delivery of the following key highlights over the financial period.

Key operational trends

Balance sheet improving

Initiatives during the year that supported a stronger balance sheet include the placing of 146m new ordinary shares in December 2021 (further detail in the Chairman's statement and Financial Review of this report), improved collections and asset recycling initiatives. The issue of US$31.5m in equity classified perpetual preference notes to BluePeak Capital and Ethos Private Equity on the Orbit acquisition not only provided additional balance sheet headroom but introduced new strategic funding partners to Grit.

Improved liquidity

Strong cash collections of 92.8% (FY21: 92.5%) and minimal rental deferrals and tenant rental assistance supported improved liquidity positions.

Proceeds from the successful disposal of ABSA House in Ebene, Mauritius and the part disposals of Orbit Complex and shares in LLR have been applied towards the Company's revolving credit facilities and debt reduction. The Group has continued to make further progress on its targeted US$160m asset disposal strategy post financial year end.

Offsetting this improved liquidity position was cash utilised in phase one GREA and APDM acquisitions of US$21.5m during the financial year, with a further US$19.4m deployed for phase two in August 2022.

Stabilised operations

Grit's current portfolio consists of 59 assets located across 12 countries and 8 asset classes. The Group's portfolio has a 4.7% EPRA vacancy rate (FY2021: 5.3%) and a weighted average lease expiry (WALE) of 4.8 years (FY2021: 4.8 years). More than 85% (FY2021:90.9%) of income is underpinned by a wide range of blue-chip multinational tenants across a variety of sectors and has a weighted average contracted lease escalation of 5.4% per annum (FY2021: 3.8% per annum). Most rents are collected monthly, of which 91.5% (FY2021: 92.7%) are collected in USD, Euro or pegged currencies.

Operations have largely stabilised, with hospitality and retail, the two sectors worst affected by Covid-19, showing signs of recovery. Property valuations in these two sectors have also started improving, suggesting valuation growth potential in the medium term.

Office, corporate accommodation, and light industrial assets

Grit's office and corporate accommodation assets continued to perform well with little change in occupation levels and ongoing strong demand. Lack of consistent internet connection and stable power supply have made the global work-from-home phenomenon less relevant in Africa and resulted in limited impact on our office tenants. Office sector valuations in Mozambique remained resilient. The Ghanaian office market is showing signs of additional re-leasing risks and tenant rotations, although Grit has successfully filled vacated space through pleasing new leasing activity in the financial year.

In the corporate accommodation portfolio, the valuation of the VDE Housing Estate in Mozambique stabilised at US$55.2m as at 30 June 2022 (FY2021: US$57.7m), following significant devaluations in the preceding two financial years. Grit continues to work with the new owner of Vale's mine in relation to their corporate accommodation needs and expects valuation recovery upon renewal of the current lease, which still has 1.9 years until expiry.

The continent remains undersupplied for good-quality industrial property. Grit's asset values in the sector enjoyed strong year on year increase upon the completion of the Bollore Warehouse upgrade and growth through acquisition.

Grit concluded the acquisition of the Orbit Complex in Nairobi, Kenya in March 2022, which represented a key step forward in geographically and sectorally balancing the portfolio into an undersupplied and futureproof asset class. The strategic unlocking of a long-term partnership with the IFC also brings with it further opportunities for collaboration as the Group continues to see further investment opportunities in this sector. On 18 July 2022 Grit introduced a 30% co-investor, Letlole La Rona ("LLR") to the Orbit asset for an investment of US$7.23m. LLR's shareholders have approved a "Go-to-Africa" strategy and have aligned with Grit as their recognised real estate specialist partner, positioning them as preferred co-funder for further investment opportunities in the sector.

We remain confident that the supply/demand imbalance for superior logistics assets should lead to rental and capital value growth and we intend to establish an industrial asset platform to capitalise on this in the near future, providing co-investment opportunities to our real estate partners and funders.

Retail assets

The occupancy rates of our retail assets have steadily improved since the height of the pandemic at the end of 2021. Our strategy of focusing mainly on smaller strip malls with non-discretionary food and service retailers supported this positive trend. Vacancies in the retail sector have stabilised with encouraging new tenant activity, including LC Waikiki in Zambia, Colin's in Morocco and Foodplus by Chandarana in Kenya.

Vacancies at AnfaPlace Mall still account for a material portion of the Group's vacancies. The timing of the redevelopment of the AnfaPlace Mall in 2019 left large parts of the mall vacant as the pandemic struck. Improved tenant activity, and our ongoing leasing efforts that saw the introduction of Colin's and ICHTAH, have resulted in reported vacancy rates falling from 19.26% in June 2021 to 18.1% as at 30 June 2022. Grit is currently completing fit out for the Hudson Group which will further reduce vacancy in Q4 2022. The Mall has enjoyed high and rising levels of footfall, significantly surpassing both pre Covid-19 and pre redevelopment levels, which bodes well for the outlook for the predominantly turnover linked leases currently in place. The asset is still being targeted for disposal although formal negotiations with a previously interested buyer have not materialised as expected.

Hospitality assets

Our hospitality portfolio comprises five hotels - four in Mauritius and one recently refurbished scheme in Senegal. Mauritius' borders opened from 1 October 2021, with final travel restrictions being lifted in January 2022. Hospitality operators are experiencing strong forward bookings at Grit owned assets and evidence of robust tourist demand has provided strong support to asset valuations, which rebounded in Euros by 5.3% in the financial year to 30 June 2022.

Grit's hotel tenants are up to date on their tenant obligations and The Lux Group has repaid all amounts owing from 2021 deferred rentals. Beachcomber resorts have fully settled their lease deferrals post year end (Grit had previously granted a 48-month period within which to repay 2021 deferred rents). Club Med Cap Skirring Resort opened on 5 December 2021 and are current on all their rental obligations.

Update on acquisitions and pipeline

As elaborated in the Chairman's Statement, Grit has a clear strategy for delivering attractive, secure and growing income and enhanced and sustainable shareholder returns.

The targeted acquisition of a majority stake in Gateway Real Estate Africa ("GREA") - a company founded by Grit in 2018 - and operational control of its asset manager, Africa Property Development Managers ("APDM") is pivotal to the execution of this strategy, considering Grit's ambitions to diversify its asset base into defensive, high-growth real estate sub-sectors including consular accommodation, data centres, healthcare and industrial assets.

GREA is a private real estate development company specialising in the risk mitigated turnkey construction of real estate in Africa. GREA develops assets on the strength of USD-denominated or USD-linked long-term lease contracts signed with multinational tenants, who are predominantly either current or target clients of Grit. GREA's current approved project pipeline is fully funded, and debt financing is secured and in place.

Acquiring control of GREA will provide Grit with control of its own significant pipeline of accretive developments whilst creating positive and sustainable impacts and value to the local people and communities we serve across Africa.

We further anticipate that Grit will capitalise on new fee income streams through APDM's substantial development and asset management fees and creates synergies with Grit's existing asset management initiatives.

In late 2021 Grit indicated its intentions to raise US$215m of fresh equity, of which US$80.6m was to be issued or allocated to sellers of stakes in GREA and APDM, implying a targeted cash equity raise of US$134.4m. However, as a result in large part of Omicron concerns at the time, the Group only issued shares worth US$76m at an issue price of US$52cps in December 2021. Although the equity raised was less than the targeted amount, we consider the process a success notwithstanding the market conditions at that time.

Net proceeds from the capital raise were allocated to reducing overall levels of debt, and the acquisition of a controlling interest in GREA was restructured into three subsequent phases that provided a clear path to achieving a controlling shareholding in GREA.

Phase I saw Grit driving further expansion in its core business via an increased interest in GREA from 19.98% to 26.29% in addition to a newly acquired 77.95% interest in APDM, the external asset manager to GREA. Through the APDM investment Grit currently exercises operational control over all material business activities of GREA (including development of properties, day to day management of the completed assets, leasing activity and operational cost management), governed by the terms of the asset management agreement and the GREA Investment Charter. GREA management remuneration policies have also been aligned with Grit's, and senior management of APDM have now been included in the Grit long term incentive plan, which are specifically linked to value creation at the Grit equity holder level.

Phase II of the GREA acquisition, concluded in August 2022, saw Grit acquiring a further 8.72% interest in GREA for a cash consideration of US$19.4m, increasing the Group's interest in GREA to 35.01%.

For Grit to obtain a majority at the GREA Board (and thereby control GREA), any of the following events would need to occur in phase three:

GREA has had a successful 12 months to 30 June 2022, and specifically delivered several key projects that have supported both valuation growth and the outlook for operating income growth in subsequent financial years. On average GREA has developed at a development yield of over 10.5% and its assets, on average, enjoy post completion yield compression to levels of c.8.5%.

Summary of GREA developments and projects

Drive-in trading

Ahead of the debt facility maturity in August 2022, both Grit and the Public Investment Corporation ("PIC") assessed a sustainable long-term restructure of the DiT financing but with Grit's share price continuing to trade at a significant discount to its Net Asset Value, such ability was deemed limited. 

Consequently, the parties have agreed a collapsing of both Grit's guarantee exposure and the broader DiT structure which will involve Grit cash funding its US$17.5m guarantee and both parties taking ownership of their respective security resulting in no overhang of Grit ordinary shares on the market. Upon final implementation, expected in December 2022, Grit's obligations under the Guarantee Agreement to the PIC will be fulfilled and the Guarantee Agreement terminated. Grit's has currently provided US$14.5m for the DiT facility resolution as at 30 June 2022 balance sheet, being the net exposure less the expected value of security to be received.

Debt levels and maturity

Debt restructuring remained a key focus for the financial year under review. The Group's multi-bank approach continues to be an effective strategy especially given the current global market uncertainty, and I am pleased to report that both during the financial year and after balance sheet date, the Group has successfully refinanced or extended almost all its debt, and has moved weighted average debt expiry up to over 3.7 years as at end October 2022. The US$306m multi-jurisdictional sustainability linked syndicated debt facility across Mozambique, Zambia, Kenya, Ghana and Senegal in October 2022 was a landmark transaction, the largest of its kind in the real estate sector in Sub Sahara Africa (ex-South Africa), and positions the Group well amidst current financial market volatility. Further details are contained in the Chief Financial Officer's review.

ESG strategy

The Grit Group are people centred pioneers, proudly African and woman led, powered by purposeful impact through authentic partnerships. We recognise our role in transforming the design of buildings and developments and creating smart business solutions for long-term sustainability, prioritising impact driven Real Estate and creating value for local communities. The Group's sustainability efforts focus on community impact, the empowerment of women, energy efficiency and carbon reduction.

The Board remains committed to a five-year target of a 25% reduction in carbon emissions and a 25% improvement in our building efficiency against the 2019 base figures. Grit continues to make significant progress and is ahead of plan in the achievement of these targets and we are embarking on our journey to define its pathway to net zero carbon based on global best practice.

In addition to environmental responsibility, the Group prides itself on achieving more than 40% of women in leadership positions at Grit, more than 65% localised employees and significant support to the numerous communities in the countries where we operate through extensive CSR and upliftment programmes. 

The Group integrated report provides more details on our strategy and achievements against these targets.

Prospects

My team's focus will remain on impact investing, sustainably growing dividends and enhancing capital growth for more attractive, sustainable returns. We will continue to focus on key portfolio metrics such as lowering the LTV, vacancy and cost factors whilst improving collections and further strengthening the balance sheet and liquidity through focused asset recycling initiatives.

Considering the global rise in interest rates, the long-term sustainable debt strategy and managing the weighted average cost of debt alongside achieving our contractual lease escalations remains a key focus area, as is the conclusion of the GREA acquisition which is imperative to maintaining the positive momentum gathered during the year under review.

CHIEF FINANCIAL OFFICER'S STATEMENT

Presentation of financial statements

The consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB. Alternative performance measures (APMs) have also been provided to supplement the IFRS financial statements as the Directors believe that this adds meaningful insight into the operations of the Group and how the Group is managed. European Public Real Estate Association ("EPRA") Best Practice Recommendations have been adopted widely throughout this report and are used within the business when considering the operational performance of our properties. Full reconciliations between IFRS and EPRA figures are provided in notes 7 and 9. Other APMs used are also reconciled below.

"Grit Proportionate Interest" income statement, presented below, is a management measure to assess business performance and is considered meaningful in the interpretation of the financial results. The IFRS statement of comprehensive income is adjusted for the component income statement line items of properties held in joint ventures and associates.

This measure, in conjunction with adjustments for non-controlling interests (for properties consolidated by Grit, but part-owned by minority partners), form the basis of the Group's distributable earnings build up, which is alternatively shown in Note 8 "Distributable earnings".

Financial and Portfolio summary

The Grit Proportionate Income Statement is further split to produce a Grit Property Portfolio Revenue2, Operating expenses2 and NOI2 analysis by sector. Grit's Property Portfolio revenue has risen 3.3% from prior year on annual contractual lease escalations and asset acquisitions annualising in the period. Net operating income has increased by 3.5% over the twelve-month period to 30 June 2022.

Notes

The retail sector benefitted from strong leasing activity and recovery in performance in Mukuba and Kafubu Malls (Zambia), which are now largely fully let, while Cosmopolitan Mall (Lusaka) has also seen good leasing activity and reduced vacancies. Buffalo Mall introduced Chandarana as a new significant anchor tenant. Further improved leasing activity is expected in the new financial year. A cautious recovery off a low base in AnfaPlace Mall has become evident over the recent months. 

Hospitality sector tenants are all open and operational and the Lux Group has also repaid all amounts owing from 2021 deferred rentals. NOI has increased by 4.1% in functional currency but EUR:USD devaluation for the period has offset these positive trends and resulted in reported NOI reducing by 2.3% in the period.

Office sector assets remained resilient in Mozambique while the Ghanaian office market is showing signs of additional re-leasing risks and tenant rotations. Revenue and NOI decline in the financial year relates to a non-repeating tenant exit fee in 2021 and increased Covid-19 re-opening operational expenditure costs in the Ghanaian portfolio.

The Light Industrial sector enjoyed strong year on year increase upon the completion of the Bollore Warehouse upgrade and return to income production, while the acquisition of the Orbit Complex in Nairobi, Kenya in March 2022 will continue to support revenue and net operating growth into the new financial year.

Corporate accommodation assets revenue decreased 6.4%, attributable to the amortisation of the lease premiums associated with the Tsebo lease, which are non-cash items. The sector experienced increased operational costs in 2022 as assets required Covid-19 related delayed repairs and maintenance in the current year.

Corporate sector predominantly relates to the acquired income streams in APDM, effective from March 2022. This is expected to grow in subsequent years as the full year impact of the acquisition is reflected and the anticipated further growth in fee income is realised.

Cost control

Ongoing administrative costs increased 7.4% in the year as salary reduction applied during the Covid-19 period reversed, current year remuneration increases were implemented, and normalised travel costs resumed.

Portfolio performance

Income producing assets grew in the period under review largely as a result of additions in the light industrial sector within Investment properties, being the acquisition of Orbit Africa and the completion of the Bollore Warehouse upgrade. Increases in associates largely related to the increased ownership in GREA (from 19.98% to 26.29%) and the acquisition of a 77.95% interest in APDM. The total movement in income producing assets includes the impact of the foreign currency revaluations of assets not denominated in US Dollars amounting to a total of US$30.9m. The EUR depreciation impact amounted to US$20.3m and the Moroccan Dirham (a currency linked to the Euro) amounting to US$9.4m.

Property valuations

Reported property values increased by 6.9% driven by investment and acquisitions and strong functional currency portfolio performance. On a like for like basis (pre acquisitions), property values increased 4.1% in functional currencies. However, movement in EUR:USD exchange rates resulted in like for like valuation declines in the reported USD values by 0.3%. Further detail of valuations per property are provided in note 2 of the financial statements.

Interest bearing borrowings movements

As at 30 June 2022, the Group had a total of US$425.4m in interest bearing borrowings outstanding. In the period under review, the Group added US$16.1m from the IFC and US$4.7m from private equity, being debt funding instruments related to the Orbit acquisition and US$16.4m of bridge funding (which was utilised to settle a portion of the Bank of China loan immediately following year end). The Group had reduced absolute levels of interest bearing borrowings as at 31 December 2021 by US$47.7m to US$362.9m (30 June 2021: US$410.6m) but has subsequently part drawn these facilities to fund the acquisitions of APDM, GREA, CCI land and capital expenditure related to the Bollore redevelopment. The sale of ABSA house, and associated reduction of its interest bearing borrowings, has been offset by the impacts of Capital Place office building becoming a subsidiary (and therefore consolidated) in the period under review.

For more meaningful analysis, a further breakdown is provided below to better reflect debt related to non-consolidated associates. At 30 June 2022, the Group had a total of US$471.5m in interest bearing borrowings outstanding, comprised of US$425.4m in subsidiaries (as reported in IFRS balance sheet and discussed above) and US$46.1m proportionately consolidated and held within its associates.

Capital commitments

Upcoming capital commitments in the current financial year include:

Net Asset Value and EPRA Net Realisable Value

Further reconciliations and details of EPRA earnings per share and other metrics are provided in notes 7 and 9.

Going Concern

The Directors' assessment of the Group's and Company's ability to continue as a going concern is required when approving the financial statements. As such the Directors have modelled a 'base case' and a 'severe but plausible downside' of the Group's and Company's expected liquidity and covenant position for a going concern assessment period through to March 2024, a period of at least 12 months following the approval of these accounts.

The process involved a thorough review of the Group's and Company's risk register, an analysis of the trading information both pre and post year end, extensive discussions with the independent property valuers, a review of the operational indicators within the Group and economic data available in the countries of operations. All of this has been done in the context of the Covid-19 pandemic recovery, recent global markets instability, previous experience of the African real estate sector and best estimates of expectations in the future.

Base Case model

The base case reflects the Directors' best expectations of the position going forward. It was modelled on board approved forecasts over the relevant period. The base case scenario includes the Group's and Company's financial projections and the following key assumptions:

Severe but plausible downside model

A summary of the key assumptions over lays to the Base Case made in the severe but plausible scenario are as follows:

Under both the base case and the severe but plausible scenario, along with certain remedies within management's control, which include actions like cuts in dividends, the Company is able to meet its liquidity and covenant positions through to March 2024. The Board has therefore concluded that it is appropriate to prepare the financial statements on the going concern basis.

PRINCIPAL RISKS AND UNCERTAINTIES

Grit has a detailed risk management framework in place that is reviewed annually and duly approved by the Risk Committee and the Board. Through this risk management framework, the Company has developed and implemented appropriate frameworks and effective processes for the sound management of risk.

The principal risks and uncertainties facing the Group as at 30 June 2022 are set out on pages 25 to 29 of the 2022 Integrated Annual Report together with the respective mitigating actions and potential consequences to the Group's performance in terms of achieving its objectives. These principal risks are not an exhaustive list of all risks facing the Group but are a snapshot of the Company's main risk profile as at year end.

The Board has reviewed the principal risks categories and existing mitigating actions and are satisfied that they remain appropriate to manage the relevant risks.

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

The Directors are responsible for preparing financial statements for each financial year which give a true and fair view, in accordance with applicable Guernsey law and International Financial Reporting Standards, of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing those financial statements, the directors are required to:

The directors confirm that they have complied with the above requirements in preparing the financial statements.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with The Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

So far as the directors are aware, there is no relevant audit information of which the Company's auditors are unaware, and each director has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Directors' confirmations

The Directors consider that the Integrated Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position, performance, business model and strategy.

Each of the Directors, whose names and functions are listed in pages 80 to 83 confirm that, to the best of their knowledge:

The financial statements on pages 138 to 239 were approved by the Board of Directors and signed on its behalf by:

On behalf of the Board

CONSOLIDATED STATEMENT OF INCOME

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY