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 2021.

Financial highlights

· EPRA net reinstatement value ("NRV") per share contracted to US$1.024 (2020: US$1.171). The 12.6% reduction was principally as a result of the decrease in the value of the Group's retail and VDE Housing Estate ("VDE") assets and increased impairment charges.

· Contractual rental collections, which represents the cash collections as percentage of contractual revenue (before adjustments of rental deferrals and concessions), has improved by 3.9 percentage points from 88.6% to 92.5%.

· Group LTV increased to 53.1% (2020: 50.2%) predominantly as a result of the decrease in the value of the Group's property portfolio. The Group has successfully extended its lowest applied LTV debt covenants to 55% to April 2023 and secured additional liquidity facilities. The Board remains committed to reducing LTV levels to its near-term target of 45% and then to its medium term target of between 35% to 40% through capital recycling initiatives, issuance of quasi equity instruments and select NAV accretive acquisitions to be completed only upon the securing of appropriate funding by the Group.

· Dividends per share declared for the year ended 30 June 2021 of US$1.50cps (2020: US$5.25cps), comprising the interim dividend declared in February 2021. The Board has decided against declaring a final dividend for the year ended 30 June 2021, but plans to resume payments in the current financial year ending 30 June 2022 with a view to the Group's LTV meaningfully declining towards the Board's near term target of 45%.

· The portfolio was independently valued at 30 June 2021, with total income producing assets valued at US$801.9m (2020: US$823.5m), including acquisitions and capex additions amounting to US$18.8m and like-for-like property valuations decreasing 7.8% for the year to 30 June 2021.

· The Group's property portfolio net operating income (including associates and joint ventures) increased 3.5% as a result of the full year impact of prior year acquisitions in the period and strong portfolio performance in sectors relatively unaffected by COVID-19.

Operational highlights

· Property portfolio now comprises a total of 54 investments, across eight countries and five asset classes.

· 90.9% (2020: 90.2%) of revenue is earned from multinational tenants8.

· 92.7% (2020: 89.1%) of income is produced in hard currency9.

· EPRA portfolio occupancy rate of 94.7% as at 30 June 2021 (2020: 94.1%).

· Total Grit proportionately-owned lettable area ("GLA") increased 2.3% year-on-year by 7,807m2 (30 June 2020: 34,589m2) mostly as a result of acquisitions.

· Weighted average annual rent escalations at 3.8% (2020: 2.8%).

· Weighted average property exit capitalisation rate 8.1% (2020: 8.1%) driven by COVID-19 uncertainty related upward movements that were offset by favourable portfolio mix effects from acquisitions.

· Weighted average cost of debt moved down to 5.7% (2020: 5.9%) as a result of movements in libor over the reporting period and refinancing activities by the Group.

Corporate highlights

· On 29 July 2020, Grit delisted from the Main Board of the Johannesburg Stock Exchange and introduced two strong African institutional shareholders.

· On 3 August 2020, the trading of Grit's shares on the Main Board of the London Stock Exchange (the "LSE") converted from a US$ quotation to a Sterling quotation.

· On 22 January 2021, the Group stepped up to premium segment of the LSE.

· On 4 February 2021, the Group redomiciled to Guernsey.

Post balance sheet events

· Obtained an equity classified perpetual note and IFC debt funding for the acquisition of the Orbit Africa manufacturing facility and redevelopment, that is expected to be accretive to both the Company's net asset value and earnings, delivering value to Grit's shareholders.

· Extended the maturity of US$116 million of debt to between April 2023 and April 2025.

Notes

1 Refer to note 11 (unaudited).

2 Explanations of how European Public Real Estate Association ("EPRA") figures are derived from IFRS are shown in note 12 (unaudited).

3 Adjustments to make earnings better representative of what the Directors believe is the underlying company performance and includes adjustments for unrealised foreign exchange movements, straight-line leasing and amortisation of lease premiums, amortisation of right of use land, impairment of loan and deferred tax adjustments - refer to note 10 (unaudited) for further details on adjustments made.

4 Based on EPRA cost to income ratio calculation methodology which includes the proportionately consolidated effects of LLR and other associates.

5 Includes properties, investments and property loan receivables - Refer to Chief Financial Officer's Statement for reconciliation and analysis.

6 Weighted average lease expiry ("WALE").

7 Property occupancy rate based on EPRA calculation methodology - Includes associates.

8 Forbes 2000, Other Global and pan African tenants.

9 Hard (US$ and EUR) or pegged currency rental income.

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

We have a high-quality portfolio of attractive property assets leased to very strong tenant covenants that is continuing to deliver a resilient performance with 92.5% of contracted revenue collected this period, versus 88.6% in the prior year, despite the headwinds of the pandemic. We are increasingly confident that the Group's property occupancy rate of 94.7% at the period end will continue to improve during the balance of 2021 and beyond, supported by our hospitality sector assets benefitting from the easing of travel restrictions and further leasing activity in both our Ghanaian office portfolio and retail sector assets. Trading is also showing encouraging signs of normalising, especially in the hospitality and retail sectors.

Although we delivered a robust operational performance, with our Property Portfolio Net Operating Income rising 3.5% for the year to 30 June 2021, our LTV ratio rose to 53.1% over the same period impacted by valuation pressures, predominantly in the retail sector. We expect Grit's LTV to benefit from improvements in our property valuations over the medium term, the acceleration of our asset recycling strategy and target of recycling 20% by property portfolio value by the end of 2023, which we continue to pursue, and our perpetual note issuance, which has now been concluded. Our LTV will additionally benefit from the potential sale of AnfaPlace at no lower than the 30 June 2021 book value, which would also be expected to impact positively on the Group's distributable earnings per share.

Although our short-term focus remains on continuing our strong rental collections, balance sheet optimisation and the reduction of our LTV to below 45%, we are pursuing select accretive growth, co-investment and pre-funded development opportunities across resilient sectors. These high-quality, diversified opportunities, if successfully concluded, hold the potential to significantly improve the Group's net asset value, distributable earnings and yield.

Our strategy remains effective, and I am increasingly confident that we are well positioned and that the steps we are taking will not only safeguard Grit for the near term but ensure that we proactively seize the opportunities that arise to return to growth, acceptable shareholder returns and an attractive cash dividend.

FOR FURTHER INFORMATION, PLEASE CONTACT:

NOTES:

Grit Real Estate Income Group Limited is the leading pan-African real estate company focused on investing in 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 is targeting net total shareholder return inclusive of NAV growth of 12.0%+ p.a.*

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 Zoom webcast and conference call on Friday, 29 October 2021 at 12:00pm Mauritius / 09:00am UK. The call can be accessed directly on the day using the following link: https://us06web.zoom.us/j/82090379280. For further queries please contact IR@grit.group.

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

CHAIRMAN'S STATEMENT

The operating environment during the review period remained challenging, however Grit's strategy of high-quality assets leased to very strong tenant covenants helped to ensure that Grit was resilient and maintained high rent collection rates. We continue to concentrate on preserving the resilience and financial strength of the Company to deliver secure attractive value to our shareholders over both the short and longer term, with significant progress made during the period.

Grit's strategic focus on counterparty strength and portfolio diversification provided a stable asset base helping to ensure the Group posted a robust operational performance for the year, with its corporate accommodation, industrial, commercial office and other assets materially unaffected by the COVID-19 fall-out. These assets collectively comprise 53.2% (after excluding non-controlling interests, ("Group's Economic Interest")) of the Group's Economic Interest in property assets as at 30 June 2021.

The Group collected 92.5% of the value of its contracted revenue in the financial year to 30 June 2021 (FY20: 88.6%) and over the same period provided rent concessions, resulting in reduced revenues of 5.6%, and rent deferrals of a further 2.3% of contracted rental revenue. Management's continued focus on proactive tenant and asset management resulted in a higher occupancy rate of 94.7% (FY20: 94.1%) predominantly because of new leases concluded in the corporate offices and retail portfolios.

The retail sector across Africa continues to face both cyclical and structural shifts and accounts for over 80% of the Group's reported vacancy, of which AnfaPlace Mall in Morocco, our largest asset by value, is the main contributor. Leasing activity to the retail sector assets has improved and this is expected to continue to improve in the current financial year, and whilst we continue to be confident about the convenience and strip mall retail concepts, our strategy is to continue reducing overall exposure to the retail sector. To this end, Grit has recently granted 2-months exclusivity to a potential buyer of AnfaPlace Mall in Casablanca, Morocco. Grit expects to realise a price no lower than the updated 30 June 2021 book value and if concluded, the transaction is expected to reduce the Group's LTV and positively impact the Group's distributable earnings per share.

We are encouraged to see Mauritian border restrictions lifted from 1 October 2021, with tourist arrivals expected to recover strongly and swiftly. Grit has two principal tenant brands in the Mauritius hospitality sector, both of which received strong Mauritian government support, including liquidity support, from the Mauritian Investment Corporation which is supporting the resumption of lease repayments to Grit. Club Med Cap Skirring is expected to resume trading on 5 December 2021 and this will see the resumption of rental payments at that date. The resort is currently experiencing strong bookings for the upcoming tourist season.

The Company redomiciled its corporate seat to Guernsey and successfully applied to step-up to the Premium segment of the London Stock Exchange in January 2021. A premium listing requires the highest standards in governance and is expected to facilitate the Group's eligibility for inclusion in the FTSE UK Index Series, which is anticipated to significantly improve liquidity and further diversify Grit's shareholder base.

Financial results

These are challenging and uncertain times, as demonstrated by the valuation declines across the property portfolio that has resulted, for the year under review, in the value of total income producing assets dropping to US$801.9m (FY20: US$823.5m) and a total return per share1 of -11.3% (FY20: -15.8%).

1 EPRA NRV per share movement plus dividend paid per share during the year

EPRA NRV per share reduced by 12.6% mainly due to further valuation write-downs in the retail sector assets and VDE housing compound. Grit's property portfolio fair value losses, since the onset of the pandemic, amount to US$114.9m, representing a 14.2% (like-for-like) reduction compared to 31 December 2019. Consequently, Grit Group LTV increased to 53.1% as at 30 June 2021, predominantly as a result of this decrease in valuations, additional short-term working capital facilities to fund rental deferrals provided to tenants in the hospitality sector and capital expenditure in the normal course of business, including GREA capital calls. The Board continues to pursue a medium-term LTV target of between 35% and 40% with a near-term focus of reducing LTV to below 45%, and although it does not expect a rebound in retail valuations until the financial year ending 30 June 2023 at the earliest, it does, however, take note of positive trends such as reduced vacancies and increased footfall in its retail assets and the re-opening of the Mauritian borders to overseas tourists.

Protection of the balance sheet and debt reduction remains a strong focus and despite the recent positive rent collection trends and notwithstanding raising gross proceeds of approximately US$9.8 million of fresh equity in late 2020, other initiatives by the Group, such as a reduction of US$6.7 million in administrative and operating expenses, have so far and at 30 June 2021 financial year end, not yet had a positive impact on the Group's LTV.

The Board is now advancing its efforts to achieve an asset recycling target of 20% of the value of the property portfolio by 31 December 2023. The potential sale of AnfaPlace Mall was recently announced and further disposals are expected to be announced in due course, which are expected to contribute to the reduction of reported LTV to 30 June 2022.

Grit also successfully engaged with its debt providers and has both increased its lowest applied LTV and dropped its Interest Service Coverage Ratio (ISCR) covenants on debt facilities and, more recently, secured maturity extensions for the bulk of the Group's US$410.1 million outstanding debt to beyond April 2023.

Post balance sheet date, the Group secured full funding for the accretive US$53.6 million acquisition and redevelopment of Orbit Africa manufacturing facility in Kenya, obtaining a US$25.0 million senior debt facility from the International Finance Corporation (the "IFC"), the investment arm of the World Bank and up to US$31.5 million by way of Grit issued equity classified perpetual notes to two additional external funders. This transaction is expected to be the first in a number of strategic collaborations with the IFC across Africa and positions the Company to execute on its focus of increasing its exposure to industrial sector assets.

The Directors have modelled both a 'base case' and a 'severe but plausible downside' of the Group's expected liquidity and covenant position for a going concern period of at least 12 months from the date of signing the annual report. The models show that, save for the items highlighted in the CFO report, the Group has adequate financing facilities and maintains its covenants throughout the going concern period. The inherent uncertainty in future property valuations is also such that should they decrease more severely or quicker than anticipated as a result of the COVID-19 pandemic, then the Group may breach some individual property and/or Group wide covenants. Further details on the downside scenarios are reflected in the CFO's report. Management has a number of mitigating actions available to it should these situations arise. Further details of matters relating to going concern are referenced in the external auditors' Independent Audit Opinion.

Dividends

In light of recent events, especially the LTV which has increased to over 53%, the Board has deliberated at length regarding the current year dividend and considered the needs of its income and yield investors against the long-term protection of the Group's balance sheet. The Board has decided against recommending a final dividend for the financial year ended 30 June 2021 and expects to re-instate this once Group LTV declines towards the Board's near-term target of 45%.

Changes to the Board

Mr Cross Kgosidiile joined the Board of Grit as an independent Non-Executive Director and as a member of the Audit and Risk Committees with effect from 5 March 2021. Mr Kgosidiile is the Managing Director of the Botswana Development Corporation ("BDC"), the country's main agency for commercial and industrial development, founded in 1970 with the Government of Botswana as its sole shareholder. BDC's shareholding in the Company represents approximately 4.48% of the total issued share capital of the Company.

He has over 20 years' experience in building high performance businesses and teams, having served in a variety of leadership roles, including at the Botswana Power Corporation (BPC), the Motor Vehicle Accident (MVA) Fund and the national airline, Air Botswana. Mr Kgosidiile has also worked as a business consultant where he focused on property transactions. His expertise spans corporate finance and business strategy, information technology, supply chain management and business transformation. 

Climate change and sustainability

With Africa rapidly urbanising, we understand the important role that we as landlords must play in limiting carbon emissions and our impact on natural resources for long-term sustainability.

The Group has committed to reducing carbon emissions by a targeted 25% as well as a 25% improvement in our building efficiency over the next four years and the Board has committed to delivering a clear definition of our net zero carbon pathway. The Responsible Business Committee has been tasked to monitor these improvements, including having adequate data to support this target.

We are proud to maintain more than 40% of women in leadership positions at Grit, and a staff complement consisting of more than 80% local employees, exceeding our target of 65%.

Outlook

In a very challenging environment, our Board and management team took decisive, proactive action to defend and grow our position and safeguard the business to deliver shareholder value for both the short and long term.

Trading is showing encouraging signs of normalising especially in the hospitality and retail sectors. Whilst we maintain an appropriately cautious stance in light of the potential longer-term effects from COVID-19 on our tenants and the wider economy, we remain confident in our strategy of unlocking superior total returns for our investors in the medium to longer term through the significant recovery potential across our unique portfolio of properties as well as strategic, value accretive acquisitions and capital recycling initiatives. Key to the long-term success of the Company will be a more conservative capital structure, significant disposals and successfully exploiting opportunities within our portfolio to help ensure we return to growth, acceptable returns and a cash dividend.

We are excited about the potential for further value creation from the assets and development pipeline within Gateway Real Estate Africa Limited ("GREA"), in which we currently hold a 19.98% equity interest. The Group's exposure to embassy corporate accommodation and data centre assets is expected to increase as these projects are delivered in the coming months.

As a management team, we remain under no illusions about the challenges ahead. However, I am confident that we are well positioned and that the steps we are taking will not only safeguard Grit for the near term but ensure that we proactively seize the opportunities that arise from these unprecedented times.

Finally, I would like to thank my colleagues on the Board for their significant time contributions this year; our colleagues in the business for their Herculean efforts in an exceptionally tough environment; and shareholders for their support for the actions taken to date and those that are forthcoming.

CHIEF EXECUTIVE'S STATEMENT

COVID-19 has emerged as a multi-faceted risk with a variety of implications for the Group. As we continue to navigate effectively the ever-changing environment, the Company is carefully monitoring the impact of COVID-19 on the business, financial conditions, property valuations, medium-term growth strategies and prospects of the Grit Group. Our strategy remains effective, and we are confident that we have successfully navigated the worst of the current cycle by virtue of the various interventions we have made over the last 18 months.

Ongoing COVID-19 response

Although COVID-19 impacted our business over the full financial year, we took clear action to strengthen the Group's financial position while our colleagues simultaneously ensured that all our stakeholders were safe and supported.

Our operational response included:

· New safety measures and increased cleaning protocols across all our assets;

· Support for key tenants and brand partners including reductions in service charge, rent deferrals and concessions; and

· Support for our communities, including community food programmes and provision of face masks.

Our financial response included:

· Defining detailed strategies to achieve our near-term targets of reducing LTV to below 45%;

· Suspending our 2020 final dividend and withholding our final 2021 year-end dividend;

· 10% reduction in pay for the Board and senior management over the period 1 July 2020 to 30 June 2021;

· Negotiating a temporary extension to the Group LTVs and Group ISCR covenants;

· Suspending and cancelling a number of announced pipeline acquisitions in order to protect Balance sheet capacity; and

· Advancing asset recycling within the portfolio with the partial sales of AnfaPlace Mall and Acacia announced in late 2020. These strategies are now being further accelerated with the Board targeting 20% of the portfolio to be recycled by December 2023.

Resilient portfolio performing well

Grit's property portfolio comprises a total of 54 assets (including 25 properties held in Letlole La Rona in Botswana) with rentals predominantly collected monthly, of which 92.7% are collected in US$, Euro or pegged currencies.

The Group's high-quality assets have a weighted average lease expiry of 4.8 years (FY20: 5.0 years) and a weighted average contracted lease escalation of 3.8% per annum (FY20: 2.8% per annum), underpinned by a wide range of blue-chip multinational tenants across a variety of sectors who account for over 90.9% (FY20: 90.2%) of our contracted revenue.

The Group's weighted average EPRA vacancy rate reduced to 5.3% as at 30 June 2021 (FY20: 5.9%) mainly because of two new leases to Total in Commodity House Phase 1 (Mozambique) and several new leases signed in AnfaPlace Mall (Morocco), as well as at the three retail malls in Kitwe, Ndola and Lusaka, Zambia respectively.

The retail segment still accounts for over 80% of the reported Group vacancy, of which AnfaPlace Mall is the largest contributor. Strong leasing activity is expected over the remainder of the 2021 calendar year buoyed by increased footfall numbers as lockdown restrictions are relaxed.

Other investments, Office, corporate accommodation, and light industrial assets

Other investments, corporate accommodation, industrial and commercial office sectors remained largely unaffected by the COVID-19 fall-out. These sectors collectively represent over 53.2% of Grit's Economic Interest in property assets as at 30 June 2021.

Light industrial assets continue to represent a resilient sector and remain a key focus for growth in the portfolio. Several significant opportunities have been presented to the Group and management to consider options in relation to funding and furthering the sector strategy. To this end, the Group recently announced the successful conclusion of an equity classified perpetual note of up to US$31.5 million to fund the acquisition of the Orbit Africa warehouse and manufacturing buildings in Kenya via a sale and lease back arrangement, with a 25-year lease in place (at a 9.5% yield), followed by the development of additional warehousing and manufacturing buildings at a 16% yield. The debt component of the acquisition, amounting to US$25 million, will be funded by the International Finance Corporation ("IFC") at libor + 5.75%, but pleasingly marks the opportunity for Grit to further collaborate with the IFC across similar assets on the African continent.

Retail assets

The pandemic has accelerated structural challenges in the retail sector. Although convenience centres, which typically have a proportionately higher services and basic necessities offering, have continued to trade well, the larger enclosed malls remain under pressure with rising vacancies and tenant strain.

Retail assets constituted 21.1% of Grit's Economic Interest in property assets as at 30 June 2021 and are split between enclosed malls (AnfaPlace Mall) and convenience shopping and service orientated strip malls. During the year under review, Grit provided a combination of concessions and rent deferrals to tenants at AnfaPlace Mall in anticipation of the asset returning to normalised levels of trading post the 2019 redevelopment and the more recent COVID-19 related disruptions.

The asset management team made good progress on lease renewals at Mukuba Mall in Kitwe, Zambia, following 85% of the leases expiring in March 2020. At the reporting date, 98.5% of the mall's available rental space has been let. Cosmo Mall (Lusaka, Zambia) and Mall de Tete (Tete, Mozambique) continue to experience abnormal levels of vacancies although signs of the vacancy rate normalising through the current financial year are encouraging.

Hospitality assets

At the financial year end, hospitality assets comprised 25.7% of Grit's Economic Interest in property assets. Grit does not have direct occupancy and operational cost exposure in the hospitality sector because of its fully servicing triple net lease rental contracts with international leisure operators. Rent deferrals were offered to tenants ahead of the re-opening of borders and the expected resumption of normal tourist arrivals. Grit expects to recover these deferrals over the coming months as described in the cash collections section below.

Strong rental collection rate

For the financial year to June 2021, Grit collected 92.5% of the value of its contracted rental revenue (FY20: 88.6%). Over this same period, the Group has provided rent concessions, resulting in reduced revenues of 5.6% and rent deferrals of a further 2.3% of contracted rental revenue.

While the hospitality sector has not been as severely impacted as our peers due to the fixed nature of our leases and the significant government support granted to our hospitality tenants, it continues to be a focus area of the Group. With the opening of the Mauritian borders from 1 October 2021 and the planned opening of the ClubMed in Senegal in December 2021, lease payments are expected to resume fully by those dates and for the rental deferments granted to be recovered over the coming months.

The Lux Group is up to date on current rentals and have repaid all rent deferrals granted in 2020 in respect of the Tamassa resort in Mauritius. The remaining three Mauritius hotels in Grit's portfolio are tenanted to New Mauritius Hotels Group (NMH), owned by a large Mauritian conglomerate, who have resumed rental payments. Grit provided cashflow deferrals of c.50% of monthly rental value for the period December 2020 until October 2021 that will be collected over the subsequent 48-month period.

Collection rates of 77.2% achieved during the year are expected to return 100% by December 2021 following the opening of the various resorts.

Cost of debt

Total interest-bearing borrowings increased by US$17.6 million for the financial year ended 30 June 2021.

Cost of debt reduced further to 5.7% for the year under review from a weighted average of 5.9% in the comparative prior financial year.

Refinancing negotiations were successfully concluded, and the bulk of the maturities were extended beyond April 2023. Further detailed commentary is in the CFO statement.

Growing value and strengthening our position

While our mandate is clear, that of reducing our Group LTV and strengthening our balance sheet, Grit will continue to grow shareholder value through asset recycling initiatives and redeploying its equity into accretive opportunities across resilient sectors.

In addition to focusing on the generation of revenue by targeting completed, income generating properties, Grit's investment strategy is complemented by our participation in pre-funded development and co-investment opportunities as well as property management services.

To this end Grit co-founded, and currently holds, a 19.98% interest in Gateway Real Estate Africa ("GREA"), a private development company focused on several turnkey build projects across the African continent tenanted to current and targeted multinational clients. Through its minority stake, Grit has access to GREA's accretive pipeline of development projects, assets and returns, including access to its attractive completed assets.

The roll out of the development projects within GREA has accelerated during the financial year with several projects being awarded recently.

Projects currently underway or concluded include:

· Metroplex Uganda, a retail centre in Uganda anchored by Carrefour, completed in May 2021.

· Diplomatic Housing compound in Ethiopia, anchored by the US Embassy, completed in October 2021.

· African Data Centre in Nigeria, due for handover in November 2021.

· Diplomatic Housing compound in Kenya, fully let to the US Embassy, due for completion in Q2 of 2022.

· Diplomatic Housing compound in Mali, fully let to the US Embassy, due to start construction before the end of the year.

· The construction of the St Helene Hospital in Mauritius, to be operated by the Artemis Group, was started prior to year-end and is expected to complete at the end of 2022; and

· Office building in Apolonia City in Ghana, anchored by Rendeavour, has recently commenced construction.

As a result of the number of projects awarded to GREA in the year, the company has now called for the remaining capital commitments from its shareholders, with Grit due to inject an additional US$17.9 million by the end of the year if it wishes to retain its current equity ownership in GREA (this being in addition to the US$8.4million injected into GREA during the year). The growth trajectory of GREA has accelerated and based on the independent valuers' completion valuations, and the pre-let nature of the projects, net asset value growth is expected to be strongly positive over the forthcoming two years as projects are completed.

Grit is concurrently considering increasing its stake in GREA to further align both Grit and GREA's future profitable growth strategies and approach to servicing tenants, which would be a cornerstone to further unlocking scale, synergy benefits and the creation and delivery of further value to Grit's shareholders. A potential transaction would likely require approvals from Grit's shareholders and equity funding by Grit. Grit expects to engage with its shareholders should this be further pursued.

Governance

Grit continues to invest in a strong governance framework, resources, and ongoing training from both its Human Resources and Compliance Departments to uphold the highest levels of corporate governance across the continent and has increased its focus as a result of the step up to the premium listing on the main market of the London Stock Exchange.

Prospects

Our diversified portfolio and high-quality tenants provided great stability to the Company despite the economic volatility on the back of COVID-19.

Notwithstanding significant economic headwinds, especially in the retail sector, early signs of post-COVID-19 recovery are encouraging but dependent on ongoing vaccine rollouts. We expect the Mauritian leisure market to recover significantly in the short term, with a concomitant recovery of a major part of our leisure segment, assuming no potential further COVID-19 lockdowns.

Although our short-term focus remains on continuing our strong rental collections, balance sheet optimisation and the reduction of our LTV to below 45%, we are pursuing select growth and co-investment opportunities. These high-quality, diversified opportunities, if successfully concluded, hold the potential to significantly improve the Group's net asset value and yield.

Our strategy remains effective and we have successfully navigated through the worst of the current cycle. We are appreciative of the support provided by all our stakeholders, most notably that of our providers of capital, the Grit Board, the executive team, and our staff and I look forward to updating you on our progress and strategy during the 2022 financial year. 

CHIEF FINANCIAL OFFICER'S STATEMENT

Presentation of financial statements

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). In line with our continuous commitment to best practices in the sector, we continue to present the European Public Real Estate Association ("EPRA") reporting as an alternative performance measures to supplement IFRS. In considering our operational performance, we've adopted the EPRA Best Practice and Policy Recommendations ("BPR") throughout this report. Full reconciliations between IFRS and EPRA figures are provided in note 43 of the Audited Financial statements.

The financial statements include disclosures on material uncertainty related to going concern. Although these uncertainties are highlighted, and described in more detail in the statement of going concern, the financial statements have not included any adjustments that would be required if the Group were unable to continue as a going concern.

Financial and Portfolio summary

The current financial year has proved to be challenging and although some sectors have been severely impacted by the pandemic, other sectors have started benefiting from the new opportunities presented in the changing economic and social environments. The Group has maintained its focus on tightly managing aspects which are within its direct control while monitoring and reacting to those factors that are not. Cost optimisation, debtors collections and re-letting activities continue to be the key elements of daily focus of the operations team, while the treasury team has made great strides in securing extensions to debt tenors and obtaining additional covenant headroom as required.

Gross IFRS rental income increased to US$49.2m from US$48.5m. This increase is as a result of annual contractual lease escalations in the period.

For meaningful comparison, assets accounted for as associates and joint ventures have been proportionately presented in the relevant sectors to produce a "Grit Property Portfolio" revenue, operating expenses and NOI analysis below. Grit Property Portfolio revenue has risen 2.0% from prior year on annual contractual lease escalations and asset acquisitions annualising in the period, while strong operational cost control (5.5% y.o.y. reduction) resulted in a 3.5% increase in net operating income over the financial year to 30 June 2021.

Note 1

Rental Collections represents the amount of cash received as a percentage of contractual income. Contractual income is stated before the effects of any rental deferment and concessions provided to tenants.

Retail sector

The retail sector has been primarily impacted by COVID-19 with a significant increase in vacancies, rental concessions and lease renewals at much reduced rates since the start of the pandemic. In the most recent months, there has been an improvement in letting activity, with vacancies in the sector reducing from 16.2% to 14.7% over the year. In addition, promising footfall (with AnfaPlace Mall in Morocco recording figures well above pre-COVID levels) and improving rent to turnover ratios, are being reported by our tenants. The recent positive impacts on the Zambian economy, where exchange rates have improved significantly against the USD and the recovery in copper prices, bode well for the future of our Zambian Malls, specifically those in the copper belt region.

Revenue declined by 20.8% as a result of short-term concessions granted, weaker local currencies and lower lease rates upon renewals. These were partially offset by reductions in operating costs of 2.3% that resulted in a total NOI decline of 29.8%. Rental collections of 92.5% of contractual revenue has been achieved through very difficult trading environments, although these collections are off the newly contracted lease rates which are on average 11.4% lower per square metre than prior year.

Valuations continue to be impacted by the lower NOI and a depressed view on lease renewal rates for the next 18 to 24 months. In total, the retail properties experienced fair value losses of 17.8% over the year.

Hospitality Sector

Hospitality sector revenue increased in USD terms by 19.5%, 6.8% of which was attributable to the full year impact of ClubMed acquired in January 2020, and the balance to the Euro vs the USD move during the year and lease escalations. Rental concessions of $0.8million were provided to ClubMed during the period.

New Mauritius Hotels (operator of the Beachcomber resorts) have been provided with cashflow deferrals of c.50% of monthly rental value for the period 1 January 2021 until Mauritian border restrictions were lifted and are current on the remaining portions of their lease commitments. The agreed cashflow deferrals will be collected over the subsequent 48-month period to December 2025.

The fixed nature of the leases and government support for our hospitality tenants has limited the fair value impact on the assets to -2.5% for the year while the recovery of the EUR against the USD has resulted in reported values in USD terms increasing 7.5% over the prior year.

Corporate Accommodation Sector

Operating performance in the sector remained resilient with revenue increasing by 5.8% as a result of leasing activity and rental escalations, while operating cost increases were limited to 1.5%, having a positive impact on the NOI of 6.6%.

As widely publicised, Vale has made the decision to dispose of their coal mining assets in Tete Mozambique. While the next lease renewal date is in May 2024, the valuation of the property has been impacted by the uncertainty of the identity of a potential buyer and whether the new owners of the mine would require the superior level of accommodation the Group currently supplies to Vale and the potential impact this might have on future lease renewals. This resulted in a net fair value write down of the corporate accommodation sector by 8.3%.

Office Sector

The office portfolio remains relatively unaffected by the pandemic, with the property valuation decline of 4.5% mainly driven by reductions in the value of Grit's office portfolio in Ghana as a result of a softer leasing market. One of Grit's anchor tenants in Ghana, GCNet, early terminated their lease which was due to expire in November 2022, and while the bulk of the space has been re-let post year end, the current oversupply and the slowdown due to COVID-19 have impacted lease rates of the new tenants.

The revenue increase of 8.7% for the year includes the additional revenue from the lease termination fee for GCNet. The material decrease in operating costs of 22.1% (partly due to planned maintenance not being able to be completed due to COVID-19 restrictions) resulted in a 13.7% increase in NOI.

Industrial Sector

The revenue drop in the industrial sector of 13.5% was attributable to the reduction in revenue from the Bollore facility redevelopment. The redevelopment of the Bollore facility has progressing well with phase 1 delivered in March 2021 which resulted in a new four-year lease being signed with Bollore. Phase 2 is due for completion in November 2021.

Letlole La Rona Portfolio ("LLR")

Both asset values and revenue have been positive during the year. The predominately industrial portfolio has had limited impact from the COVID-19 pandemic and the revenue increase of 113.8% is due to the full year impact of the November 2020 acquisition and the additional five assets acquired by LLR in June/July 2021.

It is the intention to expand the working relationship between LLR and Grit in the future, with the Group currently investigating jointly purchasing new assets in order to provide LLR with additional US Dollar revenue streams.

The value of our property portfolio decreased to US$755.9m as at 30 June 2021 from US$776.1m in 2020.

Cost control

In addition to the cost control measures put in place within the property operating costs, the Group has made significant savings in ongoing administrative costs, achieving a US$2.4 million saving in the year, of which at least US$1 million is expected to be permanent. Transaction costs are variable and are impacted by the level of corporate activity undertaken by the Group.

A metric by which the Group measures its operating efficiency is the ongoing administrative cost to assets ratio which has improved to 1.7% in the current year under review. The Group continues to target a medium-term admin cost to assets ratio of under 1.0%. Total income producing assets for the year reduced by 2.6% which negatively affected the cost ratio by 0.1%.

Property valuations

Investment properties are valued at each reporting date with valuations performed every year by independent professional valuation experts accredited by the Royal Institute of Chartered Surveyors' ("RICS") and compliant with International Valuation Standards.

Downward Fair value movements in the group's property portfolio, including the proportionate share of the assets held in joint ventures and associates, were predominantly reflected in the retail and corporate accommodation sectors. The overall fair value decline in the portfolio was US$60.4 million which offsets the additions and forex movement over the reporting period.

Net Asset Value and EPRA earnings per share

EPRA earnings during the year fell 29.9%, predominately due to the sale of a 39.6% stake in AnfaPlace Mall in July 2020, resulting the non-controlling interest impact on the underlying property of US$1.1 million and the sale of 26.55% stake in Acacia Estate amounting to US$0.8 million.

EPRA adjusted earnings were additionally impacted by a number of lease incentives granted during the financial year, particularly in retail and hospitality which have yet to be amortised as well as unrealised foreign exchange gains added back for the year of US$1.1 million versus an unrealised foreign exchange loss of US$4.9 million in the prior year.

As at 30 June 2021, EPRA NRV per share decreased by 12.5% from US$117.1cps to US$102.4cps, while IFRS NAV per share dropped 13.3% to US$84.4cps. In total, property valuations accounted for an US$19.7cps drop in both EPRA NRV and IFRS NAV per share.

Treasury

Financing continues to be an integral part of our business model and maintaining relationship with key financiers is an ongoing workstream of the Group's Treasury function. Net debt raised in the period amounted to US$2.6 million versus US$45.4 million in the comparative prior year. As at 30 June 2021, the Group's loan-to-value ratio ("LTV") increased to 53.1% (2020: 50.2%) while cost of debt further reduced to 5.7% (from a weighted average rate of 5.9% in the comparative year). The Group's fixed interest rates are equivalent to 45.1% of the total underlying debt (2020: 44.5%) as at 30 June 2021.

In line with our policy, the Group has successfully refinanced the majority of the debt becoming due in the next two years. Although the Group's weighted average debt expiry as at 30 June 2021 was 1.48 years, these actions have resulted in an increase to 1.83 years as at 27 October 2021. In addition, the Group's Treasury team has negotiated further extensions to the covenant relaxations provided by the financiers over the COVID-19 period from December 2021 to beyond Q1 2023. Over this period, Group LTV covenant from our main financiers Absa, Nedbank and Standard Bank of South Africa have been extended to 55% (from 53%) and Interest Service Cover Ratio ("ISCR") to 1.8x (from 2.0x cover).

One of the Group's major strategic goals is achieving an LTV of between 35% to 40%. The recently announced equity perpetual note and the resultant yield and NAV accretive acquisitions, in conjunction with the sale of non-core assets and other corporate actions, are expected to assist the Group in meeting the Board's near term target of a 45% LTV.

Our multi-bank approach has once again proven to be an effective approach to funding and banking in general. Post the year ended 30 June 2021, the Group added a new banking partner the International Financial Corporation (the "IFC") to the list of Grit's financiers. The total capital exposure to debt providers (net of interest accrued and unamortised loan issue costs) as at 30 June 2021 is as follows:

The following debt transactions were concluded during and subsequent to the period under review as a short-term measure in anticipation of a larger and more strategic balance sheet solution. The Group has engaged advisors and is currently investigating the potential for a corporate bond issuance, which it would expect to pursue in 2022, subject to prevailing market conditions at that time. The benefits would largely be the extension of debt tenor, diversification of the Group's funding base and taking advantage of supportive credit markets in relation to African and frontier markets issuance.

Subsidiaries (within the financial year):

· The Group's overdraft facility of EUR6.4m with ABC Banking Corporation, has been converted into a term loan under Casamance Holdings with a fixed interest rate of 4.25%, maturing in October 2025.

· On 17 August 2020, the Group secured a short-term facility of 1 year from Nedbank South Africa to the value of US$7.0m bearing interest at libor plus 7.5%.

· Further temporary extensions have been made in this period to the following facilities:

- SBM MUR72.0 million facility from 31 October 2020 - 30 June 2021

- SBM US$20.0 million facility from 31 October 2021 - 31 October 2022

- SBSA EUR26.5 million RCF from 14 August 2021 - 30 June 2022

- Nedbank US$7.0 million RCF for a further 12 month period

- Investec SA US$15.0 million capital repayment extended by 16-months

Subsidiaries (subsequent to the financial year):

· The Group has extended the MUR72.0 million (or US$1.7 million) Covid facility from the State Bank of Mauritius, to an evenly amortised 48-month facility.

· The Group has extended all its financing with the State Bank of Mauritius ("SBM") to 2025. This applies to the following facilities:

- Leisure Property North Mauritius Limited (EUR12.2 million, with interest of 4.25% fixed) - related to the Beachcomber Assets

- Mara Delta (Mauritius) Property Limited (EUR22.3 million, with interest of 4.00% fixed) - Related to the Lux Tamassa Asset

- Grit Real Estate Income Group Limited (US$20.0 million, with interest of 4.00% fixed) - a corporate facility

· The US$46m facility (EUR31.8 million and US$8.7 million) with Investec Bank on the AnfaPlace Mall held by Freedom Property Fund SARL in Morocco has been extended to April 2023. As part of the terms of the refinance, an amount of US$6.0 million will become due in the next 12 months.

· The Group's RCF facility of US$7.0 million held with Nedbank has been extended to April 2023, with optional capital repayment conditions, and bearing an interest of 6-month libor + 8.40%.

· Negotiations are ongoing with regards the refinance transaction with Bank of China in relation to the US$76.4 million loan which matures in April 2022.

Associates and Joint Ventures (within the financial year):

· The Group's RCF facility of US$7.0 million held with Nedbank has been extended to April 2023, with optional capital repayment conditions, and bearing an interest of 6-month libor + 8.40%.

Associates and Joint Ventures (subsequent to the financial year)

· The BHI syndicated loan of EUR50.0 million has been extended to April 2023 whereby MCB and SBM have both extended their loans and additionally SBM has also taken over the Investec portion of the loan.

The below table provides a detailed analysis of the Property Portfolio Debt (which includes the debt held within subsidiaries and associates).

Capital commitments

ClubMed

On 27 January 2020, Grit, through its wholly-owned subsidiary Casamance Holdings Limited (the "Casamance") acquired 100% of the shares in Société Immobiliére et de Gestion Hôteliére du cap Skirring ("SIGHC"), the owner of Club Med Cap Skirring on a sale and lease back basis. The parties agreed that a renovation and development programme to the property, estimated at EUR25.0 million. The works are to be financed and owned by Grit.

With the onset of COVID-19, Grit and Clubmed are reassessing the timing and extend of the renovation and the development programme and have committed to an initial phase amounting to $0.8 million by December 2021, with further phases being deferred to 2022 and 2023 until there is greater clarity on the re-opening of the hotel. Should the agreed renovation be further delayed, the lease rate applicable to the property shall drop from 8% yield to 7% yield (an impact of EUR0.16 million per annum).

Bollore redevelopment

During the year, the Group has redeveloped the Bollore warehouse in Mozambique. The remaining capital commitments still to be spent in the following year amounts to US$1.2 million. The project funding and management was outsourced to Grit's development associate, GREA in which the Group holds a 19.98% interest. The full development costs, expected to be US$7.7 million needs to be settled by April 2023.

Gateway Real Estate Africa Limited ("GREA")

Having recently been awarded a number of high-quality development projects over the last 12 months, GREA has now made a call for the final capital draws from its shareholders. Grit is required to inject a further US$17.9 million of capital into GREA before the end of the year if it is to retain its current equity stake in the company.

Drive in Trading guarantee update

By virtue of the Group's historic listing on the Johannesburg Stock Exchange, the Company's largest shareholder, the Public Investment Corporation ("PIC"), facilitated the Group's black economic empowerment and transformation partner, Drive in Trading ("DIT"), in the acquisition of 23.25 million Grit shares in June 2017 by providing a guarantee against their external debt facility. Separately, Grit indemnified the PIC for up to 50% of any potential losses suffered by PIC as a result of the guarantee, capped at US$17.5 million. In August 2020, following the expiry of the loan facility, PIC has assumed the position of lender to DIT, and continues to reserve its rights under the Grit indemnity to call for cash collateral with four days' notice.

The Board and PIC continue to engage on this aspect and further details will be published once agreement has been reached with the PIC.

Grit's share price continues to trade at unprecedented levels of discount to its Net Asset Value. As a result of the movement in the share price, the Group has increased its provisions against potential future losses in the financial year resulting in a reported provision balance of US$5.4 million as at 30 June 2021 for the Drive in Trading CRO (with the guaranteed loan being underpinned by Grit's shares).

Dividend

Dividends per share declared for the year ended 30 June 2021 amounted to US$1.5cps (2020: US$5.25cps), comprising the interim dividend declared in February 2021. Grit's Board has decided against declaring a final dividend for the year ended 30 June 2021 due to the capital commitments and emphasis on reducing LTV in the near term.

The below reconciliation provides further details of the IFRS statement of comprehensive income and the adjustments made to provide additional insight into the components of properties held in joint ventures and associates, as well as the portion attributable to non-controlling interest (for properties consolidated by Grit, but part owned by minority partners.

Going Concern

The director's assessment of the Group's and Company's ability to continue as a going concern is required when producing 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 June 2023. 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 ongoing COVID-19 pandemic, previous experience of the African real estate sector and best estimates of expectations in the future.

The base case reflects the director's best expectations of the position going forward. It was modelled on board approved forecasts over the relevant period. Please refer to note 1.1 for further details of the base case and a severe but plausible downside scenarios.

Under the severe but plausible scenario, there are three circumstances (set out below) in which the Group and Company would be required to seek additional financing. There can be no guarantee that such financing would be available to the Group and Company on terms that are acceptable, or at all. Accordingly, the directors have concluded that there is a material uncertainty that may cast significant doubt on the Group's and Company's ability to continue to operate as a going concern in the assessment period to June 2023. The factors giving rise to this conclusion are:

1. One of the debt facilities (for a net amount of US$47.1m, being the total loan amount of US$76.4m, less the back-to-back loan to the property partners of US$29.3m) is required to be refinanced by April 2022. While the Directors have no reason to believe that this will not be refinanced, should that not occur the Group and Company would need to secure additional financing to avoid being in default, with three related properties, valued at US$115m, being pledged as security for the loan as well as a group guarantee on the loan.

2. The Group is currently a guarantor to the Group's Black Economic Empowerment consortium for an amount of up to US$17.5m (being 50% of the total loan amount). The Public Investment Corporation ("PIC"), Grit's 25.4% shareholder, has matched the balance of the guarantee. Since August 2020, when the PIC took over the debt from BoAML, the PIC had the ability to call for cash collateral for the guarantee on four days' notice. Should the PIC enforce their rights to call for the cash collateral, the Group would be required to fund this from operational cashflow or with new, currently uncommitted, debt facilities.

3. The inherent uncertainty in future property valuations as a result of the COVID-19 pandemic are such that in the event that property valuations across the portfolio decrease more severely or quickly than expected, even after taking mitigating actions such as stopping cash dividends, the Group may be in breach of some individual property and Group wide covenants and would need to negotiate a waiver with its lenders and, or, pay down debt through either existing or new currently uncommitted facilities to avoid borrowings becoming payable immediately.

Notwithstanding the material uncertainty detailed above and taking into account the results of the analysis and the various mitigating action available to the Company and the Group, the Board has concluded that it is appropriate to prepare the financial statements on the going concern basis. The financial statements do not contain the adjustments that would be necessary if the Company and the Group were unable to continue as a going concern.

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 2021 are set out on pages 24 to 31 of the 2021 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 the existing mitigation actions remain appropriate to manage them.

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:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

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

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 66 to 69 confirm that, to the best of their knowledge:

· the Group and Company financial statements, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies (Guernsey) Law 2008, give a true and fair view of the assets, liabilities, financial position and loss of the Group and profit of the Company; and

· the Strategic report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.

The financial statements on pages 118 to 211 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

NOTES TO THE FINANCIAL STATEMENTS

1. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these separate and consolidated financial statements are set out below.

1.1 Basis of preparation

The abridged financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB; the Financial Pronouncements as issued by Financial Reporting Standards Council and the LSE and SEM Listings Requirements. The financial statements have been prepared on the going-concern basis and were approved for issue by the board on 28 October 2021.

Going Concern

The director's assessment of the Group's and Company's ability to continue as a going concern is required when producing 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 June 2023. 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 ongoing COVID-19 pandemic, previous experience of the African real estate sector and best estimates of expectations in the future.

The base case reflects the director's 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 including:

1. Modelling of the Group's contractual lease income, which at 30 June 2021 had a weighted average lease expiry of 4.8 years, and associated contractual lease escalations which equate to 3.8% per annum on a weighted average basis across the portfolio. The Group's revenue was adjusted for tenant support already provided and expectation for potential further concessions in specific sectors as a result of COVID-19;

2. Expected take up of vacant space through the ordinary letting activities of the Group and current leasing negotiations;

3. Debt facilities falling due during the period being refinanced in the ordinary course of business, specifically the April 2022 facility with Bank of China on the Zambian malls;

4. Contractual maturity of debt facilities, which at signature date had a weighted average maturity profile of 1.8 years and associated weighted average cost of debt of 5.7%;

5. Drive in Trading guarantee assumed to be paid up in August 2022, followed by the security being realised by October 2022; and

6. With the exception of the retail and hospitality sectors, the model assumes trading returns to pre-COVID-19 levels. Retail is modelled to have a structural change to base rentals which only return to pre-COVID-19 levels beyond the going concern assessment period while hospitality assets are modelled to return to pre-COVID-19 levels at the expected dates of the applicable borders being open for travellers.

A summary of the key assumptions made in the severe but plausible scenario are as follows:

1. Reduced revenue as a result of potential rental concessions provided to a range of tenants, particularly in the retail and hospitality sectors, and extended assumptions on vacancy take up:

· A delay in vacancy take up of 12 months for all vacant space for the retail sector, and 6 months for all other sectors;

· Average of 5% additional rental concession on all non-essential services tenants in the retail sector; and

· Average rental concessions and deferments extensions of 6 months on the hospitality tenants who have yet to fully commence normalised rental payments.

2. Cumulative decline in property valuations over the base case scenario of:

· A decline in total property valuations of 10.5% to June 2022 versus the base case (predominately weighted to the retail sector of 16% and the hospitality sector of 21%, both inclusive of the foreign currency downside impacts); and

· Total property valuation decline of 10.3% to June 2023 versus the base case (predominately weighted to the retail sector of 9% and the hospitality sector of 12%, both inclusive of the foreign currency downside impacts)

3. Exchange Rates:

· A 11% weakening of the Euro against the US Dollar over the next 18 months; and

· Negative movements in the local African currencies against the US Dollar ranging from 9% to 48% (in the case of the Zambian Kwacha) over the analysis period.

4. Facilities and Finance costs:

· All uncommitted debt facilities (i.e. overdraft facilities or other facilities where the financier has the right to unilaterally amend the terms of the agreement) are assumed to be repaid within the relevant facilities' notice period.

· An increased cost of funding ranging from 0.25% to 0.5% on debt facilities over the next 18 months (excluding facilities recently negotiated).

5. Dividends:

· No dividends are paid over the going concern period to maintain liquidity as a result of the assumptions above.

6. Drive in Trading Guarantee:

· The Drive in Trading Guarantee is called in April 2022, followed by the realisation of the security by December 2022.

7. The assumptions applied above are made on the basis that the COVID-19 impact is extended beyond the assumptions in the base case. This extended recovery period over the base case has an impact as follows:

· Revenue in year to June 2022 and 2023 declines by 5.4% and 9.6% respectively over the base case's assumed recovery period which compares to the modest growth of 2% in revenue over the June 2021 financial year; and

· Property devaluation of c.10% over both period versus the base case which compares to the full year impact in the year to 30 June 2021 of 7.8%

Under the severe but plausible scenario, there are three circumstances (set out below) in which the Group and Company would be required to seek additional financing. There can be no guarantee that such financing would be available to the Group and Company on terms that are acceptable, or at all. Accordingly, the directors have concluded that there is a material uncertainty that may cast significant doubt on the Group's and Company's ability to continue to operate as a going concern in the assessment period to June 2023. The factors giving rise to this conclusion are:

1. One of the debt facilities (for a net amount of US$47.1 million, being the total loan amount of US$76.4 million, less the back-to-back loan to the property partners of US$29.3 million) is required to be refinanced by April 2022. While the Directors have no reason to believe that this will not be refinanced, should that not occur the Group and Company would need to secure additional financing to avoid being in default, with three related properties, valued at US$115.3 million, being pledged as security for the loan as well as a group guarantee on the loan.

2. The Group is currently a guarantor to the Group's Black Economic Empowerment consortium for an amount of up to US$17.5 million (being 50% of the total loan amount). The Public Investment Corporation ("PIC"), Grit's 25.5% shareholder, has matched the balance of the guarantee. Since August 2020, when the PIC took over the debt from BoAML, the PIC had the ability to call for cash collateral for the guarantee on four days' notice. Should the PIC enforce their rights to call for the cash collateral, the Group would be required to fund this from operational cashflow or with new, currently uncommitted, debt facilities.

3. The inherent uncertainty in future property valuations as a result of the COVID-19 pandemic are such that in the event that property valuations across the portfolio decrease more severely or quickly than expected, even after taking mitigating actions such as stopping cash dividends, the Group may be in breach of some individual property and Group wide covenants and would need to negotiate a waiver with its lenders and, or, pay down debt through either existing or new currently uncommitted facilities to avoid borrowings becoming payable immediately.

Notwithstanding the material uncertainty detailed above and taking into account the results of the analysis and the various mitigating action available to the Company and the Group, the Board has concluded that it is appropriate to prepare the financial statements on the going concern basis. The financial statements do not contain the adjustments that would be necessary if the Company and the Group were unable to continue as a going concern.

Functional and presentation currency

The consolidated financial statements are prepared and are presented in United States Dollars (US$) which is also the functional and presentational currency of the company. Amounts are rounded to the nearest thousand, unless otherwise stated. Some of the underlying subsidiaries and associates have different functional currencies other than the US$ which is predominantly determined in the country in which they operate.

Presentation of alternative performance measures

The group presents certain alternative performance measures on the face of the income statement. Revenue is shown on a disaggregated basis, split between gross rental income and the straight line rental income accrual. Additionally, the total fair value adjustment on investment properties is presented on a disaggregated basis to show the impact of contractual receipts from vendors separately from other fair value movements. These are non IFRS measures and supplement the IFRS information presented. The directors believe that the presentation of this information provides useful insight to users of the financial statements and assists in reconciling the IFRS information to industry-wide EPRA metrics.

1.2 Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is a person or group that is responsible for allocating resources and assessing performance of the operating segments. The Group has determined the board as its chief operating decision-maker as it is the board that makes the Group's strategic decisions. Each operating entity has its own Segmental and Geographical allocation, and it is not allocated to more than one sector.

1.3 Critical Judgements and estimates

The preparation of financial statements in conformity with IFRS requires the use of accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The estimates and assumptions relating to the fair value of investment properties in particular, have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in the subsequent financial year. Fair value adjustments do not affect the determination of distributable earnings but have an effect on the net asset value per share presented on the statement of financial position to the extent that such adjustments are made to the carrying values of assets and liabilities.

Judgements

The principal areas where such judgements have been applied are:

Unconsolidated structured entity

Drive in Trading (DiT), a B-BBEE consortium, secured a facility of US$33.4 million from the Bank of America N.A (UK Branch) ("BoAML") to finance its investment in Grit. The BoAML facility was granted to DiT after South Africa's Government Employees Pension Fund (GEPF), represented by Public Investment Corporation SOC Limited ("PIC"), provided a guarantee to BoAML in the form of a Contingent Repurchase Obligation ("CRO") for up to US$35 million. The terms of the CRO obligate PIC to acquire the loan granted to DiT should DiT default under the BoAML facility.

In order to facilitate the above, the Group agreed to de-risk 50% of PIC's US$35 million exposure to the CRO, by granting PIC a guarantee whereby should BoAML enforce the CRO, the Group would indemnify PIC for up to 50% of the losses, capped at US$17.5 million, following the sale of the underlying securities, being the shares held by DiT in Grit.

Given the unusual structure of the transaction, the Group has determined that DiT has limited and predetermined activities and can be considered a "structured entity" under IFRS 10 as the "design and purpose" of DiT was to fund Grit rights issue and at the same time enable Grit to obtain B-BBEE credentials.

As the Group does not have both, power to direct the activities of DiT and an exposure to variable returns, the Group has exercised judgement on not to consolidate DiT but disclose it as an unconsolidated structured entity due to DiT being a related party.

Acquisition of Letlole La Rona Limited

On 20 November 2019 Grit announced the acquisition of an additional 23.75% interest in Botswana Stock Exchange listed LLR from the Botswana Development Corporation ("BDC").

Through this transaction, Grit increased its stake in LLR from 6.25% to a strategic 30.0% and is expected to unlock a strategic partnership with BDC as both an institutional investor in Grit and a potential co-investor in direct property opportunities throughout Africa.

The purchase consideration was settled through the issuance of 9,839,511 new Grit shares to BDC on 28 November 2019. The swap ratio was determined using our most recently reported at the time EPRA NAV per share, less dividend declared, of US$140cps.

The transaction for the 9,839,511 shares was recorded at the ruling share price of the day of US$1.19, resulting in the acquisition being recorded at US$11.3m. The difference between the agreed transaction price of USD13.8 million has resulted in a gain of USD2.1 million.

In determining the fair value of the investment at the acquisition date, Grit conducted an analysis of the volume and frequency of the share trades of LLR on the Botswanan Stock Exchange (including an analysis of the free float of the shareholder base of LLR) in order to determine whether the shares were traded in an active market and concluded that the share was not traded with sufficient volume nor frequency to support the conditions of an active market. As the share price was not indicative as a proxy for fair value, the Company has concluded the best mechanism would be Net Asset Value based on the latest available independent valuations (which were conducted by Knight Frank as part of the 30 June 2019 financial year end of LLR). This determination of fair value of LLR is consistent with the Group's accounting policy and fair value determination of other associates and joint ventures within the group.

Freedom Asset Management (FAM) as a subsidiary

The Group has considered Freedom Asset Management (FAM) to be its subsidiary for consolidation purposes due to the Group's implied control of FAM, as the Group has ability to control the variability of returns of FAM and has the ability to affect those returns through its power of FAM. The Group does not own any interest in FAM and does not benefit from any profits of FAM nor is it liable for any losses incurred by FAM.

Grit Executive Share Trust (GEST) as a subsidiary

The Group has considered Grit Executive Share Trust (GEST) to be its subsidiary for consolidation purposes due to the Group's implied control of GEST, as the Group's ability to appoint the majority of the trustees and to control the variability of returns of GEST. The Group does not own any interest in GEST but is exposed to the credit risk and losses of (GEST) as the Group shall bear any losses sustained by GEST and shall be entitled to receive and be paid any profits made in respect of the purchase, acquisition, sale or disposal of unawarded shares in the instance where shares revert back to GEST. No non-controlling interest has been accounted for in the current year.

Gateway Real Estate Africa Ltd (GREA) as an associate

The Group has considered Gateway Real Estate Africa Ltd (GREA) to be its associate for consolidation purposes due to the Group's significant influence of GREA, as the Group has a direct and indirect ability to appoint some members to the board. The Group owns 19.98% of GREA and benefit from profits of GREA. The Group also has the ability to exercise significant influence to participate in the financial and operating policy decisions of the GREA but do not control or jointly control this policy as the CEO of the Group is also on the investment committee of GREA and has a close working relationship and history with Mr Pearson (MD of GREA).

Acquisition of investment properties

Where investment properties are acquired through the acquisition of corporate interests, the directors have regard to the substance of the assets and activities of the acquired entity in determining whether the acquisition represents the acquisition of a business.

Where such acquisitions are not judged to be an acquisition of a business under IFRS 3, the transactions are accounted for as if the Group had acquired the underlying investment property directly, together with any associated assets and liabilities. Accordingly, no goodwill arises, rather the cost of acquiring the corporate entity is allocated between the identifiable assets and liabilities of the entity, based on their relative fair values at the acquisition date.

The acquisition of Club Med Cap Skirring closed on 27 January 2020, through the acquisition of 100% of the equity of Société Immobiliére et de Gestion Hôteliére du Cap Skirring ("SIGHC") for EUR16.2 million. This was accounted as an asset acquisition.

Investments, associates and joint ventures

As an acquiring group, management needs to ensure that all acquisitions are appropriately classified in the financial statements. Depending on the shareholding and other factors there can be some judgement as to whether the acquisition is shown as an investment, associate, joint venture or consolidated as a subsidiary. In particular the Group holds interests of 50% of the total stake in multiple investments. The Group is not a controlling party in any of the arrangements. The Company applies judgement to determine whether the investment is classified as a joint venture or an associate by considering the guidance provided and the prevailing operational arrangements. The Group has exercised judgement that, for all investments classified as joint ventures, the arrangements will meet the definition of a joint arrangement because there is no ultimate controlling party and the control is shared. Therefore, the Group has accounted for these investments as joint ventures.

Estimates

The principal areas where such estimations have been made are:

Fair value of investment properties

The fair value of investment properties is determined using a combination of the discounted cash flows method and the income capitalisation valuation method, using assumptions that are based on market conditions existing at the end of the relevant reporting year. Material valuation uncertainty due to Novel Corona virus ("COVID-19"):

The outbreak of COVID-19, declared by the World Health Organisation as a "Global Pandemic" on the 11th March 2020, has and continues to impact many aspects of daily life and the global economy - with some real estate markets having experienced lower levels of transactional activity and liquidity. Travel, movement and operational restrictions have been implemented by many countries. In some cases, "lockdowns" have been applied to varying degrees and to reflect further "waves" of COVID-19; although these may imply a new stage of the crisis, they are not unprecedented in the same way as the initial impact. The pandemic and the measures taken to tackle COVID-19 continue to affect economies and real estate markets globally. Nevertheless, as at the valuation date property markets are mostly functioning again, with transaction volumes and other relevant evidence at levels where an adequate quantum of market evidence exists upon which to base opinions of value. For the avoidance of doubt this explanatory note has been included to ensure transparency and to provide further insight as to the market context under which the valuation opinion was prepared. In recognition of the potential for market conditions to move rapidly in response to changes in the control or future spread of COVID-19 we highlight the importance of the valuation date. There has been no change in the valuation methodology used for investment property as a result of COVID-19.

Fair value of financial instruments

The Group have estimated the value of its obligation arising from its guarantee to de-risk 50% of PIC's exposure to the BoAML CRO. The Group's obligation is based on the occurrence or non-occurrence of uncertain future events (the probability of DiT defaulting on the BoAML facility). Therefore, the fair value of the obligation was based on the probability of DiT defaulting on the facility (management has assessed the risk of default as low for the years endings 30 June 2021 and 30 June 2020.)

Taxation

Judgements and estimates are required in determining the provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax inspection issues in the jurisdictions in which it operates based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the year in which such determination is made.

The Group recognises the net future tax benefit related to deferred income tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred tax assets requires the Group to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each relevant jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the end of the reporting year could be impacted.

COVID-19

Certain estimates have been made taking into the consideration of the COVID-19 epidemic. Refer to the Going Concern under Note 1.1 for the estimates made.

2. INVESTMENT PROPERTIES

Investment property pledged as security

Certain of the Group's investment property has been pledged as security for interest-bearing borrowings (note 6) as follows:

· Mozambican investment properties with a market value of US$294.1 million are mortgaged to Standard Bank of South Africa to secure debt facilities amounting to US$140.0 million (2020: Mozambican investment properties with a market value of US$308.0million were mortgaged to Standard Bank of South Africa to secure debt facilities amounting to US$140.0 million).

· Moroccan investment properties with a market value of US$79.5 million (2020: US$89.4 million) are mortgaged to Investec Bank South Africa to secure debt facilities amounting to US$46.7 million (2020: US$45.7 million).

· Mauritian investment properties with a market value of US$65.4 million (2020: US$63.6 million) are mortgaged to ABSA Bank Mauritius to secure debt facilities amounting to US$7.5 million (2020: US$7.1 million) and State Bank of Mauritius to secure debt facilities amounting to US$26.6 million (2020: US$25.0 million).

· Kenyan investment properties with a market value of US$27.2 million (2020: US$24.4 million) are mortgaged to Bank of China to secure debt facilities amounting to US$8.6 million (2020: US$8.6 million).

· Zambian investment properties with a market value of US$46.2 million (2020: US$55.1 million) are mortgaged to Bank of China to secure debt facilities amounting to US$28.7 million (2020: US$28.7 million).

· Ghanaian investment properties with a market value of US$16.4 million (2020: US$19.2 million) are mortgaged to Barclays Bank Ghana Limited to secure debt facilities amounting to US$8.7 million (2020: US$9.0 million).

Valuation policy and methodology for investment properties held by the Group, associates and joint ventures

Investment properties are valued at each reporting date with independent valuations performed every year by independent professional reputable valuation experts who have sufficient expertise in the jurisdictions where the properties are located. All valuations that are performed in the functional currency of a group entity that is not United States Dollars are converted to United States Dollars at the effective closing rate of exchange. All valuations have been undertaken by the Royal Institute of Chartered Surveyors' ("RICS's"), accredited and registered valuers, in accordance with the version of the RICS Valuation Standards that were in effect at the relevant valuation date and are further compliant with International Valuation Standards. Market values presented by valuers have also been confirmed by the respective valuers to be fair value in terms of IFRS.

In respect of the majority of the Mozambican investment properties, independent valuations were performed at 30 June 2021 by REC Chartered Surveyors (2020: REC Chartered Surveyors) using the discounted cash flow method (2020: discounted cash flow method).

The remainder of the portfolio including investment properties held by associates and joint ventures was independently valued at 30 June 2021 by Knight Frank Chartered Surveyors (2020: Knight Frank Chartered Surveyors), using the discounted cash flow method with the exception of freehold land which is valued by comparable method.

Material valuation uncertainty due to Novel Coronavirus ("COVID-19"): The outbreak of COVID-19, declared by the World Health Organisation as a "Global Pandemic" on the 11th March 2020, has and continues to impact many aspects of daily life and the global economy - with some real estate markets having experienced lower levels of transactional activity and liquidity. Travel, movement and operational restrictions have been implemented by many countries. In some cases, "lockdowns" have been applied to varying degrees and to reflect further "waves" of COVID-19; although these may imply a new stage of the crisis, they are not unprecedented in the same way as the initial impact. The pandemic and the measures taken to tackle COVID-19 continue to affect economies and real estate markets globally. Nevertheless, as at the valuation date property markets are mostly functioning again, with transaction volumes and other relevant evidence at levels where an adequate quantum of market evidence exists upon which to base opinions of value. For the avoidance of doubt this explanatory note has been included to ensure transparency and to provide further insight as to the market context under which the valuation opinion was prepared. In recognition of the potential for market conditions to move rapidly in response to changes in the control or future spread of COVID-19 we highlight the importance of the valuation date. There has been no change in the valuation methodology used for investment property as a result of COVID-19.