Grit Real Est. Regulatory News (GR1T)

Grit Real Estate Income Group Limited, a leading pan-African real estate company focused on investing in, developing and actively managing a diversified portfolio of assets underpinned by predominantly US Dollar and Euro denominated long-term leases with high quality multi-national tenants, today announces its results for the six months ended 31 December 2021.

Financial highlights

On 22 November 2021, Grit announced its Proposed Open Offer and Placing of New Ordinary Shares at US$0.52 per New Ordinary Share to reduce Grit's overall indebtedness, provide future capital for further expansion in its core and expanded business, acquiring majority stakes in Gateway Real Estate Africa Limited ("GREA") and Africa Property Development Managers Limited ("APDM") and the expected resumption of dividend payments, distributing out of net operating income generated from its existing property assets, in line with its stated policy of paying out at least 80 per cent. of distributable earnings.

On 20 December 2021, the Company issued 146,342,312 New Ordinary Shares at a price of US$ 0.52 per share. The issue of an additional 155,027,444 New Ordinary Shares at an issue price per New Ordinary Share of US$ 0.52 to the Selling Shareholders of GREA and APDM will be effected upon the fulfilment or waiver (as applicable) of the conditions precedent. The conditions must be fulfilled or waived by no later than 31 March 2022. The proposed acquisition is expected to materially accelerate Grit's ability to access development returns from risk mitigated development projects from GREA's attractive pipeline of development opportunities, give Grit the additional management resources and offers Grit the potential for new revenue and fee income streams.

Key commentary

· EPRA net reinstatement value ("NRV") per share of US$0.867 (30 June 2021: US$1.024). The 15.3% reduction was principally due to the dilutionary effect of the issuance of the new ordinary shares which reduced NRV by US$0.175 per share. Distributable earnings per share and EPRA earnings per share were similarly principally impacted by dilutionary impacts of new share issuances and fair value adjustments on financial obligations.

· Cash collection as a percentage of contractual revenue, improved by 3.5 percentage points from 91.4% to 94.9%, specifically impacted by improved collections from hospitality sector assets in the six months.

· Significant action taken to strengthen balance sheet. Group LTV decreased to 41.4% (30 June 2021: 53.1%) predominantly as a result of US$47.0m reduction in Group debt. The Board remains committed to reducing LTV levels to its medium term target of between 35% to 40% through capital recycling initiatives and select NAV accretive acquisitions.

· Concerns arising from the COVID-19 Omicron strain peaked in December 2021 and impacted both travel and confidence in Southern Africa and worldwide over that period, which in turn impacted our portfolio. Notwithstanding this, the Board is increasingly encouraged by the early signs of recovery in leisure, office and retail since the period end, which have the potential to deliver enhanced income and capital growth to our shareholders from our portfolio.

· The Group independently values all of its assets at the financial year end and at least 50%, by value, at the interim reporting date. For the six months ended 31 December 2021, 77.2% of the portfolio was independently valued with total income producing assets valued at US$802.3m (30 June 2021: US$801.9m), including acquisitions and capex additions amounting to US$3.1m. This represents a like-for-like property valuation increase of US$5.3m or 0.7% over the six month period, while the impact of the Euro vs the USD over the period negatively impacted valuations by US$9.9m which collectively result in reported property valuations (in US$) growing by 0.1%. 

Operational highlights

· The Group continues to make significant progress on its ESG and sustainability commitments and is ahead of its targets. The Group remains committed to its five-year target of a 25% reduction in carbon emissions and a 25% improvement in its building efficiency. The Group has more than 40% of women in leadership positions at Grit, and more than 65% localised employees, adding to the Group's diversity.

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

· 90.0% (30 June 2021: 90.9%) of revenue is earned from multinational tenants7.

· 91.6% (30 June 2021: 92.7%) of income is produced in hard currency8.

· EPRA portfolio occupancy rate of 94.3% (30 June 2021: 94.7%).

· Total Grit proportionately-owned lettable area ("GLA") is 342,209m2.

· Weighted average contracted annual rent escalations at 4.7% (30 June 2021: 3.8%).

· Property valuations show modest growth of 0.1% (or US$ 5.2m) indicating signs of stabilisation of valuations as the COVID-19 impacts reside.

· Weighted average cost of debt remained stable at 5.7% (30 June 2021: 5.7%).

Post period end and outlook

· The Board today resumes the declaration of dividends, out of operating profits, having satisfied its LTV target of below 45%. An interim dividend of US$2.50 cents per share ("cps") for the 6 months ended 31 December 2021 (31 December 2020: US$1.50 cps) has been declared today. The Board continues to target paying a dividend in the current financial year of between US$ 5 to 6 cps distributing out of net operating income generated from its existing property assets, in line with its stated policy of paying out at least 80 per cent. of distributable earnings.

· Many European countries have now resumed and are resuming trade and travel links, and demand, specifically in our hospitality sector assets, is showing strong signs of recovery. The Board is encouraged by positive trends such as falling vacancies and increasing footfall in the Group's retail assets and the re-opening of the African borders to overseas tourists.

· The Company continues to pursue its asset recycling target of 20 per cent. of the value of the Group's property portfolio by 31 December 2023 at, or close to, reported book value to free up equity capital and reduce levels of indebtedness. To this end, Grit has recently announced on 26 January 2022 the sale of its 100% interest in ABSA House, Mauritius. Inclusive of transaction costs, the net sale proceeds to Grit are expected to be approximately MUR 180 million, or US Dollar 4.1 million, which will be applied towards the Company's revolving credit facilities and further debt reduction.

Notes

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

"Notwithstanding the concerns arising from the Covid-19 Omicron strain in December 2021, the Board is increasingly encouraged by the early signs of recovery in the leisure, office and retail sectors since the period end, which has the potential to deliver enhanced income and capital growth to our shareholders from our portfolio. Many European countries have now resumed trade and travel links resulting in strong and improving hospitality sector demand, while increasing footfall and falling vacancies in the Group's retail assets further add to our confidence.

We are pleased by the success of the Group's equity issue in December 2021, the proceeds of which were largely utilised to reduce debt, and the enhanced financial flexibility positions the Company well for post Covid recovery opportunities. 

Having satisfied our LTV target of below 45%, we are pleased to resume dividends, today declaring an interim dividend of US$2.50 cents per share for the 6 months ended 31 December 2021. The Board continues to target paying a dividend in the current financial year of between US$ 5 to 6 cents per share distributing out of net operating income generated from our existing property assets, in line with our stated policy of paying out at least 80 per cent. of distributable earnings."

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 www.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 Monday, 28 February 2022 at 13:00 Mauritius time / 09:00 UK time.

The webcast and conference can be accessed directly at the following link: https://us06web.zoom.us/j/84335421487

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

Terms not otherwise defined in this announcement have the meanings given to them in the Prospectus issued by Grit on 22 November 2021.

CHIEF EXECUTIVE OFFICER'S STATEMENT

Grit's office, light industrial and corporate accommodation sector assets, that collectively account for more than 50 per cent. by value of the Grit Group's property portfolio, remain robust and resilient and relatively unaffected by the pandemic. In the prior financial period, travel and economic disruptions across Africa led to weakness and depressed property valuations in retail and, to a lesser extent, in hospitality sector assets, and while early recovery signs were evident throughout this latest 6 months, concerns over the Omicron variant restricted travel activity in December 2021 amidst renewed restrictions and travel bans, impacted the Group's portfolio valuations.

Many European countries have now resumed and are resuming trade and travel links, while demand, specifically in our hospitality sector assets, is showing strong signs of recovery. The Board is encouraged by these positive trends, and also falling vacancies and increasing footfall in the Group's retail assets and the re-opening of the Mauritian borders to overseas tourists.

Throughout the pandemic, the Company has focused on revenue stabilisation, diligent cost control and the effective management of rent collections and vacancies, all of which the Group is continuing to focus on. In the first half of this financial year, our team has once again delivered a strong operational performance that positions the Group well for a recovery in the economies where we operate. These included:

· Grit Group's cash collections showed further improvement in the six months to 31 December 2021 growing to 94.9% of contracted lease income (from 92.5% for the 12 months to 30 June 2021 and 91.4% in the corresponding six-month period in 2020). Grit's hospitality sector tenants have now all resumed lease payments in full as from December 2021. While Grit has agreed a 48-month period for Beachcomber to repay EUR5.3m in cash concessions granted in 2021, the LUX Group has now repaid all outstanding contractual lease amounts.

· The weighted average occupancy rate increased to 94.3% (December 2020: 92.0%) through focused leasing activity especially in the retail and office sectors.

· Net Operating Income grew 0.6% for the six-month period to 31 December 2021, with a 10.8% increase from Grit's retail sector assets, which offset the slight weakness in Grit's office and corporate accommodation sectors.

Grit's portfolio valuations were impacted over the period, as valuers increased discount rates and capitalisation rates and gave more conservative re-let assumptions. Over the six months to 31 December 2021, the property portfolio valuation increased by 0.1% and the early signs of stabilisation and recovery are becoming increasingly evident across those assets in sectors hardest hit by the pandemic, which could lead to an earlier than expected rebound in retail sector asset valuations. Since the onset of the pandemic, reported property values dropped by over US$114 million, representing a 14.2 per cent. like-for-like reduction compared to 31 December 2019.

For the six-month period to 31 December 2021, supported by the Company's successful fundraise and increasingly robust operational performance, the Group has reported a reduced LTV of 41.4% (from 53.1% at 30 June 2021), which is below the Board's target of 45% required for the resumption of dividends.

COVID-19 period valuation declines and the increasing use of short-term working capital facilities for the provision of liquidity support to hospitality tenants resulted in Grit's reported LTV increasing to 53.1 per cent. as at 30 June 2021. This prompted management and the Board to take action to enhance the position of the Company for the expected post-pandemic recovery opportunities rather than wait for the natural recovery of valuations. These actions included:

· Suspending the payment of cash dividends in the second half of the 2021 financial year.

· Accelerating an asset recycling target of 20 per cent. of the value of the Group's property portfolio by 31 December 2023 at, or close to, reported book value to free up equity capital and reduce absolute levels of indebtedness. To this end, Grit has recently announced the sale of ABSA House in Mauritius and continues to be in discussions for the disposal of AnfaPlace Mall, the Grit Group's largest retail asset. These disposals would collectively represent in excess of 10% of the Group's property portfolio as at 31 December 2021.

· Extensive engagement with finance providers and successfully agreed increases to the lowest applied LTV and interest service cover ratio covenants, whilst also securing maturity extensions for most of the Grit Group's US$410 million outstanding debt to beyond April 2023. Grit reduced its debt balances by US$47.0m over the period. Management continues to investigate opportunities in relation to a further substantial debt restructure, which are supported by the recently improved credit metrics and new debt funding relationships established with the development funding institutions like the IFC and Proparco.

· In November 2021, the Company embarked on an Open Offer and placing of new ordinary shares to reduce its overall indebtedness and to provide for further expansion in its core and expanded business. The proceeds of the Issue are additionally intended to enable Grit to acquire a controlling shareholding in GREA and a majority shareholding in APDM, GREA's external management company. The proposed acquisitions will provide Grit with access to GREA's attractive pipeline of accretive development opportunities, and the Board believes the medium-term NAV growth prospects of the Grit Group will be significantly improved upon completion. The acquisition of a controlling interest in APDM is expected to further allow Grit to earn substantial development and asset management fees into the future from internal and third-party clients and joint venture partners.

Dividend resumption

The Board is pleased to declare a dividend for the 6-month period of US$2.5 cents per share, distributing out of net operating income generated from its existing property assets, in line with its stated policy of paying out at least 80 per cent. of distributable earnings. The Board continues to target paying a dividend in the current financial year of between US$ 5 to 6 cents per share.

Drive in Trading ("DiT") guarantee update 

In 2017, Grit provided an indemnity of up US$17.5 million to its largest shareholder, the Public Investment Corporation ("PIC"), for actual losses incurred by the PIC in the provision of funding to the Group's Black Economic Empowerment consortium, DiT, for the acquisition of an equity interest in Grit, as required under the South African listing requirements applicable at that time. The debt facility was fully secured by the 23.25 million ordinary Grit shares acquired by DiT in June 2017.

Ahead of the debt facility maturity in August 2022, both Grit and the PIC, who is the current lender to DiT, have been assessing 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 is now deemed limited. Consequently, the parties are in the process of collapsing both Grit's guarantee exposure and the broader DIT structure. The resolution is not expected to result in any overhang of Grit ordinary shares to the market and further announcements will be made in due course.

As at 31 December 2021, the Company increased the provision against its guarantee exposure to US$12.5 million (30 June 2021: US$ 5.4 million) being the full net exposure of the Company under the current Guarantee Agreement. 

Investment update

· Grit's re-development of its Bollore light industrial facility in Mozambique was completed in December 2021 which modernises the facility and positions it for increasing activity in the gas industry of northern Mozambique. Bollore remain the anchor tenant, on the strength of a 5-year lease, with the remaining vacant space expected to be let within the current financial year.

· The phase 1 Cap Skirring, Senegal re-development programme, which formed part of the initial acquisition of the resort in January 2020, has by mutual agreement, being subjected to a reduced capex programme of EUR1.225 million by August 2022, which was aligned with Club Med's re-opening of the resort in December 2021.

· The Orbit Africa transaction, being the sale and leaseback of an existing warehouse and manufacturing facility with a gross lettable area of 29,243 sqm at an accretive net acquisition yield of 9.60% under a 25-year US Dollar denominated triple net lease and a redevelopment and expansion of the facility at a contractual development yield of 16.0%, is expected to transfer in March 2021. The total investment is expected to be US$53.6 million and is funded through US$25 million senior debt financing from the IFC, a division of the World Bank, and the balance through a preference note issuance to Ethos Mezzanine Partners GP Proprietary Limited and BluePeak Private Capital GP. The transaction, which will further increase Grit's exposure to Kenya and the broader light industrial sector, is expected to be accretive to both NAV and earnings, delivering further sustainable value to our shareholders immediately. The Orbit Africa Facility upgrades are expected to create long lasting positive social, economic and environmental benefits for local communities and help to further strengthen the broader precinct as a prime logistics and supply chain hub, whilst the property will additionally benefit from being significantly improved to today's modern FMCG industry standards and achieving an IFC EDGE green building certification.

Gateway Real Estate Africa update 

GREA is a private company staffed by an experienced team of professionals with an established track record in African property development and project delivery. Grit is in the process of finalising the conditions precedent in relation to the acquisition of a controlling interest in GREA and APDM, as contemplated in the Circular issued to shareholders in November 2021. Further announcements will be made ahead of the long stop date of 31 March 2022.

An update on the key projects being undertaken by GREA are included below:

· Elevation Diplomatic Residences, Addis Ababa Ethiopia, a 112-unit diplomatic residential tower conforming to US and other diplomatic agency structural and security requirements, predominantly tenanted to OBO, a division of the US State Department, was completed and handed over in November 2021.  

· Phase one of a Tier 3 data centre in Lagos, Nigeria comprising 994 sqm GLA and tenanted to African Data Centres, part of the Liquid Intelligent Technologies Group, was handed over for beneficial occupation in December 2021.

· The construction of a 90-unit diplomatic apartment and town house community in Kenya fully tenanted by OBO, a division of the US State Department, is making good progress and is expected to be delivered by May 2022.  

· The Precinct, Mauritius: Commencement of a landmark 8,594 sqm GLA premium grade office development in Grand Baie in Q2 2021. Targeted completion November 2022.

· St Helene Artemis Hospital, Mauritius, comprising of a 5,368 sqm multi-speciality hospital commenced construction in 4Q2021. The anticipated completion date is January 2023.

ESG and sustainability

We recognise our role in transforming the design of buildings and developments for long-term sustainability, especially with Africa rapidly urbanising. Our sustainability efforts focus on energy efficiency and carbon reduction and the Group remains committed to a five-year target of a 25% reduction in carbon emissions and a 25% improvement in our building efficiency. We continue to make significant progress and are ahead of plan in the achievement of our targets.

In addition to environmental responsibility, we pride ourselves on achieving more than 40% of women in leadership positions at Grit, and more than 65% localised employees, adding to the Group's diversity. The Company further supports the numerous communities in the countries where we operate through our extensive CSR initiatives. The Company is proud to report that it is already achieving these targets and will aim to maintain and improve on its current achievements.

Outlook

The Board and management team have taken decisive, proactive action to defend and best position the Group's portfolio and business to deliver enhanced value to our shareholders over the short and long term. With our expertise in African real estate, and our team's experience, knowledge, skill sets and established relationships, we will continue to optimise and recycle assets and create value through proactive asset management and risk-mitigated development opportunities to support NAV growth.

In addition, we will continue to selectively pursue potential investments from our high-quality, diversified and yield accretive pipeline, supported by a strong tenant base and possible co-investment opportunities, as we have recently done. The recent strengthening of our funding relationships with development finance institutions and banks positions us well to pursue further investment in industrial sector assets, where we see significant opportunities

The Board is encouraged by positive trends such as falling vacancies and increasing footfall in the Group's retail assets.

Finally, we are pleased by the success of the Issue in December 2021, and, on behalf of the Board, would like to thank existing and new Shareholders for their support in re-positioning the Company for the post COVID-19 recovery opportunities. Having satisfied our LTV target of below 45%, we are pleased to resume dividends today and the Board continues to target paying a dividend in the current financial year of between US$ 5 to 6 cents per share distributing out of net operating income generated from our existing property assets, in line with our stated policy of paying out at least 80 per cent. of distributable earnings.

We are increasingly confident both in further reducing our overall levels of debt as well as driving expansion in our core and expanded business, to deliver enhanced sustainable value to our shareholders.

CHIEF FINANCIAL OFFICER'S STATEMENT

Presentation of financial results

The abridged consolidated financial statements have been prepared in accordance with IFRS, in accordance with best practice in the sector, alternative performance measures have also been provided to supplement IFRS, based on the recommendations of European Public Real Estate Association ("EPRA"). EPRA's Best Practice Recommendations have been adopted widely throughout this report and are used within the business when considering our operational performance of the properties. Full reconciliations between IFRS and EPRA figures are provided in note 14.

Financial and Portfolio summary

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, debtor's 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 has increased marginally to US$24.1m from US$23.6m for the six months ended 31 December 2021.

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 2.5% from prior year on annual contractual lease escalations and asset acquisitions annualising in the period, resulting in a 0.6% increase in net operating income over the six-month period to 31 December 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.

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.

The table below show the movement of the property values from 30 June 2021 to 31 December 2021.

Total investment in income generating assets has remained relatively flat from USD801.9 million in June 2021 to USD802.3 million in December 2021.

Cost control

A metric by which the Group measures its operating efficiency is the ongoing administrative cost to assets ratio. The Group continues to target a medium-term admin cost to assets ratio of under 1.0%. For the six months to 31 December 2021, the annualised ratio is 1.6% as compared to 1.7% for the year ended 30 June 2021.

Net Asset Value and EPRA earnings per share

As at 31 December 2021, EPRA NRV per share decreased by 15.3% from US$102.4cps (June 2021) to US$86.7cps, while IFRS NAV per share dropped 12.7% to US$73.6cps. In total, dilution of shares accounted for the drop in both EPRA NRV and IFRS NAV per share.

Treasury

In line with our policy, the Group has successfully refinanced the majority of the short-dated debt. Although the Group's weighted average debt expiry as at 30 June 2021 was 1.48 years, these actions have resulted in a temporary increase to 1.68 years six months later as at 31 December 2021 until a more suitable solution is concluded for the current year.

The impact of the global inflationary increases is expected to result in interest rate hikes. This would be shielded by our contractual lease escalations that are in place and the Group expects a favorable cumulative impact to our service cover ratios. To further take advantage of this the Group is looking at fixing a large component of variable rates in the anticipating debt solution mentioned below.

One of the Group's major strategic goals is achieving an LTV of between 35% to 40%. The recent capital raise and perpetual note resulted in the Group meeting the Board's near-term target of a 41.4% LTV.

Our multi-bank approach has once again proven to be an effective approach to funding and banking in general. The following debt transactions were concluded during the period under review as a short-term measure to create a platform for a more strategic and suitable balance sheet solution.

Subsidiaries

· The Group has extended all its State Bank of Mauritius facilities to 31 March 2025.

· The Investec Bank facility 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 million will be repayable over the period of which US$3.6 million have been paid as at 31 December 2021 and US$2.4 million during January 2022. The balance of the loan at 31 December 2021 was US$41.2 million.

· The Group's RCF facilities of US$ 7.0 million held with Nedbank and EUR26.5 million held with SBSA have been extended to April 2023. These facilities were settled by the capital raise and are fully committed and undrawn as at 31 December 2021.

Associates and Joint Ventures

· The BHI syndicated loan of EUR 50.0 million has been extended to May 2023 with State Bank of Mauritius taking over the Investec exposure.

· Upcoming Debt - Bank of China facility in Zambia of US$76.4 million (US$ 47.1 million net after back-to-back loans of US$29.3 million from Zambian partners - refer Note 4).

· The Group is actively engaging with its leading financiers to incorporate the facility into a larger debt syndication covering multiple jurisdictions and sectors. The target solution will bring scale, diversification, tenor, and optimal funding costs to the Group's debt portfolio.

The total capital exposure to debt providers (net of interest accrued and unamortised loan issue costs) as at 31 December 2021 is as follows:

Dividend

An interim dividend per share has been declared for the six-month period ended 31 December 2021 of US$2.5 cents per share, paying out at least 80 percent of distributable earnings.

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 interests (for properties consolidated by Grit, but part-owned by minority partners.

Leon van de Moortele

Chief Financial Officer

28 February 2022

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 and existing mitigating actions in the context of the second half of the current financial year. The Board believes there has been no material change to the risk categories 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 confirm that the abridged consolidated half year financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board ("IASB") and that the half year management report includes a fair review of the information required by the Disclosure Guidance and Transparency Rules ("DTR") 4.2.7R and DTR 4.2.8R, namely:

· Important events that have occurred during the first six months and their impact on the abridged set of half year unaudited financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· Material related party transactions in the first six months and a fair review of any material changes in the related party transactions described in the last Annual Report.

The maintenance and integrity of the Grit website is the responsibility of the directors.

Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from the legislations in other jurisdictions. The directors of the Group are listed in its Annual Report for the year ended 30 June 2021. A list of current directors is maintained on the Grit website: www.grit.group.

On behalf of the Board

ABRIDGED CONSOLIDATED STATEMENT OF INCOME STATEMENT

ABRIDGED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

ABRIDGED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ABRIDGED 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 this abridged consolidated financial statements are set out below.

1.1 Basis of preparation

The unaudited abridged consolidated 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 Rules. The unaudited abridged consolidated financial statements have been prepared on the going-concern basis and were approved for issue by the Board on 28 February 2022.

Going Concern

The directors are required to consider an assessment of the Group's ability to continue as a going concern when producing the interim abridged consolidated financial statements.

The Directors are of the opinion that after reconsideration of the items highlighted in the Integrated Annual Report published on 29 October 2021 (see pages 134 to 135), the risks assessed have substantially reduced. The Issue in December 2021 (and resultant drop in LTV from 53% to 41.4%) and the stabilisation of the property portfolio valuations have contributed to this reduction, however the directors have concluded that there remains a material uncertainty that may cast significant doubt on the Group's and Company's ability to continue to operate as a going concern.

The following factor remains a consideration in assessing going concern:

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. Whilst the Directors have no reason to believe that this will not be refinanced, should this not occur, the Group and Company would need to secure additional financing to avoid being in default. Three related properties (valued at US$123.9 million) as well as a group guarantee are currently pledged as security for the facility.

Notwithstanding the outstanding material uncertainty on the facility detailed above and taking into account the results of the analysis and the various mitigating actions 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$). Amounts are rounded to the nearest thousand, unless otherwise stated. Some of the underlying subsidiaries and associates have different functional currencies other than the US$ 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 these abridged consolidated 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 12 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 judgment on not to consolidate DiT but disclose it as an unconsolidated structured entity due to DiT being a related party.

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 returns through its power to direct the relevant activities of FAM. The Group does not own any interest in FAM however it has exposure to returns from its involvement in directing the activities of 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 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.

Investments, associates and joint ventures

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.

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 has 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 periods ending 31 December 2021, 30 June 2021 and 31 December 2020).

Taxation

Judgments 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 pandemic. Refer to the Going Concern under Note 1.1.

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 8) as follows: