Grit Real Estate Income Group (LSE:GR1T) — Half Year Results

0:01 Good morning, and welcome to the GRIT REAL ESTATE INCOME GROUP LIMITED Half Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated on the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it received during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to play a short

0:31 video to start the meeting. I'd now like to hand you over to Darren Beanhiss, Head of Investor Relations. Good morning to you, sir.

1:18 Good morning. Thank you, Ali. Good morning, and welcome to the GRIT REAL ESTATE INCOME twenty twenty three Half Year Results Presentation. We'd like to extend a warm welcome to all of guests physically present in Mauritius and to all the guests who are joining us online for this global webinar today. For today's proceedings, we'll allow the GRITED executives to give us a few remarks on the results for about thirty five minutes, after which we will open up for q and a. We intend to prioritize online q and a first, whilst the in country guest will also have an opportunity to ask questions by raising their hands. And if we run short on time, they can also follow-up afterwards in person, at q and a over refreshment breaks. So today, representing GRIT in the room today, we have Greg Pearson, managing director of Gateway Real Estate Africa and executive for new business development at GRIT.

2:08 Leon Van de Mortel, the GRITED Group CFO. And finally, Bronwyn Knight, who most of you will know is the GRIT Group CEO. So without further ado, it's gone 09:00 in London, so I'd like to invite Bronwyn to the stage. Thanks, Darren. So actually, just to start off to our Maritime audience, good afternoon, not good morning. So just a reminder that the team is dialed in from London. So we're all sitting in in different time zones at the moment.

2:46 Sorry. Just there we go. So just to start the presentation today, welcome to everybody. Welcome to our online audience. I think we have over 100 people dialed in today and we obviously have got everybody present to Mauritius. While we started with the pre sent video, that is our new home and it was to give our online audience a little bit of a taste of where we find ourselves today. So it is my honor to be able to present in our new GRIT and GREA offices GRIT group which is the first five star green rated building in the Indian Ocean. What a significant landmark. What a significant legacy for Mauritius itself. And today we are presenting our half year results in the building that you have seen on the video today.

3:39 So just really going through and having the pleasure of being able to present the results today, we are presenting obviously the December results and really just some of the significant observations through the presentation that we're going to be taking you through today. Kai, sorry. Can I just have you for a second? It's not changing here on my screen. Sorry, I just want Kai to make an adjustment. So if we go through the significant aspects of the December results, really the strong focus is really around three pillars today: The strong operational focus is really around our real estate portfolio.

4:26 How is our real estate portfolio, including the building you see yourself sitting in today, how has that performed?

4:37 Sorry Kai. Okay. So if you look at the performance of our operational side, where we have seen strong performance is we've seen significant leasing activity, which I'll touch on both on retail and offices. We've seen actually a relatively stable valuation and portfolio valuation, remembering that a 100% of our portfolio is independently valued. And what we've seen is we've seen global economic times, rising interest rates, pressure on real estate portfolio, but we've actually seen valuations being relatively stable. We are sitting at a 108% cash collection. We have collected all of our historic hospitality rentals and all outstanding rentals that are due and have been due over the COVID period on the portfolio.

5:30 What we've also seen is the ability so whilst we've seen rising interest rates, our contracts are linked to inflation. So somewhere like the American Embassy in Mozambique, we saw an escalation come through of just over 9%. So we've seen simultaneous growth in income. With the acquisition, which I'll take you through today, of our development company, the business is still very income focused delivering on income return to investors, but we have seen significant developments completed across the African Continent including the precinct building that you see here. And then Leon will be touching on the impact of rising interest rates. You would have seen that we closed a significant syndication with Standard Bank, dollars $3.00 6,000,000 last year, and that has hedged out a lot of our interest rate exposure.

6:22 Really around the significant corporate activity, which I've mentioned, I will be touching on the closure of the acquisition of our development company and the asset management company that's linked to that. One of the very, very exciting initiatives to present yourselves today is that we are very much on close on target with our asset recycling strategy. Our asset recycling strategy, which we'll take you through today, raises significant liquidity for the group. The two transactions that we will be announcing today is the disposal of our hospitality Beachcomber assets, Baxter Beachcomber themselves, and our disinvestment out of our Botswana investment. That really, I think, we've got a target of around $160,000,000 We have now sort of got to $120,000,000 worth of disposal, which is significant liquidity for the group.

7:16 And then really just the balance sheet strength, the significant reduction of loan to value. If you remember COVID over COVID, we were sitting at 54% loan to value. We've now reduced that significantly, the currency and the interest rate hedges that Leon will discuss, and then obviously our bonds. So if you really look at the business today, there are three significant tiers to where we find ourselves from our positioning in the group today. The highlights on the portfolio. We've seen a relative stabilization, as I mentioned, of valuations on the portfolio, which I'll touch on today. The net operating income, the NOI line, has grown by 9%, just over 9% in the current period.

8:05 I'm going to touch on vacancies because there's been significant improvements in vacancies. What we have seen is that our net asset value, our earnings per share is 78¢. Again, you'll see that we are trading at a significant discount to net asset value. The distributable earnings are just over 2.5¢. At the distribution that we are declaring of 2¢, that is over a 12% dollar dividend yield. Just to highlight that point which I will reiterate again through the presentation, a significant drop in group loan to value and really proudly announcing our asset recycling strategy going forward. If you look at what seems to be a very busy slide, there are just some really important components to the slide.

8:57 A slight decrease of just under 2% of the valuation of the portfolio. What this accounts for is there has been forex movements. Remember we have euro exposure through our hospitality assets so there's euro forex movement through that. We've already commenced disposing some of our assets on the recycling of capital strategy, so that is obviously a pertinent point. But valuations independently valued have remained relatively stable. The other significant component to here is the fact that the NOI growth substantiated and supported that our leases are inflationary linked has grown by just over 9%. So those are the important aspects to take off the slide today.

9:45 Asset recycling. Why do we sell assets when we are long term holders of assets? What we are trying to demonstrate in the market is one, what are actual valuations? We've had a lot of questions around our valuations valuations in Africa and how how liquid are these assets. Can you actually sell them? So the benefit of demonstrating valuation, proven market liquidity, taking that cash and redeploying it into other projects and reducing loan to value is such a significant milestone with being able to recycle two of the asset classes that you've seen today. We have stated at the end of last year that our income will be focused on impact assets.

10:32 We will see a partial disinvestment out of hospitality and retail and this is exactly in line with this particular strategy. And what we've announced up to now the February 24, we would have disposed of a $126,000,000 worth of assets to recycle that capital back into the business. So what have we sold and why? You're aware of the Absa house that we disposed of in Mauritius. The office that we the office space that we want to own and house in Mauritius is this beautiful building that you see the precinct today. We believe that that had had sort of come to its valuation peak. We did a partial disposal of our warehouse, Orbit warehouse, with a co investor, very strategic co investor in Kenya.

11:21 One of the transactions that has come to the market now and you'll see part of the press release is that we will be partially exiting our investment in LRR. This was an investment we made in a real estate company somewhat four years ago, a listed real estate company. We would not ordinarily invest in other listed companies, but this was a strategic investment for us to enter the Botswana market, work alongside our very strategic partner, Botswana Development Corp BDC, and the fact that we could add tremendous value to this. We bought the share at a discount to NAV. Today we are exiting at a 15% premium to NAV. And what we have done over the last four years in this investment, both our c r CIO, OT, and myself have personally sat on the board. We have added significant real estate experience.

12:16 We've added significant governance experience to this board. And because of the captive capital that's invested in Botswana today and that is available, we have seen this as an opportune time to exit our investment out of LOR. So you'll see significant liquidity coming out of that particular disinvestment. And the final fact is that we want to be invested in hard currency, dollars, euros. This is a pool of investment, so it makes absolute sense to our recycling of capital. And an asset class that's very close to home, especially in this Mauritian audience, are the beach coma assets. So these beach coma assets, I believe, when we did the transaction, we did a very transformational unique transaction in this market. It was a sale and leaseback at the time. The capital assisted NMH with recapitalizing their balance sheet. This has been a very strategic partnership for both BHI NMH and ourselves under the BHI structure.

13:18 And now the ability to exit this at almost book value, remembering that we've earned significant dividends out of the structure over the last couple of years. And, basically, this asset is going back to its original owner effectively. And this brings in a significant amount of liquidity. You'll see that just over $57,000,000 is coming back into the group effectively to redeploy into other projects. So this is a significant disposal for ourselves. Touching on the closure of the acquisition of our development company. So just as a reminder to both the merchant audience and online audience is that whilst we are investing in a development company, this still only accounts for 20% of our business activities.

14:08 And what's really important about that is that we are really still very much focused on delivering a dividend, delivering a significant yield and delivering a cash return to our investors. The ability to now over the Phase three to consolidate the development business allows us to not only have the dividend yield, but the net asset value growth of the portfolio. The benefit of closing this deal over phase one, phase two, and phase three is that whilst this has been going on, the GREA team led by Greg have completed the majority of their projects that you see there today. And they have not just completed them, they have been given accolades and awards. I think they took four out of the category awards that were part of the awards, African investment awards last year.

14:58 So what we have seen over the period of time is the completion of these projects on time within budget. They've taken out the development risk. And these projects, American Embassy two American Embassy projects delivered a data center ADC in Nigeria have seen obviously basically a balance sheet of approximately $400,000,000 delivered under the Gateway real estate development team. So the Phase three and closure of this project is that we actually closed Phase three in May of this year. Some of the recycling that you see to have taken place will be used to obviously close this. In May we will have a full consolidation of the GRIR balance sheet onto the GRIT balance sheet. Furthermore to this is that not only did we acquire the development business, GR, we also acquired the development management business, APDM.

15:54 That development management business has earned significant fees, which Leon will touch on in his presentation. Those significant fees and development management fees are and will become a very significant component of our income line going forward. You won't just see rental income as you won't now. You will also see fees earned from development management services going forward. Just to touch on the DRiV and Trade in transaction, just to merely say that this transaction is now wrapped up and closed. This was a transformational deal that we did, an empowerment deal out of South Africa.

16:34 This deal has now been closed with our partners at at Drive and Trading, including the PRC, and will be fully wrapped up and closed within the financial year end of June now. So this for all intents and purposes, this deal is now closed and fully accounted for and fully provided for on the balance sheet as you see Stan today. So when I get into the actual operations of our business, And this is just to really just to remind the audience, the business that we are in today is that we are across the African Continent, including Mauritius itself, multi geography, multi asset class, servicing the needs of multi global tenants, their real estate needs and really focusing on tenants that we can secure hard currency leases.

17:24 So this slide just is a reminder of what the African Continent looks like from an investment basis for ourselves. Again, just touching on the slide for two seconds and a reminder to both audiences is that our tenants and our top 15 tenants constitute 70% of our revenue stream. These 15 tenants are blue chip tenants. They are tenants that have to be in Africa. They're resilient to macros of Africa. They pay hard currencies, and they see us as their real estate partners on a long term basis, not just from asset ownership but from development and servicing their needs post actually developing the asset for them. From a portfolio perspective, the GRIT portfolio is very, very strong, and if you benchmark this to any of our other peers. So we are sitting with just under a 5% vacancy on the portfolio.

18:24 Just to give you an idea, if we strip out retail out of that, we sit with a one and a half percent vacancy on the portfolio. So that shows you that every other asset class that we sit in the portfolio today is almost a 100% occupied. Okay. When you look at the actual retail vacancy, and, Darren, if you can just go to that slide, if you look at the actual retail vacancy, what we have seen is we've seen a tremendous energy and effort by asset management team that has driven that vacancy down from just over 12% in December 2021 to where are we going to June 2023. We see that sitting at 5%.

19:10 This is a significant number and just demonstrates our asset management property management capability, remembering that the period that you see there today is over COVID. Remember what happened to retail hospitality over COVID. I dramatically say it was boarded up. So the asset management team has significantly improved the take up and significant leasing has happened over this period. So this is the vacancy bridge. If we strip out retail, you'll see that the portfolio sits just under one and a half percent vacancy. The other very, very strong components of leasing that took place over the last six months is offices. Now why I mention offices? Because globally, offices continue to be challenged.

19:59 In Africa, they are not. What you see from our tenants and our take up and even the building that you see today, which is almost a 100% occupied for good quality assets, there are tenants. So we have seen significant office take up. We're signing two major transactions in the last six months. Another very important component of our property portfolio is our leases and are our leases. So if you look at our leases, we've got a whale of four point six years. I think the previous period Leon was four point eight. So you can see how we've continued to keep the stabilization of our whale with significant expiries over sixty months. So that is how secure is our income.

20:47 That is how secure our income is. Long dated leases, hard currency, inflationary linked escalations. That is how we are getting to 9.1% growth in our property line.

21:03 On the construction side and as I said, just a reminder, the idea when we did the acquisition of our development company is not to take hardcore development risk. We don't every single project is pre let, pre tenanted before this team starts. The team has delivered $400,000,000 worth of projects over the last three years.

21:26 The projects that have been delivered is the American Embassy project in Kenya, an absolute significant landmark project in Kenya, which was awarded as part of the API awards last year, The precinct building that we see ourselves in today, there will be a video that I will show you at the end of the presentation, which is the QRP hospital, Falcon Hospital in Mauritius, which we're busy handing over at the moment. And we are in in the ground for the completion of the American Embassy in Mali. So significant progress has been done by Greg and and the team. So on that note, please can I hand over to Leon to give take you through the financial review? Thanks, Leon. Thanks, Bruno.

22:12 Hi, everyone. It's truly a pleasure to stand here in our new office building to actually present these results. So I'll take you through the details just in a high level and then we can just unpack a few of the numbers. So just to highlight a few of the key numbers, obviously, distribution per share is one of our biggest key drivers of our success. We're sitting at 2.56 of distributable earnings for this period. This compares quite well against the 3.08 for the comparative period when you consider there

22:41 was a significant capital raise during that period, which increased the share count. But it's also showing then the impact of the interest rates, which have obviously happened before, which is offset by a few of the other items, which I'll take you through later. Group LTV continues on the right trajectory, sitting at 45.5% as we continue our target to get to the 45 sorry, the 35% to 40% range, which will be contributed significantly by the consolidation of GREA come the closure of that transaction in May. In terms of the portfolio strength and the other items Brond mentioned, I'll unpack those a little bit more, especially the revenue line items to give you a full understanding. And obviously, just a few other items, which we'll touch on, specifically interest rate risk. So in terms of the actual revenue, we've seen revenue in total go up by 7.5%.

23:33 Now we have to unpack this a little bit more to see what is actually the drivers of this. In a portfolio that's changing, where we've got a number of buildings that are now reaching completion,

23:43 for example, the building we're standing in today, Roslyn Grove, which came online during October. We've got Falcon Hospital coming online in the next month or so. There's a very strong trajectory of growth coming through the portfolio, which is one of the things we envisaged when we did the acquisition of GRIT, to convert those development assets to long term hold assets where they'd be significantly income generating. So you'll see that from the mergers and acquisitions, net of the disposal that we've done to date, we're still at 5.1 in terms of revenue.

24:13 The other item which comes through is obviously the leasing activity as well as the escalations through the period and we've seen a strong 5.1% like for like increase in our revenue. On the downside, obviously, during this last six months, we've seen a very weak euro, especially versus the six months in the comparative period, roughly a 15% difference between the weighted average exchange rate. And that has actually impacted our results by 2.7% reduction in revenue. Where the euro is now at the moment, it's actually recovered quite nicely, which will take that back into the revenue. For the second half of the year, we are seeing a strong recovery in the revenue as the assets come online as well, and the impact of the escalations over the last six months will be felt. Our key metrics that we always measure are loan to value, which is a very key component, our total income producing asset base.

25:06 But obviously, the key items in our items other than revenue, the biggest line item we've got is our interest rate costs. Now you'll

25:14 see that we went from a weighted average cost of debt from 5.7% to 8.1% over this period as our hedges now come in place and start becoming effective. I've got a few slides that we can discuss on that later. There is still a healthy ICR cover at 1.9, tracking back up to the two as the revenue increases over the next period. And then obviously, the one item which we'll touch on as well is just the admin costs, which have increased over this period as we've broadened our horizons and established new offices in the likes of Kenya in both Dubai over this period. So interest rate risk. This is obviously one of the key risks to a business like us as well as all the other property companies. Last year, as part of the closeout of this GBP $3.00 6,000,000 syndication, we actually increased our hedge position quite significantly.

26:07 Previously, we had $100,000,000 of hedges, which were effective up to a rate of about 1.85% when they started kicking in. And then the second batches of hedges basically kicked in at a LIBOR rate sorry, a softer rate of 3.5%. So since the month of October, late October, early into November, we actually were in the money on these hedges. If you look at that table on the right, specifically our U. S. Dollar interest rate risk, you'll see there that, for example, a 200 basis points increase in software rates will only result in 0.5% increase in the overall interest rate risks that we will take. If we're looking at Bloomberg forecasts, it seems like we are getting to the peak of the interest rate cycle and see that coming down.

26:53 And just to the audience, it's just to reiterate the fact that the hedging products that we've put in place are actually collars and caps. So as the interest rates start coming down, we see significant retraction of that interest rate as well, not being locked in at fixed rates. So a 200 basis points decrease actually results in a 1.4% saving in terms of the interest rates.

27:16 Obviously, one of the things we've been very proud of in the last six months was the actual finalization and the payout of this $3.00 6,000,000 loan. Before, it was already a mouthful, a sustainability linked debt finance. But now we're gonna be adding an award winning sustainability linked debt finance, which is something we are extremely proud of and have worked really hard over this very challenging time to to actually refinance a lot of the debt. This also has a very positive impact on a lot of our stats, but most specifically, the refinancing risk. Before we were sitting at about a 1.8% sorry, point eight year debt expiry profile, now at around about 3.5. For an African business with the loans we have, this is a very good achievement where it's very difficult to get financing in Africa that goes beyond five years on the types of loans that we do.

28:07 Just taking you through now just the and to reiterate that being in Africa, there's a strong link between people and land and buildings. So a lot of our properties are not 100% held by GRIT. They are held either as subsidiaries where we've got a small partner in those loans at those buildings or they're held in associates, which makes it a little bit difficult to actually understand the numbers when they're presented in terms of IFRS. As a management team, we really manage this business on our proportionate ownership in these assets. And this is what we are trying to demonstrate in this slide where we actually take the IFRS accounts and unpack it to see what is our true cost and our true income of all of these properties that relates to ourselves and then obviously translates into the distributable income.

28:56 So you'll see there that the key component of this is to unpack your share of profits and associates, which is a one line item, which is effectively the net result of all the properties we own in JVs and associates. And this gives you a very good reflection of what's really happening in the business. A few key items that I wanted to highlight

29:16 and one of the things that we were striving to specifically, as Boron mentioned, the acquisition of GR1T and APDM was to get the fee income rate income generating ability of APDM as an asset manager. What we've seen in this last six months is this is now coming to fruition. So you'll see in the middle column there from the associates, the other income which was generated during this period, dollars 9,000,000 of other income.

29:42 This relates to development management fees, asset management fees that are now generated out of these properties that would have previously been lost to the group. This is also coinciding then with the increase in admin costs, which has gone up. But this is now in line with our new office in Kenya, which we're extremely proud of, sitting in Tarte City, where we'll now be able to service all of the properties in the growing portfolio, specifically in the East African region.

30:12 In terms of our net asset value, this is obviously one of the things that we try and monitor as we're trying to push the share price to increase in line with and return back to trading close to net asset value.

30:27 It's been a fairly challenging macroeconomic environment over the last six months. The war in Ukraine, high interest rates, high inflation rates, these are all starting to put a lot of pressure onto property values. But what we've seen in our portfolio is the fact that the property valuations have been fairly resilient. They're ending up with a relatively flat NAV when we're seeing a lot of our peers now seeing a lot of pressure on their property values, which just underpins the resilience that is actually sitting within our property portfolio.

30:59 On that, I'll hand back to Bronwyn to take us through the strategy update of the group as we move forward. Thanks, Leon. So just when I get into the strategy update and really what the focal point is going to be for the future, just to reiterate really for both audiences, really our inherent sort of core principles and what we actually do. So remembering that our focus has been and is continually on blue chip multinational clients and servicing the real estate needs of those hard currency leases. One of the reasons for exiting Botswana LRR is the Pula exposure.

31:45 The diversification, asset class and geographic diversification. Africa is an emerging market. These markets go in cycles. We have exposure into North, West, East and SADAC Africa. And then if you look at what do we actually do, we obviously invest in properties itself, the bricks and mortar. Under the acquisition of the development business, We now have the development expertise. The co investment side, we have a magnitude of co investors that invest alongside ourselves in various projects. And then as Leon and myself alluded to, the benefit now of taking the IP of what we see in the team that we have put together in the last eight years is now the fee income side of the business, which is going to become a very, very core activity.

32:34 So really just getting into GRIT 2.0. What is GRIT 2.0? Some of you might have heard this buzz line. So in my mind, before you can get to GRIT 2.0, let's start with GRIT 1.0. GRIT 1.0 was a business and a vision that was born by two individuals somewhat nine years ago. Four of us sat in one office in La Crosette.

32:58 Over that period of time, we have gone from four staff members to over 150 staff across Africa. Between GRIT and GREA, we consolidately own and on a consolidation basis a portfolio of $1,200,000,000 Under GRIT 1.0, it was about bricks and mortar owning completed assets, long dated leases, collection of income, hard currency global tenants. GRIT 1.5 before I get to GRIT 2.0, what was GRIT 1.5? GRIT 1.5 was life after COVID. It was stabilization of our balance sheet. Last year we underwent a capital raise as well as a full syndication on consolidating our debt facilities and then we went through the acquisition of our development company.

33:51 That was GRIT one point five. GRIT two point zero and the future of GRIT is as follows. We continue to invest in properties, GRIT owned properties, co owned properties, but what we are seeing is we are seeing significant capital inflow into Africa for specialized asset classes. So we are looking under the GRIT side that we will into the future be launching a specialist industrial fund by the name of Bora Africa and an American Embassy Specialist Fund. That means that we are able to co invest with partners in industrial, with DFIs, with the likes of significant capital providers for Africa in co investment structures.

34:38 It still means that GRIT gets to consolidate these assets, but it means that GRIT can use its IP and team of people that you see, those over 150 people, to effectively now derive fees on development management, property management, facilities management and leasing. So on the left hand side it is property investment. On the right hand side it's real estate services. And that real estate services arm as Leonin mentioned the figure that you see today will become a significant line item to ourselves. Whilst not matching to revenue of leases, it matches to distributable income. So you'll see significant growth in our earnings and our collections and our fee earning capacity into the future.

35:26 And that is where we are going with GRIT 2.0. What is very important for the audience and again I reiterate that even though we bought our development company, we still see a significant component of our return being dividend, consistent dividends every six months. Pre COVID, we were trading at a 5% discount to NAV. Over COVID, we obviously stopped paying dividends, loan to value, hospitality was distressed, retail was distressed. We have resumed and will continue to pay a stabilized dividend from now into the future. This dividend policy will ensure that we are at least distributing 80% of our earnings with a target of $4.5 to $5.5 for the full year.

36:13 We've obviously announced a distribution and a dividend of $02 now. And a reminder again and why we have put it in bold in the top right hand corner, this is a 12.5% dividend yield of a portfolio which is almost 100% occupied, long dated leases, hard currency, escalations, inflationary linked escalations. So this dividend policy is really, really important. And obviously one of the biggest aspects of doing business in Africa is doing business for the people of Africa. The ESG component is a major component. We have secured significant DFI money from the likes of the IFC for this business, being able to have a complete and utter footprint in relation to the environment, our social, our diversity within our group, the fact that we have significant female leadership within the group and then obviously the governance side.

37:10 We are a London listed premium business as you are aware and governance and governance for Africa is one of the most significant components of our business and our investment case for now and into the future. So just to really close before we take questions and the video that we will be showing you just after my closing remarks will be the hospital project in Mauritius. But just to remind the audience that this is actually a simple business. So whilst it's Africa, whilst it's diverse, whilst it's multi geography, multi asset class, At the end of the day we have got a very, very significant real estate portfolio. The focus on that real estate portfolio is to continue to collect cash.

37:58 The leasing which you've seen significant progress in the leasing, vacancy management is a key component, growth of the NOI, net operating income of this business. The ESG targets and components, as Leon mentioned, our sustainability linked debt facility that we did with Standard Bank has a significant ESG component to it. The continuation and the closing of our asset recycling strategy of 20%. We have made significant progress as I've demonstrated today with us exiting our BHI NMH hospitality assets. The growing fee income that we see from a forecast perspective into the future, the ability to have fees come into this business, the continuous management of interest rate risk.

38:47 That is obviously a major component of our lives as a geared real estate portfolio. And we've obviously gone a long way even through the syndication of hedging out probably about 80% of our dollar exposure, very, very significant. And then the focus on development projects that are impact. So the future of GRIT will look like reduced retail, reduced hospitality, asset class focus will be impact. It will be data centers. It will be American Embassy. It will be light industrial servicing the office needs of global conglomerates as you've seen. That will be the focus. That is where the resilience of a real estate portfolio in an emerging market like Africa sits. So really on that note, just for myself, it has been an interesting couple of months globally, but this portfolio and what the management team has done has been transformational for us to create an unbelievable foundation for GRIT two point zero into the future.

39:48 So on that note, if we can just show you the hospital project, Falcon Hospital in Mauritius, which we're just in the process of handing over now. Great. Thank you, Bronwyn, and thank you, Leon.

40:53 And on that note, actually, maybe we can invite, Leon to come and join Bronwyn up on stage so that we can deal with some q and a. So just to remind everybody online, if you'd like to submit questions, you can do that online in that q and a poll. Those will be published through to us that we can read those out. Equally, in the room, if you are wanting to ask a question, please just raise your hands. We'll probably prioritize the online questions first. But I think without further ado, let's maybe hop straight into those. Okay. I think the first question that oh, sorry. Interrupt you for one second. Sorry. I just would like to introduce one of the new members of our c suite. OT is here today. I don't know if you can actually see him on the camera.

41:38 Maybe he can just come stand next to Leon. But Otti is our new CRO and has joined the team. And welcome, Otti. I know you feel like you've been here for a hundred years already, but this is obviously so everybody else could meet yourself. So Ottie is our new CRO that's joined the team. Thank you. Thank you, Brandon. Welcome. So I'm holding everyone. Hope you're having fun. Thanks, Ottie. Sorry, Darren, to interrupt you. I just wanted to introduce Ottie whilst we had the opportunity. Thank you, Bronwyn. I think just as an incident before we get to the first question, a reminder came up in the in the RNS today that GRITED intends to host a Capital Markets Day on the 05/10/2023 as part of the official opening of the precinct.

42:23 So further details will be disseminated along that those lines. But the first question links into that, which is why I I took an unashamed plug at the Capital Markets Day. Are you able to share some vision under GRIT two point o? And, obviously, we're going to get into further details at the Capital Markets Day. But at a very high level, what do you expect over the next five years in terms of the earnings mix? And can you provide some update on the visibility of the pipeline of asset light projects that that we might be considering? Thanks, Darren. So I think, you know, from from the what we can see now, and I need to be careful how we answer this question because, obviously, we a lot of the projects that we're busy working on will give us a lot more certainty around the potential under GRIT two point o. And just a reminder for the audience, GRIT two point o does look as a slightly less capital light so it's capital light strategy. It's the ability to use co investors or other people's capital, but effectively roll out their real estate across Africa. So as Liana mentioned, I think the number that we really see now now is sitting at about $9,000,000 already.

43:32 The ability to grow this and the projects that we are currently have secured and will be announced in due course are really international conglomerates that have come to Africa with the majority of their own capital. We've currently in the process of and have signed three of these major transactions. They're coming into various jurisdictions to roll out warehousing data centers and a number of other asset classes. The idea is that we would not possibly even take an equity stake or take a minority equity stake, but the ability to leverage off our expertise and our IP and being able to provide the development management services, the asset management services and the real estate management services to these conglomerates. So it will to answer the question, it will be into the next three and five years a major component of our earnings going forward. And with the line of sight of the projects that we will have seen today and will be announced in the market in due course, it will be a material component under GRIT two point o from an earnings capacity.

44:37 Great. Thank you, Bronwyn. There's a couple more questions along those lines. We'll come back to that, think. Maybe first changing tack a little. The current share buyback program that was announced last year, Leon, are you able to share any thoughts on how how effective that's been, how involved GRIT has been over this period? And I suppose any links into how the group thinks of the trading liquidity in the share? Sure. I think it's quite key to note that we started off the share buyback process and then had to actually put it a little bit on breaks as the management team got a little bit more involved in a transaction which we considered as price sensitive information. So we did hold back a little bit on that, which is now announced and we can continue with that program.

45:22 But over that period, we did see a fairly good uptick in terms of liquidity. Over the period as well, we did see some funds that were needed to execute to some redemptions and there was liquidity to actually full those orders. Darren, you're probably in a little bit better position to give the broader market update on that. Great. Yes, so just to confirm what Leon mentioned, under the market abuse regulations, GRIT was precluded from trading significantly beyond the point at which the BEACHKOME transaction became sort of real. So now that that's been announced, the group has the ability to go back into the market. What we are seeing is that there is relatively good demand both buying and selling, but but clearly, the the the trading on a day to day basis requires somebody to match that up. So if you look at the reasons we see that we're gonna come into a share buyback is one of the reasons is to is to return some cash and some capital to to to shareholders.

46:21 But the other was to provide our sponsor the facilities to create a market making opportunity, and and we've we've been quite encouraged by those by those actions and what that's done. And why are we doing that? You know, we would obviously like to be eligible for inclusion to the FTSE indices and those measurement periods run over a twelve month period. And so we need to have a median trade which we're very encouraged by the recent trading activity, how that will help us contribute to qualifying for index inclusion on the back of the trading liquidity. The same is true for the Mauritian market. Just to remind the audience that our shares are fully fungible between the Mauritian line as well as the as the The UK line, but equally is fully fungible between the Mauritian rupee trading line and the Mauritian dollar trading line.

47:10 So on the assumption that we can see better liquidity and sort of better activity on the rupee line, we'd also be very encouraged and and aspiring to to look for same decks inclusion on on the Mauritian market. So the combination of those two plus the combination of us delivering on group strategy, we hope will set the share up well for this year and beyond. And, obviously, as Bronin's alluded to, the strong dividend yield, is now getting paid again and resumed, should be a strong underpin to the way the share price should trade. I think if we can maybe go back to the interest rate risk, Leon. A question has come through that caps and collars, do you think those are the most appropriate instruments?

47:57 Look, there's obviously varying degrees of opinions on this, but assuming rates higher for longer, do we think caps and collars are the most appropriate hedge? Look, think when you're taking out hedges, you're generally taking them out over a longer period. The original hedges were three years. The second batch of hedges is over a period of three to five years. And during that period, you're going to see a lot of fluctuation in the interest rates. As we've gone over the cycle now and the hedges are in the money, we do want to have the ability to actually see those rates coming down as the interest rates come down. Having a fixed rate which is priced pretty similarly to the upper levels of the collars and caps, but does lock you into a fixed interest rate for a far longer period.

48:44 With the volatility that we're seeing, collars and caps are probably more appropriate when we're looking at our portfolio that does have a certain level of offset of the actual increases that are inflation driven due to the links back to our escalations. Okay. And I think linking into that question is how many sleepless nights have these interest rates given you? And, you know, should we be looking to build bigger reserves? And how worried are you guys about the interest rate risk and and the risk it poses to the business? And, hence, is there an ability is there a willingness or or a desire to try and build some additional buffers into your reserves and balance sheet? Look. If you'd asked me this question two years ago, I would have said a lot of sleepless nights because we weren't in a a healthy hedge position. But they're having a situation where we've got a reducing LTV.

49:38 We've got some of the asset disposals, which are the funds that are going to actually be held in the debt facilities to reduce that debt cost. It creates an environment where as long as your debt is still positive. So when we look and talk about positive debt, we look at our yields on our properties versus our cash cost of funding. And then we still have to take into account the actual tax shielding that we get from these interest rates. So it's an uncomfortable position when interest rates are going up that high, but I think we've managed that risk significantly. And when we confirm that with the escalations on the leases, I wouldn't say I'm losing sleep over the U. S. Dollar interest rates. If they fly up now, I think we're fairly comfortable still. The one thing that we are reducing a lot of exposure to our euro debt, which is fairly unhedged, but that quantum of debt is going to reduce significantly post this BHI transaction.

50:34 And Leon, could you please touch on the recycling sorry, the escalation profile portfolio and how you believe that does give us over the medium term an implicit hedge on interest rates? Yes, sure. So generally speaking on the euro assets, we've got a far lower level of escalations, which is linked predominantly to Euro Harmonized CPI being a lower part of the portfolio and then the implied lower cost of the Euribor versus LIBOR or SOFA, that is fairly contained. But in terms of the actual interest rates, it's something that we've always got to be very on top of and something we've got to focus on. As some of the hedges are going to get to the end of the profile, we need to be prepared to enter new hedges and a strategy where you're not entering hedges in one go and you do it more consistently over a period of time just to manage those price shocks that you get in the pricing of these type of products.

51:36 Okay, great. The next question remains to sort of NAV and and well, NAV of of GR1T and APDM and how that contributes to to GRIT. Although they, as separately functioning businesses, look like they're really achieving a lot of momentum, can you help us unpack how we should expect to see those coming through the GRIT numbers? So specifically, upon consolidation, but also once the development is completed, how does that come through? How do the returns get realized, I. E, through sort of asset revaluations and whatnot? Sure. I think it comes down to the life cycle of an asset. So when you're typically looking at a development or sort of cradle to grave environment on a property, once you start the developments, you've effectively got a lot of fee income generation during that period of development.

52:25 Once it reaches roughly its completion, then you actually start seeing the value uptick, which is fairly lumpy. You'll see on each property we do, we target to have a differential between final valuation and bulk costs of around 20%. And then you'll see that, that property will then stabilize in terms of value and have a lower growth in terms of net asset value, which is predominantly linked to the escalations on the properties as it's got a solid cash flow. So generally, you'll see in the first year as it enters our numbers, there is a fairly significant uptick as those assets are completed and it stabilized at a roughly total return of anything from 12% to 13% after a first year of roughly 20%. The actual income changes, obviously, in the first half when you've actually got your property under development, most of your profit is coming from fair value gains, which is not distributable, but off completion, then it obviously changes to distributable income as they're generating. So that's why the concept of having the actual property developments in there, that gives us significant revenue over the period of construction.

53:34 And just to remind everyone that we do have a limit that has been set by IC is that no more than 20% of our portfolio can actually be exposed to developments at one point in time. So that it doesn't create any pressure on the distribution zone going into the future as we grow. And if you don't mind me complimenting that a little bit, Leon. So although the numbers currently are not driven by GR1T and APDM as we see them today, the bulk of the the returns have been generated off the portfolio and the income because those fee income we see there does come with an associated cost line. So, you know, when people see the admin costs rising, it's not because costs are out of control necessarily. It's because they are fee income which will accelerate over the coming years as that comes in, and especially once APDM is consolidated post the May 15. You know, those consolidated earnings will come into the IFRS earnings rather than where they currently sit as an associate.

54:27 And just to remind everybody, you know, the intention is to own an 80% stake in APDM, whereas a lot of these underlying building vehicles, there'll be a a 50 ownership. So there's a delta between between those two ownerships, which accrue, you know, fee income to to GRIT. And that's how you should think about the forward looking projections of the fee income generation relative to the investment vehicles. Speaking of investment vehicles, again, Bronwyn, know we're going to expand on this at the Capital Markets Day, but are you able to give us a couple of thoughts on Bora Africa and DH Africa? You know, how do you see them being structured, control, consolidation, And essentially, what sort of external funding do we believe is available for some of these types of vehicles? So thanks, Darren. I'm going to touch on Bora Africa first or predominantly because that is well underway.

55:19 And I think we'll park DH Africa to the Capital Markets Day. But Bora Africa has been born out of the fact that we see a very big focus across Africa around industrialization. So the ability to provide industrial assets to end users, warehousing, cold storage, manufacturing, especially around the East African node. And we have been approached by different pools of capital that have seen what we have delivered in the market over the last eight years who have approached us to co invest on these type of projects. So for us, the structure specifically around Bora because it's a lot more progressed is that GRIT itself would vendor in our current industrial assets. So assets like the Imperial Warehouse Pharmaceutical that you know in Kenya, assets like Orbit, we would vendor that into a separate SPV and we would have co investors including DFIs alongside ourselves.

56:15 The ability for GRIT would be that we would still consolidate this vehicle, but we would be able to capitalize this vehicle without actually as we know at such a discounted share price to NAV, we don't want to raise capital at GRIT level, the ability to continue to grow to capitalize these substructures. Furthermore, we will be able to asset manage, property manage, real estate manage this portfolio on behalf of partners that don't have the boots on the ground across Africa. So Bora Africa is really going to be an impact industrial focused portfolio that is still going to have the benefit back to GRIT and GRIT Group, but we'll be able to and we are in the process of closing significant DFI capital to capitalize those specific substructures.

57:01 Brilliant. Thank you. Look. It's linked to this question, but maybe just reiterate what you've just said. So does that mean the group is not expecting to go for any further equity capital raises at the listed level over the next eighteen to twenty four months? Absolutely, Darren. So whilst we did a capital raise at quite a significant discount to NAV just whilst we were sitting in the COVID period, that was really around the fact that we wanted to recapitalize the balance sheet. We haven't actually historically done discounted issuances at all. It's not our intention to do discounted issuances. So it's definitively not our intention to raise any capital if and it's hopefully not, the share price continues to trade at such a significant discount to NAV. The ability to raise capital at GR1T, the development company and these substructures allows us and asset recycling, remember recycling a significant amount of our capital allows us to continue the growth trajectory on the opportunities that we see.

58:03 Great. Thank you. I will go to one last online question, but in the meantime, I ask anybody in the room that wants to ask a question to just raise your hands and Shivani will bring a microphone across to you. And while that's happening, maybe Leon, can you comment on the cash position of the group? So how does that compare now for your funding needs, so your capital commitments as well as the number of these corporate activities? Yes. I think we have at year end, you were sitting with December, we were sitting with US12 million in the banks. But there's been a significant amount of obviously capital outflows with the acquisition of GR1T, but then there's also been significant amount of inflows through the exits of partial exits of LLR as well as BHI. So we've managed to match that capital requirements and needs and sources of uses fairly well.

58:52 And then just to remind you, we obviously still have quite a bit of headroom in terms of our RCFs if there is any requirements that are requiring any bridge funding. Great. In the room, Shivani, is there anybody who wants Yes, to is Darren. Pierre will ask a question. Can go ahead now? Yes, you can. One question for Bronwyn, and then I'll complete the question with Leon because part it's been partly answered. My my question to you, Bron, was you've talked about GRIT one one point zero, and now you're moving to GRIT 2.0. GRIT 1.0 was the safe brick and mortar anchor tenants, regular revenue, property operating and GRIT 2.0 is now opening up your exposure.

59:48 Is the sort of additional risk that you'll be taking well compensated by the sort of value added which you expect to sort of drive from that? So thanks, Pia. So I so whilst I appreciate GRIT 2.0 might be seen to be carrying additional risks, in our mind actually it's not necessarily the case. And the reason being is, as we mentioned, that we don't want more than 20% of the portfolio exposed to developments. So that in itself is a risk mitigant. The developments and projects that are done by the development company are projects that are closed and secured with existing tenants.

1:00:36 So there is very little leasing risk that gets taken. The fact of the matter is we have to trust that this development company can develop and produce these projects on time and within budget. And the fact of the matter is that this progressive buy up of the development company has shown that they have completed and developed these projects, 400,000,000 over the last three years. So for us the actual development side adds more value and more return remembering that as Leon mentioned there's quite a substantial differential between the development cost and what we are revaluing these buildings at. So that significant NAV uptick. So we obviously want to have a 8% sort of income return, but ultimately we want a 12% to 15% total return on the portfolio.

1:01:25 That total return comes from net asset value growth and we can only achieve that if we have an element of developments which is significant in the portfolio. But Pierre just to answer your question further on GRIT 2.0, we are actually just leveraging off the team of people we have already. The reality is that when we set up while we have over 150 people is that property management, facilities management, leasing, all of these development services doesn't really exist in Africa. So we actually set it up ourselves. What we are now seeing is we are seeing huge corporations that have actually got their own capital to say we want you to do the work. And with that comes significant fees. So we are just sweating literally the people you see in front of you to be able to generate actually additional fees. So this capital light strategy actually derisks us even further because we're actually using other people's capital effectively.

1:02:16 And we'll able to use their capital and then leverage and be able to generate the fees. So the fee components, as Leon you saw the $9,000,000 already. If you look at that and what we're forecasting and obviously we don't want to give those numbers, but if you see what we've closed, the ability to grow that substantially with other people's capital and using the platform we have further de risks actually this Africa real estate story further. So we actually see it as a less risk than we saw at under GRITED 1.0 actually because it's going to be so much more cash generative. We're not just going to be relying on rental income. Because the issue with rental income is that it does hit the ceiling. You know we've seen it. Interest rates rise.

1:03:02 Tenants there's obviously tenant risk. There's a whole lot of other risks that exist in this. But we've now sort of leveraging off this fee side of the business too, sort of under GRIT two point o. Except that two point o requires more involvement, more on the ball I understand. Management know how, etcetera. 100%. And that's what we have. That's what we do. So that's the business that we've set up. And that's you'll see that, you know, under our vision statement, we are smart business solutions. We can bring expertise, and we have to global conglomerates that they don't have on real estate. So, absolutely we're going to be working much harder than we've ever worked before, but that's okay. And the fact that we've now got the platform to be able to do it. So it's been an expensive platform to set up because we have to do everything ourselves.

1:03:49 So now all we're doing is we're taking that IP and those teams, our 20 people in Mozambique, our 15 people in Ghana, and we're leveraging off the existing platform. And it's all about economies of scale. That's what we're leveraging off under this fee earning capacity going forward. Bronwyn, can I can I have to interject? I think we've gone the hour. So, unfortunately, there's a number of questions that we haven't answered online, but the investor relations team will follow-up with all of those. People in the room, you're welcome to ask a couple more questions at the at the refreshments and and and tea break after this one. If we can, maybe, Bronwyn, to have you just give some closing remarks. I think maybe I'm asking if you can wrap up one or two of the questions in your closing remarks about asset recycling and sort of just proving our valuations and whether we think we can sell at premiums or or, you know, whereabout we should be selling. But if I can hand over to you for a final sort of summary, and then we'll go back to Ali from Investor Meet to to close off the poll.

1:04:48 Perfect. And Pierre, we will take your second question, but we can take it off. You'll chat with Leon separately. Thanks, Darren. And just to wrap up and really just thank the audience in our building today, thank you. We really appreciate some of you have traveled from various parts of the island, we really appreciate you coming through to the building. And also, obviously, online audience. And just to reiterate our Capital Markets Day in May, both our online audience and the people that are sitting here today would would be fantastic to have you part of it. It's gonna be an exceptional probably two days of really showcasing exactly what I'm speaking about to Pierre now, but showcasing it in a huge amount of detail, which we'd love to show everybody. So just from my side, I think just what we have demonstrated over the last six months, not only stabilization of earnings, obviously stabilization of balance sheet with the syndicated deal, but the ability now to actually really recycle our assets and recycle the liquidity back into the business.

1:05:53 One of the over the last nine years of starting this business as a co founder, there have been a lot of question marks about Africa and a lot of question marks about what we do. Can we secure hard currency? Can we move money out of these countries? Can we invoice in hard currency? Do we have relationships with global tenants? Can we deliver projects across Africa? And does valuation mean valuation? And the only way to prove valuation whilst you have an independent valuation is actually to say can those assets be sold at that valuation. So the ability now to sell assets at net asset value, LRR has been and will be disposed at a premium to net asset value, the ability to now take that liquidity, reduce LTV and really just bulk up the cash reserves in the business, being able to recycle that cash into these impact projects of the future is really just very, very exciting from a foundational perspective.

1:06:53 And being able to bring under our Capital Markets Day GRIT 2.0 and what we're going to be doing under that is really it it is very it's a very significant milestone in the life of our business. It's been a very, very interesting nine years for us to build up the platform that we've built up. And we really see huge amounts of opportunity now going into the future for shareholder value. And ultimately at the end of the day we recognize that we are at a significant discount to NAV. It's about proving net asset value under these asset recycling initiatives to the market and then ultimately seeing a rerating of our share price, which as material shareholders ourselves, we own a significant holding of this business as a management team is exactly what we are all trying to do is to ensure that all these initiatives are reflective that the market sees the value in this business.

1:07:45 So on that note, Darren, I'd like to say thank you and just close off the session today. And then I will just introduce now what we're going to be going to for the Mauritian markets. Thank you. Bronwyn, Leon, Darren, thank you very much for updating investors today. And just as a reminder, a recording of this meeting will be available on the Investor Meet company platform. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, but I'm sure will be greatly valued by the company. And on behalf of the management team of GRIT REAL ESTATE INCOME GROUP LIMITED, we'd like to thank you for attending today's presentation.