Grit's Bronwyn Corbett is committed to the Africa growth story
The real estate company enters Senegal, backing its strong macroeconomic fundamentals.
Grit Real Estate Income Group is starting to make good on its promise to unleash real estate investments worth millions of dollars across sub-Saharan Africa, buying into the region’s growth story.
Grit, which is listed on the Johannesburg and London Stock Exchange, has concluded the first tranche of its potential $600 million (about R8.6 billion) worth of real estate opportunities across sub-Saharan Africa.
The first region that Grit has targeted is Senegal, expanding the real estate company’s presence on the continent to eight countries that includes Kenya, Morocco, Zambia, Botswana, Mauritius, Mozambique and Ghana.
Last week, Grit announced the acquisition of a hotel resort in Senegal for €11.6 million (about R184 million) from Club Med, the French resort company owned by China's Fosun Group that operates over 70 all-inclusive resorts in 26 countries on five continents. The resort in question is Club Med Cap Skerring in Senegal’s coastal village of Kabrousse.
Grit, which was co-founded in 2012 by South African chartered accountant Bronwyn Corbett (pictured) when it was formerly known as Delta International (later renamed Mara Delta), said the deal is a coup for the company due to Senegal’s attractive growth story.
“Senegal is booming at the moment,” Bronwyn told M&A Africa. “We were keen to enter it, but it has taken us a long time to close this deal (about 18 months to be exact). The due diligence process had to be done. We wanted to make sure money can be moved into the country and working our way through the country’s tax structure.”
Bronwyn said Senegal is one of Africa’s most stable countries with a high growth economy.
According to the World Bank, Senegal has been among Africa’s most stable countries, with three major peaceful political transitions since the country’s independence in 1960.
The West African nation has recorded over six percent economic growth since 2014, and the forecast remains optimistic, particularly with oil and gas production expected in 2022. Growth accelerated to over seven percent in 2017 and is expected to remain over six percent in 2018 and in the following years. However, Senegal, just like any other country in sub-Saharan Africa has its pitfalls. Its tax laws are not very sophisticated, making it difficult for foreign investors to enter the country or do business.
Beyond Senegal’s good macroeconomics story, Bronwyn said the country is complementary to Grit because it is a francophone country and the company is already exposed to countries where French, in addition to other languages, is used by locals such as Mauritius and Morocco.
Grit was also drawn by real estate fundamentals of Club Med Cap Skerring. It’s occupied by a global tenant, Club Med, with a long-term lease of more than ten years, and pays rent to Grit in hard currency (euros and not West African CFA franc, the local currency). This is how Grit approaches its investments; it focuses on real estate opportunities that are backed by strong lease covenants and multinational corporates that are its tenants, which reduces concentration risk.
The Club Med deal
Under Grit’s acquisition agreement, Club Med would renovate part of the hotel and expand it at a development cost of €25 million (R397 million), capped at €28 million (R445 million). The development programme would be carried out by Club Med, which will be responsible for any cost overrun.
Post completion of the acquisition, Club Med is expected to operate an additional flight from Brussel in Belgium, to Dakar in Senegal, to boost the local economy. And Grit won’t take no direct hospitality operating risk as the landlord.
The addition of the Club Med hotel resort means that Grit will own and operate a real estate portfolio of assets that are worth about $800 million (R11.4 billion). It’s a massive feat considering that Bronwyn has grown assets under management nearly fourfold since 2012, from $220 million (R3.1 billion) to $800 million.
Bronwyn remains committed to sub-Saharan Africa and plans to grow Grit’s assets to more than $1 billion (R14.3 billion) in the next year. Getting there will require it to execute the $600 million potential investment opportunities it has identified. From this pipeline, Bronwyn said Grit is unlikely to make more investments in Zambia given the country’s difficult macro-economic fundamentals. Over the next few months, Grit will likely conclude deals in Ghana, Morocco, Kenya and Uganda, where it’s targeting light industrial, hospitality and corporate accommodation assets. Executing this pipeline has been a bit slow because Grit has had to reject concluding real estate deals because it didn’t regard them as quality deals, Bronwyn added.
With Grit now being listed in the UK, it now has a large pool of foreign investors that have mandates of investing capital in sub-Saharan Africa. “We now focus on UK investors. We get funding from them for Africa projects. Form a UK perspective investors, there is an appetite from investors wanting more exposure into the continent.”
But South African investors are still nervous about venturing further into the continent and supporting Grit. This was exacerbated by the sharp oil and commodity price slump and the currency crises that hit Africa’s largest commodity producers and exporters such as Nigeria, Angola, Equatorial Guinea and Algeria in 2015-2016. However, most of these countries are on a path towards economic recovery as commodity prices have rebounded.