Full year results

Grit Real Estate Income Group Limited, a leading pan-African real estate company focused on investing in and actively managing a diversified portfolio of assets underpinned by predominantly US$ and Euro denominated long-term leases with high quality multi-national tenants, today announces its audited results for the financial year ended 30 June 2020.

Financial highlights

Operational highlights

Post balance sheet activity

Notes

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

"COVID-19 has created a challenging backdrop, which has impacted Grit's business over the past six months, but we are continuing to take actions to ensure Grit remains financially robust with sufficient financial headroom and further strengthen its position to successfully navigate this period of economic uncertainty.

In line with the UK's Financial Conduct Authority temporary extended reporting timeframes allowing companies to fully assess the impact of COVID-19 on their businesses, Grit today publishes its delayed audited results for the year ended 30 June 2020. The robust July, August, September and October rent collection, which has averaged c.90%, leaves the Board increasingly confident in the Group's outlook. The Group continues, post balance sheet date, to make positive strides in its asset recycling initiatives and financing arrangements to ensure sufficient liquidity going forward and has further increased its covenant headroom through recent lifting of its lowest enforced debt covenants to 55%.

The Group continues to focus on delivering its investment strategy and growth opportunities that underpin the Company delivering attractive, secure and sustainable income and capital growth to our shareholders from our high-quality portfolio over the short and longer term."

FOR FURTHER INFORMATION, PLEASE CONTACT:

The Company's LEI is: 21380084LCGHJRS8CN05

NOTES:

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

The Company is committed to delivering strong and sustainable income for shareholders, with the potential for income and capital growth. The Company is targeting net total shareholder return inclusive of NAV growth of 12.0% p.a.*

The Company currently holds a primary listing on the Main Market of the London Stock Exchange (LSE: GR1T), while its listing on the Official Market of the Stock Exchange of Mauritius Ltd is termed as a secondary listing (SEM: DEL.N0000).

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

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

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

Company secretary: Intercontinental Fund Services Limited

Registered office address: c/o Intercontinental Fund Services Limited, Level 5, Alexander House, 35 Cybercity, Ebène 72201, Mauritius

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

Sponsoring broker: Capital Markets Brokers Ltd

This notice is issued pursuant to the LSE Listing Rules, Article 19 of MAR, SEM Listing Rule 12.14 and Rule 5(1) of the Securities (Disclosure Obligations of Reporting Issuers) Rules 2007. The Board accepts full responsibility for the accuracy of the information contained in this communication.

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

The Company will host a live webcast and conference call for investors and analysts on Tuesday 15 December 2020 at 13:00 Mauritius / 09:00am UK. The webcast and conference call require registration through contacting [email protected] to confirm attendance and can also be accessed directly at the following link: https://zoom.us/j/92639044803

CHAIRMAN'S STATEMENT

In a very challenging market, our Board and management team took decisive, proactive action to defend and grow our position and safeguard the business for the short and long term. People and economies across the world are coming to grips with the impact of COVID-19, and while the pandemic continues to test the resilience of the portfolio, the high and strengthening rent collection performance will continue to underpin the Group's focus on improving its financial strength.

The Board remains committed to reducing LTV levels over the medium-term to between 35%-40%, but now additionally has a near term focus of reducing its LTV to below 45%.

In conjunction, the health, safety and wellbeing of Grit's staff and their families, our tenants, communities, and wider stakeholders remains our top priority while the Group worked hard to contain and mitigate the effects of the pandemic.

The Group's high-quality assets have a weighted average lease expiry of 5.0 years, a weighted average contracted lease escalation of 2.8% per annum and are underpinned by a wide range of blue-chip multi-national tenants, across a variety of sectors, who account for over 90% (2019: 93.6%) of our contracted revenue. Grit's property portfolio comprises a total of 48 operating assets (including 24 properties held in Letlole La Rona ("LLR")) with rentals predominantly collected monthly, of which 89.1% are collected in US$, Euro or pegged currencies as well as 4 development assets (including land held for development, and 3 development assets held within our 19.98% investment in a property development company, Gateway Real Estate Africa).

The Group's portfolio, excluding the hospitality and retail sector assets, which now collectively represent approximately 51% of Grit's total proportionate share of investment property, to date remained largely unaffected by the pandemic.

In light of the effects of COVID-19, the Group will be ever prudent in its approach to new investment opportunities. The Company has extended the target execution dates on all of its announced pipeline opportunities and is assessing each one of these in the context of market conditions, funding options and return profiles whilst concurrently engaging with Development Funding Institutions who have expressed interest in funding certain of the Group's pipeline investments.

Grit's investment strategy is clearly defined, and even more so in today's terms, the Company will be selective in its approach to further growing the portfolio. The Company will focus on the asset classes that have proven to be resilient, and in particular, is excited about the prospects in the light industrial and logistics space, as well as sectors such as healthcare in Africa. Growth in target jurisdictions and select asset classes, on the strength of single tenanted, triple net hard currency leases, and backed by parent company and/or A-rated supporting guarantees will continue to be the Group's core focus.

The pandemic has, however, accelerated structural challenges in the retail sector. Although convenience centres, which typically have a higher proportion of rental income from grocery anchor tenants and essential services offering, have continued to trade well, the larger enclosed malls are under pressure and have experienced rising vacancies and tenant stress. We are now actively reducing our exposure to retail, which will include the recycling of assets and/or re-purposing or redeveloping these assets, where there are opportunities to do so.

In September 2020, the Group announced the partial disposal of AnfaPlace Mall, which now brings our retail exposures in line with our self-imposed medium term 25% sector exposure limit.

The Board remains confident of the credit quality of our hospitality tenant operators and the financial strength of their conglomerate owners and support from various governments' COVID-19 programmes. The Group does not assume any direct hospitality operating cost exposure as a result of our triple net lease structures with our hospitality operators and expects to collect 100% of the rents outstanding over the lease term.

Real estate investment trust ("REIT") promulgation across the African continent is expected to contribute to deepening the real estate markets in Grit's countries of operation. During the year under review, Grit announced its intention to establish an OPCI/REIT vehicle in Morocco and continues to investigate opportunities in Mauritius, Kenya and Ghana. These vehicles provide dedicated investment in real estate within a tax efficient structure, and with a deepening of local capital markets, are expected to attract more funds to the sector by providing both strong income generation access for local investors and also the potential for multi-year capitalisation rates compression in the sector. The Board remains very positive on the medium-term impacts of such regulation, and especially on Grit's ability to recycle its own assets and strengthen its position for future growth.

As the portfolio has reached a level of maturity, the Group's focus is increasingly shifting to acquisitions with expansion or redevelopment opportunities. We expect that the Group's risk mitigated pre-funding model will provide meaningful NAV growth over the medium term. We continue to evaluate the introduction of co-investment partners to projects while also advancing a number of alternate funding strategies.

In our endeavours to optimise the Company's access to capital markets and to save costs, the Company successfully delisted from the JSE in July 2020, migrating an overwhelming majority of its shareholders on the South African register to either the London Stock Exchange ("LSE") or the Stock Exchange of Mauritius Ltd ("SEM") (where the Company's listing is termed as a secondary listing), with the Company also converting to a Sterling quotation on the LSE. The Company aspires to the highest level of corporate governance and shortly expects to announce its intention to step up to the Premium listing segment of the Main Market of the LSE. The Board is seeking eligibility for FTSE All Share index series and a final element is redomiciling its corporate seat to Guernsey, which is expected to happen in early 2021 assuming the requisite shareholders' approvals are obtained at the forthcoming Annual General Meeting of shareholders. 

Financial results

These are challenging and uncertain times, as demonstrated by the valuation declines across the property portfolio, which now comprises total income producing assets, inclusive of new acquisitions, of US$823.5m (FY19: US$825.2m) and a total return of -15.8%. Global Listed real estate funds with exposure to retail and hospitality have seen significant valuation write-downs, and Grit is no exception. NAV per share reduced by 19.4%, mainly as a result of the decrease in the value of the Group's retail and hospitality property assets, the impacts of movements in currencies against the US$, mark to market adjustments for interest rate swap contracts, and increased impairment charges.

The reduction in NAV has increased the Group's LTV to a level of 50.2%. As a precautionary measure, Grit continues to engage with all of its lenders on extending LTV and interest covenants as well as interest holidays on loans attached to properties impacted by the pandemic. The lowest applied Group LTV covenant has been lifted to 55%, providing further headroom.

Protection of the balance sheet and debt reduction have become a strong focus for the Group and will continue for the near term. The capital recycling programme is performing in line with expectations; the Group has disposed of minority interests in AnfaPlace and Acacia Estate and we are currently in advanced discussions on the sale of other non-core assets. The Board remains committed to reducing LTV levels through a combination of continued asset recycling, quasi-equity instruments issuance to Development Financial Institutions and various government support programmes, selected NAV accretive acquisitions (subject to market conditions and pre-approval of funding) and some respite from valuation uncertainties, predominantly across our hospitality and retail sector assets. Cost saving measures aimed at permanently eliminating US$3m of identified annual costs have been implemented over the last six months. The Board and executive management also waived a portion of their salaries in the financial year and staff across the organisation accepted a temporary 10% cut to compensation. Grit continues to pursue a medium-term LTV target of between 35%-40%, but now additionally has a near term focus to reduce LTV to below 45%.

The directors' have modelled both a 'base case' and a 'severe but plausible downside' of the Group's expected liquidity and covenant position for a going concern period of at least twelve months from the date of signing the annual report. While modelling in a number of the scenarios shows that the Group has adequate financing facilities and maintains its covenants throughout the going concern period, the inherent uncertainty in future property valuations is such that in the event that property valuations across the portfolio decrease more severely or quickly than anticipated as a result of the COVID-19 pandemic, then the Group may breach some individual property and, or, Group wide covenants. Further detail on the downside scenarios are reflected in the CFO's report, and although management have a number of mitigating actions available to them, an emphasis of matter relating to going concern is referenced in the external auditors' Independent Audit Opinion.

In light of recent events the Board has deliberated, at length, the current year dividend and considered the needs of its income and yield investors against the long-term protection of the Group's balance sheet. The Board has decided against recommending a final dividend for the financial year ended 30 June 2020 but is encouraged by current rent collection levels and cash trends and anticipates that dividend payments will resume in the financial year ending 30 June 2021.

Despite a number of these ongoing challenges, there are positive trends which are expected to position Grit favourably in the short and medium term.

Changes to the Board

It is with great sadness that we learned of the passing of a longstanding colleague and Senior Independent Non-Executive Director, Ian Macleod. On behalf of the Board, I extend our deepest condolences and sympathies to Ian's family and friends. We remain grateful for his significant and highly valued contribution to the Company over the past five years.

Post the reporting period, on 24 July 2020 Catherine McIlraith, an Independent Non-Executive Director ("INED"), was appointed as a member of the Nomination Committee. On 4 August 2020, she was also appointed as Chairman of the Remuneration Committee. She remains Chairman of the Audit, Risk and Social & Ethics Committees.

On 4 August 2020, David Love was appointed as Senior Independent Director and was also appointed as a member of the Investment Committee. David remains as a member of the Audit, Risk and Social & Ethics Committees.

On 17 September 2020, the Board appointed Mr Jonathan Crichton as an Independent Non-Executive Director and he was also appointed as a member of the Audit and Risk Committees. Mr Crichton has a wealth of global risk management experience acquired during a long and distinguished career with the HSBC Group in both Asia and Europe.

Following these appointments, the Board is satisfied with the composition of the various sub committees and the Board as a whole.

Climate change and sustainability

Natural events are demonstrating increasingly higher evidence of climate change. Buildings and their construction together account for 36% of global energy use and 39% of energy-related carbon dioxide emissions annually, according to the United Nations Environment Program.

With Africa rapidly urbanising, we are cognisant of our role in transforming the design of buildings and developments for long-term sustainability. I am therefore proud to report on the great strides made on sustainability initiatives, disclosure and the meaningful response within our businesses. Our sustainability efforts, under the guidance of the Eco Grit team, focus on energy efficiency and carbon reduction and the Group has committed to a five year target of a 25% reduction in carbon emissions and a 25% improvement in our building efficiency.

In addition to environmental responsibility, we pride ourselves on achieving in excess of 40% of women in leadership positions at Grit, and more than 65% localised employees, adding to the Group's diversity.

Looking to the future

The Group has established a team of people who behave responsibly, work hard and are motivated by what they do. We invested time in our 'Futureproof Grit' programme and also recently conducted our annual staff survey. I am pleased to report the latter continues to show high levels of satisfaction with 96% of respondents saying they are proud to work for the Group. I would like to thank all our staff for a year of strong progress despite the numerous obstacles and for the tenacity they have collectively shown in the face of adversity. I would also like to extend our gratitude to the Johannesburg Stock Exchange for the years we were successfully listed there and to our investors and financiers who have continued to show strong support over a challenging past six moths

In addition to further reducing our debt and preserving liquidity, the Company will actively pursue listing on the Premium segment of the Main Market of the London Stock Exchange as well as redomiciling its corporate seat to Guernsey, which are expected to facilitate the Group's eligibility for inclusion in the FTSE UK Index Series. This is anticipated to significantly improve the liquidity in the Company's shares and further diversify the Company's shareholder base.

The pandemic continues to create a challenging backdrop especially for the retail and hospitality sectors, and the long-term impacts of COVID-19 are only just beginning to be felt. The Group is well positioned for a recovery in the economies where we operate and continues to focus on delivering its investment strategy and accretive growth opportunities that will help to further support the Company delivering attractive, secure and sustainable income and capital growth to our shareholders from our high-quality portfolio over the short and longer term.

CHIEF EXECUTIVE'S STATEMENT

Introduction

Against a challenging backdrop created by COVID-19, we remain focused on preserving the resilience and financial strength of the Group and continuing to further improve the high and strengthening rent collection performance, in order to weather the storm effectively and take advantage of future opportunities for the short and long term interests of our shareholders and wider stakeholders.

The health, safety and wellbeing of Grit's people and their families, our tenants and wider communities remains our top priority while we continue to work tirelessly to contain and mitigate the effects of the pandemic.

Our office, light industrial and corporate accommodation sector assets have remained relatively unaffected by the pandemic, and with Group rent collection continuing to improve, including robust July, August, September and October rent collection that has averaged c.90%, the Group is increasingly confident in its outlook. This increasing confidence is further reinforced by the recovery of the Euro post year-end, footfall showing steady improvement in our retail assets and arrears balances starting to improve. We continue to make positive strides in our asset recycling initiatives, and we have further increased our headroom through the recent lifting of the Group's lowest enforced debt covenants to 55%.

Impact of COVID-19

COVID-19 has resulted in a reassessment of many aspects of life including the way business is conducted across the globe. A redefinition of "normal" is at the forefront of business, and management teams have had to proactively embrace the ever-changing world and the opportunities that will present themselves.

Key to assessing COVID-19 impacts on the Group is to understand each specific area of operation and how the pandemic has impacted business practices, financial stability and direct operational activities within each one. Grit's geographic footprint has been far less affected by direct COVID-19 caseloads; and the broader African continent has a significantly lower death rates than Europe, Asia and North America. The continent has nevertheless borne the economic impacts felt worldwide and remains vulnerable to broader global economic developments associated with the pandemic.

(source: https://www.worldometers.info/coronavirus/ … 1 December 2020)

Changing real estate trends as a result of the pandemic are not necessarily uniformly comparable across the globe. As "work from home" becomes the "new normal" in the developed markets, questions have been raised on the long-term impacts on specifically the demand for office space. Although influenced by the global trends, Africa has other contributing factors such as limited access to quality internet connection, security of corporate data and company assets which often influence real estate demands to a far greater extent. The "work from home" concept has neither been viable nor practical in many developing countries, which has been demonstrated by staff employed by our tenants in the Grit portfolio returning to their normal place of work post the government imposed lockdowns.

Challenges and opportunities

I am greatly encouraged by the response of my team across all levels, who delivered many significant achievements despite considerable challenges, including successfully adapting to working from home practices necessitated by lockdown protocols as well as managing a pan-African portfolio remotely.

With enforced lockdowns across the world, the core team has worked to further strengthen Grit for the long term, including the identification of further areas of growth that are attractive and defensive across the African continent.

Grit achieved notable success in rent and arrear balance collection, and in a challenging environment, reported notable new lettings activity up to 30 June 2020. In the year, leases over 96,654m2 of GLA (representing 18.0% of total Group GLA) expired, of which c.89% has successfully been relet to the same or new tenants.

A summary of notable leases concluded during the financial year (presented on a 100% basis)

The weighted average Group EPRA vacancy rate increased to 5.9% at 30 June 2020 (2019: 2.9%) and was mainly impacted by near term disruptions to the Group's retail assets, specifically in AnfaPlace Mall, where country wide Moroccan lockdowns resulted in delays to start dates of previously agreed tenancies and led to the termination of a number of existing leases. The vacancy rate at Anfa, which stood at 21.5% as at 30 June 2020, has continued to rise with the recent termination of a lease of 1,800 m2 by H&M. The leasing team has made significant progress on filling vacant space and is currently concluding leases which are expected to bring the Mall's vacancies to under 20% by December 2020.

On 18 September 2020, the Company entered into a binding agreement, which has subsequently completed, for the disposal of a 39.5% interest in AnfaPlace Mall and has thereby reduced its retail sector exposure in-line with its self-imposed sector exposure limit target of 25%.

Mukuba Mall, which marked its five-year anniversary in March 2020, had lease expiries over 25,212m² of its total 28,236 m2 GLA, inclusive of 1,510m2 for Edcon group, which was terminated early. COVID-19 related challenges inclusive of travel restrictions have also resulted in renewal delays. As at 31 October 2020, 93.4% of expiring leases have been renewed or re-let and offers are in place for a further 3,497m2 which will result in a vacancy rate in the Mall of under 1% by January 2021 should these be successfully concluded.

Collections have remained strong 

Rent collections across the Group have remained strong since the onset of the pandemic and, despite the economic headwinds, collection trends have continued to improve in recent months with August, September and October collection rates averaging c.90% of contracted rental revenue.

Short term concessions, primarily in the retail segment, were agreed and have resulted in lost revenue of c.3.0% in the financial year end to 30 June 2020. Short-term payment deferrals of a further c.5.2% of Grit full year attributable contracted revenue were agreed driven primarily by the hospitality sector assets in Mauritius. These balances are predominantly now due over the period to 31 December 2021.

Successfully completed a number of acquisitions

During the year under review the Company concluded a number of significant transactions.

Governance

The Group continues to implement a strong framework that allows it to uphold the highest levels of governance across the platform and various operations on the continent. Strong oversight and continuous training from both our Human Resources and Compliance departments equip our people with the requisite skills to deliver attractive, secure and sustainable income and capital growth over the short and longer term.

In April 2020, the CEO and Property Manager of LLR, the Botswana listed company in which Grit now owns a 30% interest, submitted claims under an LTIP scheme that had been implemented prior to Grit assuming its board seat. The LLR Board instigated an investigation which resulted in a disciplinary hearing, and ultimately led to the dismissal of the former LLR CEO on the 18th of September 2020. These actions were supported by Grit by virtue of its representation on the LLR Board.

Cost of debt further reduced 

Total Interest-bearing borrowings increased by US$46.9m in the financial year to 30 June 2020, comprising funding for the Club Med Senegal asset, the additional VDE units and additional drawdown of working capital facilities. Cost of debt further reduced from a weighted average rate of 6.4% in the comparative year to 5.9% for the year under review. Several refinancing negotiations were successfully concluded, including replacing a number of the Mozambique loans with a cross-collateralisation programme with Standard Bank South Africa. The new US$140m facility resulted in a c.100bp drop in interest rates versus the replaced facilities. More recently, the Group has extended a US$15m bullet payment on an Investec Bank facility to February 2022, has extended maturities on several Group facilities and has secured an additional US$7m revolving credit facility from Nedbank. Further detailed commentary is contained in the CFO statement.

Seeking to improve liquidity in the Company's shares and to further diversify Grit's investor base

As reported on in the prior period, Grit is seeking eligibility to the UK FTSE Index series. The already implemented conversion to a Sterling quotation on the LSE and the recently published Annual General Meeting resolution seeking shareholder approval to redomicile its corporate seat to Guernsey are key elements of eligibility. Additionally, we expect to announce our intention to step up to the Premium listing segment of the Main Market of the LSE in due course.

These actions are expected to enable UK-oriented investors better access to Grit's shares, to support the Group's eligibility for inclusion in the FTSE UK Index Series, to significantly improve liquidity in the Company's shares and to further diversify Grit's investor base, all positioning the Group for growth in 2021.

Dividends will continue to be declared in US Dollars and the default currency for dividend payments will remain US Dollars. However, shareholders on the LSE will continue to have option of receiving dividend payments in GBP Sterling by making a dividend currency election.

We are thankful for the platform that the JSE has provided us during the past six years and are encouraged by the overwhelmingly positive vote of support from eligible shareholders for the delisting, with 99.81% voting in favour. Moreover, the vast majority of these shareholders have opted to retain their shares and move their holdings to either the London Stock Exchange or the Stock Exchange of Mauritius Limited.

The delisting was partially underwritten by Botswana Development Corporation and ZEP-RE (a regional African reinsurance company established by an agreement of the heads of state and governments of the Common Market for Eastern and Southern Africa "COMESA"), introducing new strong strategic shareholders to Grit.

COVID-19 Relief Fund and support

We remain cognisant of the plight of many staff families and local communities impacted by the COVID-19 pandemic and lockdowns. The pandemic has affected many of the poorer communities in Mauritius and Africa.

Grit created the Covid Relief Fund and through donations to the amount of approximately US$10,000 from Grit employees, partners, families and friends, distributed 600 food packs to families in need on the island.

Grit also made additional monetary donations of US$20,000 and US$73,000 for hand sanitisers and masks respectively to public servants and front-line service workers.

Post the reporting period, Grit along with preferred development partner Gateway Real Estate Africa, donated 55,000 masks to the Mauritius Diabetes Association. Mauritius currently ranks 7th in the world with 22% of the population being affected by Diabetes, therefore making those affected extremely vulnerable amidst COVID-19.

Prospects

The operating environment during the review period remained challenging, however, Grit's strategy of high-quality assets leased to very strong tenant covenants helped to ensure that Grit was resilient. We continue to concentrate on preserving the resilience and financial strength of the Company for the short and longer term with significant strategic progress made during the period.

Whilst we are maintaining an appropriately cautious stance in light of potential longer-term effects from COVID-19 on our tenants and the wider economy, we remain confident of our strategy to unlock superior total returns for investors in the medium to longer term.

With our expertise in African real estate, and our team's experience, knowledge, skill sets and relationships in various regions, we will continue to optimise assets and create value through proactive asset management and risk-mitigated pre-funding models to support NAV growth. In addition, we will continue to selectively pursue high-quality, diversified and yield accretive acquisition pipeline, supported by a strong tenant base and possible co-investment opportunities.

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

CHIEF FINANCIAL OFFICER'S STATEMENT

Presentation of financial statements

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). In common with best practice in the sector, alternative performance measures have also been provided to supplement IFRS based on the recommendations of the European Public Real Estate Association ("EPRA"). EPRA Best Practice and Policy Recommendations ("BPR") have been adopted widely throughout this report and are used within the business when considering our operational performance. Full reconciliations between IFRS and EPRA figures are provided in note 11 below.

A challenging backdrop

As we continue to navigate the ever-changing environment, the Company is carefully monitoring the impact of COVID-19 on current operations and being watchful for future implications. The Group's geographical and sectoral diversification have provided a mitigated set of results, with the pandemic impacting the Retail and Hospitality sectors significantly, while the remaining sectors (Office, Corporate Accommodation and Light Industrial) experienced limited impacts on cashflows and valuations. The Group's cash collections as a percentage of contracted lease income have remained strong and have improved post year end in July, August and September to c.90% collection rate.

Although the portfolio has performed with a good level of resilience, the broader economic climate and high levels of uncertainty, particularly around property valuations, have resulted in significant charges to the comprehensive income during the year, primarily in fair value adjustments in investment property.

Key movements in Comprehensive Income (six months to 30 June 2020)

Property valuation

Inclusive of both direct property values and properties held in associates and joint ventures, the combined impact on valuation by sector is listed below:

Impairment of financial assets and provisions

Consistent with COVID-19 related uncertainty being priced into the share prices of the listed real estate peer group, Grit's share price has been heavily impacted, and has traded to unprecedented levels of discount to Net Asset Value. As a result of the movement in the share price, the Group has made increased provisions against potential future losses in the financial year resulting in a reported provision balance of US$4.5m at 30 June 2020 for the Drive in Trading CRO (the guaranteed loan is underpinned by Grit's shares).

Mark to Market charges on interest rate swap contracts

As the global economy reacted to the challenges presented by COVID-19, governments across the world provided support to their respective economies by significantly dropping interest rates. As a result, Grit has seen US$ Libor rates decrease from c.2.48% at 30 June 2019, to 0.31% at 30 June 2020. Although this reduced cost of funding is positive to the group's cashflows, it has resulted in a material non-cash charge to comprehensive income as a result of the fair value adjustments of the interest rate swap contracts. The total charge for the year amounted to US$4.0m.

Rental Concessions and deferments

With the onset of COVID-19, and the resultant lockdowns, the Group was forced to make concessions to tenants. Although some of the concessions provided were as a result of local laws, the Group also provided support to tenants where necessary to protect the long-term viability of the tenants, specifically in the retail sector.

Treasury

Net debt

The Group raised net debt of US$45.4m in 2020 through refinancing and settling of existing facilities and new debt acquired. As financing is integral to our business model, the Group has continued to develop strong relationships with financiers. The multi-bank approach adopted by Grit has continued, with the main banking partners being Standard Bank, Bank of China and State Bank of Mauritius ("SBM"). Post the year ending 30 June 2020, the Group added a new banking partner in Nedbank from South Africa to its list of financiers.

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

The total movement in debt for the year comprised:

The Group's loan-to-value ("LTV") has increased to 50.2% at 30 June 2020 (2019: 43.1%). Cost of debt further reduced from a weighted average rate of 6.4% in the comparative year to 5.9% for the year under review.

The Group currently has fixed interest rates equivalent to 44.5% of the total underlying debt as at 30 June 2020 (2019: 9.5%).

The mark to market adjustments in interest rate swap and collar interest hedging contracts are as follows:

The debt expiry profile at 30 June 2020 has been rescheduled as a result of the post balance sheet movements described below:

Post year end, the following debt transactions occurred:

Share issue

Post year end, the Group has additionally obtained a commitment for the issuance of ordinary shares up to the value of US$10m from an existing shareholder to be satisfied prior to 28 December 2020.

FINANCE REVIEW

Net asset value

EPRA NAV per share decreased by 19.4% from US$147.1 cps to US$118.6 cps. The reduction was mainly driven by the decrease in the value of the Group's property assets, specifically in the retail and hospitality sectors, the impacts of movements in currencies against the US$, mark to market adjustments for interest rate swap contracts, increased impairment charges and provisions associated with the Drive-In-Trading ("DIT") facility guarantee.

Property portfolio

Inclusive of both direct property values and properties held in associates and joint ventures, the portfolio experienced a 7.9% like-for-like drop in values over the course of the financial year to 30 June 2020, with the largest impact being experienced in the second half of the financial year and predominantly impacted by net operating income movement and upward risk adjustments in discount and capitalisation rates. This fall in portfolio value was substantially offset by a number of acquisitions and capex projects completed during the financial year, which most notably included the AnfaPlace Mall redevelopment, the increased VDE units, the LLR acquisition and the Club Med Cap Skirring acquisition in Senegal.

The value of our property portfolio increased to US$780.6m as at 30 June 2020 from US$769.1m in 2019.

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.

Reduced property valuations were predominantly impacted by net operating income movement and upward movement in discount and capitalisation rates in the hospitality and retail sectors. The balance of the portfolio, consisting of corporate offices, corporate accommodation and light industrial assets performed well, highlighting the continued importance of a diversified portfolio, both in terms of geography and asset class.

A summary of the portfolio valuations is presented below:

Investment Properties summary

Further notes on significant acquisitions and additions contained above:

Dividend

Dividends per share declared for the year ended 30 June 2020 amounted to US$5.25cps (2019: US$12.20 cps), comprising the interim dividend declared in February 2020. The Board has decided against declaring a final dividend for the year ended 30 June 2020 but expects to resume dividend payments in the current financial year once it has greater clarity on the economic outlook and impact from the pandemic on the Group's LTV movements.

Income statement

Notwithstanding rental concessions granted, gross rental income increased to US$48.0m from US$43.6m in 2019. This increase is as a result of annual contractual lease escalations and as a result of asset acquisitions in the period.

Short term concessions, primarily in the retail segment, were agreed and have resulted in lost revenue of c.3.0% in the financial year end to 30 June 2020. Short-term payment deferrals of a further c.5.2% of Grit full year attributable contracted revenue were agreed driven primarily by the hospitality sector assets in Mauritius. These balances are predominantly now due over the period to 31 December 2021. Although the Group has provided for additional concessions, it is not expected to be as severe an impact to revenue in the financial year to June 2021.

Property operating costs have remained broadly flat year over year at US$10.5m (2019: US$10.4m), which including a significant increase in provision for bad debts of US$1.2m (2019: US$0.5m) which has been compensated by the impacts of the Group's identified cost control programme which came have been initiated from March 2020. Property operating costs as a percentage of revenue has dropped to 21.7% from 24.4% in 2019 which, along with the impact of acquisitions, contributed to the strong 27.0% growth in profit from operations.

Group administrative expenses increased to US$20.1m from US$15.3m in 2019, the additional costs are mainly attributable to corporate structuring and acquisition costs of US$3.9m compared to US$1.3m in 2019 (including delisting from the JSE and preparation costs for the step up to Premium listing on the LSE). The Group is committed to pro-actively managing the cost base and over the last six months implemented permanent elimination of US$3m of identified annual costs.

Share of profits from associates was reduced from US$20.6m in 2019 to US$6.7m in the current financial year. The decrease was attributable to the fair value loss in investment properties held within associates and joint ventures of US$7.0m (2019: fair value gain of US$6.9m).

The Group's profit for the period was heavily impacted by the decrease in valuations of the properties, impairments and provisions of US$15.1m (2019: US$1.6m) and mark to market adjustments of the interest rate swap contracts of US$4.0m (2019: nil) which resulted in a loss attributable to shareholders of US$63.1m as compared to a profit of US$28.0m in 2019.

Adjusted EPRA earnings for 2020, which removes the impact of non-cash items such as fair value movements, deferred tax, straight lining of leases and unrealised foreign currency translation impacts from the loss for the year attributable to shareholders, equated to US$27.3m, which is a 5.0% decrease from US$28.7m in 2019.

Total distributable earnings decreased 17.1% to US$28.7m compared to US$34.7m in 2019.

Drive in Trading guarantee update

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

The PIC's Investment Committee has recently approved, subject to documentation, a formalisation of a revised US$ lending facility to DIT on the following terms:

The Board and PIC continue to engage on this aspect and expect to finalise details on this shortly.

Should the transaction be concluded, it would be subject to an independent fairness opinion and considered under Grit's related party policy as a result of PIC's shareholding in Grit of 26.75%. The DIT guarantee provision is currently accounted for under "Other Financial liabilities", and at 30 June 2020 had a fair value of US$4.5m (31 December 2019: US$1.1m).

Contingent liability of associate - Letlole La Rona Limited ("LLR")

On 11 December 2019, the LLR Board signed a five year executive Long Term Incentive Plan ("LTIP") for three beneficiaries, being the former LLR Chief Executive Officer ("CEO"), The LLR Chief Financial Officer ("CFO") and the LLR Property Manager.

On 28 April 2020, the LLR CEO and the LLR Property Manager submitted a claim for the sum of 14,948,368.29 Botswana Pula and 7,474,184 Botswana Pula respectively to the LLR Board claiming that the LTIP had vested.

The LLR Board instigated an investigation which resulted in a disciplinary hearing and ultimately led to the dismissal of the former LLR CEO on 18 September 2020 and fraud charges being laid against the former LLR CEO. The matter is currently with the Courts, and the attorneys of LLR are confident in defending the case.

The Grit Group's 30% holding in the claim is US$0.4m and US$0.2m respectively.

Going Concern

The directors are required to consider an assessment of the Company's and Group's ability to continue as a going concern when producing the financial statements. As such they have modelled a 'base case' and a 'severe but plausible downside' of the Company's and Group's expected liquidity and covenant position for a going concern period of at least twelve months from the date of signing the annual report. The process involved a thorough review of the Company's and Group's risk register, an analysis of the trading information both pre and post year end, extensive discussions with the independent property valuers, a review of the operational indicators within the Group and economic data available in the countries of operations. In addition, the Company have conducted a number of reverse stress tests on property valuations to determine levels at which financial covenants could come under pressure and have assessed the likelihood of the underlying break point assumptions being triggered. All of this has been done in the context of what has occurred through the COVID-19 pandemic, previous experience of African real estate valuations and best estimates of expectations in the future.

The base case reflects management's best expectations of the position going forward. It was modelled on board approved forecasts over the relevant period and assumes the execution of a legally enforceable contract permitting Grit to issue shares of a value up to US$10m to an existing shareholder to be satisfied prior to 28 December 2020. The base case scenario also includes the Company's financial projections including:

Notwithstanding the material uncertainty detailed below, taking into account the results of the analysis and the various mitigating action available to the Company and the Group, the Board has concluded that it is appropriate to prepare the financial statements on the going concern basis. 

Two scenarios of the severe but plausible downside were modelled.

A summary of the key assumptions made in the first severe but plausible scenario, which the Directors consider a reasonable worst-case scenario, are as follows:

The Company's and Group's external valuers inserted a COVID-19 material uncertainty clause which has introduced further inherent uncertainty to future property valuations. As a result, the Directors have modelled an even more severe but plausible downside taking account of this additional COVID-19 uncertainty. Specifically, this scenario increased the cumulative decline in property valuations by an additional 10% over the first severe but plausible scenario from the peak to trough over the going concern period and result in cumulative decline in property valuations of:

Under these severe but plausible assumptions, and even after taking mitigating actions such as stopping cash dividends, the Company and Group may be in breach of some individual property and, or, Group wide covenants and would require the Directors to negotiate a waiver with its lenders and, or, pay down debt through either existing or new currently uncommitted facilities to avoid borrowings becoming payable immediately.

While the base case and first severe but plausible models show that the Company and Group have adequate financing facilities and maintains its covenants throughout the going concern period, the inherent uncertainty in future property valuations as a result of the COVID-19 pandemic are such that, in the event that property valuations across the portfolio decrease more severely or quickly than expected, as in the second scenario, then it may indicate a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern and are referenced in the external auditors' Independent Audit Opinion. The Company and Group financial statements do not include the adjustments that would result if they were unable to continue as a going concern

PRINCIPAL RISKS AND UNCERTAINTIES

Grit maintain a Key Risk Register which is shared with the Risk Committee on a quarterly basis. The key risks are well managed and monitored regularly as the risks could change with changes in the industry, economy and stakeholders, amongst others.

The principal risks of the business are set out in the 2020 Annual Report alongside their potential impact and related mitigations. These risks fall into the following categories: strategy\external; information technology; people and culture and operational.

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

STATEMENT OF DIRECTORS RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the Group financial statements in accordance with International Financial Reporting Standards ("IFRSs") as issued by the International Accounting Standards Board (IASB) and the Mauritius Companies Act 2001, for purposes of complying with the SEM Listings Rules and to enable the company to meet its filing obligations regarding the financial statements Annual report applicable to its listings in London.

The Directors must not approve the Group financial statements unless they are satisfied that the Group financial statements give a true and fair view of the state of affairs of the group and of the profit or loss of the group for that period. In preparing the financial statements, the Directors are responsible for:

The Directors are also responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group's transactions and disclose with reasonable accuracy at any time the financial position of the group and enable them to ensure that the financial statements comply with the Mauritius Companies Act 2001. 

Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 

Each of the Directors confirms that to the best of their knowledge:

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

The Strategic Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

The annual financial statements of the Company have been approved by the Board on 14 December 2020. Each of the Directors confirms that to the best of their knowledge that the Group financial statements, which have been prepared in accordance with IFRSs, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group.

On behalf of the Board

ABRIDGED CONSOLIDATED STATEMENT OF INCOME

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 these separate and consolidated financial statements are set out below.

1.1 Basis of preparation

The abridged consolidated financial statements for the year ended 30 June 2020 ("financial statements") have been prepared on a going concern basis and in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, International Financial Reporting Standards (IFRS) as issued by the IASB, the LSE Listing Rules and SEM Listing Rules; the Financial Pronouncements as issued by the Financial Reporting Standards Council and the requirements of the Mauritian Companies Act 2001.

Going Concern

The directors are required to consider an assessment of the Company's and Group's ability to continue as a going concern when producing the financial statements. As such they have modelled a 'base case' and a 'severe but plausible downside' of the Company's and Group's expected liquidity and covenant position for a going concern period of at least twelve months from the date of signing the annual report. The process involved a thorough review of the Company's and Group's risk register, an analysis of the trading information both pre and post year end, extensive discussions with the independent property valuers, a review of the operational indicators within the Group and economic data available in the countries of operations. In addition, the Company have conducted a number of reverse stress tests on property valuations to determine levels at which financial covenants could come under pressure and have assessed the likelihood of the underlying break point assumptions being triggered. All of this has been done in the context of what has occurred through the COVID-19 pandemic, previous experience of African real estate valuations and best estimates of expectations in the future.

The base case reflects management's best expectations of the position going forward. It was modelled on board approved forecasts over the relevant period and assumes the execution of a legally enforceable contract permitting Grit to issue shares of a value up to US$10m to an existing shareholder to be satisfied prior to 28 December 2020. The base case scenario also includes the Company's financial projections including:

Notwithstanding the material uncertainty detailed below, taking into account the results of the analysis and the various mitigating action available to the Company and Group, the Board has concluded that it is appropriate to prepare the financial statements on the going concern basis.

Two scenarios of the severe but plausible downside were modelled.

A summary of the key assumptions made in the first severe but plausible scenario, which the Directors consider a reasonable worst-case scenario, are as follows:

The Company's and Group's external valuers inserted a COVID-19 material uncertainty clause which has introduced further inherent uncertainty to future property valuations. As a result, the Directors have modelled an even more severe but plausible downside taking account of this additional COVID-19 uncertainty. Specifically, this scenario increased the cumulative decline in property valuations by an additional 10% over the first severe but plausible scenario from the peak to trough over the going concern period and result in cumulative decline in property valuations of:

Under these severe but plausible assumptions, and even after taking mitigating actions such as stopping cash dividends, the Company and Group may be in breach of some individual property and, or, Group wide covenants and would require the Directors to negotiate a waiver with its lenders and, or, pay down debt through either existing or new currently uncommitted facilities to avoid borrowings becoming payable immediately.

While the base case and first severe but plausible models show that the Group has adequate financing facilities and maintains its covenants throughout the going concern period, the inherent uncertainty in future property valuations as a result of the COVID-19 pandemic are such that, in the event that property valuations across the portfolio decrease more severely or quickly than expected, as in the second scenario, then it may indicate a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern and are referenced in the external auditors' Independent Audit Opinion. The Company and Group financial statements do not include the adjustments that would result if they were unable to continue as a going concern.

Functional and presentation currency

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

Presentation of alternative performance measures

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

1.2 Segmental reporting

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

1.3 Critical Judgements and estimates

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

Judgements

The principle areas where such judgement has been applied was:

Unconsolidated structured entity

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

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

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

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

Acquisition of Letlole La Rona Limited

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

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

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

The transaction for the 9,839,511 shares was recorded at the ruling share price of the day of US$1.19, resulting in the acquisition being recorded at US$11.3m.

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

Freedom Asset Management (FAM) as a subsidiary

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

Grit Executive Share Trust (GEST) as a subsidiary

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

Gateway Real Estate Africa Ltd (GREA) as an associate

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

Acquisition of investment properties

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

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

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

Investments, associates and joint ventures

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

Estimates

The principal areas where such estimations have been made are:

Fair value of investment properties

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

The outbreak of COVID-19, declared by the World Health Organisation as a "Global Pandemic" on 11 March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries. The market activity is impacted in all sectors. As at valuation date, the valuers have considered to attach less weight to previous market evidence for comparison purposes, to inform opinions of value. Indeed, the current response to COVID-19 means that an unprecedented set of circumstances are faced on which to base a judgement. The valuation is therefore reported on the basis of 'material valuation uncertainty' per VPGA 10 of the RICS Valuation - Global Standards. Consequently, less certainty and a higher degree of caution should be attached to our valuation than would normally be the case, given the unknown future impact that COVID-19 might have on the real estate market. For the avoidance of doubt the material valuation uncertainty declaration does not mean that the valuation cannot be relied on as it only serves as a precaution and does not invalidate the valuation. There has been no change in the valuation methodology used for investment property as a result of COVID-19. Further details of the valuation method, judgements and assumptions made.

Fair value of financial instruments

The Group have estimated the value of its obligation arising from its guarantee to de-risk 50% of PIC's exposure to the BoAML CRO. The Group's obligation is based on the occurrence or non-occurrence of uncertain future events (the probability of DiT defaulting on the BoAML facility). Therefore, the fair value of the obligation was based on the probability of DiT defaulting on the facility (management has assessed the risk of default as low for the years endings 30 June 2020 and 30 June 2019.)

Taxation

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

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

COVID-19

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

2. INVESTMENT PROPERTIES

Investment property pledged as security

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

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

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

In respect of the majority of the Mozambican investment properties, independent valuations were performed at 30 June 2020 by REC Chartered Surveyors (2019: Knight Frank Chartered Surveyors and REC Chartered Surveyors) using the discounted cash flow method (2019: discounted cash flow method).

The Moroccan investment property was independently valued at 30 June 2020 by Knight Frank Chartered Surveyors (2019: Knight Frank Chartered Surveyors), using the discounted cash flow method.

The Zambian investment properties held by joint ventures were independently valued at 30 June 2020 by Knight Frank Chartered Surveyors (2019: Knight Frank Chartered Surveyors), using the discounted cash flow method.

The Kenyan investment properties held by the Group and its associates were independently valued at 30 June 2020 by Knight Frank Chartered Surveyors (2019: Knight Frank Chartered Surveyors), using the discounted cash flow method.

The Mauritian investment properties held by the Group and its associates were independently valued at 30 June 2020 by Knight Frank Chartered Surveyors (2019: Knight Frank Chartered Surveyors), using the discounted cash flow method.

The Ghanaian investment properties held by the Group, its associate and joint venture were independently valued at 30 June 2020 by Knight Frank Chartered Surveyors (2019: Knight Frank Chartered Surveyors), using the discounted cash flow method.

The Senegalese investment property was independently valued at 30 June 2020 by Knight Frank Chartered Surveyors using the discounted cash flow method.

The Botswanan investment properties held by associates were independently valued at 30 June 2020 by Knight Frank Chartered Surveyors using the discounted cash flow method.

Material valuation uncertainty due to Novel Coronavirus ("COVID-19"): The outbreak of COVID-19, declared by the World Health Organisation as a "Global Pandemic" on 11 March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries. The market activity is impacted in all sectors. As at valuation date, the valuers have considered to attach less weight to previous market evidence for comparison purposes, to inform opinions of value. Indeed, the current response to COVID-19 means that an unprecedented set of circumstances are faced on which to base a judgement. The valuation is therefore reported on the basis of 'material valuation uncertainty' per VPGA 10 of the RICS Valuation - Global Standards. Consequently, less certainty and a higher degree of caution should be attached to our valuation than would normally be the case, given the unknown future impact that COVID-19 might have on the real estate market. For the avoidance of doubt the material valuation uncertainty declaration does not mean that the valuation cannot be relied on as it only serves as a precaution and does not invalidate the valuation. There has been no change in the valuation methodology used for investment property as a result of COVID-19.