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The expansion of a manufacturing facility for Orbit Africa has stalled amid lease renegotiations with its landlord —Mauritian real estate firm Grit.
Orbit, owned by Sachen Chandaria and a contract manufacturer for global firms such as Reckitt Benckiser, Colgate-Palmolive, and Unilever, sold the 20 acres hosting its plant and warehouses to Grit in 2022 in a deal that saw it remain as a tenant.
Grit was to expand the manufacturing facilities for Orbit, which signed a 25-year lease with the real estate developer but the additional investment of more than Sh2 billion has now been paused after the manufacturer said it needs a smaller space.
This has sparked renegotiation of the rent, injecting uncertainty into Grit’s projected returns and capital investment in the project.
“Lease renegotiations currently underway with Orbit Africa within the Orbit industrial park in Nairobi, Kenya. Phase two development has been paused pending the discussions,” said Grit in its latest annual report.
Orbit is the fifth most valuable tenant for Grit, contributing 4.2 percent of the multinational’s monthly real estate portfolio income.
The property developer reported a total rental income of $76.3 million (Sh9.8 billion) in the year to June.
Grit says the value of its light industrial property assets shrunk by $16 million (Sh2 billion) largely due to the events at Orbit Africa.
“The fair value of the light industrial sector was mainly impacted by the Orbit complex in Kenya, where a new framework agreement was entered into with the tenant for a reduced space,” the multinational said.
The Orbit facility comprises land and industrial buildings that were acquired on a sale-and-leaseback basis whose terms are now being renegotiated between the parties.
The current agreement features a renewable 25-year US dollar denominated triple net lease (the tenant takes care of maintenance and insurance), as well as a rolling three-year rental insurance policy furnished by the tenant for a 10-year term. The rent was to rise by an average of two percent per annum as per the contract.
In March 2022, Grit concluded the acquisition of the Orbit complex from Mr Chandaria as part of its expansion in Kenya. Part of the proceeds was to be used to settle a Sh2.5 billion loan that Orbit had taken from NCBA Bank.
Grit had a 70 percent stake in the Orbit assets but sold 30 percent to Botswana’s real estate firm Letlole La Rona Limited (LLR) at an initial cost of Sh934.2 million ($7.23 million).
Grit said in its prior reports that the total expected investment across the sale and leaseback and redevelopment and expansion was expected to be Sh6.9 billion ($53.6 million).
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