In 3-quart saucepan, heat water to boiling over medium-high heat. Stir in salt. Stir in grits with whisk, stirring to ensure lumps have been removed. Reduce heat to simmer. Cover; cook 6 to 8 minutes, stirring occasionally. Add Cheddar cheese, cream cheese and pepper to grits. Stir until cheeses have melted. Stir in crumbled drained sausage; mix well. Pour into baking dish.