Stephen Oakenfull has been appointed CEO of JSE-listed UK focused property fund RDI Reit, 18 months after the company restructured its portfolio, and managed to get rid of the majority of its retail assets, which have been its millstone for a few years.
RDI’s management team has reshaped the company such that it now owns a portfolio worth £1.167bn (R24.1bn), hich includes British hotels, light industrial warehouses and flexible-term offices.
Oakenfull replaced Mike Watters, who had been CEO for 14 years.
The group made the announcement after it released financial results for the year to August on Thursday, in which it managed to pay a dividend of five pence per share even though its hotel assets could not operate during the UK’s first national lockdown, which began in March.
Following the decision not to declare an interim dividend, the board has declared the 5p dividend in respect of the full year, having declared a dividend of 10p in the year to August 2019.
This dividend reflects a 72.5% payout ratio on underlying earnings and is in line with the company’s UK Reit distribution obligations.
Oakenfull said RDI was in a much stronger position given that it had almost entirely exited retail.
“We have delivered a streamlined, higher-quality portfolio together with a strong balance sheet. While there is work to be done in shaping the future trajectory of the portfolio, the company is well positioned for growth and we are pleased, therefore, to be able to reinstate the dividend,” he said.
Net rental income fell 23.5%, reflecting a reduction in income from operational assets, the continued use of company voluntary agreements (CVAs) in the retail sector and deterioration in collection rates.
CVAs are signed between landlords and tenants to avoid companies being liquidated. Landlords are offered more than if the tenant were to enter a terminal insolvency process. Often in terms of these agreements a tenant would pay rent for certain stores and the landlord would then receive some rent, as opposed to not receiving any rent.
Many British retailers have used CVAs as they struggle to compete with online retailers. In 2020, for some large retailers as much as 50% of retail sales in the UK have been online.
“It’s been a very difficult few months given how the UK went into a hard lockdown. Many of our tenants couldn’t trade and our hotels closed. Now, as we enter a second lockdown for at least a month, we are at least in a position where we have nominal exposure to retail in a UK economy which was under pressure and will be placed under more pressure by the lockdown,” Oakenfull said.
Nesi Chetty, senior fund manager listed property at Stanlib said RDI’s disciplined strategy was pleasing.
“RDI’s focus since the start of the pandemic would have been on improving liquidity and managing their cost base. These results reflect some good progress on key initiatives such as reducing their retail exposure and a lower leverage capital structure. The company is in a much stronger position than it was 18 months ago,” he said.
He said a dividend being reinstated at 5p with a cover of 1.4X was “another positive sign that not just the balance sheet but the quality of portfolio has improved”.
The company's loan-to-value (LTV) currently stands at 33% which is very manageable in the current tough operating environment, he said.
LTV measures the ratio of a company’s debt and its assets. SA fund managers prefer property companies to have LTVs of 30%-35% with 40% seen as a maximum before the company starts to show financial risk.
RDI Reit was established in 2002 as the Corovest International Real Estate Fund. It was floated on the Alternative Investment Market in 2006.
It changed its name to Redefine International in 2008 and converted to a real-estate investment trust (Reit) and listed on the London Stock Exchange in 2013. It then changed its name to RDI Reit in November 2017. Earlier in 2020, Redefine Properties sold its stake for R2.3bn to a private UK investment group.
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