RMH expects property sector to remain tough


RMH expects property sector to remain tough

Published Date: 2020-09-21 | Source: Stephen Gunnion | Author: Stephen Gunnion

RMH expects property sector to remain tough

Due to the uncertainty around the duration of the Covid-19 pandemic, it cannot forecast the impact on the value of its property investments.

RMB Holdings (RMH) says the impact of Covid-19 on the global property market will make it difficult for its property business to execute on its development pipelines in the short to medium term. However, the group says it will continue to assess options to monetise the business, over time, so it can return maximum value to shareholders.

Following the unbundling of its stake in FirstRand to shareholders in June, RMH's sole investment is in RMH Property, which holds stake in Atterbury, Atterbury Europe, Divercity and Integer Properties. Its investment strategy is to generate attractive equity returns over the long term by investing in select property and property-related businesses.

Due to the decrease in property values as a result of the economic impact of Covid-19, the property portfolios of the four investee companies in RMH Properties recorded a decrease in their value. On top of that, rentals were discounted and deferred, resulting in lower operating incomes. Liabilities also rose as the portfolio companies were unable to repay capital on outstanding debt, pushing loan-to-value ratios higher and impacting the ability of development companies to develop new portfolios.

RMH Property's net asset value improved slightly over the year to end-June due to the Atterbury Europe business benefitting from the devaluation of the rand against the euro. Headline earnings from discontinued operations fell 41% to R5.64 billion for the year after FirstRand experienced a big decline in earnings due to higher than expected credit losses and credit impairment charges. It recorded a headline loss from continuing operations of R262 million, up from last year's R108 million loss.

RMH Property does not currently receive dividends from its portfolio companies and only expects to do so once the capital structures of its portfolio companies are sufficiently de-leveraged over the next three to five years. In turn, it doesn't expect to pay dividends to RMH shareholders in the medium term. It said the distribution of the FirstRand interest, which represented 93% of the asset base of RMH, unlocked R5.4 billion of value for shareholders

While Covid-19 had created significant headwinds for the market, RMH said many countries were implementing government-backed initiatives to provide relief to individuals and corporates with rent and other measures which would support the sector in the short term. In the medium to long term, the demand for developments should recover as the investment fundamentals remain sound in the markets to which RMH Property is exposed, it said.

RMH's shares fell 4.8% to R1.20 on Friday. Following the unbundling of its FirstRand stake, the stock was excluded from the JSE's Top40 index in the latest rebalancing.

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