Reinet finds new portfolio balance

• Investment company sold 10-million BAT shares in 2020 financial year and invested €316m in UK’s Pension Insurance Corporation

Reinet, the investment company controlled and managed by chair Johann Rupert, has finished its 2020 financial year with a marked shift in the balance of its portfolio. The results to the end of March released on Friday show that Reinet’s core holding in global cigarette business British American Tobacco accounted for only 40.6% of the €4.4bn (R85bn) portfolio.

Reinet, the investment company controlled and managed by chair Johann Rupert, has finished its 2020 year with a marked shift in the balance of its portfolio.

The results to the end of March released on Friday show that Reinet’s core holding in global cigarette business British American Tobacco (BAT) accounted for only 40.6% of the €4.4bn (R86bn) portfolio. At the end of March 2019, BAT represented more than 52% of the portfolio value, and at some points in previous years comprised almost 80% of the value.

The key to the change was the sale of 10-million BAT shares — which realised proceeds of €392m — and a €316m investment by Reinet into unlisted UK financial services specialist Pension Insurance Corporation Group (PensCorp) as part of a £750m capital raising exercise.

This meant the increased 46% holding in PensCorp — worth about €1.62bn — now represents a chunky 36.8% of Reinet’s portfolio value.

PensCorp provides tailored pension insurance buyouts and buy-ins to the trustees and sponsors of UK defined benefit pension funds.

Since year end, however, BAT has reinforced its dominance in Reinet’s portfolio with the share — widely recognised for its defensive attributes — firming in the Covid-19 environment. Reinet disclosed that as at May 22 the value of its remaining 58.1-million BAT shares topped €2bn compared with £1.8bn March 31.

But market watchers canvassed on Friday argued that while BAT remained a major value indicator at Reinet, more attention would need to be paid to the attributes of PensCorp.

Some market watchers believe it will overtake BAT as Reinet’s biggest investment within a couple of years. Such a development would obviously be hastened if Reinet opted to continue lightening its holding in BAT.

Reinet has avoided making a definitive pronouncement of the fate of its investment in BAT. Once again the group advised that BAT remained Reinet’s single largest investment position and is “kept under constant review, considering the company’s performance, the industry outlook, cash flows from dividends, stock market performance, volatility and liquidity”.

Rupert said the most recent sell-down in BAT shares during the past financial year was in line with a stated policy to reduce this holding over time and to rebalance the portfolio.

Rupert pointed out that Reinet had sold more than 26million BAT shares during the past eight years, raising total proceeds of €1.1bn.

He said BAT sales proceeds were used to make new investments and further diversify the overall portfolio.

Recent investments have included forays into biosciences (Selecta and Twist), physical gold (SPDR), Chinese office developer Soho China, and Grab (best described as a Far East Uber).

But the large investment in PensCorp has really moved the needle at Reinet. Rupert noted that PensCorp wrote about £7.2bn of new business in 2019, with its embedded value increasing to £3.9bn. The group’s assets under management increased to £40.9bn with a solvency ratio of 164%.

Rupert indicated that after the capital raise PensCorp remained well positioned among the leaders in its sector.

PensCorp’s progress in 2019 included £7.2bn of defined benefit pension liabilities insured (2018: £71bn), £8.3bn of longevity reinsurance completed (£5.6bn) and £1.9bn of direct, private placements completed.

Liberty Two Degrees (L2D), the listed landlord that owns a quarter of Sandton City, says its diversified portfolio is helping it manage the effects of the Covid19 pandemic.

L2D, which has a portfolio worth R10.3bn, released a trading update on Friday.

“Management’s focus is on implementing strategies that position the business first for stability and sustainability and secondly for growth within the new future of retail,” it said.

In line with the government’s guidance, its malls closed partially on March 27 with only essential services trading for the five-week period at level 5 of the lockdown. On May 1, some stores opened in line with level 4 conditions, and more than 70% of the gross lettable area of L2D’s malls has since returned to trading.

The Promenade Shopping Centre in Mitchells Plain benefited from 78% of tenants trading. Higher-end centre Nelson Mandela Square, with a higher proportion of restaurants, has 18% of tenants trading.

L2D CEO Amelia Beattie said some of its tenants have asked for rent relief.

L2D abided by the guidelines of the Property Industry Group, which includes a collective of three major representative realestate bodies: the SA Real Estate Investment Trust Association, SA Property Owners Association and SA Council of Shopping Centres.

WE ARE TRYING TO FIND THE BALANCE BETWEEN TENANT AND LANDLORD IN ACHIEVING A FAIR AND SUSTAINABLE OUTCOME

It came up with a R2bn relief package to provide industrywide and nationwide assistance for those retail tenants hit hardest by complying with the government-imposed halt in commercial activity.

Beattie said factors that would be considered for the commercial assistance L2D was providing included the size and cost of operation and the company’s assessment of the estimated level of impact, given its understanding of the tenant’s operations and requirements of each mall and its broader portfolio.

“This does not, however, translate into turnover-based rental, but we are trying to find the balance between tenant and landlord in achieving a fair and sustainable outcome,” she said.

Rental collections based on full amounts due totalled 38% in April. May collections received by May 25 rose to 45% of current billing. “We expect this to increase based on the rental relief measures and with tenants now able to trade since the easing of the lockdown. Collection rates can be better assessed at half-year once we have processed the rental adjustments in June,” she said.

Rental collection rates were affected by L2D’s 84% exposure to retailing, one of the sectors affected worst during the lockdown, along with hotels and convention centres.

The collection rate was expected to improve in the second half of the year once tenants’ trading starts to normalise.

High-end fashion group Prada closed its store in Sandton City’s Diamond Walk. “Prada has taken the decision to optimise its retail network, focusing its strategy on markets that do not include SA,” Beattie said.

The store occupied 799m² of the centre’s gross lettable area.

“We are engaging with other suitable brands. The intention is to subdivide the Prada premises for new brands,” said Beattie.