The Pivotal Fund Limited today reported solid results for the six months ended 31 August 2016 with a 17.35% increase in net asset value per share to R23.00, excluding deferred tax (“NAVPS”) year-on-year. Pivotal’s portfolio comprises geographically well diversified assets across South Africa and a growing investment base internationally both in emerging and mature markets.
Pivotal’s Chief Executive, Jackie van Niekerk commented: “The results emphasize our strategic objective of generating sustainable total returns from our portfolio of investments through capital growth, unlocking development margin on quality developments and growth from our offshore investments.”
Pivotal currently has borrowings of R7.4 billion which represents gearing of 51.3% of the current property portfolio value. At 31 August 2016, the average cost of funding decreased to 9.04%, from 9. 6% at 29 February 2016. Interest rates have been fixed in respect of 81% of borrowings for an average period of 3.5 years.
On 30 August 2016, a joint announcement was published on SENS, advising that Pivotal and Redefine Properties Limited have entered into an agreement in terms of which Redefine has offered to acquire all of Pivotal’s issued shares from Pivotal shareholders.
Following the successful implementation of the transaction, Pivotal shareholders will hold 138.54 Redefine shares and 9.38 Echo Polska Properties N.V. shares for every 100 Pivotal shares held prior to the implementation thereof.
Notwithstanding the delivery to date of above average growth in net asset value, Pivotal, as a development focused business, faces a number of external challenges with a stagnant domestic economy and an uncertain political landscape. Whilst Pivotal’s completed portfolio is expected to continue to perform satisfactorily, development activity is expected to remain constrained, affecting development returns in the short to medium-term. Consequently, net asset value growth will be limited as a result of the market impact whilst the current economic conditions remain difficult.
As an alternative to the current development orientated structure of Pivotal, the proposed deal offers Pivotal shareholders the opportunity to convert to a REIT structure and receive Redefine and EPP shares, benefiting shareholders through bi-annual income distributions, exposure to foreign currency earnings, enhanced liquidity as well as continued exposure to Pivotal’s existing portfolio of A-grade properties.
Pivotal’s Chief Executive, Jackie van Niekerk commented: “Within a stagnant domestic economy and rising interest rate environment, we believe we will experience increased pressure on our ability to generate satisfactory development profits and investment returns for our shareholders going forward”.
“We believe that this transaction offers our investors exposure to one of the largest REITs in the JSE’s listed property index with an entrepreneurial management team focused on delivering sustained value to its stakeholders“.
“Looking ahead, we remain focused on managing the value extracted from our income producing portfolio through active asset management. Our A-grade development portfolio in sought after areas is performing well with the construction of Alice Lane Building 3 on track to be completed in Q2 2017 and phase 1 of the Loftus Park mixed-use development in Pretoria in Q4 2017″.
“The daily asset and operational management of our income producing portfolio as well as construction of our current development portfolio continues. We remain committed in the deliverance of our stated investment case to our shareholders going forward,” concluded Van Niekerk.