investment firm, Centum, is looking to rebalance its investment portfolio in a bid to cut down its real estate portfolio weightings from the current 65% of total to 55% within the next two years, opting instead to increase its private equity investments.
In its summary of strategic pillars, the company says that it seeks to double the book value of shareholders’ funds to Ksh 100 billion by FY24.
According to the report, the company’s book value of shareholder funds declined by Ksh 5.2 billion to Ksh 47.4 billion on account of a Ksh 3.58 billion impairment provision during the year in respect of NEMA’s revocation the Amu Power project Environmental Impact Assessment License.
The book value of the company’s real estate investments increased from Ksh. 35.9 billion in 2019 to Ksh 36.9 billion in 2020. However, the return on equity for the year from its real estate assets was the lowest of its portfolio (-1.8%).
“We are currently overweight on the real estate asset class largely on account of a growth in value over time and as a result of the exits we have realized in the private equity asset class,” the company said.
The firm had a gross return on equity of 5.2% on average with private equity pulling much of the weight at 13.4%.
This points to the company’s goal of increasing its private equity allocations to 30% of its portfolio over the next two years as it finalizes the set-up Centum Private Equity Value Fund II.
“Our strategic objective is to rebalance the overall portfolio by releasing liquidity from the real estate portfolio for re-investment in the private equity asset class, which we are currently underweight,” says the report.
Centum says it has already entered into various real estate transactions expected to unlock Ksh. 6 billion worth of liquidity during the year to March 2020.
The company expects to release a further Ksh 10 billion from the real estate asset class which will be funded through distribution of dividends from the ongoing infill residential developments, bulk land sales, and the refinancing of the shareholder loans.
The annual report shows that restructuring of the firm’s portfolio which will still leave its real estate segment with the largest asset allocation of between 45%-55%.
“The reversal of interest rate capping regulations is expected to reverse the previously seen trend of curtailed private sector lending. In the medium to long term, this will have a direct positive impact on our real estate business,” it says.
Following the regulatory incentives put in place by the government the company also stated that it will be eyeing investment activity in the affordable housing sector.
“The medium to long term outlook for affordable and mid-market therefore remains an attractive asset class, despite the immediate impact of COVID-19. The regulatory environment supports the long-term stability of the sector,” adds the report.