Summary of Realica Properties' strategy plan for 2022-2026: After many years of steady rental revenue increase, a good p
Posted: Sun Jun 05, 2022 6:44 am
Summary of Realica Properties' strategy plan for 2022-2026:
After many years of steady rental revenue increase, a good
profitability, and a high market value growth, we experienced some
years ago that the positive development stopped. Even if we choose
to disregard the effect of the pandemic, our total financial value
creation the recent years have been challenged by an increasing
level of vacant office and shop areas and increased costs for
management, operations, and maintenance.
While many financial analysts for many years kept Realica
Properties ASA on their list of recommended investments, things
changed around 2019. Several negative articles in business media
also contributed to the impression that the company no longer was
the investors' first choice for a diversified real estate
placement.
Early 2021, The Board of Directors gave the new management team
a clear mandate; it shall in addition to securing a good and stable
return to our investors, also have a constant focus on finding new
and attractive customers that demand high quality standards.
In the forthcoming strategy period, we must focus on
consolidation rather than growth. To improve the company's
solidity, we must sell approximately 15 per cent of our real estate
portfolio. The cash that is left after the mortgage loans on these
properties are paid will be used to reduce the borrowings on the
remaining properties, particularly where the current loan to value
ratio is uncomfortably high. The goal is that the mortgage loan
balance of one of our properties should be between 40 and 60 per
cent of the expected market value.
Real estate is a capital-intensive industry, and the total
market value of our portfolio is more than 20 billion kroner. The
focus we have had on following up our Return on Equity has not
given us the right picture of the company's profitability. We
cannot influence the Capital Turnover Rate much in the coming
years, and we must therefore strive to influence The Rate of Return
on Sales as much as possible in the strategy period that lies ahead
of us. We know that this is influenced not only by the average rent
level, but also by the vacancy rate, cost of management,
operations, and management, as well as the interest level. Thus, we
must ensure that the development of these factors is positive and
sustained over time.
Although we have many experienced and highly competent people in
our organization, we see a strong need to increase the company's
human capital to be better prepared for the changes that are ahead
of us. While we for many years had an entrepreneurial type of
organizational culture, we see that the organization now suffers
from lengthy decision processes and the lack of a commercial
business spirit. This may have caused our gradual loss of market
development skills and given rise to the loss of many customers
when they have chosen not to renew their contracts after the first
5- or 10-year rent period has ended. This trend cannot continue! We
must prioritize activities that increase the tenants' retention
rate, because when we lose customers, it will take many years
before we can try to win them back.
We need to make development and maintenance plans with
corresponding budgets for each of our 24 properties, so we can plan
for an increased attractivity for each object and secure a high
rent level in the future. The increased focus on development and
maintenance will not happen without an increased know-how and a
good administrative capacity to develop well-functioning internal
control systems for the property management.
We also need to strengthen our competence within the finance and
accounting areas and develop better routines and systems for the
daily handling of accounting transactions. Each property will now
be an individual profit center where one of the six members of Top
Management will have the overall responsibility. Hence, each
manager will have a portfolio of four properties to follow up.
Empowered to make the necessary operational decisions daily, the
manager is responsible for
reporting the status to the management team. We hope that this
will reduce the number of decisions that the Top Management team
will have to make, and that we now can speed up the decision
processes significantly.
Realica Properties ASA will also need to strengthen its
professional network in the forthcoming years. We have lost many
valuable contacts when former managers left the company, and we
need to build up a good external network within banking and
financing, law competence, and real estate engineering.
We need to convince the investors that we can give the best
return in the real estate sector, and we think it is realistic to
achieve a Return on Investments of around 10 per cent by the end of
the strategy period. Together we shall make Realica the most
attractive company in the market, both for our investors and
customers, and for us who work here!
Qn1 : Identify critical success factors in Realica Properties
ASA's strategy from 2022-2026 and place them in the correct
strategic perspectives used in a Balanced Scorecard model.
Qn2: Design a strategy map based on your conclusions in Qn
1
After many years of steady rental revenue increase, a good
profitability, and a high market value growth, we experienced some
years ago that the positive development stopped. Even if we choose
to disregard the effect of the pandemic, our total financial value
creation the recent years have been challenged by an increasing
level of vacant office and shop areas and increased costs for
management, operations, and maintenance.
While many financial analysts for many years kept Realica
Properties ASA on their list of recommended investments, things
changed around 2019. Several negative articles in business media
also contributed to the impression that the company no longer was
the investors' first choice for a diversified real estate
placement.
Early 2021, The Board of Directors gave the new management team
a clear mandate; it shall in addition to securing a good and stable
return to our investors, also have a constant focus on finding new
and attractive customers that demand high quality standards.
In the forthcoming strategy period, we must focus on
consolidation rather than growth. To improve the company's
solidity, we must sell approximately 15 per cent of our real estate
portfolio. The cash that is left after the mortgage loans on these
properties are paid will be used to reduce the borrowings on the
remaining properties, particularly where the current loan to value
ratio is uncomfortably high. The goal is that the mortgage loan
balance of one of our properties should be between 40 and 60 per
cent of the expected market value.
Real estate is a capital-intensive industry, and the total
market value of our portfolio is more than 20 billion kroner. The
focus we have had on following up our Return on Equity has not
given us the right picture of the company's profitability. We
cannot influence the Capital Turnover Rate much in the coming
years, and we must therefore strive to influence The Rate of Return
on Sales as much as possible in the strategy period that lies ahead
of us. We know that this is influenced not only by the average rent
level, but also by the vacancy rate, cost of management,
operations, and management, as well as the interest level. Thus, we
must ensure that the development of these factors is positive and
sustained over time.
Although we have many experienced and highly competent people in
our organization, we see a strong need to increase the company's
human capital to be better prepared for the changes that are ahead
of us. While we for many years had an entrepreneurial type of
organizational culture, we see that the organization now suffers
from lengthy decision processes and the lack of a commercial
business spirit. This may have caused our gradual loss of market
development skills and given rise to the loss of many customers
when they have chosen not to renew their contracts after the first
5- or 10-year rent period has ended. This trend cannot continue! We
must prioritize activities that increase the tenants' retention
rate, because when we lose customers, it will take many years
before we can try to win them back.
We need to make development and maintenance plans with
corresponding budgets for each of our 24 properties, so we can plan
for an increased attractivity for each object and secure a high
rent level in the future. The increased focus on development and
maintenance will not happen without an increased know-how and a
good administrative capacity to develop well-functioning internal
control systems for the property management.
We also need to strengthen our competence within the finance and
accounting areas and develop better routines and systems for the
daily handling of accounting transactions. Each property will now
be an individual profit center where one of the six members of Top
Management will have the overall responsibility. Hence, each
manager will have a portfolio of four properties to follow up.
Empowered to make the necessary operational decisions daily, the
manager is responsible for
reporting the status to the management team. We hope that this
will reduce the number of decisions that the Top Management team
will have to make, and that we now can speed up the decision
processes significantly.
Realica Properties ASA will also need to strengthen its
professional network in the forthcoming years. We have lost many
valuable contacts when former managers left the company, and we
need to build up a good external network within banking and
financing, law competence, and real estate engineering.
We need to convince the investors that we can give the best
return in the real estate sector, and we think it is realistic to
achieve a Return on Investments of around 10 per cent by the end of
the strategy period. Together we shall make Realica the most
attractive company in the market, both for our investors and
customers, and for us who work here!
Qn1 : Identify critical success factors in Realica Properties
ASA's strategy from 2022-2026 and place them in the correct
strategic perspectives used in a Balanced Scorecard model.
Qn2: Design a strategy map based on your conclusions in Qn
1