Redefine Properties, one of the largest real estate companies in South Africa, with assets worth nearly R90bn, is focused on getting higher and sustainable returns before it goes on any acquisition spree.
The real estate investment trust (Reit) released financial statements for the year to end-August 2022 on Monday wherein it reported that it has been able to pay dividends again, having not paid an interim payout in 2021, due to a lack of liquidity.
CEO Andrew Konig said Redefine was operating in highly challenging conditions and it made sense for the group to “sweat its portfolio” instead of trying to buy new assets through raising capital at uncomfortably high costs.
“It’s currently very expensive to raise capital in SA. It would set us back if we were to pursue that now,” said Konig.
He said Redefine was weathering tough economic conditions to deliver sustained value and quality earnings thanks to continuous risk management, the disciplined sale of non-core assets and the on-boarding of Polish retail property group EPP.
Distributable income of R3.6bn was earned during the reporting period, representing distributable income of 53.71 cents per share, indicative of an underlying healthy and sustainable property asset base despite ongoing uncertainty over the war in Ukraine, local policy instability and weak overall property fundamentals.
Chief operating officer, Leon Kok, said Redefine now has a geographically diverse asset portfolio worth R88.9bn, about 66% of which by value was in SA and 34% in Poland, the largest economy in eastern Europe. A final dividend of 19.28 cents was declared, bringing the full year dividend to 42.97 cents per share. Earnings guidance for the 2023 financial year remains for distributable income of between 54.2 and 56.4 per cents per share.
Redefine CFO, Ntobeko Nyawo said the company’s balance sheet had also improved in health.
“A standout feature was the sustainability of earnings off the back of a very stable and strong balance sheet with a loan-to-value ratio of 40.2% in supporting our strategy and recovery post the Covid-19 pandemic”, he said.
Redefine’s liquidity position had improved to R6.2bn, of which R1.7bn was cash on hand and R4.5bn access to committed undrawn facilities, R400m more than R5.8bn reported a year before.
A boost to liquidity resources came in the form of timeous disposals of non-core assets, injecting R9.4bn in cash.
Net asset value improved to 720.1 cents per share from 688.6 cents per share a year before, largely because of the inclusion of EPP’s offshore portfolio and SA asset values improving. While the cost of rand-denominated debt increased to 8. 7% from 8.1% in prior year, group weighted cost of debt remains stable at about 6% and the company was well-hedged at 82.9% of total debt.
Kok said Redefine would look for bespoke solutions for those of its properties that had high vacancies.
“There is no silver bullet solution but we are looking at how to improve the use of our assets. We may put in a data centre or use space for third-party logistics. As a landlord in these challenging times, we have to develop ways of using our assets well such that their returns can be enhanced,” said Kok.
CEO Andrew Konig, said while Redefine has had to rethink its business in a rising inflation and interest rate environment, its results “demonstrate the outcomes of our purpose of creating and managing spaces in a way that changes lives”.
He said if SA’s economy could grow at 3% that would likely make a dent in the country’s rising unemployment rate. A growing economy would lead to new businesses wanting to rent more office and other space which boded well for the commercial property sector.
Konig said Redefine and other listed landlords were also competing with a new array of investments. This was because, previously, South African retirement funds had been able to invest up to 30% of their investible funds in listed property in terms of regulation 28. As of April 2022, they could now invest up to 45% including in offshore companies.
Redefine reported that a JLL socio-economic impact study demonstrated that Redefine across the South African portfolio ecosystem generated new small, micro and medium enterprises (SMME) sales of R8.3bn, creating 12 850 jobs, showcasing that retail was the biggest job creator across all sectors at 55% of the jobs created, and helped create 8 353 new SMME jobs specifically. Standing out was a statistic showcasing a total GDP contribution of R3.7bn thanks to the activity generated across the portfolio by Redefine during 2022.
“We are having an impact in the communities we operate in and will continue to drive broad progress as we integrate environmental, social, and corporate governance (ESG) initiatives into everything we do so the impact we have is sustainable and value enhancing for more people,” said Konig.
“We have worked hard to create a quality portfolio that is not heavily exposed to secondary grade properties, especially in the office sector where vacancy rates in that sector are scaling 30% for some companies,” he said.
Redefine’s ESG plans continued to gather momentum, with 160 Green Star certifications and 85% of the South African office portfolio by gross lettable area being green certified. In Poland, EPP has 70% and 85% of its retail and office portfolios respectively BREEAM certified.
“We have not just woken up to the need for green solutions but this has been part of our thinking for many years and we are now seeing solid, value-enhancing results,” said Konig.