Johannesburg - 6
Redefine sustains value creation despite tough local
economic conditions raising the interim distribution 4% to 49.2 cents a
Redefine Properties (JSE: RDF), which has increased its
distribution for the six months ended 28 February 2019 by 4.0% to 49.2
cents, continues to build a solid platform for sustained growth and value
creation despite ongoing economic and political uncertainty.
Internationally held assets contributed 25.4% to income
during the review period, with total assets under management increasing
by R500m to R99.2 billion. Offshore expansion of R1.9 billion was
achieved, of which R0.5 billion was invested into the exciting Polish
logistics platform. The local portfolio also received a significant
portion of the development spend at R1.3 billion.
"We continue to focus on improving the quality of
earnings delivered organically and our diversified asset platform is
capable of absorbing shocks and providing a springboard for sustained
growth," says Redefine CEO Andrew Konig.
While the build-up to South Africa's election on Wednesday
"has been quite smooth", Konig says confidence needs to return
in SA to encourage future growth.
"Business and consumer confidence are low and this
places strain in certain areas, such as the office and retail markets.
Confidence will return once there is improved policy certainty. However,
if there is any benefit from the election outcome it will probably only
be evident in 2020/21 as opposed to the 2019 financial year," says
Redefine's market guidance is that the distribution for the
full year will be similar to first half growth of 4% subject to
conditions not deteriorating any further than they already have.
"Maintaining operating margins is challenging in
current conditions and improving quality of earnings is an ongoing theme.
However, we managed to maintain our active portfolio margin at 82% in
very competitive trading conditions, with tenant retention remaining at a
high at 96.6% of leases renewed," says Konig.
Installing renewable energy interventions is one area in
which Redefine is sees scope for growth, notably to alleviate some of the
pressure caused by Eskom blackouts and tariff increases. During the
reporting period, total solar PV capacity increased to 23.5 MWp. Another
move to calibrate to the "new normal" has been a move into
flexible workspaces. WeWork, the global community company with operations
in over 400 locations across 100 cities, will be leasing six floors at
Redefine's iconic Rosebank Link. This extends WeWork's global presence to
Africa, with Rosebank Link being its first site on the continent.
A highlight was Moody's reaffirmation of Redefine's
investment credit grade rating.
CFO Leon Kok says the loan to value ratio - the ratio of its
loans to property related assets - increased to 42.3% in the first half
and in order to reduce this, Redefine will be considering equity funded
asset acquisitions on a nondilutive earnings basis, while also actively
managing recycling activities to fund the development pipeline.
He says interest rates were hedged on 79.2% of total debt
and refinance terms for all near- term debt maturities had been agreed.
"Our funding strategy has focused on protecting our balance sheet
and optimising cost of capital. Responsible balance sheet management
remains a top priority," says Kok.
In a move to bolster corporate governance and enhance
diversity, the highly respected Sipho Pityana joins the Redefine board as
independent non-executive chairman to replace Marc Wainer.
"We have been working on a smooth transition and
succession plan for more than a year and are truly delighted to welcome
someone of Sipho's caliber to our board. At the same time, we are
fortunate to retain Marc Wainer as an executive director as we continue
to tap into his vast knowledge, having been through a number of property
cycles, and his deal-making skills," says Konig.
Pityana took over as president of Business Unity South
Africa (BUSA) in June last year
and has held board positions at companies listed on the New York, London
and Johannesburg stock exchanges, as well as on unlisted companies.
"With a purpose driven strategy, we are well positioned
to take advantage of opportunities, which could arise as a consequence of
uncertainty. The key is not to get caught out in the headlights of risk.
The cycle will not turn for some time and we hope with the elections out
of the way strong leadership will provide direction to lift
confidence," says Konig.
"We strive to look beyond the current cycle and have a
diversified portfolio to absorb headwinds and provide sustained growth.
Our expansion into Poland buffers domestic headwinds and through a
purpose-driven strategy Redefine is well-positioned to take advantage of
the resultant opportunities," concludes Konig.