Redefine Properties (JSE: RDF), which has a diversified property asset platform worth R71.0 billion, has reported an improvement in its distributable income for the interim period to 28 February 2022. It has delivered distributable income of R1.5 billion, representing growth of 5.9% through a continued focus on the variables under its control of investing strategically, optimising capital, operating efficiently and engaging talent.
The local property portfolio performance was driven by the easing of Covid-19 pandemic restrictions, with the return of shoppers to the malls under Redefine management, a welcome development. Redefine also expanded its exposure to the Polish retail sector through the takeover of EPP during March 2022, and received a capital boost from ongoing demand for its growing pipeline of Polish logistics developments.
While the board had resolved not to pay a dividend during the volatile and highly uncertain Covid-19 period in 2020, this resumed in 2021 and an interim dividend of 23.69 cents a share has been declared in respect of the half year ended 28 February 2022.
“Our results a year ago were in the face of one of the most challenging times in living memory and while greens shoots started appearing recently, along came the war in the Ukraine. If we have learnt anything it is that we can continue to expect the unexpected. For our stakeholders, though, our integrated approach to making strategic choices, managing risks and focusing on quality has ensured we continue to sustain value creation,” says CEO Andrew König.
He expects the challenging global economic environment to persist “for the medium term at least”, but South Africa does have an opportunity to benefit from growing demand for natural resource exports. The war in Ukraine, however, is having indirect global impacts in the form of higher inflation, exacerbating the risk of more aggressive interest rate hikes.
“Inflation hits everyone through higher food prices and higher energy costs and so while the fallout from the Covid-19 pandemic starts to move out of the system – bar lingering effects – we are seeing higher inflation adding pressure and federal banks responding by tightening rates.”
During this volatility and uncertainty, Redefine is focusing on its strategic priorities and not getting distracted by the noise.
Redefine CFO, Ntobeko Nyawo says a standout feature has been the quality of earnings, with 97% of income now recurring in nature and sustainable. “This speaks to the underlying health and sustainability of the portfolio,” he says.
With the recovery to pre-pandemic levels proceeding well, an average collection rate of 101.3% was recorded, backed by very stable credit metrics – the loan-to-value ratio is a healthy 41.9% and interest cover at 2.7 times.
“Balance sheet and risk management places us in a strong position to withstand headwinds. Despite recently paying a dividend for the full 2021 year, our liquidity position includes R4.5 billion in facilities and R1.2 billion in cash, which is solid, enabling us to deliver on our core objectives,” says Nyawo.
Another decided edge for Redefine in the face of the ongoing volatility is the risk-mitigation effect of its diverse geographic spread of assets. With international real estate investments valued at R11.5 billion representing 16.2% of the Group’s total property assets, it sees blue skies ahead, especially for logistics and the recently expanded retail exposure.
“The Ukraine war is not directly impacting our Polish operations and the logistics sector continues to attract significant investor and tenant demand,” says König. He says Redefine realised one billion rand from the disposal of six non-core properties in Poland, which will be redeployed.
“There is still very strong tenant demand driven by nearshoring opportunities from the war and ongoing expansion of e-tailing. It is not just Amazon driving demand either – we are noticing light manufacturers moving from the East, Russia and Ukraine to Poland, driving up demand for space. It is a positive story on logistics in Poland,” says König. An unemployment rate of less than 4% also means ongoing consumer buying power.
Locally, the focus remains on driving organic growth in a difficult macro-environment. “While demand for office space is generally limited, we are noting a flight to quality as enquiries for high quality well-located offices are growing. Our office portfolio now consists of 88% premium and A-grade buildings thanks to following a disciplined asset management approach of recycling out of secondary assets and reinvesting in our well-located quality assets over the last number of years,” says COO, Leon Kok. Total tenant retention by GLA improved to 95.6% in the reporting period.
Meanwhile, new developments in progress are Kwena Square (a convenience retail centre) at an estimated final cost of R174.9 million as well as an industrial development in Brackengate II, Montagu Snacks, (50.1% share) with an estimated final cost of R22.3 million.
While ESG was unfashionable seven years ago, it is now something companies ignore at their peril – and Redefine remains ahead of the curve with Sustainalytics ranking Redefine 36th out of 1,045 REITs globally.
“We are well placed to benefit from our integrated approach to embed ESG in all aspects of what we do. The importance of understanding and managing our impact on our environment and all our stakeholders was highlighted by the July unrest and recent flooding in KZN,” says Kok.
Redefine also implemented a revised senior management structure that creates depth and drives more inclusion and diversity, to create an environment that stimulates innovation.
An additional 19.1 MWp of solar PV capacity is being added to enhance value during 2022.
“We have responded to the challenges created by the Covid-19 pandemic to reset all aspects of what we do. We have simplified our asset platform and reduced exposure to multiple risk universes and what we have is now beginning to bear fruit. We are primed for creating sustained value as we build the future-fit Redefine of tomorrow,” concludes König.