JSE-listed Redefine Properties achieved distribution growth of 7.1% to 39c a share in the six months to February 28.

In rand terms, distributable income for the year increased by 31.4%, to R1.47-billion, benefiting from a number of acquisitions made in recent years. “Redefine’s solid performance and growth. . .reflects our enhancing acquisitions and successful strategies,” CEO Andrew Konig said.

“Our diversified asset base and stated strategies will enable us to achieve our long-term goals. We are confident that we will deliver distribution growth of between 7% and 7.5% for the full year,” he added.

Meanwhile, the group maintained its operating margins, despite tough trading conditions, with total group assets reaching R62.7-billion.

Property portfolio income for the review period was 95.2% of total revenue, at R991-million, up 4.4% from the comparative period.

Further, operating costs decreased by 2.5% to 34.1% of contractual rental income owing to lower municipal charges resulting from successful valuation objections.

“Our properties that are generating income are worth just over R56-billion, up R5-billion from November last year,” Konig said. The group’s market capitalisation also appreciated by 23.6%, to R45-billion, of which 22.9% now represented international ownership, with notable investor inflows from Europe.

UNDER PRESSURE
Although the group saw tenant renewal retention by gross leasable area of 82% in its office division, it was experiencing some challenges, in particular, with regard to its government-leased office spaces.

“Our office sector is most under pressure and, as a consequence, that is where we will probably be forced into a position where we need to be more generous than we would have been,” he said.

“The sale of our government [office] portfolios are ongoing. It is frustrating in that we have a number of situations where the leases are on a short-term basis and debt funding to facilitate this transaction is not as deep as we would like it to be. We would still like to dispose of the offices that are government-tended,” he said.

Konig added that the company “probably went wrong” by trying to sell all these properties at once. “The elephant is probably too big to be eaten in one sitting,” he quipped.

However, the company was not planning on slowing down, with current development activity of about R1.8-billion under way. This included The Towers office park, in the Cape Town central business district, which would be completed in August; a R979-million new office development at 90 Rivonia road, in Sandton, which was already 75% prelet to Webbers and due for completion in November; the Rosebank Towers, due to be completed in October 2016; and the R113-million Essex Gardens, in KwaZulu-Natal, which would be completed in September.

Further, Redefine Properties would also need to tackle some key priority issues in the year ahead, including the electricity crisis, rising utility costs and rates and taxes.

“Our domestic priorities include dealing with the electricity crisis by providing uninterrupted power supply at our key properties, as well as energy efficiency initiatives and sustainable building technologies,” Konig said.

A number of energy efficient and sustainable building technologies were being implemented at new developments, as well as at existing buildings. This included smart metering for electricity and water.

“We’re also focused on upholding our profit margins, given rising utilities and rates and taxes. Letting of vacant space and managing tenant credit risk is another key focus area, given the muted state of the economy. We will also help further sustainable, long-term economic and social development, by establishing the Redefine Empowerment Trust.”

FUNDING
Redefine’s group borrowings of R21-billion comprised borrowings of R18.2- by Redefine and R2.8-billion by property unit trust Fountainhead.

Redefine’s debt represented 35.1% of the value of its property assets, while its average cost of funding was 8.4%. Interest rates were fixed on 86.2% of borrowings for an average period of 3.3 years.

During the period, Redefine also raised R1.4-billion through an accelerated bookbuild, issued 107-million shares for the acquisition of Redefine’s stake in Emira Property Fund and retained R988-million through the distribution reinvestment alternative.