Diversified real estate investment trust (REIT) Redefine Properties has declared a distribution of 36.4c a linked unit for the six months ended February 28, 2014, 8% ahead of the comparable prior year’s period and above the market guidance.

The property group, which boasted a total asset base of R51.3-billion and a market capitalisation of R30.3-billion, grew its distributable income by 13% over the half-year, lifting net asset value by 51.1c to 921.8c.

Total revenue increased from R1.63-billion in the comparable prior year’s six months to R2.23-billion in the period under review, while net operating income was boosted from R1.29-billion to R1.73-billion over the same period.

Similarly, profit for the half-year was lifted from R1.16-billion to R1.93-billion year-on-year.

Contractual rental income for the period comprised 95% of total revenue and income from listed securities 5%, while trading and fee income were “no longer a feature”.

Operating costs, at R2.3-billion, remained relatively flat over the period, representing 19% of contractual rental income, remaining contained as a result of the internalisation of electricity recoveries.

The group’s international investments, meanwhile, contributed 20% to distributable income.

Looking to letting activity during the period, leases covering 219 803 m were renewed at an average rental increase of 6%, while a further 158 661 m was let across the portfolio.

Together with vacates, vacancies decreased by 0.4% to 4.9%.

PORTFOLIO STRATEGY

The property group said in a statement on Thursday that it had “substantially” advanced its strategy of repositioning and improving the quality of the core property portfolio, with the emphasis on securing fully repairing leases with premium tenants.

Redefine acquired three properties with a gross leasable area (GLA) of 66 186 m over the period for an aggregate purchase consideration of R699-million at an initial yield of 7.6%.

In addition, and subject to the usual conditions precedent, agreements had been
concluded for the acquisition of properties for an aggregate consideration of R1.9-billion at an initial yield of 7.6% and GLA of 76 570 m.

Committed new development projects covering 157 051 m of GLA with an approved value of R2.8-billion at an average yield of 8% were presently in progress, with a prelet factor in excess of 40%.

Redevelopment projects of the existing portfolio with an approved value of
R671-million at an average yield of 7% were also in progress.

Meanwhile, as a result of the structural change in listed property yields, the sale of the government-tenanted office portfolio had been put on hold.

“In terms of the government policy, Redefine is renewing leases for three-year periods, whereas previously many of these were monthly tenancies of one-year leases. These properties are no longer included in noncurrent assets held for sale,” noted the company.

Moreover, during the period, Redefine used 15.4-million Hyprop units as currency to acquire 12% of Fountainhead Property Trust’s units in issue and
an additional 4.2% was acquired on the open market for cash, taking Redefine’s equity interest to 65.9%.

“Redefine and Fountainhead have begun engaging in relation to the possible terms of a potential merger [of the two parties]. These engagements are still
at an early stage,” said the company.

In addition, subsequent to the period end, Redefine reached an agreement with Annuity Properties to acquire its entire issued capital by way of a scheme of arrangement, as well as its asset and property management companies for a cash consideration of R103-million.

Annuity linked unitholders would receive 57 752 Redefine linked units for every 100 Annuity linked units, equating to 136.6-million new Redefine linked units.

The transaction, which came into effect as of March 1, remained subject to fulfilling various conditions precedent, including approvals by Annuity linked unitholders and the usual regulatory approvals.

PROSPECTS

The company noted that a challenging trading environment, disproportionate increases in utility costs and continued financial market volatility were expected to continue into the second half of the year.

“Notwithstanding these factors, Redefine is well focused on managing the variables within its control. Accordingly, Redefine anticipates growth in distributable income per linked unit for the second half of 2014 at a rate similar to that achieved in the current period,” Redefine maintained.