JSE-listed Redefine Properties, which increased its distribution for the six months ended February 28 by 4% to 49.2c, maintained a strong platform for sustained growth and value creation despite ongoing economic and political uncertainty.
The South Africa-based real estate investment trust holds a diverse property asset platform in South Africa, Poland, the UK and Australia.
Internationally held assets contributed 25.4% to income during the period.
Total assets under management increased by R500-million in the period under review to R99.2-billion.
The company achieved offshore expansion of R1.9-billion. R500-million of this was invested into the company’s Polish logistics platform and R1.3-billion in the company’s South African portfolio.
“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,” CEO Andrew Konig said in a statement on Monday.
While the build-up to South Africa’s national election on Wednesday “has been quite smooth”, Konig emphasised that confidence needs to return in the country to encourage future growth.
During a media briefing on Monday, he noted that companies were taking a “wait-and-see” approach in the election period, which impacted on the property industry, which is long-term in nature.
“Business and consumer confidence are low and this places strain in certain areas, such as the office and retail markets. Confidence should return once there is improved policy certainty,” Redefine said.
However, Konig noted that the election would not engender a magical, immediate fix, and that, if there was any benefit from the election outcome, it would probably only be evident in 2020/21 as opposed to the 2019 financial year.
Redefine’s market guidance is that its distribution growth for the current full year would be similar to that of the first half of the year, provided conditions do not deteriorate any further.
“Maintaining operating margins is challenging in current conditions and improving quality of earnings is an ongoing theme,” noted Konig.
Despite this, he highlighted that the company managed to maintain its active portfolio margin at 82% in very competitive trading conditions, with tenant retention having remained at a high of 96.6% of renewed leases.
“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,” said Konig.
He indicated that the company would look beyond the current cycle and, owing to its diversified portfolio, could 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.”
Meanwhile, Konig also posited that, owing to its purpose-driven strategy, the company was well-positioned to take advantage of opportunities which could arise because of uncertainty.
The company highlighted that the implementation of renewable energy interventions at its assets was a potential area for growth, notably to alleviate some of the pressure caused by Eskom blackouts and tariff increases.
During the period under review, its total solar photovoltaic capacity increased to 23.5 MW.
However, Konig noted that the limits placed by National Energy Regulator of South Africa on the capacity that can be produced at Redefine’s properties was a challenge.
Another trend catering to the “new normal”, which is characterised by an environment of costly capital and a leasing environment shaped by weak economic fundamentals and lower levels of consumer and business confidence, 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 Rosebank Link. This extends WeWork’s global presence to Africa, with Rosebank Link being its first site on the continent.
Also mentioned was Moody’s Investor Services’ reaffirmation of Redefine’s investment credit grade rating.
Redefine CFO Leon Kok indicated that the loan to value ratio – the ratio of its loans to property related assets – increased to 42.3% in the first half and to reduce this, Redefine would consider equity funded asset acquisitions on a nondilutive earnings basis, while also actively managing recycling activities to fund the development pipeline.
He noted that 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,” said Kok.
In line with the company pursuing enhanced corporate governance and diversity, Business Unity South Africa president Sipho Pityana has joined the Redefine board as independent nonexecutive chairperson, succeeding Marc Wainer.
The company has been working on a smooth transition and succession plan for over a year, while also retaining Wainer as an executive director to leverage his expertise and skills, indicated Konig.