With the Covid-19 virus and related uncertainty continuing to weigh on businesses, real estate investment trust (Reit) Redefine Properties has announced a 32% fall in its distributable income per share for the six months ended February 29, to 33.46c from 49.19c in the prior comparable period.

While this was mainly owing to the need for prudence in recognising offshore dividend streams in the face of the lockdown and global volatility, Redefine said in a webinar on May 4 that the local portfolio, on the other hand, “held up well” with tenant retention at 96%.

According to CEO Andrew Konig, given the unprecedented and evolving market conditions, property fundamentals, domestically and globally, the rest of this year and beyond is set to be challenging, with the company's full financial year expected to be a “tale of two halves”.

“We are making decisions and adapting to new rules in an environment where the knowns are outweighed by evolving unknowns. So, while we cannot provide distribution guidance yet due to this evolving, fluid and dynamic situation, we also see this as a unique opportunity to change the way we do things to drive our business forward and to position ourselves to add stakeholder value,” said Konig.

Meanwhile, Redefine remains anchored by a diverse property asset platform valued at R89.2-billion and its local portfolio is complemented by property investments in Poland, the UK and Australia.

The company continues to make inroads into realising value, with disposals during the six months under review having amounted to R707-million and with R1.9-billion deployed into property assets.

In South Africa, the active portfolio vacancy rate increased marginally during the period to 6% from 5.7% in the prior comparable interim period. The operating cost margin increased to 36% of contractual rental income from 34.7% in the comparable period in 2019.

Refurbishments completed during the period were for 155 West Street, costing R168.5-million, as well as Kenilworth Centre, Knowledge Park and Sammy Marks at an aggregated cost of R87-million.

Current redevelopments in progress amount to R29.1-million at Black River Park and The Towers.

FD Leon Kok added that the current environment demanded that Redefine adopt a “manage for liquidity and sustainability and not for profit” attitude.

“Historically we relied on underlying dividend income streams which were forthcoming mainly from our international investments. However, [owing] to the massive crosswinds, conventional thinking has had to be pushed aside,” he explained.

During the webinar, he indicated that while the company had “previously been criticised” for its diversified portfolio, Kok said this would be the reason Redefine is “able to absorb the coming headwinds differently” than those of its competitors during and post lockdown.

During the lockdown period in particular, impairments on offshore holdings played a key role in the financial result, which the company explained occurred in line with requisite international financial impairment testing standards owing to ongoing global volatility and uncertainty.

The carrying amount of property company EPP for instance – in which Redefine holds 45.4% – was impaired by R442.4-million. The carrying amount of RDI Reit, in which Redefine holds 29.4%, was similarly impaired by R121.5-million. 

Redefine is satisfied that there is sufficient headroom to absorb unexpected headwinds and impacts on revenue.

Kok said the company had sufficient liquidity to absorb pressure and continue to place the highest priority on managing its loan to value ratio, now at 44.2% from 43.9% in August last year.

In addition, the constrained local economic conditions and lack of catalysts for meaningful recovery, necessitated the impairment of goodwill and intangible assets totalling R5.6-billion.

The upshot of this, according to Kok, was that Redefine’s net asset value now only represented tangible assets with this impairment having no impact on the loan-to-value ratio.

Meanwhile, the company’s average cost of debt is 6.1%, up from 5.8% in 2019, and interest rates are hedged on 88.7%, up from 87.3% in 2019, of total borrowings for an average period of three years.

While Redefine can comfortably meet its solvency and liquidity obligations, it has resolved to defer the decision on the dividend declaration for the six months until the release of results for the year ended August 31, 2020, expected on November 2, 2020.

According to Konig, “it is too early to call what the future holds from an outlook point of view”, adding that Redefine intends to use this crisis as an opportunity to match future initiatives to expected changed consumer behaviour.

“We will look at each of our properties to position them slightly differently to provide a relevant offering which differentiates us from the rest. How we work, play and live will change and we want to revisit our business model to ensure we adapt quickly and profitably,” he elaborated.

Further, Redefine touched on rental negotiations with tenants, which were still ongoing, with Konig stating that the negotiations were aimed at discussing ways in which to secure rental income while alleviating pressure for those who were really battling.

Generous discounts, for instance, have been given to struggling small, medium-sized and microenterprises, while the payment of rates and taxes remains a sticking point with large clothing retailers.