JSE-listed real estate investment trust (Reit) Redefine Properties has reported lower distributable income a share of 26.18c apiece for the six months ended February 28.
This compares with distributable income a share of 33.46c apiece posted for the six months ended February 29, 2020.
The company says that, with Covid-19 still impacting on Redefine’s operations, liquidity and loan-to-value (LTV) ratio, it has resolved to defer its decision on declaring a dividend until the release of its results for the year ended August 31.
Redefine’s LTV ratio in the six months under review improved to 44.3% compared with the LTV of 47.9% as at August 31, 2020. The company’s LTV stood at 44.8% at the end of February 2020.
The Reit explains that the improvement initiatives and appreciation of the rand in the six months under review yielded an LTV reduction of 4.6% and 0.8% respectively, while the negative revaluation of assets driven predominantly by the impact of Covid-19, a tax leakage arising from not paying a dividend in respect of the 2020 financial year and necessary capital expenditure increased the LTV by 1.8%.
The company confirms that initiatives are in progress to reduce the LTV further by August this year, in line with its goal of reducing the LTV to below 40%, which includes further optimisation of the property asset base, as well as the completion of the property asset disposals in progress.
The company’s net asset value (NAV) a share decreased to 719.74c apiece, compared with NAV a share of 884.26c apiece reported in the six months ended February 29, 2020.
Redefine’s South African portfolio is valued at R63-billion, while its international portfolio is valued at R12.3-billion – representing 16.3% of the group’s total property assets. The portfolio value as at the end of February this year is about R6-billion lower than that reported at the end of August 2020, with the biggest driver being disposals of R4-billion.
The Reit has 4.4-million square meters under management.
COO Leon Kok says a 1% decline in the valuation of the Reit’s portfolio in the period under review is mostly owing to lower income assumptions. He believes the portfolio value decline represents the bottom of a cycle and, depending on the vaccine rollout, should recover soon.
Moreover, the company advises that its local property portfolio performance was impacted by various lockdown levels in the period under review, which necessitated negative rental reversions and further granting of rental relief to support the sustainability of tenants.
In the six months under review, Redefine’s rental relief grants amounted to R107-million, adding on to the R318-million of rental relief granted in the full-year ended August 2020.
The company reports that retail tenants – particularly travel agents and cinemas – were most impacted by varying lockdown levels and the decrease in these revenues account for the bulk of the decrease in Redefine’s distributable income.
On the international front, Redefine expects the Polish economy to rebound strongly in 2022 and result in a buoyant retail environment.
Redefine’s vacancy rate increased to 8.9% in the six months under review, compared with a vacancy rate of 7.3% at the end of August 2020.
The company disposed of six properties for R1.2-billion in the six months under review. The Reit has agreements in place to dispose of a further four properties valued at R152-million, while there are discussions around disposing noncore property-related assets for aggregate proceeds of R2.5-billion.
Redefine completed construction of two industrial properties for Massmart and Roche, in the Western Cape, in the reporting period. The properties were developed at a cost of R230-million and an average initial income yield of 9.4%.
The estimated cost of new developments in progress for the company totals R293-million, with an average initial yield of 9.6% and gross leasable area of 30 659 m2.
Some of the Reit’s new developments include the S&J Sparepro industrial logistics property and Kwena Square, which is a convenience retail centre.
In Redefine’s Polish portfolio, developments under construction total €120-million, or R2.2-billion, and will add a further 173 240 m2 to the portfolio.
Meanwhile, Redefine Europe made an advance payment of €10-million, or R183-million, in respect of the M1 Marki purchase consideration, on May 25.
The M1 Marki commercial centre is based near Warsaw, Poland, and involved Redefine selling its 25% equity interest in Chariot Top Group.
Overall, Redefine explains that Covid-19 continued to impact on its performance in the first half of the 2021 financial year in terms of reduced local investment property valuations, rental relief measures and the provision for credit losses arising as tenants fail to meet rental obligations.
“Although subdued property fundamentals and low growth will remain a persistent theme in 2021 and beyond, the execution of our strategic priorities, by focusing on what matters most and putting our purpose at the heart of what we do, will position Redefine for the eventual upward cycle.
“The outlook depends not just on the outcome of the battle between the virus and the rollout of the vaccination programme to stimulate mobility, it also hinges on how effectively economic policies are deployed to limit lasting damage from this unprecedented crisis,” says Redefine CEO Andrew König.
He adds that the right policy is imperative to restoring much-needed confidence in the South African economy – which is the cheapest form of economic stimulus.