Redefine Properties today reported 7% growth in its interim distribution of 33,7 cents per linked unit for the six months ended 28 February 2013, achieving the top end of its market guidance.Marc Wainer, CEO of Redefine, attributes this solid performance to the significant progress Redefine achieved on its strategic priorities which improved the quality of its local property portfolio, produced good core income growth, significantly reduced gearing and applied firm cost controls which helped boost its core property margin 1%.
“Our strategic focus to increase the overall quality of our core property assets contributed positively to Redefine’s results. The restructure resulted in a robust local contribution of 9%. Redefine’s local operation totaled 90% of distributable income,” says Wainer.
He notes that this growing performance was achieved notwithstanding the dilutionary sale of non-core properties and without relying on non-recurring fee income, which both improve the quality of Redefine’s income.
Despite a local trading environment that remains challenging, and is likely to stay subdued, Redefine’s core property portfolio is set to continue to benefit from its ongoing strategy. “We’re keeping a strict focus on cost containment and sweating the assets. For our second half, Redefine is well on track to achieve growth in distributable income similar to that achieved in the interim period,” says Wainer.
JSE-listed Redefine is a property loan stock company with a market capitalisation of R30 billion, managing a diversified portfolio of property assets of over R29 billion. The company’s local investment assets comprise 244 properties valued at R23 billion and a R6 billion portfolio of strategic listed property securities. Redefine owns the Fountainhead Property Trust Manco and 45,6% of Fountainhead Property Trust.
Redefine is internationally diversified through its direct interest in ASX-listed Cromwell Property Group and JSE-listed associate Redefine Properties International Limited, which has a 66% stake in LSE-listed subsidiary Redefine International PLC.
During the period Redefine simplified and strengthened its balance sheet by no longer consolidating Redefine International, resulting in its net asset value growing by 10,6% to R8,31 per Redefine linked unit. Redefine’s balance sheet now better reflects the assets and gearing under management with the loan-to-value ratio at 34,8%.
“We made excellent progress improving the quality of the core property portfolio. Redefine’s average value per property is now R83 million,” says Wainer.
This was achieved with a focused series of strategic acquisitions and value-enhancing development and redevelopment. Redefine concluded acquisitions and developments of R3,1 billion and post the period end secured the 45,6% holding in Fountainhead with an investment of nearly R5 billion.
“We are exiting our Hyprop investment, which we consider mature, and have invested in Fountainhead where we believe there is greater upside,” says Wainer. “We have secured a major stake in Fountainhead and having aligned our interests believe we can now move forward with a value enhancing strategy for these assets.”
Redefine also achieved the prudent disposal of 11 non-core properties and, Wainer confirms, it’s at an advanced stage of negotiation for the sale of most of its government-tenanted properties to a BEE consortium.
This half year was an extremely active period for Redefine’s leasing team with leases covering an area of 528 872m2 up for renewal. Tenant retention rate was 82% (91% of retail, 88% of offices and 63% of industrial (excluding Premier Milling and Amalgamated Appliance).
“Over the past six months, more leases came up for renewal in our portfolio than will do in the 2014 and 2015 years combined. Despite this our vacancy levels only edged up by 1,1%,” notes Wainer. “This commendable leasing achievement has significantly improved our lease expiry profile. Importantly, the renewals attained an average rental increase of 7,2% overall, with 9,3% achieved in the retail portfolio, 5% for offices and 4,6% for industrial property.”
This intense leasing activity also successfully boosted the overall quality of Redefine’s tenants to 70% A-grade tenants for its office portfolio and 60% for both its retail and industrial portfolios.
Reducing its cost of borrowings by 30bps to 8,6%, Redefine deepened its presence in the debt capital market. Redefine also continues to enjoy excellent access to capital. It listed an additional 26,9 million and 63,9 million Redefine linked units during March and April 2013 respectively, and its heavily oversubscribed book build in April 2013 raised R800 million in capital.
“Redefine’s primary objective is to provide sustained and growing income for investors. We will continue to pursue revenue-enhancing opportunities that will translate into increasing distributions and the prospect of long-term capital appreciation for unitholders,” says Wainer.