Redefine Properties has lifted its full year distributable income by 4% to 101 cents per share for the year ended 31 August 2019, with total group assets exceeding R100 billion for the first time. It is also the first time that full year distribution per share has breached the R1 level.
Redefine continues to benefit from a well-diversified portfolio and expansive geographic footprint, with the contribution from international property investments rising to 26.8% this financial year from 24.0% of distributable income last year.
The company, which manages a diversified property asset platform of local and international investments, expanded property assets under management to R95.4 billion from R91.3 billion during the previous year, while international real estate investments now make up 23.7% of the portfolio, from 20.7% before.
Redefine expects property fundamentals to remain weak over the medium term, with risk events like load shedding adding to the uncertainty.
“Interesting and volatile times are here to stay, and we need to make the most of the resultant opportunities. We are living in a world of costly capital and Redefine is therefore focusing on reducing balance sheet risk while still delivering sustainable quality earnings,” says Redefine Chief executive officer Andrew Konig.
During the year, Redefine managed to improve total tenant retention to 93.3% from 90.4% in 2018, while its active portfolio occupancy was maintained at 94.9%.
According to Konig, the focus for 2020 will be on asset quality, offshore expansion through development activity – notably through expanding the group’s European Logistics Platform – while taking action to restore the value of under-performing assets.
“We have to still grow where we see opportunities and not halt investment. However, we need to be more discerning and selective with our capital allocation and pro-actively seek out recycling opportunities for our non-core assets,” he says.
In a move to build a sustainable capital structure, Redefine has introduced a dividend pay-out policy to add another source of funding, which aligns to international REIT best practice and is pitched at a level that poses no tax leakage.
With a six-month dividend of 48.1 cents a share being declared, the pay-out policy amounts to 93% of distributable income, which is a retention of around R200 million in cash to fund operational capital expenditure.
“This goes to the heart of sustainability as there is no distress on the business and the cash will fund capital expenditure to maintain operations, giving us an efficient additional source of funding, while also preventing potential tax leakage which could occur in the hands of shareholders if this amount was rather declared as part of the dividend and re-invested as equity,” explains Redefine Financial Director Leon Kok.
During the year, R6.9 billion was deployed into property assets, with local development activity totalling R2.4 billion. Offshore expansion totalled R4.3 billion, with R3.6 billion invested in Poland. At the same time, seventeen properties with gross leasable area of 160 076sqm, which no longer served Redefine’s investment criteria, were disposed of to various buyers for an aggregate consideration of R1.0 billion, at an average yield of 8.2%.
According to Kok, the average cost of debt is now 5.8% from 6.3% a year ago, while interest rates are hedged on 87.3% (FY18: 81.2%) of total borrowings for an average period of 2.9 years.
Environmental impact remains a key theme, and during the year carbon emissions savings from Redefine’s solar installations equated to taking around 6,300 passenger cars off the road.
Despite the challenging trading environment, Redefine expects to deliver distributable income per share similar to that of 2019 for the 2020 financial year, and anticipates the pay-out policy to be maintained at a similar level.
While Redefine’s legendary founder Marc Wainer retired in August, Redefine has also zeroed in on improving board independence, with the appointment of Daisy Naidoo as an independent non-executive director adding to its diversity and skills base. 50% of the board is now female and 88% of the non-executive directors are independent.
“We are living our values to protect and grow our reputation in pursuit of living our purpose to create and manage spaces in a way that changes lives. We continue to place people at heart of everything we do, which will stand us in good stead when the cycle does turn” concludes Konig.