Laying the foundations for future growth when the Covid-19’s uncertainty and volatility slows, Redefine has managed risk through a streamlined, more focused offshore asset platform by zoning in on higher quality and well-located domestic assets.
However, CEO Andrew Koning says that “property fundamentals are going to be challenged for the rest of 2020 and beyond.”
He says that Redefine’s asset platform has been significantly readjusted for prevailing conditions and the company is now more focused on a single external geography offshore in Poland.
“This reduces our risk profile, improves our liquidity position and eases our loan to value ratio, which has been under a lot of pressure.”
The sale of Redefine’s stake in the UK fund, RDI REIT for R2.3 billion in June has enabled the fund to focus on local and East European investments. Other recent changes to streamline the business includes the sale of its 90% interest in two Australian student accommodation facilities as well as its residual interest in Cromwell Property Group.
The elimination of non-recurring income also comes on stream through the acquisition of 100% of the equity value in M1 Marki from Chariot for €122.8 million. Redefine owns 25% of Chariot which will be disposed of as part of the transaction to settle the bulk of M1 Marki’s purchase consideration.
CFO Leon Kok says that early action on balance sheet strengthening and selling non-core assets means that Redefine has undrawn access to R3.8 billion in cash, while having liquidity headroom to absorb as much as a 50% rental decline and 100% dividend withholding from foreign investments.
“We have not yet seen a dramatic loss or material increase in lease cancellations – which is why our attitude towards rental relief has been generous. While we realise there may be short-term pain, our emphasis remains on sustainability as we would rather retain tenants for the long term” says Kok.
He says stringent liquidity and risk management practices – which were established well ahead of Covid-19 – now stand the company in good stead: “We are fortunate to have sufficient headroom to absorb headwinds if the recovery is slow.”
Rental relief in the second half has amounted to approximately R270 million with an increase in rental arrears of approximately R400 million over the five months of the various levels of lockdown. Average cash collections over this period have amounted to about 82% of monthly gross billings. However, the brunt of this occurred during the hard lockdown in April and May and it has since ‘recovered to some extent’.
Redefine supported its suppliers despite not being in receipt of any or receiving limited service delivery, such as cleaning and security services and to avoid suffering layoffs.
“This has ensured our relationships remain entrenched and places us in a strong position to continue providing high quality services during and after the lockdown,” says Kok.
However, he emphasises that the next three months “remain critical, as the economy and property market is not out of the woods yet”. The focus remains on keeping liquidity levels bolstered, focusing on cutting back on non-essential expenditure, while still supporting tenants through rental relief.
Following the recent news that Redefine disputed the validity of the put option exercised by property investment and development company Zenprop and RMB to sell the Mall of the South, Konig says that the parties are engaged in constructive discussions to resolve this dispute which is expected to result in a mutually satisfactory outcome for all parties.
Konig says the hard work done to right size the footprint of the capital base has provided space to expand development activity in the logistics sector in Poland which is offering attractive investment opportunities in an expanding market. This is expected to yield capital growth from further yield compression.
“The European logistics platform is expected to grow significantly through exciting new opportunities on our doorstep, funded through our equity partnership with Madison.”
Two recent completed developments in Poland of over 40,000 square metres add to an exciting further pipeline of seven projects of just over 189,000 square metres, which are 75% pre-let at an average income yield of 7.1%, and all funded via proceeds from the Madison transaction.
Konig points out that Redefine has “done very well at working from home”, leveraging off its IT platform and instilling a culture of innovation and learning.
“Our early commitment to refreshing our values, culture and focusing on our people has seen us make great strides in facing and overcoming this crisis together,” he says.
“Our purpose remains to create and manage spaces in a way that changes lives and we have, for instance heightened our focus on ESG initiatives to further protect property values,” says Konig.
Renewable energy remains a key strategic focus, with capacity expanded to 25.9 kw peaks during the period: “We will carry on ensuring the rollout of green energy and at the end of this financial year will have 100 office properties that are green star rated,” says Konig.
“Covid-19 has intensified and sharpened pre-existing challenges. But we have done the hard yards and now stand in good stead as we prepare to enter recovery,” he concludes.