Redefine Properties has released its results for the year ended on the 31st of August 2020. The company is well placed to benefit from logistics growth in Poland after hard lockdown restrictions locally and dividends withheld by offshore investments significantly dampened.
Tough trading conditions locally and internationally served to drag distributable income per share down by 49.0% to 51.50 cents, from 101.00 cents in 2019.
However, total revenue showed only a marginal decline of 0.1% and signs of green shoots have begun to appear. Collections from tenants increased to 96% and 97% of billings during September and October after averaging only 84% during the worst of the pandemic.
CEO, Andrew Konig says that Redefine continues to streamline its asset platform and to strengthen its balance sheet to withstand ongoing volatility and uncertainty and at the same time, ensuring the company is poised to benefit when conditions improve.
An offshore asset base valued at R15.6 billion (FY19: R22.6 billion) – compared with diversified local property assets of R65.4 billion (FY19: R72.8 billion) – continues to provide adequate geographic diversification. While Redefine is in the process of exiting the Australian market, it is building a pipeline of exciting opportunities in the Polish logistics space.
“We have put in the hard work and are making great strides towards building tangibly for the medium term. We are leveraging off operational efficiencies, making significant inroads in reducing our loan-to-value ratio, being ruthless rather than reckless in right-sizing our asset footprint, and are set to benefit from growth in Poland,” says Konig.
Putting Polish expansion potential into perspective, gross leasable area of 527 000m2 has been expanded by 160 000m2 and there is a pipeline to take this exposure to well over a million square meters over the next year or two, utilising the €163 million (R3.2 billion) sourced from introducing an equity investor into European logistics investment.
“We are still expanding despite constraints to the capital base and see a lot of opportunity in logistics in Poland, based on the impetus placed by the government on infrastructure investment, but also thanks to growing demand for warehouse space as more people move to e-commerce channels,” he says.
Konig also points out that Redefine is not distressed from a cash point of view and has “a lot of liquidity to come our way, having concluded disposals totalling R13.4 billion, of which only R7.1 billion was banked in 2020.”
During the year, local property disposals realised R894 million, the exit from RDI REIT PLC raised £106.3 million (R2.3 billion), and the residual investment in Cromwell was sold for AUD53.3 million (R674.6 million).
Redefine’s top priority during the year under review was to address the group’s loan-to-value ratio, says CFO, Leon Kok.
“Our loan-to-value (LTV) improvement initiatives – which included being the first SA REIT to implement a dividend payout policy and exiting non-core investments in the UK and Australia – yielded an LTV reduction of 5.7%. However, the destructive impact of COVID-19 had the opposite effect on asset values, increasing the LTV by 7.8% – negating the improvement initiatives,” he says.
“Work on the LTV is therefore not yet done, and to achieve a sub-40% LTV by August 2021, will require further initiatives. A clear pathway has been set to achieving this target, involving further optimisation of the property asset base, limiting the cash outflow from dividends, as well as the completion of the sale of our interest in Journal’s two student accommodation properties in Australia,” he says.
In the interim, Redefine’s board has deferred a decision on the declaration of a dividend until February 2021, as it is working on a mechanism to ensure there is no adverse impact on LTV from the payment of a dividend. This is subject to the requisite regulatory approvals, and shareholders will be informed as soon as this has been concluded, with full details on the timeline and structure to be provided.
“I believe we have set a new floor on our asset value to sustain value creation going forward, having recorded core asset valuation write-downs of R9.8 billion,” says Konig.
However, this does not escape the stark reality that Redefine’s local property portfolio performance was heavily impacted by the restrictions imposed by government to curb the spread of the virus. Kok says rental relief packages to support the sustainability of tenants amounted to R318.5 million, while the provision for credit losses has increased by R310.4 million.
Kok reports that the active portfolio vacancy rate increased during the period to 7.4% from 5.1% in the same period last year, while the tenant retention rate was 90.8%, from 92.2% a year ago.
The role of ESG has been elevated with Redefine reaching the milestone of having its hundredth building green star rated during the financial year and was also the first local REIT signatory to the UN global climate change compact.
“Covid-19 has accelerated the execution of our strategic priorities, and we have worked very hard in deepening engagement with intensified collaboration and heightened our focus on ESG, with more to come in the new year,” says Konig.
However, he says the outlook continues to be vulnerable to the performance of offshore assets after the rationalisation of the asset base.
“We are focusing on liquidity and cash flow management but remain mindful of the opportunities that are presenting themselves. We are building for tomorrow today through collaboration, differentiation, and innovation”.
Redefine has also appointed the highly experienced Ntobeko Nyawo as its new CFO, with effect from the 1st of March 2021.
A seasoned executive and qualified CA with over sixteen years’ experience, Ntobeko joins from Stanlib, where he currently serves as chief operating officer (COO). Prior to that, he was chief financial officer of Alexander Forbes Emerging Markets, responsible for driving African expansion in partnership with the chief executive officer.
“We are delighted to welcome Ntobeko to our team. His depth of experience as a finance and investment executive, on audit and risk committees and in key transformational roles, including in the migration to digital channels, makes him an ideal candidate to add significant value to the core leadership of our business,” says Redefine chairperson, Sipho Pityana.
“This appointment also frees up Leon Kok to take over as COO at a crucial time. Leon’s depth of experience in finance and property and his leadership will help take us forward as we chart an exciting new path, while navigating ongoing economic volatility” concludes Konig.
