While the Covid-19 third wave and severe social unrest have hampered sentiment, Redefine Properties says it has ‘trimmed down’ and simplified its local and offshore property platforms, resulting in the de-risking of its balance sheet and providing sufficient liquidity to position itself for the potential resumption of paying dividends.
“Our focus has been on implementing our strategy and looking through the cycle, which positions us well for the eventual turnaround,” says Redefine CEO Andrew Konig.
The company resolved not to pay a dividend in respect of its 2020 financial year in the face of ongoing uncertainty, but Konig says its progress on preserving liquidity and managing risks means that Redefine, subject to the requisite solvency and liquidity test, expects to pay a dividend for the financial year.
“Although confidence overall has taken a knock, it has not taken the wind out of the sails of the economy and the momentum from the first half of the year has not been lost. The unrest was severe and very regrettable; however, it did highlight the urgent need for socio-economic transformation – an absolute necessity already amplified by Covid-19,” says Konig.
As per the pre-close presentation for the year ending 31 August 2021, Redefine CFO, Ntobeko Nyawo, says substantial progress has been made in de-risking the balance sheet and bolstering liquidity.
“We would like to be at sub-40% on our loan to value ratio and we are making significant progress to achieving this in line with a well-crafted and deliberate plan to right-size our asset platform.”
Nyawo says that despite the tough operating environment, Redefine remained highly cash generative and improved its liquidity with R5.6 billion in cash and committed access facilities on hand compared to R2.8 billion in the last reporting period.
“This speaks to the quality of Redefine’s portfolio and diversification, as it navigates a tough operating environment.”
Konig says one of the keys to the turnaround will be a pick-up in the vaccination rate. He also believes one of the keys to Redefine’s future success will be ensuring the company adapts and innovates in an inclusive way to meet new, evolving demands.
“The pandemic and social unrest highlighted the need for inclusivity and so our ‘moon-shot’ strategy is to focus on this theme. It entails ensuring collaboration with communities and all stakeholders, especially tenants in the office space. We need to ensure we are relevant to our user’s needs all the time. We are also harnessing technology to leverage off data more smartly and to create efficiencies. Our strategy includes driving diversity of thought to stimulate diversification and to reshape funding sources”.
He points to the success of the R1 billion sustainability bond – Africa’s largest by a REIT – as an example of this new approach in action to support and grow Redefine’s future business and strategic intent. “It gives us a platform to launch further bonds of this nature, but which are longer dated,” he adds.
Meanwhile, the quantum of the damage caused by the recent looting and unrest “is fortunately less severe than we initially thought, with the rebuilding and reinstatement of properties set to happen faster than anticipated”. Redefine has adequate Sasria insurance cover in place to cover the reinstatement cost as well any losses of income during the rebuilding.
Chief operating officer, Leon Kok, says while the various levels of lockdown and unrest had impacted the retail portfolio, “the recovery trend has been steady and quite positive.”
“The footfall and tenant in-store activity also suggests the very pessimistic outlook at the height of Covid-19 and lockdown was unwarranted. Online retail continues to evolve, but most are embracing a dual strategy and we are looking at how we can enable that as it is clear it is important that in-store experiences are maintained,” he notes.
Kok says while economic fundamentals “have not been kind” to the office market, with severe lockdowns impacting livelihoods – there are signs of confidence returning in tandem with the vaccination drive. “A heightened vaccination rollout will support confidence, and we are also seeing more people returning to physical workspaces. We need to ensure we support corporates as they adapt to the new normal, including how they look to use their space”.
Kok says the industrial portfolio remains very resilient, notably thanks to increased warehousing and distribution activity. “I am not suggesting we have troughed, but there is still a fair element of deal activity, and I am very confident about prospects.”
He sees exciting potential thanks to government lifting the threshold for private energy production without a licence from 1MW to 100MW. “So, we can expand existing solar PV installations which were previously subject to the 1MW cap. This is a fantastic opportunity as we expect to expand by just over 12MW across our portfolio, further entrenching our broader ESG ambitions, while we will also achieve greater security over electricity supply.”
Konig says positive news is that Redefine has achieved settlement certainty on the sale of the remaining student accommodation facility in Australia – due on the 15th of February 2022. The sale of the local student accommodation portfolio has also been concluded.
Offshore, the logistics platform continues to expand by way of development activity and valuations are benefitting from strong investor demand.
“We are seeing fantastic opportunities to take advantage of investor demand. For example, we are recycling some of the more mature assets initially acquired at very compelling yields, which will be invested into new developments,” says Konig.
The logistics outlook in Poland remains particularly promising as e-commerce and logistics chains continue to grow in the post-pandemic environment.
“Poland’s economy is bouncing back very quickly and could be at pre-pandemic levels within a year, which bodes well for the retail and logistics in that region,” he concludes.