Johannesburg, 7 November 2022 – Real estate investment trust Redefine Properties (JSE:RDF) continues to weather tough economic conditions to deliver sustained value and quality earnings thanks to continuous risk management, disciplined sale of non-core assets and the onboarding of overseas retail property powerhouse EPP.
Distributable income of R3.6 billion, representing distributable income of 53.71 cents per share for the year ended 31 August 2022, is indicative of an underlying healthy and sustainable property asset base despite ongoing uncertainty over the war in Ukraine, local policy instability and weak overall property fundamentals. The Group now has a geographically diverse asset portfolio worth R88.9 billion. A final dividend of 19.28 cents was declared, bringing the full year dividend to 42.97 cents per share. Earnings guidance for the 2023 financial year remains for distributable income of between 54.2 and 56.4 per cents per share.
Redefine CFO, Ntobeko Nyawo, says a standout feature is the sustainability of earnings off the back of a “very stable and strong balance sheet with a loan-to-value ratio of 40.2% in supporting our strategy and recovery post the COVID-19 pandemic”.
“This speaks to the underlying health and sustainability of the portfolio,” he says, noting that liquidity of R6.2 billion – of which R1.7 billion is cash on hand and R4.5bn access to committed undrawn facilities – trumps the R5.8 billion recorded a year ago. A boost to liquidity resources came in the form of timeous disposals of non-core assets, injecting R9.4 billion in cash.
Net asset value, in turn, moves up to 720.1 cents per share from 688.6 cents per share last year, thanks largely to the inclusion of the robust offshore portfolio and SA asset values stabilising. While the cost of rand-denominated debt increased to 8.7% from 8.1% in prior year, Group weighted cost of debt remains stable at about 6% and the company is well-hedged at 82.9% of total debt.
CEO Andrew König, says while Redefine has had to rethink its business in a rising inflation and interest rate environment, the results “demonstrate the outcomes of our purpose of creating and managing spaces in a way that changes lives.”
A recent JLL socio-economic impact study, for instance, demonstrates that Redefine across the South African portfolio ecosystem generated new SMME sales of R8.3 billion, created 12,850 jobs – showcasing that retail is the biggest job creator across all sectors at 55% of the jobs created– and helped create 8,353 new SMME jobs specifically. Standing out was a statistic showcasing a total GDP contribution of R3.7 billion thanks to the activity generated across the portfolio by Redefine during 2022.
“We are having an impact in the communities we operate in and will continue to drive broad progress as we integrate ESG initiatives into everything we do so the impact we have is sustainable and value enhancing for more people,” says König.
“We have worked hard to create a quality portfolio that is not heavily exposed to secondary grade properties, especially in the office sector where vacancy rates in that sector are scaling 30% for some companies,” he says.
With EPP on board, some risks on the horizon include a dark winter in Europe amid higher costs and potential shortages of energy.
However, König says it is important to focus on the “variables we can control.”
“Geopolitics affect all of us and this is playing out in a sharp increase in energy costs and rising inflation. But then on the flipside, you see logistics benefiting from a move to ‘friend shoring’ where companies move into friendlier territories where they can do business safely, like Poland where ELI is situated, fuelling growth in demand for logistics,” he says.
COO Leon Kok says Redefine’s local portfolio has had a “very decent outcome across all operating metrics,” despite the ongoing power cuts, policy uncertainty and economic malaise.
“We have been exposed to climate, water, energy and COVID challenges for a few years now and through hard lessons learnt been embedding best practices across the board,” he says.
The right strategic choices saw many “green ticks” for Redefine, with vacancies reducing during the reporting period to 6.7% from 7.1% a year ago, while lease tenures increased, as did tenant retention. “Our local property valuations have also stabilised with a 1.4% valuation increase across all three sectors on the back of a continued recovery in operating metrics,” he adds.
Kok says Redefine continues to benefit from a flight to quality, as tenants seek quality A- and P-grade space, to complement their employee wellness efforts in environmentally friendly buildings or where users seek to consolidate multiple offices into a single location.
“Our capital allocation has emphasised retention and improvement and we have been very active on the refurbishment front, while continuing to expand our solar PV footprint, at an installed 35 MWP at year-end,” he says. Exciting innovations include a successful bid for a “electricity wheeling project” in partnership with the City of Cape Town via the planned installation of a 5 MWP solar rooftop project at Brackengate, which will be the single biggest rooftop solar PV installation in Africa.
“This will see us generate electricity off the rooftop of our warehouse and which will supply two of our retail sites in the Western Cape, which could hopefully pave the way for national regulation and growth of this powerful alternative energy innovation,” says Kok.
Redefine’s overall ESG journey continues to gather momentum, with 160 Green Star certifications and 85% of the South African office portfolio by GLA being green certified. In Poland, EPP has 70% and 85% of its retail and office portfolios respectively BREEAM certified.
“We have not just woken up to the need for green solutions but this has been part of our thinking for many years and we are now seeing solid, value-enhancing results,” says König.
On top of maintaining a high over-arching ethics rating, König says he is particularly pleased with progress on driving gender diversity across the company.
“Our diversification across the sectors remains a key benefit, while our quality of earnings is getting more sustainable, enhancing our ability to build and grow,” concludes König.
