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Redefine International is ‘defensive’ from Brexit fallout

Skittish investors have not been forgiving to the company, given its UK exposure.

It is business as usual for UK-based Redefine International, which still sees some upside in the region despite the glum economic prospects in the aftermath of the Brexit vote.

In line with peers that have property investments in the region – such as Capital & Counties, Intu Properties and Capital & Regional – the share price of Redefine International has been down by 22.86% over the past month on the JSE.


Redefine International


The company is one of the offshore vehicles for sector heavyweight Redefine Properties, in which it owns a 30.1% stake.

Investor jitters have gripped global markets, as uncertainty grows about the UK’s imminent exit from the European Union, which is expected to push the economy into a recession. 

Redefine International CEO Mike Watters says although the company was not expecting the UK to leave the 28-member bloc, it was preparing itself for the eventuality.

Redefine International, which originally listed on the London Stock Exchange as Ciref in 2006 and later embarked on an inward listing on the JSE’s main board in 2013, is exposed to the UK’s retail sector.

Of its £1.5 billion property portfolio (as of February 2016), about 35% of its portfolio is exposed to the UK’s retail property space, with shopping malls in towns such as Wigan, Harrow, Derby and others.

It also owns a £235 million hotel portfolio in the region, mostly Holiday Inns and the rest of its UK portfolio is made up of distribution centres in cities such as Manchester and Essex, which are widely considered to be rental growth nodes.

Securing leases

A recent coup for the company has been the £490 million acquisition of a property portfolio from insurer Aegon’s UK Property Fund (AUK), which comprises 20 retail, office, and industrial buildings.

Watters says the company has been proactive in securing leases to its properties. Underscoring this is that two leases were completed totalling £0.6 million, which represents a 10% increase in the Estimated Rental Value (ERV), a key metric for determining what the rental properties can expect to amass.

On Tuesday the company also announced that it has increased the average lease expiry term of properties on the UK portfolio from 7.5 years to 8 years, saving £0.3 million in vacancy costs and achieving an additional £0.6 million to its annualised rental income. “We run our business more conservatively than our peers. We have long-term leases and for us the big unknown is how long this volatility is going to last. I think we are in a very defensive position,” Watters tells Moneyweb.

Nesi Chetty, head of listed property at Momentum SP Reid Securities says the defensiveness part to Redefine International is that it’s not purely focused on the UK, but also has property investments in Germany. About 21% of its portfolio is exposed to the country through mostly shopping malls in towns such as Berlin and Hamburg.

If the UK’s economy falls into a recession then Redefine International can sit out the economic slump given the company’s debt profile, says Watters. It has an average debt maturity profile of 7.4 years and no significant debt maturing until 2020.

It’s not all doom and gloom

Chetty says fundamentals into the UK’s property market are still sound, as rentals in the region are growing and low-interest rates “should benefit property values in the long-term”.

Although the full implication of Brexit is largely unknown at this stage, Ian Anderson chief investment officer at Grindrod Asset Management says UK property funds that have frozen withdrawals, as panicked investors looked to dump real estate holdings, might pose a risk to property prices.

“At some point, these funds will need to start selling properties to meet their client redemption requests and this could lead to lower UK property prices.

“There are unlikely to be many new investors in UK property until such time as there is more certainty regarding the timing of the UK’s exit and the manner in which the exit occurs,” says Anderson.

He doesn’t expect prices to tumble to levels seen during the 2007/8 global credit crisis when global banks made access to debt for property purchases more onerous.

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what did buffett say: “its only when the tide goes out that you get to see what people are wearing”! I believe I have been warning abt these foreign funds who have flocked to sa to sell their properties to unsuspecting sa investors. only time will tell whether the values are anywhere that claimed by the funds. in any case investors cannot get their money out – which I have said ad naseum is the key risk

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