Redefine Properties posted distribution growth of 5.5% for its 2018 financial year as the group’s gross dividend reached R5.2 billion. However, the JSE-listed Real Estate Investment Trust (Reit) has lower growth expectations of between 4 and 5% for 2019.
Speaking on Monday at the release of the company’s full-year results to August 31, Redefine CEO Andrew König said he was pleased with the performance given the tough local market conditions. The dividend per share of 97.10 cents was in line with its market guidance for 2018 of 5 to 6%.
“We believe we have done well, despite current market conditions. Redefine’s successes in the current market far outweigh challenges. This is reflected in the fact that we have seen a tangible growth in our property assets over the financial year, which increased by R7.2 billion to R91.3 billion,” he said.
“We’ve been optimising our assets by selling properties that are at the top end of their cycle, and reinvesting in new assets that offer greater growth prospects. Redefine has also been relentless in driving operational efficiencies in this tough economic environment. This has seen an improvement in our overall occupancies to 95.5% and trading densities within our retail portfolio increasing by 3.3%.”
Disposals and acquisitions
König said Redefine had deployed R11 billion for acquisitions, new developments and upgrades during the year, financed largely from the group’s R8.9 billion worth of disposals. Redefine’s disposals in Australia – of the Northpoint property and its sale of most of its stake in Cromwell Property Group – fetched R5.2 billion alone.
Highlighting Redefine’s commitment to both its home market in South Africa and its international diversification drive, König said the R11 billion was deployed in virtually a 50/50 split between local and offshore investments. Almost R5 billion was invested in Poland, including R3.1 billion for a logistics portfolio and R839 million for shares in Polish property group EPP. Its largest SA acquisition during the period was R751 million for the remaining stake of the landmark 115 West Street building in Sandton.
On the development front, projects worth some R5.3 billion were undertaken – almost R790 million on the new Hatfield Square student accommodation development, R453 million on its stake in the Loftus Park mixed-use development in Pretoria, R383 million for phase one of the Hirt & Carter industrial property project at Cornubia in Durban, and R249 million on Stoneridge Centre in Edenvale, Johannesburg.
König said Redefine will continue to focus largely on the South African and Polish markets, and that most of the group’s investments locally would go into new developments or upgrades as opposed to buying existing properties. While Redefine’s office vacancies where up 1% to 9.5% for the year and retail vacancies up from 3.3% to 4.5%, its industrial vacancies dropped from 3.3% to just 1%. The performance of its industrial property portfolio boosted the overall occupancy level of the group.
“Redefine’s international real estate investments now make up about 21% of our total portfolio,” said König. “We would like to increase this to 25% in the medium term and up to 30% in the long term. We will continue to deploy capital both locally and abroad, developing properties that are well located, with strong upside potential.
“Poland is our main focus in terms of offshore plans for the current year,” he added. “While we originally invested in retail, our move into logistics in Poland is an exciting investment prospect. The logistics sector in Poland is piping hot, with the likes of Amazon and other major global companies investing in distribution centres there.”
In South Africa two of Redefine’s biggest new developments currently underway are the Rosebank Link and 2 Pybus Road in Sandton projects (R721 million and R476 million respectively), while R472 million has been allocated for the completion of its Park Central luxury apartment development in Rosebank. On the redevelopment front, the company is investing R544 million in the next phase of development at Centurion Mall, its biggest retail asset.
König said Redefine is targeting between 4 and 5% distribution growth for its 2019 financial year, adding that the group is being conservative as tough local economic conditions are likely to continue until after the elections next year. Redefine’s local listed property peer, Growthpoint, has also warned of a tougher 2019 financial year and has forecast distribution growth of 4.5%.
“We thought 2017 was a tough year, but 2018 turned out to be even tougher,” said König. “Right now, we don’t have reason to believe 2019 is going to be any easier, until perhaps after the elections. Listed property has also had a rough time this year, with the Resilient situation not being kind to the sector and which still needs to be addressed.
“For Redefine, navigating the storms means also phasing out non-recurring ‘lumpy’ income,” he said. “But we will do this in a measured way. Upping our operating efficiencies will also see us investing further in solar power generation, which not only reduces utility costs, but is turning out to be a cash generator for us.”
Income from solar
Redefine claims to be the South African Reit with the largest solar footprint, with 21 solar plants across its portfolio. It has put about R280 million into the plants, and plans to invest another R17 million for two new solar installations in the 2019 financial year.
“We are actually turning a cost into a profit with our solar rollout,” said König. “We have come a long way, with our solar investments delivering yields of around 13%. Income from our solar plants could contribute as much as 5% to income in the next few years.”
Redefine’s financial director, Leon Kok, said the group’s credit metrics were stronger during the year to help buffer the impact of the poor economy. He said the company’s cost of debt reduced by 100 basis points to 6.3%, gearing and loan-to-value was lowered to 40%, and interest rates were hedged on 81.2% of total debt for the reporting period.
“Given the volatile times and the economic constraints both locally and abroad, balance sheet management is critical,” he said. “We placed a lot of emphasis on credit metrics and this will stand us in good stead as it is anticipated that the macroeconomic environment will remain volatile.”
König said the company is still looking for the right candidate to take over from Marc Wainer as executive chairman of Redefine. “Several new board appointments were made during the year to broaden diversity and skills, however Marc Wainer will remain Redefine’s executive chairman until an independent non-executive chairman is appointed,” he explained, adding that when a suitable candidate is found, Wainer will continue to be part of Redefine as an executive director.
Keillen Ndlovu, head of listed property at Stanlib, says Redefine delivered “decent growth” in the context of the economic environment: “Redefine’s results are in line with the market trend, where we have seen earnings growth being revised downwards. It’s a tough environment due to lower economic growth as well as the fact that most sectors (retail, office, industrial and residential) are generally in oversupply territory.”
Ndlovu adds that it is reassuring that Wainer will remain part of Redefine, even after a new chairman is found, due to his skill set in deal-making and offshore expansion.