Despite its most aggressive disposals programme in years, Redefine Properties is struggling to keep its gearing or loan-to-value (LTV) ratio in check as the Covid-19 crunch takes its toll on property valuations and the group’s share price.
Redefine’s latest results for its full year ending August 31, released on Tuesday, reveal overall property portfolio write-downs of almost R10 billion and its LTV hitting a record 47.9%.
Most key metrics took a blow, due largely to the impact of the pandemic, related lockdowns and restrictions on trade in both of its key markets of South Africa and Poland.
This has seen more than 69% wiped off its share price this year, exacerbating its LTV position.
The plunge in its share price is worse than some of its comparative industry peers like Growthpoint, Fortress and Resilient. Redefine has fallen off the JSE Top 40 index to now being the fourth largest local real estate investment trust (Reit).
The group expedited disposals both locally and internationally, including exiting its long-time presence in the UK and Australia. It has concluded disposals totalling R13.4 billion and has received R7.1 billion of this from the transfers that have taken place so far.
Had the transfers not taken place, Redefine’s LTV would have breached the psychological 50% mark.
Despite the spike in its gearing level and devaluation of assets in SA, Poland and the UK (its stake in RDI was written down by around R500 million in the year before it was sold), Redefine CEO Andrew Konig believes the company has taken the pain and is poised to benefit when the pandemic is over and economic conditions improve.
“Our highly successful disposals programme contributed to LTV reducing by around 5.7%. However, this was wiped out by write-downs [of property values] in our portfolio, which saw the LTV ratio reaching 47.9%,” he noted.
“Redefine’s local assets were impaired by 10%, while our stake in EPP in Poland was also written down.
“But our work around lowering our LTV is not done … We sold R13.4 billion in assets. While around R7.1 billion was banked in 2020, we are expecting to receive more than R6 billion in financial year 2021. We want to see our LTV at sub 40% and believe we are on track towards achieving this.
“Redefine is not distressed from a cash point of view and has a lot of liquidity to come our way,” he added.
Konig said that further disposals are on the cards, including an exit from student accommodation in SA and Australia.
Redefine reported a 49% plunge in distributable income per share for the year, down to 51.50 cents, from 101.00 cents last year. This was due largely to Covid-19 relief measures locally in the face of the ‘hard’ lockdown earlier this year as well as its offshore investments not paying out dividends.
The group has deferred its decision around paying out a final dividend to February next year.
Keillen Ndlovu, Stanlib’s head of listed property funds, said in a brief statement to Moneyweb that Redefine’s annual results “reflect a very tough environment with every measure showing deterioration, including LTV, ICR [interest cover ratio], cost-to-income ratio, vacancies, net asset value and distributions etcetera”.
However, he noted: “Redefine has been a complex business hence the discount to net asset value of over 65%, versus the Reit sector at around 45% … The group is on a journey to simplify its operations and requires a patient investor.”
Meanwhile, Konig said that Redefine will continue to streamline its asset platform and strengthen its balance sheet to withstand ongoing volatility and uncertainty. He noted that the group will prioritise its logistics-focused property expansion drive into Poland, where it sees great growth potential.
Redefine’s offshore asset base is now valued at R15.6 billion, while its diversified local property portfolio of retail, office, logistics, industrial and student accommodation assets is valued at R65.4 billion.
Listen to Nompu Siziba’s interview with Andrew Konig: