South Africa’s second largest primary listed real estate investment trust (Reit) Redefine Properties is putting its R4 billion in Australian assets up for sale as it looks to exit the country by 2020.
This was revealed by Redefine CEO Andrew König during the group’s 2019 full-year results media briefing in Johannesburg on Monday.
The move to recycle its high-value properties in Australia is aimed at strengthening its balance sheet by bringing down debt in the face of challenging conditions in its core home market in SA.
Its plan is to focus on SA and its higher yielding offshore property foray in Poland.
“Our top priority is to strengthen our balance sheet,” says König. “We plan to bring down our debt and in effect de-gear our business through the sale of around R8 billion in properties in SA and Australia.”
Redefine’s gearing or loan-to-value (LTV) ratio increased to 43.9% in the full-year to August 31, up from 40% in 2018. It reported distributable income growth of 4% to 101 cents per share for the year, with total group assets exceeding R100 billion for the first time.
“Despite a challenging year, we have delivered growth within our market guidance,” notes König.
“However, we are uncomfortable with the current LTV level. A cogent LTV ratio would be to bring it down to between the 35% and 40% level. We will do this by recycling some of our assets that are either non-core or at the top end of their cycle,” he adds.
Local student accommodation assets to go too
König tells Moneyweb that Redefine plans to sell its student accommodation assets both in Australia and SA, which are worth around R3.3 billion and R2.5 billion respectively.
In addition, the group will sell its separate remaining stake in Australia’s Cromwell Property Group, which is valued at R700 million.
“Around half of our R8 billion in property assets for sale are in Australia. In SA, we plan to sell our stake in Respublica [student housing business], in addition to other properties as part of our capital recycling strategy.”
He adds: “Student accommodation is trading at record yields in Australia and Cromwell’s share price is trading at an all-time high, so we believe it is a good time to sell in Australia.”
König says Redefine has enlisted the services of international property brokerage JLL to find buyers for its Australian property assets, which will be sold through a competitive bidding process.
He is confident the assets will be sold within the group’s 2020 financial year.
The sale of its Australian assets will effectively see the group exit the country. Redefine has been reducing its offshore exposure to Australia in recent years and redirecting capital to Poland. Its disposals in Australia in its 2018 financial year, including the Northpoint property and most of its stake in Cromwell, fetched R5.2 billion.
Fellow JSE-listed Reit Emira Property Fund has also reduced its exposure down under, selling around half of its stake in Growthpoint Properties Australia (GOZ) in the past year. Growthpoint Properties, SA’s largest Reit and the major shareholder in GOZ, has also reduced its exposure to the group. While it has not sold shares, its stake in GOZ has been diluted following Growthpoint not taking part in a recent capital raising by GOZ.
Nesi Chetty, a senior listed property fund manager at Stanlib, says Australia has become a lot more competitive in the last few years. “We have seen yields come down in the big property sectors in Australia. Recycling out of Australia, where yields are under 4% in some sectors, to either paying down debt or for capex into Redefine’s existing portfolio is sensible.”
He notes that the move is similar to that of Emira, which has reduced its GOZ exposure to focus on its US offshore investment drive. “Emira is reinvesting the capital in the US, where cash returns are better.”
Redefine is expecting flat distribution growth for its 2020 financial year. Its share price was up 5.68%, closing at R8 on the JSE following the release of its full-year results on Monday.