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Redefine to exit Australia, looks to bring down debt

Plans to sell R8bn in property assets, including its entire portfolio down under.

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.

Read: Capital flight: SA property companies invest billions more offshore

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.

Andrew König, CEO of Redefine Properties. Image: Moneyweb

“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.

Read: Emira sells down in Oz, doubles US investment to R1.1bn

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.

Share price up, but a good time for strategic moves

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So many SA companies burn their fingers in Australia and so many people use the initial venture to emigrate.

I have never been to business school, I do not not have an MBA neither have I worked for an investment bank, but the rate at which South African businesses are slaughtered outside our borders is beyond me…

Why would one leave the success of hisown country and buy failing businesses in foreign lands, with the hope that they will turn them around…

I always thought that international trade is about import and export notcompetion or business turnaround. The main reason, maybe the only reason a business should go oversees should be to export a service of goods that are not avilable in that country… Would it make sense fo a South African business to buy a car manufacturing business in Germany? or a Soft Drink making company in America? Even a gas exploration business in Lake Charles?…

But it is a more common value distruction tendancy of South Africans… Property is the worst where a private individual acquires property with a bond (bank loan), rents it out for less than his/her monthly bond repayments and covers the shortfall saying it is an investment… How so?

We go into countries we don’t understands and we subsidise their markets because we have no faith in the successes of our businesses on home soul. Or simply that,we are suckers and world the has read us correctly.

Perhaps it’s in an attempt to move money outside of SA’s borders.

Definitely not advisable to have all your eggs in the basket that is South Africa.

If done right it can be very fruitful- Successful expansion in to UK and Aus is whats funding 30 billion Steyn city expansion.

Point taken, ofcourse there will be stars…
I am talking about the minnows who just follow like sheep and the get slaughtered…these i call “disasters”.

Sometimes the combined egos of the management team or the board members are too big to fit into the South African borders. Then they use shareholder capital to finance the process of dumping their egos in foreign markets. This process is very efficient, because those individuals eventually come back, with the tail between the legs, completely stripped of their egos.

It would be interesting to see how many execs end up moving, and then staying on in these first-world countries, even as their companies flop. Are shareholders subsiding emigration? Speaking generally, of course, not referring to this case.

@Boombang. I can understand your sentiment.

IMHO it’s mainly two things (i) capital flight out of SA by acquiring businesses abroad, and (ii) SA companies are not used to tight competition in many developed markets. And add to that, more stringent regulation (which is actually enforced).

Yes, and Australia is a cemetery for South African businesses.

Hulle het te veel hooi op hulle vurk.

This is not New York – “If you can make it here, don’t think you can make it anywhere”. But on the other hand, we can be so proud of all the brilliant local minds who were hugely successful in the international arena. Not to mention the success of the local sports teams. Strip out the politics, and South Africans are winners.

The valuations here, and there are way way over the actual. Watch this space

With property, valuation is always the dark hole. These property companies just can’t resist the lure of overvaluing their assets, to allow them to borrow to the hilt and beyond. Payback comes when you have to unload the assets to be able to cover your loans. In my humble opinion, Redefine’s portfolio is at least 30% overvalued. I can’t see them fetching the prices they are bandying around. Shareholders will be the ones to bleed – just ask Sharemax investors, who will be able to explain nicely.

Me thinks a lot of SA companies open branches in Australia, UK Usa etc simply to have a business /cash in exile if and when SA goes belly up ala Zim.
To name a few Investec, Plascon, Woolies and now Redefine.
The sad thing is when they fail it is shareholders who lose, not the directors.
If i was an investor in a SA company that goes offshore i would sell my shares immediately.
I had a personal experience where an Australian company tried to lure me into a ”partnership” via a SA contact only to find they wanted to replace their cash with mine- that bone di’nt even have enough meat on it to feed a toy pom

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