Redefine Properties’ debt challenges under control
The SA landlord has been selling noncore assets as it looks to ease pressure on its balance sheet
Redefine Properties, SA’s second-largest listed landlord by asset size, which owns Rosebank Towers, Centurion Mall and the prime offices of 155 West Street, will finally reach its debt level target by the end of its 2022 financial year.
The company’s fortunes have been derailed by the pandemic and it has not declared an interim dividend for the first time since it listed 21 years ago.
The group is holding on to more cash having sold some noncore assets in recent months as it operates in a recession with uncertainty around whether a third Covid-19 infection wave will engulf SA.
CEO Andrew Konig said in an interview with Business Day on Monday that the company had exited student accommodation and sold its Australian assets so that it could focus on its investments in SA and Poland, while improving the health of its balance sheet.
Speaking after the release of the company’s results for the six months to end-February, Konig said Poland’s economy was expected to return to pre-Covid-19 growth levels by the end of 2021. SA’s economic recovery might only really begin in “two or three years’ time”, he said.
“It’s been a very challenging time for SA and Redefine given the uncertainty and volatility created by the pandemic. We don’t have clarity about a third wave of Covid-19 infections, but are hopeful that the vaccine rollout will now kick into gear. We feel our business is in very healthy position,” Konig said.
Redefine’s total property assets under management were valued at R75.3bn at the end of the reporting period, with 84% invested in SA.
COO Leon Kok said the company had sold its stake in an Australian student housing business and other noncore property asset disposals in the reporting period, which realised R4bn. A further R2.7bn of sales were at an advanced stage.
This brought its loan-to-value (LTV) down from 47.9% to 44%. LTV measures a company’s debt relative to its assets. By the end of the financial year to end-August 2021, its LTV would be 41% and in 2022 it would fall below 40%.
Fund managers prefer for LTVs to be below the 40% benchmark as a number above 40% indicates some financial stress on a balance sheet.
“We are on the right trajectory in terms of managing our debt and in 2022 we will have an LTV at a much healthier level than below 40%, which I believe will please the market,” Konig said.
Redefine also reported a lower distributable income per share of 26.2c for the interim period to end-February 2021, “driven principally by the impact of Covid-19 on the property sector and broader economy”, he said.
“The current reporting period covers six months during which the economy was battered by one of the world’s strictest lockdowns. Consequently, when compared with a pre-Covid prior reporting period, the distributable income is down 21.8%," he said.
“We believe the bottom of the cycle has been reached. What we are expecting, and this is also what has happened in other countries who have made good strides on their vaccine programmes, is that the rollout of vaccines will lead to more mobility in the system.
“This means more people going out, to work, to shop and to play and that quickly translates into confidence, which is the cheapest form of economic stimulus,” he said.
Weaker property fundamentals and low economic growth would have to be factored in for 2021 and beyond.
Konig said that as a precautionary measure ahead of a still nascent vaccine rollout in SA, Redefine’s board has decided to take the prudent step to defer its dividend decision to year-end.
“We did not take this decision lightly at all and took all stakeholder interests into account. It is fundamental to our investment proposition to pay dividends, but unfortunately there is just too much uncertainty to factor in right now. We hope to have better news towards the end of the year, but as always we must act prudently,” he said.
Real estate investment trusts (Reits), including Redefine, are mandated to pay a minimum of 75% of their distributable income as a dividend each financial year, as long as they pass a liquidity and a solvency test.
Keillen Ndlovu, head of listed property funds at Stanlib, said Redefine’s business had become very complicated in recent years and it was now going through a simplification process.
“It would have been nice to get a dividend especially after they didn’t pay anything last year. The company is trading at more than 40% below its net asset value compared with the sector at about 30% below net asset value,” he said.
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