Results for the year ended 31 August 2020 showed how the tough trading conditions locally and overseas brought on by COVID-19 served to drag distributable income per share down by 49.0% to 51.50 cents, from 101.00 cents last year.
Total revenue, however, showed only a marginal decline of 0.1% and signs of green shoots have begun to appear. Collections from tenants increased to a pleasing 96% and 97% of billings during September and October after averaging only 84% during the worst of the COVID-19 crisis.
“Redefine continues to streamline its asset platform and strengthen its balance sheet to withstand ongoing volatility and uncertainty, at the same time ensuring it is poised to benefit when conditions improve,” says CEO, Andrew Konig.
An offshore asset base valued at R15.6 billion (FY19: R22.6 billion) – compared with diversified local property assets of R65.4 billion (FY19: R72.8 billion) – continues to provide adequate geographic diversification. And while Redefine is in the process of exiting the Australian market, it is building a pipeline of exciting opportunities in the Polish logistics space.
“We have put in the hard work and are making great strides towards building tangibly for the medium term. We are leveraging off operational efficiencies, making significant inroads in reducing our loan-to-value ratio, being ruthless rather than reckless in right-sizing our asset footprint, and are set to benefit from growth in Poland,” says Konig.
Konig puts the Polish expansion potential into perspective: Gross leasable area of 527 000 square metres has been expanded by 160 000 square metres and there is a pipeline to take this exposure to well over a million square metres over the next year or two, utilising the EUR163 million (R3.2 billion) sourced from introducing an equity investor into European Logistics Investment.
“We are still expanding despite constraints to the capital base and see a lot of opportunity in logistics in Poland, based on the impetus placed by the government on infrastructure investment, but also thanks to growing demand for warehouse space as more people move to e-commerce channels,” he says.
He also points out that Redefine is not distressed from a cash point of view and has “a lot of liquidity to come our way, having concluded disposals totalling R13.4 billion, of which only R7.1 billion was banked in 2020.”
During the year, local property disposals realised R894 million, the exit from RDI REIT PLC raised GBP106.3 million (R2.3 billion), and the residual investment in Cromwell was sold for AUD53.3 million (R674.6 million).
Redefine’s top priority during the year under review was to address the group’s loan-to-value ratio, says CFO, Leon Kok.
“Our LTV improvement initiatives – which included being the first SA REIT to implement a dividend payout policy and exiting non-core investments in the UK and Australia – yielded an LTV reduction of 5.7%. However, the destructive impact of COVID-19 had the opposite effect on asset values, increasing the LTV by 7.8% – negating the improvement initiatives,” he says.
“Work on the LTV is therefore not yet done, and to achieve a sub-40% LTV by August 2021, will require further initiatives. A clear pathway has been set to achieving this target, involving further optimisation of the property asset base, limiting the cash outflow from dividends, as well as the completion of the sale of our interest in Journal's two student accommodation properties in Australia,” he says.
In the interim, Redefine’s board has deferred a decision on the declaration of a dividend until February 2021, as it is working on a mechanism to ensure there is no adverse impact on LTV from the payment of a dividend. This is subject to the requisite regulatory approvals, and shareholders will be informed as soon as this has been concluded, with full details on the timeline and structure to be provided.
“I believe we have set a new floor on our asset value to sustain value creation going forward, having recorded core asset valuation write-downs of R9.8 billion,” says Konig.
However, this does not escape the stark reality that Redefine’s local property portfolio performance was heavily impacted by the restrictions imposed by government to curb the spread of the virus. Kok says rental relief packages to support the sustainability of tenants amounted to R318.5 million, while the provision for credit losses has increased by R310.4 million.
Kok reports that the active portfolio vacancy rate increased during the period to 7.4% from 5.1% in the same period last year, while the tenant retention rate was 90.8%, from 92.2% a year ago.
The role of ESG has been elevated with Redefine reaching the milestone of having its hundredth building green star rated during the financial year and was also the first local REIT signatory to the UN global climate change compact.
Konig adds: “We are delighted to announce that Ntobeko Nyawo has been appointed as the company’s chief financial officer from 1 March 2021, which frees up Leon Kok to take over as chief operating officer from David Rice who recently retired.”
“COVID-19 has accelerated the execution of our strategic priorities, and we have worked very hard in deepening engagement with intensified collaboration and heightened our focus on ESG, with more to come in the new year,” says Konig.
However, he says the outlook continues to be vulnerable to the performance of offshore assets after the rationalisation of the asset base.
“We are focusing on liquidity and cash flow management but remain mindful of the opportunities that are presenting themselves. We are building for tomorrow today through collaboration, differentiation and innovation.
“We are looking through the short-term challenges and trying not to be distracted from our purpose, so that we become more relevant to our users’ needs and continue to attract and retain quality tenants, which is the lifeblood of our business,” concludes Konig.
