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Financial Mail - Investors Monthly - - Contents - Joan Muller

In­creased off­shore ex­pan­sion is likely to come pre­dom­i­nantly from Poland

I ncome-chas­ing in­vestors look­ing to hedge cur­rency bets both ways (against a po­ten­tially stronger or weaker rand) should look afresh at Rede­fine Prop­er­ties.

The counter, the JSE’s sec­ond largest SA-based prop­erty stock af­ter Growth­point Prop­er­ties with a mar­ket cap of R61bn, is cur­rently trad­ing at an at­trac­tive dis­count to the sec­tor and of­fers a rel­a­tively cheap en­try point for in­vestors with a three-to-five-year hori­zon.

Rede­fine’s for­ward div­i­dend yield is close to 9% against a 7.2% av­er­age for the listed prop­erty sec­tor as a whole. The port­fo­lio is well-di­ver­si­fied and po­si­tioned to weather po­ten­tial storms in any par­tic­u­lar re­gion. Rede­fine of­fers in­vestors ex­po­sure to rand-based of­fice, re­tail and in­dus­trial prop­erty as­sets in SA as well as a mix of hard cur­rency in­come streams through its Pol­ish, UK, Ger­man and Australian in­ter­ests.

The port­fo­lio has an 80% lo­cal and 20% off­shore split. The lat­ter com­prises, among oth­ers, Rede­fine’s 39.5% stake in pure Pol­ish prop­erty play Echo Pol­ska Prop­er­ties (EPP), a 29.8% stake in UK and Ger­man-fo­cused Rede­fine In­ter­na­tional as well as a 25.4% stake in Australian-listed Cromwell.

The counter was some­what out of favour in 2013-2015 fol­low­ing mar­ket per­cep­tions that it owned too many older, smaller prop­er­ties in se­condary ar­eas. But man­age­ment, un­der CEO An­drew Konig and co-founder and ex­ec­u­tive chair Marc Wainer, has made head­way, of­fload­ing the rats and mice and in­vest­ing the pro­ceeds in big­ger, bet­ter build­ings.

Rede­fine’s port­fo­lio has un­der­gone a ma­jor trans­for­ma­tion since 2014, not only in terms of qual­ity and scale but in its ge­o­graph­i­cal foot­print.

To­tal as­sets have grown 75% over the past two and a half years, from about R48bn in Au­gust 2014 to R84bn at endFe­bru­ary. Its flag­ship SA as­sets now in­clude a number of large shop­ping cen­tres in­clud­ing Cen­tu­rion Mall and East Rand Mall (50%) in Gaut­eng, Mat­losana Mall in Klerks­dorp and Blue Route Mall and Ke­nil­worth Cen­tre in Cape Town. Rede­fine’s off­shore in­ter­ests dou­bled from just more than R8bn in Au­gust 2014 to R16.4bn.

Over the past year alone, as­sets val­ued at more than R15bn were ac­quired. Big-ticket deals in­clude Rede­fine’s muchtalked about en­try into Poland in mid-2016 when it man­aged to pip fel­low South African bid­ders to the post for a R4bn stake in EPP. EPP, which owns 25 shop­ping cen­tres and of­fice blocks across Poland, listed on the JSE in Septem­ber.

This year Rede­fine also ac­quired former JSE-listed de­vel­op­ment play, The Piv­otal Fund, which added 32 lo­cally based prop­er­ties worth R10.4bn (in­clud­ing de­vel­op­ments un­der con­struc­tion and land hold­ings) to its port­fo­lio. These in­clude a number of Agrade as­sets such as the new land­mark Alice Lane of­fice com­plex in Sand­ton. Rede­fine re­cently also in­vested R337.9m in Aus­tralia’s high-growth stu­dent hous­ing mar­ket via a 90% stake in Jour­nal Stu­dent Ac­com­mo­da­tion Fund. The lat­ter has re­ceived ap­proval to start build­ing 804 stu­dent beds in June at a prime site that Rede­fine owns in Mel­bourne, just up the road from Mel­bourne Uni­ver­sity.

That man­age­ment’s trans­for­ma­tion strat­egy is pay­ing off is clearly un­der­scored by the solid set of in­terim re­sults an­nounced this month. The com­pany man­aged to de­liver in­fla­tion-beat­ing div­i­dend growth of 7.5% for the six months end­ing Fe­bru­ary, which is no easy feat in the cur­rent un­cer­tain eco­nomic and po­lit­i­cal cli­mate.

As Meago As­set Man­agers direc­tor Jay Pa­day­atchi points out: “While Rede­fine’s out­look for distri­bu­tion growth has been re­vised marginally down­wards, which is to be ex­pected given the weak SA macro-eco­nomic out­look and dif­fi­cult trad­ing en­vi­ron­ment, net op­er­at­ing in­come growth of 5.9% and a high ten­ant re­ten­tion ra­tio of 86% should pro­vide com­fort to share­hold­ers.”

Konig said at the in­terim re­sults pre­sen­ta­tion that man­age­ment’s fo­cus will re­main on di­ver­si­fy­ing, ex­pand­ing and im­prov­ing the com­pany’s port­fo­lio. The com­pany is likely to fur­ther in­crease its off­shore ex­po­sure to about 25%-30% of to­tal as­sets, from just less than 20% cur­rently.

“Ge­o­graphic di­ver­si­fi­ca­tion re­mains im­por­tant as it en­ables us to ac­cess sta­ble rev­enue flows and broaden our fund­ing sources at at­trac­tive in­ter­est rates.”

Konig said in­creased off­shore ex­pan­sion in the short term is likely to come pre­dom­i­nantly from Poland via EPP. “We like Poland as it still of­fers strong growth op­por­tu­ni­ties over the next few years and is the largest econ­omy by far in Cen­tral and East­ern Europe.”

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