Andrew Konig CEO of Redefine KEY INDICATORS: R60.5bn R84.1bn Retail and office and to a lesser degree industrial/logistics Germany, Australia South Africa, Poland, UK, 39.8% 83% (average term 2.6 years) 8.04% 3 hold (compiled by IRESS) Six years back, JSE Top40 company Redefine adopted a strategy of diversifying offshore into hard-currency markets, broadening and accessing stable revenue flows, as well as upgrading quality and efficiency while extending the lease maturity profile of its local portfolio.
Reference points – a result of the Cabinet reshuffle and country’s credit ratings downgrade – have been reset, but this investor-driven strategy is offsetting local economic challenges and has positioned the JSE-listed diversified REIT to weather the storm, says
That includes maintaining distribution growth for the second half of the 2017 financial year as it did for the first six months to 28 February 2017, where it lifted distribution by 7.5%.
Redefine’s offshore exposure – 19.5% by asset value – contributes 23% of earnings that are expected to swell to around 25%, Konig tells finweek. A significant portion of international debt has also been refinanced at competitive rates, something that will stand Redefine in good stead in a volatile environment, he says.
Over time and depending on exchange rate, Konig says a comfortable offshore level for Redefine would be between 25% and 30%.
International assets are valued at R16.4bn and include investments in listed securities such as its 29.8% holding in UK-based Redefine International plc and 25.4% interest in Australian group Cromwell Property.
Redefine widened its international exposure investing into Australia’s buoyant student accommodation sector with a spend of R337.9m for 90% of Journal Student Accommodation Fund. Construction of 804 beds at a Melbourne site is expected to commence during June 2017 for a total estimated investment of AU$125m (R1.2bn).
Exposure into Poland also expanded via a further €59m investment into Echo Polska Properties.
One of the largest transactions of the year was Redefine’s acquisition of property developer and capital growth fund Pivotal Property Fund Limited that brought with it a 37.1% investment in Oando Wings Development Limited (owner of the Wings Office Complex in Lagos, Nigeria) valued at R0.8bn and a 11.8% share in dual-listed (JSE and Mauritian Stock Exchange) Mara Delta Property Holdings, valued at R0.3bn.
The Pivotal acquisition also came with 32 local office, retail and industrial properties, developments and land holdings valued at R10.4bn, bumping up Redefine’s local portfolio to R67.7bn. Rosebank Link, Redefine Properties’ new 15-storey office tower in Rosebank, will be completed by end 2018. The building, with its retail ground floor, will have direct access to the Gautrain station. Even so, Ndlovu expects the trend of expansion to offshore markets to continue, albeit at a slower pace.
THE SILVER LINING
On the bright side for the sector, the rating downgrades were foreseen and factored in through offshore expansion, debt hedging and low gearing, mitigating its effe cts.
“From an offshore diversification perspective, the move to junk status certainly highlights why offshore diversification is so important and this is something that has been receiving much more attention recently,” says Emira’s Jennett.
SA REITs are somewhat cushioned from local events by offshore hedging. “Most SA REITs have some sort of offshore exposure. On average the REITs have about 30% of their investments offshore. So while there might be negatives locally, the REITs derive the concomitant positives from that offshore exposure,” says Fortress’s Stevens.
Despite income growth slowing down in the local markets, this too is being cushioned by offshore exposure or expansion.
In 2009, SA REIT offshore earnings were a paltry 1%. Today 40% of earnings come from outside SA, partially hedging the sector from local events.
SA’s REITs are attractive not only for their ability to identify assets that generate returns for shareholders and where sustainable growth on those returns can be made in the future, they are attractive for another reason, especially for international investors, and it has to do with compliance.
The REITs’ level of compliance, which includes auditing standards, REIT standards, stock exchange requirements and the King Code, surpasses that of even some countries within Europe.