Finweek English Edition - - COVER STORY -

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.


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.

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