Time to bulk up on Redefine?

The company is trading at one of the biggest discounts to NAV and offers a yield of more than 13%

● Income chasers looking to lock in multiyear high dividend yields before interest rates start to drop should have Redefine Properties on their radars.

The sector heavyweight, with a portfolio that recently breached R100bn for the first time, is trading at one of the biggest discounts to NAV in the listed property sector and offers a juicy yield of more than 13%.

Redefine’s share price is still trading at about 50% below pre-pandemic levels, despite posting a decent set of results this week. Notwithstanding higher-for-longer rates continuing to eat into most property companies’ profits, Redefine achieved 6% growth in distributable income for the six months to end-February.

That’s impressive compared with its larger South Africa-based peers such as Growthpoint Properties and Hyprop Investments, which are still reporting a drop of between 12% and 20% in earnings.

Redefine’s interim dividend was down 0.2% year on year on an 80% payout ratio. However, the payout for the full year may be slightly higher than the previous year’s 43.8c a share if the ratio settles at the higher end of Redefine’s target range of 80%-90% and the upper end of management’s guidance of 48c-52c is reached.

Redefine’s portfolio is split 62:38 between South Africa and Poland, where it owns more than 30 shopping centres through a stake in Echo Polska Properties (EPP), as well as logistics and self-storage properties. Its R62bn South African portfolio is second in size only to Growthpoint. Redefine is regarded as a bellwether of the broader South African real estate market given its scale and diversified portfolio, which is split between retail (44%), offices (35%) and industrial (21%).

This week’s results show that the operational metrics in Redefine’s local portfolio of retail and industrial buildings continue to move in the right direction. Trading densities (sales per square metre) in its 59 shopping centres rose 4.8% year on year while the vacancy decreased to 5.5%, down from 7.4%. Rental reversions on lease renewals, a key indicator of tenant demand for retail space, improved from -3.7% to -0.5%. “We could finally start seeing rental growth again in the next six to 12 months,” says Redefine COO Leon Kok.

Reversions in Redefine’s industrial portfolio have already turned positive by 4% on average.

Still, the office portfolio, spanning 86 properties and worth R21.2bn, remains in the doldrums. In fact, rental reversions have deteriorated, from -12.4% to -13.6%. There was an increase in empty space in the six months to 12.3% from 11.4%.

Kok doesn’t expect a marked drop in office vacancies or a rental recovery until the economy starts to grow noticeably and businesses expand their operations. But 95% of its office buildings are premium or A grade, where Kok says most of the uptake occurs when tenants relocate.

“But there’s no new demand for office space. When you sign a deal, empty office space is left behind elsewhere.”

Kok says that’s particularly true in Gauteng, where 73% of Redefine’s office properties are located. In stark contrast, there’s a growing undersupply of quality offices in Cape Town thanks to the ongoing migration of businesses and individuals to the Cape. As a result, the amount of vacant space in Joburg and Tshwane is now almost six times that of Cape Town a combined 14.6-million square metres vs 2.6-million square metres.

On the upside, net operating income in Redefine’s office portfolio grew 4.1%, outperforming its industrial portfolio, “which speaks to its quality”, says Kok.

He adds that talk of a major office node such as Sandton becoming a ghost town hasn’t played out; banks, law firms and most major corporates have encouraged staff to return to the office, albeit often only two or three days a week.

Meanwhile, Redefine is expanding its retail portfolio in South Africa by increasing its presence in the defensive township market. The company recently bought a stake in the Pan Africa Mall in Alexandra, Joburg, for R418m, which is undergoing a 9,000m² extension that will increase the space to 25,000m².

Township malls in Redefine’s portfolio include Maponya Mall in Soweto and Chris Hani Crossing in Vosloorus.

Redefine has also completed the R1.8bn purchase of Mall of the South in Joburg covering 66,925m². Its biggest centre is Centurion Mall (113,000m²).