While the overall risk environment has heightened since last year,a strategic focus on balance sheet management and a relentless pursuit on delivering sustained value is providing Redefine with a buffer against the economic challenges.
Weak business sentiment, ongoing load-shedding, “confidence-zapping” policies and uncertainty about prospects are combining to constrain domestic growth prospects and impact the outlook for the local property sector, says Redefine CEO Andrew Konig.
In his pre-close presentation made available to investors recently, Konig said global macroeconomic and political uncertainty, the impact of the corona virus and climate change risks, are among additional factors weighing on prospects.
“A robust balance sheet remains a critical lever to absorb the risks as weak local property fundamentals are likely to prevail in the medium term and growth prospects to remain tepid due to Eskom risks, a slow reform agenda and the weak global environment,” he says.
“We have adopted a purpose-driven strategic approach, which is highly appropriate for this environment. Redefine is on track to deliver sustained value, while ensuring it is well insulated from the storm,” emphasises Konig.
Distributable income per share for the 2020 financial year is set to be between 5% to 7% lower than 2019, given the weak global and local economic backdrop and with recycling activities having a dilutionary effect on current year earnings.
“Our emphasis on managing and improving recurring income streams continues, with non-recurring income being phased out. We have also embarked on a process to dispose non-core assets, which is a key pillar in our plan to lower our loan to value ratio,” he says.
Solid progress has been made to date on disposals and most transactions are expected to be implemented before year end. This process will also simplify and streamline the investment property asset platform, allowing for enhanced management focus.
Total non-core asset sales across the total portfolio are targeted at R8 billion.
The transfer of local property assets for sale, the disposal of a 48.5% interest in European Logistics Platform, and the disposal of interests in student accommodation are among the major sales of non-core assets currently on the agenda.
Redefine FD Leon Kok says while Redefine’s loan-to-value ratio was 43.9% at the end of August last year, the disposal activities will see this drop to below 40%, with head room to absorb potential adverse loan-to-value triggers.
“We are focusing on what matters most to deliver sustained value to all our stakeholders,” he says.
Kok also points out that the recent move to adopt a dividend payout policy ratio to fund operational capital expenditure resulted in R200 million of the 2019 distributable income being retained.
Redefine’s commercial portfolio, meanwhile, remains firmly focused on retaining existing tenants and reducing vacancies through continued leasing campaigns, direct canvassing and relationship building with broker houses.
While Redefine is concerned about the trading performance and valuations of regional and small regional shopping centres, its retail unit is focusing on several strategic initiatives to stay a step ahead. These include tenant retention and vacancy reduction in order to counter the impact of rental reductions, a further reduction of space with Edcon, driving sales growth to support rentals, innovative entertainment offerings and the roll-out of minor capex refurbishment projects.
Among positives, Rosebank Link – reached full occupancy in January 2020 and WeWork at 155 West Street opened in December 2019, with two floors already occupied.
“In this challenging trading environment, it is important to get the basics right, while limiting speculative capital expenditure, and this is exactly what we are doing. We will continue to target organic growth and take advantage of opportunities as they arise, we are also focusing on delivering sustained value while ensuring we weather the economic storm,” concludes Konig.
Source: Propertywheel.co.za | https://propertywheel.co.za/2020/02/redefine-disposes-of-non-core-assets-in-heightened-risk-environment/