Redefine gives a business outlook for 2009

Posted On Friday, 31 October 2008 02:00 Published by eProp Commercial Property News
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Redefine Income Fund, a leading JSE-listed company which provides a diverse portfolio of property investments, announced a total distribution to linked unitholders for the year ended 31 August 2008 of 56.63 cents per linked unit

Brian AzizollahoffRedefine Income Fund CEO Brian Azizollahoff explains that while the growth in distributions for the year of 10.5% is shy of the forecast of  between 12% and 14% and the growth outlook for Redefine is not at the same levels as in recent years, growth is nevertheless continuing, albeit at a more tempered rate due to the impact of global economic conditions, to which the South African property sector has not been immune.

Azizollahoff explains that Redefine’s trading developments particularly Oasis Luxury Retirement Estate have been effected by higher interest rates causing sales to slow and increasing holding costs causing a drag on distribution growth.

Despite deterioration in market conditions, Redefine has increased its distributable earnings by 19.1%. Azizollahoff notes that net income from properties held by Redefine for the full 12 month period has grown by 13% due to firmer rentals and positive rental reversions.

Redefine’s property expenses have been contained at 19.6% of contractual rental income. Gearing remains a conservative 35.2% and Redefine achieved healthy levels of tradeability with 33.1% of the weighted average number of linked units in issue traded during the period under review.

“New developments completed during the period under review have also enhanced Redefine’s distributions to shareholders,” says Azizollahoff. 

Azizollahoff anticipates that, should there be no further deterioration in market conditions,  Redefine’s distributions per linked unit for the year ending 31 August 2009 will increase by between 9% and 11% compared to 2008.

Collectively contributing to Redefine’s distribution growth, points out Azizollahoff, is the letting of vacant space, renewing of expiring leases at increased rentals and income growth from the listed securities portfolio.

Redefine’s property portfolio, which constitutes 59% (Aug 2007: 50.5%) of its total non-current assets, comprises 101 quality properties covering some 858 357m2 of gross lettable area (GLA).  All properties are valued annually by independent external valuers and the direct property portfolio as at 31 August 2008 was valued at R5.5 billion.

During the period under review, 93 940m² of vacant space was leased and leases in respect of 51 036m2 were renewed. 45% of Redefine’s leases by GLA, expire in 2012 and beyond.

At 31 August 2008 vacancies in the portfolio totalled 4.8% of GLA which has now decreased to 3.4%. The additional GLA of the portfolio includes three new buildings purchased for R168,7 million and ten completed new developments valued at R753.8 million. “This has resulted in additional vacant space which presents a positive opportunity for Redefine,” notes Azizollahoff. Redefine sold two properties for a combined R37,5 million.

Although sales have slowed, Oasis Luxury Retirement Estate, of which the first phase includes two apartment blocks, a community centre and a frail care centre which have been developed, is 67% sold. The frail care centre is fully functional and is expected to be cash positive during the 2009 financial year. The contribution of R23.6 million from trading to net operating income is 3.3%, representing a more conservative level than the 5.9% in 2007.

Redefine disposed of Buchanan Square and Newmarket Junction for R90 million, a R20 million surplus on current valuations, to a joint venture which has been established between Redefine and Madison Property Fund Managers Limited to redevelop the properties into sectional title office units for sale.

The development of Upper East Side Phase Two, of which Redefine is a 25% shareholder has commenced and is 92% pre-sold. The total capital cost is estimated at R236 million with a return of 15%.

Redefine currently has one project, Festival Town Square in Kempton Park, under development with an estimated cost of R157.1 million and an anticipated initial forward yield of 9.7%.

Valued at R4.01 billion, Redefine’s listed securities portfolio constitutes 41% (Aug 2007: 47%) of Redefine’s total non-current assets. During the year Redefine acquired an additional 10.6 million units in CIREF Limited for R236.9 million (£16.0 million). This is to be financed by a LIBOR (London Inter Bank Offered Rate) based loan from Standard Finance Isle of  Man. Redefine exchanged 18.0 million units in Sycom Property Fund for 7.2 million units in Hyprop Investments Limited.

Redefine’s total debt of R3.6 billion represents gearing of 35.2%, a small increase from 33.9% at August 2007. Its borrowings increased by R402.8 million from August 2007. Proactive interest rate management protected against the increase in the prime interest rate of 2% during the year. The current average all inclusive interest rate is 10.7%, reflecting an increase of 0.7% from the previous year. The interest rate is fixed on more than 80% of Redefine’s borrowings for an average period of seven years.

On 11 October 2007 Redefine gave effect to a B-BBEE transaction which resulted in just fewer than 10%, or 80 million, of the issued linked units in Redefine being issued to strategic and broad based BEE parties. On 18 February 2008, Redefine issued the 80 million linked units at R6.85 per linked unit, representing a discount of 7% to the market value on the date of issue.

“This equity transaction is an integral part of our commitment to black economic empowerment and is our first major step in actively introducing B-BBEE empowerment on an ownership level. Together with our partners, we are incredibly proud of the results.  Approximately 23% of the issued linked units are now held by Black unit holders,” says Azizollahoff.

 

Last modified on Monday, 21 April 2014 09:08

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