Redefine Properties set for another ‘milestone year’ as it sets eyes on Poland

Posted On Tuesday, 12 April 2016 11:21 Published by
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The country’s third-largest real estate investment trust singles out 2014 as “a milestone year” for its development team.

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This is the year that helped cement Redefine Properties’ place at the very top. Cognisant of the upside – diversifying and accessing hitherto untapped long-term income streams – investors have buoyed the stock.

The top brass’ reasons for highlighting 2014 include Redefine’s completion of the Matlosana Mall, a R1-billion, 652 000m² super-regional shopping centre, and the pristine-looking premium-grade office development on Sandton’s 90 Grayson Drive.

This year is set to become yet another seminal one as Wembley Square landlord, which completed its maiden direct offshore property acquisition via Australia in 2014, enters Poland. As things stand, office space accounts for 41%. Retail properties – including Tshwane’s Centurion Mall and Blue mall in the Western Cape – claim a third with industrial and specialised assets accounting for the remainder.

For the year to end-August, profit attributable to shareholders skyrocketed almost 60% to hit R5.4 billion. Tidy dividends are the norm. This year’s distribution came in 80c per unit (a total of R3.2 billion) or 7.3% higher. Further, market cap has more grown more than centupled since 2000, lifted by factors such as acquisitive and organic growth, to flirt with R60 billion now. Among the many landmark deals since listing, the Johannesburg outfit managed to take ApexHi and Madison Property Fund Managers but failed to lay its hands on Hyprop.

Now at R12 apiece (translating into a price:earnings ratio of 14), Redefine is the second-most traded Reit on the JSE by value, figures from Catalyst Fund Managers show. That is despite a premium of about 12% and gearing in the region of 38%. In February, the average monthly traded – or number of shares multiplied by share price – worked out to R2.9 billion, behind only to premier Reit Growthpoint’s R3.9 billion.

Depending on how you look at it, the premium could be viewed as the investment community’s vote of confidence in Redefine under the baton of CEO Andrew Konig (48), who was promoted to the hot seat in 2014 after previously serving, for three years, as group financial director – a post now held by the 44-year-old Leon Kok.

The rest of the overwhelmingly pale male board is a mix of old and new. The 71-year-old Bernie Nackan, a property industry all-rounder and erstwhile journalist, assumed lead independent non-executive director’s post in 2009 while Harish Mehta (65), now-chairman at Times Media Group, became Redefine’s nonexecutive. David Rice, former ApexHi MD, took over as the enlarged group’s chief operating officer in 2011.

Recent appointments include director of companies Ntombi Langa-Reynolds and Afropulse’s Phumzile Langeni. The only women in the major landlord’s 13-member boardroom were named independent non-executive last year. Marius Barkhuysen joined the board last year following David Nathan and Michael Watters who were appointed in 2014.

With an obvious penchant for shopping (and developing projects) to enhance value, Konig’s team is now actively pursuing opportunities abroad.

For instance, the group announced this month that its Polish foray would “significantly” broaden its offshore presence via an initial 75% investment into a €1.2-billion high-yielding commercial platform comprising 18 properties. This is said to be the largest deal in Poland’s real estate investment. Redefine executive chairman Marc Wainer, a 67-year-old property doyen, aptly describes it as a “game changer”. The industry grandee and long-time CEO, known for his short temper and sharp nose for deals, has seen his stake breaching the R300 million mark.

The Polish deal follows that of Marc Edwards-led Tower Property Fund which set up in Croatia, in the same region, in December after buying a €66-million asset. New Europe Property Investment (NEPI) has, since opening shop a decade ago, earned its investors a fortune from Romania, Serbia and Slovakia.

It’s fair to note that locals are drawn to Poland, and this part of Europe, by what is viewed as exciting prospects. Private hospital owner Life Healthcare, which arrived in Poland in 2014, has spent billions over time to bolster its asset base.

Redefine’s deal in Poland, a country of almost 40 million, will, according to management, be financed via debt and equity at a proposed 60% gearing at the property level.

“It significantly advances our international strategy – it has the scale, the right partners and the ability for growth to take a major part of our business to the next level,” says Wainer of the mega transaction, putting the portfolio’s average portfolio occupancy rate at a solid 95%. “The 18 properties tick all the boxes from an investment perspective and allow us to take advantage of what will be positive yield carry.”

At home, the titan remains in top form. The green development named Rosebank Towers (previously Bierman Business Park) is well-positioned and has the makings of a money maker. It’s still early days but things are looking up at the development, a joint venture with Abland, Rosebank’s tallest, that has 22 000 m² in lettable space. For one, the nine-storey office development – that Redefine also calls home – is already 70% let. In a market like this, that is commendable.

On the other hand, the cool yet functional office development in Sandton, constructed by WBHO (following the demolition of the previous one in the same address), pushes the bar higher. Redefine’s development team can pat itself on the back for what executive director for development Mike Ruttel excitedly describes as Sandton's “newest landmark (that) features sleek lines and eye-catching architecture”.

The said “newest landmark”, a skyscraper of 16 storeys, is home to blue-chip tenants hi-tech firm IBM and legal titan Webber Wentzel.

Purely from a share performance angle, 2015 was terrible for the landlord. The stock slid 2.51%. That booked Redefine a place in the duckling league. To see how, juxtapose Redefine’s underperformance with an 8% rise in the South African Property Index, as per Catalyst records. What’s more, NEPI surged a determined 62%, Resilient raced 43%, and Hyprop managed 11%.

That is at odds with the fact that just a year earlier, Redefine clinched a headline-grabbing R2.7-billion deal that netted it a portfolio of 28 industrial properties from media-shy mogul Eric Samson’s Macsteel, an unlisted steel titan. “The Macsteel transaction will transform Redefine's industrial portfolio and is in line with our strategy to grow and diversify our portfolio,” said Konig at the time, while also announcing the property behemoth’s rights issue.

Added to that mega deal, viewed as Samson’s lane to realise his long-term investments, the Reit spent billions more to acquire Annuity Properties and a minority stake in Emira Property Fund in 2014.

Having gone shopping in that period, the group’s Rosebank headquarters spotted a “for sale” sign last year.  That said, it offloaded 35 properties with a gross lettable area of 339 000m² “which no longer met Redefine’s investment criteria” to different entities for an aggregate R2.2 billion at an average yield of 9.3%. Further agreements, to shed more properties, were entered into.

Notably, Redefine’s market cap has shot up a significant R25 billion, partly helped along by equity issues and a series of acquisitions, since then with the stock also bouncing from a losing streak to firmer footing as investors nod the property company’s prospects.

Last modified on Wednesday, 13 April 2016 11:45

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