By Edward West for IOL
REDEFINE Properties’s distributable income fell 21.8 percent per share to 26.2 cents in the six months to February 28, compared with a pre-Covid reporting period, mainly because of the impact of Covid-19 on the property sector and economy.
However, the company was in a good position to benefit from an anticipated uptick in property fundamentals in line with the expected vaccine rollout in the latter half of the year, chief executive Andrew Konig said yesterday in a presentation.
No full-year distribution guidance was provided, and the dividend was deferred until the end of the financial year because of the uncertain environment.
Redefine shares dipped 4.36 percent to close at R4.17 on the JSE yesterday.
“We did not take this decision lightly. It is fundamental to our investment proposition to pay dividends, but, unfortunately, there is just too much uncertainty to factor in right now. We hope to have better news towards the end of the year,” Konig said.He said an improvement back to pre-Covid levels should take place once vaccines were broadly rolled out.
“We believe the bottom of the cycle has been reached. What we are expecting – and this is also what has happened in other countries who have made good strides on their vaccine programmes – is that the roll-out of vaccines will lead to more mobility in the system.
“This means more people going out to work, to shop and to play, and that quickly translates into confidence, which is the cheapest form of economic stimulus,” he said.
However, until this began, weaker property fundamentals and low economic growth had to be factored in for this year and beyond.
Redefine’s new chief financial officer, Ntobeko Nyawo, said Redefine’s loan-to-value ratio reduced to 44.3 percent at half-year from 47.5 percent, and the plan was to reduce this to below 40 percent next year.
Liquidity was “ample” at R4.8 billion, and 98 percent of gross billings were being achieved in collections.
Apart from the impact of Covid-19, the lower revenue was attributable to the deconsolidation of European Logistics Investment BV in the second half of last year, the sale of Leicester Street, and the disposal of non-core local properties.
According to News24, some of Redefine Properties’ offices are now empty. The property company, which owns a handful of shopping malls and offices in Sandton – including WeWork – is battling the highest office vacancy rate in its history.
Office vacancies rose to 14.6% from 13.8% at the end of the company’s 2020 financial year in August last year. When including vacant offices held for sale, this figure rises to 14.9%. Secondary grade offices that include older buildings and those not very well located had a vacancy rate of 24.2%.
By Londiwe Buthelezi for Fin24
Even though the ongoing nationwide lockdown has sent many of its tenants’ operations on a tailspin, property giant Redefine says South Africa’s retail sector is showing a better recovery trajectory than markets like China where shoppers continue to stay away from shopping malls.
The owner of shopping centres such as the Centurion Mall and the East Rand Mall told journalists during the presentation of its interim results on Monday that while it expects demand for retail space to change as the coronavirus (Covid-19) and lockdown changed people’s way of doing things, South Africans are still showing love for malls.
Redefine Financial Director, Leon Kok said looking at photographs of the group’s shopping centres and malls taken over the past long weekend, they resembled a “normal weekend” with people visiting in droves, but still keeping the required level of social distancing.
Shoppers flock back to malls
“I can’t believe the numbers of people that were going to shopping centres… Surprisingly, I would say that in our centres, between 40% and 70% of the centres’ [shops] were open,” he said, but acknowledged that since restaurants and gyms will remain closed for the foreseeable future, this will affect foot traffic.
Richard Cheesman, senior analyst at Protea Capital Management said most people’s observation of shopping centre activity over the past weekend would probably correlate with what Redefine reported. But in the medium-term, as the current economic situation dampens consumer spending, Covid-19 will weigh on the local real estate industry as many other commentators have predicted.
“You would expect an initial bounce back after the lockdown. This may moderate going forward. Some areas are still not open such as entertainment and sit-down restaurants. Eventually the market should stabilise at a below average level,” he said.
Stanlib’s Head of Listed Property Funds, Keillen Ndlovu, said what set South Africa apart from other markets is that South Africans love to shop.
“We are a shopping nation and the malls opened (for Level 4 lockdown trading) at the beginning of the month after most people have just been paid. Most of all, we have low levels of online shopping at about 2% of total retail sales. So, people have to go out and shop,” he said.
In comparison, online shopping in China now accounts for over 30% of total retail sales compared to South Africa’s 2%, and even if people wanted to shop more online in the country, delivery of many items has not been allowed during the lockdown, he added.
But rental income will still be low
South African’s willingness to go out shopping again will be a welcome relief to landlords, as it could help convince their retail tenants to keep their rented space. However, Redefine said it still expects to grant more rental concessions to tenants or that some tenants will not make it at all.
The group’s Chief Operating Officer, David Rice, said rental discussions were taking place between Redefine and many of its tenants, as some were not happy about paying rates and taxes. Rice said the group also expects the vacancy rate in its office portfolio, which climbed to 12.3% in the six months to February, to continue rising.
Ndlovu said unfortunately property companies are going into these negotiations with tenants in a “tenants’ market”.
“Landlords have to do the best they can to nurse ailing tenants. It costs more to lose a tenant than to retain one, even at a lower rent. There’s no demand for vacant space at the moment. Even if there was, there’s an opportunity cost of missed rentals when the property is vacant,” he said.
By Roy Cokayne for IOL
Redefine Properties is to reduce its exposure to Edcon as South Africa’s biggest clothing retailer seeks to cut its total retail space from about 1.5-million square metres to about 1-million through a rationalisation process.
Redefine chief operating officer David Rice yesterday said that the group would reduce its Edcon exposure by about 20 000m² this calendar year.
Rice said Redefine planned to fill the space vacated by Edcon. At Boulders Shopping Centre in Midrand, for instance, the retailer would reduce the number of outlets from three to one.
But Rice said one of these outlets had been re-let and it had interest from tenants for the third outlet.
Rice said retail vacancies in the market and Redefine’s portfolio had been increasing, particularly in the larger shopping centres, and lease negotiations were “tougher than they have ever been.”
He said there had been a significant push back from retailers on rental escalations, specifically from national retailers, and on parking fees.
“National retailers are far more clear about the space that they want in terms of their strategies and they are not scared to give up space whereas previously they may have kept more space,” he said.
However, Rice said international retailers were still coming into the South African market.
Rice said Redefine had secured two deals for 17 000m² stores with French-based Leroy Merlin, a DIY and homes company that would be competition to the likes of Builders Warehouse.
Rice added that Redefine had also done two deals with Decathlon, a sporting goods retailer that was a sister company to Leroy Merlin, that would also be big competition for local traders.
He said the office market was “very weak” and it was “musical chairs” with vacancy levels in many areas probably increasing beyond where they were.
Rice said Redefine’s focus in the industrial sector was on development, because its vacancy levels were low at 2.7%.
Redefine yesterday reported a 5.5% increase in distributions a share to 47.30 cents for the six months to February and expects to maintain this growth rate for its full financial year. It reported an operating margin of 82.7%, with the property cost ratio stable at 33.9%.
The overall occupancy rate improved to 95.8% and tenant retention to 94.7% from 86% in the prior period.
Leon Kok, the financial director at Redefine, said the company’s loan to value ratio declined to 40.1% and they would look to reduce it further to below 40% over time.
Redefine’s total assets were valued at R93.4-billion at end-February, an increase of R1.9bn since end-August, following the acquisition of a strategic 25% stake in Chariot Top Group in the reporting period for R907.9-million to give it direct access to a retail portfolio in Poland.
Redefine’s overall portfolio remains biased towards retail at 41% of its sectoral spread by value, with its offshore footprint contributing 25% of distributable income.
Redefine rose 0.89% on the JSE yesterday to close at R11.78.