SUREN NAIDOO: JSE-listed property counter or actual property funding belief Redefine Properties launched its full-year outcomes to the top of August 2022 right this moment [November 7]. It says it has weathered difficult financial circumstances to ship sustainable worth. The group reported distributable earnings of R3.6 billion, representing distributable earnings of 53.71 cents per share for the yr. A remaining dividend of 19.28 cents was declared, bringing the full-year dividend to 42.97 cents per share, which represents a payout ratio of round 80%.
Well, we have now Redefine CEO Andrew König on the road. Welcome, Andrew.
ANDREW KÖNIG: Thank you, Suren, for having me.
SUREN NAIDOO: Andrew, whereas many metrics have improved, distributable earnings per share was up simply 1.4% and the dividend per share was really down fairly a bit. According to your Sens you mentioned you have been happy with the general efficiency of the group however. Do you need to share some highlights and lowlights?
ANDREW KÖNIG: Thank you, Suren. Just to place the dividend per share in perspective, final yr we had quite a lot of taxable conditions that resulted in taxable earnings exceeding distributable earnings. As a consequence of the 60 cents final yr that was distributed, 7.2 cents was, let’s name it, an over-distribution in extra of the distributable earnings in that interval as a consequence of tax concerns. So in the event you strip out let’s name it the over-distribution in respect of taxable beneficial properties and the like, final yr there was a 100% payout to keep away from the tax, and this yr there’s a 80% payout. The 80% payout is actually a prudent measure to retain some liquidity for, let’s name it, the unknowns going forth in what is a really risky and unsure setting.
SUREN NAIDOO: Okay, thanks for that, Andrew. Just when it comes to payouts, I’m positive your shareholders are blissful, as a result of throughout Covid you needed to withhold and never pay out for round 18 months, I consider you talked about this morning.
ANDREW KÖNIG: Yes, appropriate, Suren. That was on the peak of the pandemic when the uncertainty across the future was what predicated that call in and amongst liquidity concerns for the counter, as a result of, as you understand, one has to at all times close to in thoughts what your liquidity profile appears to be like like as a consequence of constructing a dividend. And in that state of affairs we have been sadly unable to take action.
However, we’re in a really completely different place proper now with a really wholesome liquidity place of R6.2 billion of entry to undrawn services or money readily available, which is some R400 million forward of final yr. And that is, as you mentioned, after absorbing the catch-up in dividends we couldn’t pay in 2021, however in 2022
SUREN NAIDOO: On an LTV or loan-to-value gearing perspective, the group has introduced it right down to – I do know you don’t like speaking targets, however 40% is actually good in comparison with round 46.7% in the course of the peak of Covid. How necessary is it for an actual property funding belief to have your LTV at round these manageable ranges now, particularly with the rising interest-rate setting?
ANDREW KÖNIG: Suren, it’s probably not the rising rates of interest which are the priority from an LTV perspective. The better concern is that if in case you have a blowout in asset valuations, what it might imply is that your worth declines, your debt stays mounted and, as a consequence, your gearing ranges can exceed your debt-covenant ranges, which may probably put you into monetary breach along with your financial institution funders.
So for us it’s necessary to have a really conservative gearing degree. We name it a loan-to-value degree of 40-odd p.c. So it gives you with a cushion that within the occasion of asset worth declining considerably, you’ve gotten that cushion to soak up such shocks and never put you in a breach state of affairs.
SUREN NAIDOO: Okay. You talked concerning the restoration. There has been fairly a powerful restoration total for the sector from the Covid fallout in 2020, however let’s speak valuations. It’s additionally fascinating to see that Redefine is again in optimistic property valuations, up some 1.4%. Even places of work up, I see.
ANDREW KÖNIG: Yes, Suren. We are very happy to report that the downward cycle of asset evaluations has bottomed. We are beginning to see enhancements, and that’s off again of extra certainty round leasing expectations going ahead.
SUREN NAIDOO: In the outcomes media briefing this morning, you made fairly a daring assertion, declaring Redefine’s reconstructive surgical procedures over. What do you imply by this?
ANDREW KÖNIG: Suren, in the event you rewind to 2019 this time of the yr, if we needed to present you our group asset platform, you’ll notice that it was all over the present when it comes to sectoral allocation in addition to geographic allocation. We had a presence within the UK, we had a presence in Australia, we had some publicity to Germany and clearly to Poland as properly, and just a little bit in Africa. The reconstructive surgical procedure that I spoke about was taking a scalpel, in the event you like, to all the non-core jurisdictions and sectors. So we exited the UK, we exited Australia [and] Germany, and we at the moment are targeted in South Africa, the place 66% of our portfolio resides. The stability sits in in Poland.
So along with the geographic scaling carried out, we additionally checked out sectoral publicity – pupil lodging, for instance – and we exited that as properly. So that is what we imply by reconstructive surgical procedures. It’s been deliberate when it comes to exiting different, let’s name it non-core areas of the asset platform, in order that we place our channels for progress, however on the similar time present a quite simple and targeted asset platform for traders to know the mannequin, and for us to handle on a extra acceptable foundation from a danger perspective.
SUREN NAIDOO: Thanks for that, Andrew. From an working aspect, there have been some positives as properly, like with decrease vacancies and that form of factor. But I see each group-wide and for workplace specifically, there are nonetheless double-digit lease reversions. Do you need to share some perception on that?
ANDREW KÖNIG: Suren, the rental reversions that you’d see largely come from the stress factors within the workplace sector. The different sectors are exhibiting a whole lot of enchancment. But what is very pleasing to notice is that the pattern is decreasing….
So we consider that we’re reaching the top of those adverse reversions. It will stabilise after which we’ll begin seeing progress.
So we’re studying optimistic information into these strengths and we don’t foresee important adverse reversions going ahead, as we had skilled beforehand.
SUREN NAIDOO: Now, in the course of the interval EPP [the Dutch-based real estate company] got here into the group completely. You have been a majority shareholder, but it surely is now delisted and absolutely owned by Redefine. One of the stuff you talked about final yr is your considerations round EPP having not paid a dividend for fairly some time. Obviously they have been additionally impacted by Covid. When do you count on to get dividends out of EPP, as a result of this yr once more there’s no dividend out of EPP?
ANDREW KÖNIG: Suren, it’s essential to stabilise EPP’s liquidity place, and that’s why we didn’t take a dividend out of EPP this yr. We may have. What we did as a substitute is we used that distributable earnings that would have been paid out as a dividend to bolster the liquidity to fulfill reimbursement of debt and to resume sure services the place there are particular reductions of debt required. So the whole lot is going in response to plan. From monetary yr 2023 we anticipate that EPP will as soon as once more be in a dividend-paying place.
SUREN NAIDOO: Finally, Andrew, Redefine is in a powerful place to learn from the upward cycle. That was one of many sentiments you and your executives talked about this morning within the media briefing. When do you count on this? Obviously you additionally talked about that property fundamentals will not be good nonetheless in South Africa. What is your outlook for the listed property sector usually on your two key places of South Africa and Poland?
ANDREW KÖNIG: Suren, as I mentioned earlier this morning, property’s fundamentals are influenced by confidence ranges, the rate of interest cycle, in addition to the financial fundamentals of the nation. Now everyone knows that each one three of these parts are subdued in the mean time and we’d like a catalyst for some change.
So how lengthy is it going to take to play out? That is on everyone’s thoughts in the mean time, however within the medium time period, we count on this example to prevail, and for such time that we begin seeing significant – and I’m speaking about not less than 3% – GDP progress on a sustained foundation going ahead. So it can take a while earlier than we get again to that degree, however we count on that inflation ought to peak throughout 2023 after which begin diminishing. And that ought to hopefully see the interest-rate cycle beginning to reverse and that shall be very optimistic for the sector.
So my guess is for the subsequent two years it’s nonetheless going to be fairly robust, and thereafter it ought to begin getting higher.
SUREN NAIDOO: Andrew, thanks a lot on your time. That was Andrew König, CEO of Redefine Properties.
