RDI reduces overall retail exposure on weak market sentiment

By Roy Cokayne Apr 26, 2018

JOHANNESBURG - RDI, the income-focused real estate investment trust (Reit) previously known as Redefine International, expects continued rationalisation of the physical store requirements of certain retailers and was, therefore, actively managing its overall exposure to this sector.

The company, which has a primary listing on the London Stock Exchange and a secondary listing on the JSE, reduced its overall retail exposure to 45.3% in the six months to February from 60% in August last year, with UK shopping centres now representing just 18.8% of its portfolio by market value.

Mike Watters, the chief executive of RDI, said yesterday that general investor sentiment towards the retail sector remained weak, with the ongoing themes of structural change, the impact of online retailing combined with slowing retail sales and weaker consumer confidence. He said this had resulted in certain retailers having to rationalise their physical store portfolios to be fit for purpose for the new retail landscape.

However, Watters said RDI retained a more positive outlook for its well located retail parks, with vacancy rates across the UK retail park sector of 6% at their lowest level for 10 years.

He said the company had been proactive in the management of RDI’s portfolio to address many of these challenges, adding that overall UK retail exposure had reduced to 30% of the portfolio, while occupancy across the UK retail portfolio had remand high at 97.5%.

Watters said the six-month reporting period had been a busy period for capital recycling with three major transactions concluded. He said RDI increased its exposure to the limited service hotel sector by increasing its investment in International Hotel Properties (IHL) from 17.2% to 74.1%and subsequently delisted IHL, which would deliver a number of cost savings and efficiencies.

The Leopard Portfolio of German supermarkets was sold in December for 205 million (R3.09billion), which was 20m above the market values in August last year, and entered the London serviced office sector through the acquisition of an 80% interest in a £161.7m (R2.78bn) portfolio of four high-quality London serviced offices managed by Office Space in Town, one of the UK’s leading serviced office operations.

Watters said all these transactions were in line with their strategy of reducing exposure to mature assets and reinvesting in locations and sectors benefiting from structural change, infrastructure investment and changes in the way real estate was being used.

He said London was the global leader in the serviced office market, where structural and behavioural changes were driving strong demand for quality, flexible, cost efficient space.

“In a global workplace with technology supporting employee mobility and flexibility, businesses are demanding the ability to adapt and save costs. This trend is not only visible in small and start-up companies, but also large corporates which are increasingly embracing flexible space,” he said.

Watters said they were also seeing an increasing opportunity for real estate owners to become high-quality service providers and RDI was well positioned to take advantage of this trend.

RDI yesterday reported an 8.2% increase in underlying earnings a share to 1.46p, which was ahead of its medium-term growth target of 3% to 5% a year.

Gross rental income increased 2.1% on a like-for-like basis to £43.8m from £42.9m with strong performance across the majority of the portfolio.

An interim dividend a share of 1.35p was declared, which was a 3.9% increase compared to the prior period.

Shares in RDI rose 3.4% on the JSE yesterday to close at R6.39.

- BUSINESS REPORT ONLINE