Redefine Properties - risk environment for commercial property has heightened
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CAPE TOWN - Redefine Properties’ balance sheet is stronger than before the Covid-19 pandemic and it should be well-positioned to take advantage of opportunities by the end of the financial year in August, chief executive Andrew Konig said yesterday.
Speaking during a pre-close briefing ahead of its February interim results, he said 2021 was expected to be a turning point, although the risk environment “has heightened significantly with a potential third wave creating uncertainty.”
Redefine owns R65.4 billion of premium retail, office and industrial properties across South Africa and R15.56bn of offshore assets mainly in Poland. The major focus in recent months had been to preserve liquidity and protect loan-to-value ratio (LTV).
“We are confident we will be able to continue to improve our position by the end of the financial year and will be back to where we can look at growing the business, with 2022 expected to look better,” he said.
“The prospects of a successful vaccine rollout is providing much needed confidence,” said Konig.
With all eyes on Wednesday’s Budget, Konig said the market would welcome growth-orientated reforms to improve confidence levels. However, the ongoing uncertainty meant Redefine could not yet provide market distribution guidance for the 2021 financial year.
The sale of Australian student accommodation asset Leicester Street in December returned R2.5 billion and R1.2bn of local disposals had been transferred during the last six months. The interim dividend decision would be made at the release of the results.
Asset valuation declines were not expected to be more than 3 percent, said Konig.
“By positioning our asset platform to be diversified in South Africa and geographically through Polish logistics – which is doing exceptionally well – and Polish retail, we have simplified our asset platform and eliminated a number of risk universes,” said Konig.
He said the flight to convenience among shoppers continued with fashion retailers opening stores in convenience centres.
Sit down restaurants were again under severe pressure due to the second wave. The Ster Kinekor business rescue was a concern for the industry due to cost of repurposing and oversupply of retail space.
He said regional shopping centre foot counts were unlikely to recover in the short to medium term, as was the case for retail located in office nodes.
In the office market, consolidation, down-sizing and flexible working continued to reduce office demand. In addition, lower economic activity was resulting in large amounts of sub-lettable space coming to market.
National office vacancies increased to 13.5 percent as at December 2020 excluding sub-lettable space. Office usage remained low due to the extended lockdown impact.
However, the impact on employee health, collaboration, integration, efficiency, load shedding and productivity was expected to drive a return to the office environment.
In the industrial market, centralisation and consolidation in production and distribution was taking place as businesses reduced operating costs.
The cost of shipping containers out of China had risen more than 400 percent, adding to the cost base of imported goods.
Covid-19 driven business interruptions were causing an increased necessity to restructure industrial leases. Market rentals were receding to prevent vacancy.
Redefine provided R40 million rental relief to December 2020 and an additional R169m was forecast to August 2021. Outstanding deferrals to August 2020 was R14m. Overall vacancies stood at 5.7 percent
The board’s decision regarding the interim dividend for 2021 would be informed by liquidity and trading considerations with due regard to the interests of all stakeholders.