Archives for June 2020

Vukile reports robust full-year performance and an encouraging return to mall shopping

Vukile Property Fund today reported its annual results with 3.2% growth in distributable earnings per share for its financial year to 31 March 2020

Laurence Rapp, CEO of Vukile Property Fund, notes Vukile achieved strong performance in both its South African and Spanish portfolios. Its defensive portfolio of nodally dominant shopping centres continues to fare well, and Vukile’s strongly cash-generative assets position it favourably for the future.

Rapp comments, “Vukile had a very strong year and has delivered a stand-out set of results. Operationally, our portfolios in both Spain and SA are in excellent shape and achieved all key targets and metrics.”

JSE-listed SA retail REIT Vukile has 52% of its assets in Spain through its 82.5% held subsidiary Castellana Properties SOCIMI SA. Castellana reported an impressive retail performance with vacancies contained at a low 1.8%, a
10.8% growth in rentals on renewals and new lets, and a 99% rental collection rate. Castellana has a blue-chip tenant mix with 93% of its rentals coming from international and national tenants.

The SA portfolio delivered another solid performance, with Vukile’s asset management core competency adding value against the backdrop of a worsening economy. Like-for-like trading density growth of 3.4% was boosted to 5.1% with asset management interventions, specifically the successful redevelopment and launch of the Pine Crest and Maluti Crescent centres. Vukile’s SA retail vacancies were a low 2.9%. It achieved an impressive 84% retail tenant retention with positive reversions of 1.1%, and 6% like-for-like net income growth from its retail centres.

With the advent of COVID-19, Vukile took a disciplined approach with its primary focus being the health, wellbeing and safety of customers, tenants and staff. Leading virologist Professor Barry Schoub was appointed as a special advisor to Vukile to develop hygiene protocols for its retail centres in SA and Spain resulting in immediate, high-impact interventions that make its shopping centres safe and welcoming.

In line with new COVID-19 curbing protocols, both Vukile and Castellana increased spending on cleaning, sanitising, PPE, staff training, signage, social distancing markers and awareness campaigns to ensure the operational excellence necessary to create sanitised, comfortable and conducive environments for tenants and customers alike.

Vukile adopted a cooperative approach in working with tenants to manage the impact of the lockdown. Rapp comments, “Now is the time for responsible corporate leadership and working together in a cooperative way to stabilise the industry and economy.” In SA, Vukile played a leadership role in the Property Industry Group and adopted its relief guidelines. It offered R108m in relief to tenants for the three months from April to June, of which a considerable R49m is helping to sustain small, medium and micro-enterprises, which make up only 20% of the portfolio. Vukile has already concluded deals with all but one of its top 20 tenants, representing some 56% of its rental income, which will all be paying full rentals from June.

In April, during the hard lockdown in SA, Vukile’s shopping centre footfalls were around 32% of the prior year’s number and increased to 70% in June. Township, commuter, rural and value centres, which comprise 81% of Vukile’s SA portfolio, have outperformed their urban counterparts and are leading the country’s retail recovery. By the end of May, trading densities were ahead of May 2019. Castellana successfully re-opened its shopping centres in Spain in the final week of May and the centres indicate trading at about 65% of their pre-COVID-19 footfalls, but customer conversion rates and spend per head seem to be increasing, pointing to a relatively lighter impact on sales.

The COVID-19 lockdowns have accelerated inevitable changes in the retail landscape and fast-tracked the rate of change in the physical shopping experience. Vukile is embracing the many opportunities offered by this evolution. “As a value-add partner for retailers, besides providing leading dominant shopping centres with extremely strong trading environments, we have also increased our customer analytics capacity to add further value to our tenants,” notes Rapp.

Vukile has run various detailed scenarios focused on solvency and liquidity, and all confirm the underlying health of its balance sheet and business. It can comfortably meet all its debt requirements in SA and Spain, with an interest cover ratio of 5.8 times. Vukile benefits from diversified funding sources and has engaged actively and transparently with funders during the COVID-19 crisis and has already refinanced 77% of debt maturing in FY21.

Rapp points out that the current crisis and extreme volatility in REIT share prices has highlighted the disconnect between the long-term and more stable nature of fixed property as an asset class and the performance of REITs as financial instruments. This has led to unhealthy short-termism in the sector. “We are resolved that Vukile’s future will be distinguished by excellent bricks-and-mortar fundamentals, our passion for retail, a strong balance sheet, lower and more prudent dividend pay-out ratios and continued emphasis on long-term sustainability.”

The remainder of 2020 is likely to be very challenging for business in general. However, 2021 is forecast to bring a strong retail rebound in Spain. The return of shoppers and sales with the lifting of the hard lockdown in both SA and Spain is outperforming initial expectations, which is encouraging.

Vukile has deferred the declaration of a final dividend for FY20, pending the outcome of industry-wide consultation with the JSE and National Treasury. “Further, given the material uncertainty in the market, it is too early for Vukile to provide dividend guidance for FY21 or commit to paying an interim dividend for FY21,” reports Rapp. “Vukile is in good shape operationally, financially and as a sustainable long-term going concern. Our diversified portfolios in SA and Spain with strong, dominant shopping centre assets and compelling trading metrics are the cornerstone of our strength and favourable market position”.

Redefine strengthens its balance sheet and simplifies its asset platform with R2.3 billion divestment of RDI

Johannesburg, South Africa, 29 June 2020 – Redefine Properties (JSE: RDF) continues to advance its strategic priority of strengthening its balance sheet to offset the ongoing uncertainty and negative effects of the COVID-19 pandemic.

In a move to drive the business forward in the face of challenging property fundamentals locally and internationally, today it concluded a deal that will see global private investment firm Starwood Capital Group acquire its 111.9 million shares in UK-based RDI REIT for 95 pence per share. The deal represents a 20.9% premium to the ruling share price.

The disposal generates Redefine GBP106.3 million, which translates, at the current exchange rate, to R2.3 billion.

Given that a portion (49.8 million RDI shares) of Redefine’s investment in RDI is encumbered by an exchangeable bond it issued in September 2016, Redefine today made a tender offer to the holders of the outstanding EUR150 000 000
1.50% Secured Exchangeable Bonds due September 2021 exchangeable into the ordinary shares of RDI, of which EUR117.2 million are presently outstanding.

Undertakings from bondholders in support of the tender offer totalling 77.1% of the amount outstanding has been received.

Redefine financial director Leon Kok says that the disposal of the RDI shares and the settlement of the bonds (assuming all bonds are redeemed) will reduce Redefine’s loan-to-value ratio by approximately 1.1%.

Following the disposal, which is denominated in pound sterling, and the redemption of bonds pursuant to the tender offer, which is denominated in euro, Redefine will restructure its pound sterling debt portfolio.

Redefine’s chief executive officer Andrew Konig says the exit out of RDI substantially advances Redefine’s stated intention of simplifying and solidifying its asset platform, as well as eliminating multiple entry points for South African equity investors into the same investment opportunities. Furthermore, it also improves the company’s risk profile through eliminating a risk universe over which it has no direct management influence.

Konig says that Redefine’s strategic intent to strengthen its balance sheet, recycle non-core assets and boost liquidity continues to place the company in a strong position to withstand the risks and challenges of the current uncertain operating environment.

The disposal will also allow Redefine to re-strategise and re-allocate its financial and capital resources to position the company for sustained value creation in a post COVID-19 environment.

“In the prevailing environment, the knowns are outweighed by evolving unknowns. Our intention is to ensure we can manage the variables under our control while being extremely well placed to benefit once conditions improve,” concludes Konig.

Redefine announces sale of non-core assets in Australia for AUS459 million

Johannesburg, South Africa, 26 June 2020 – Redefine Properties (JSE: RDF) announced today that its competitive bidding process to sell its interest in Journal’s two student properties in Australia has been concluded at AUS459 million. The disposal of its interests, comprising 1,391 beds is part of Redefine’s portfolio refinement and loan-to-value improvement strategy.

During 2017, Redefine had acquired a 90% beneficial interest in Journal Student Accommodation Fund and during the following year Journal Swanston Sub Trust to develop the properties in Melbourne, Australia as purpose-built student accommodation and associated retail. Development of Leicester Street, an 804-bed facility, was completed in 2018 while the development of the 587 bed Swanston Street was completed in May 2020.

Redefine financial director Leon Kok says, a portion of the proceeds from the disposal will be used to settle the Australian loan facilities on the properties amounting to around AUS132 million and the remaining proceeds will be utilised to reduce Redefine’s other interest-bearing borrowings and enhance its liquidity.

This transaction forms an integral part of Redefine’s loan-to-value improvement plan, which includes the disposal of approximately R8 billion of non-core assets across Redefine’s property asset platform, explains Kok.

The transaction will also secure the release of 60 million Cromwell Property Group shares from an encumbrance with Redefine’s intention that such Cromwell shares be sold on the open market to further advance Redefine’s stated intention to strengthen its balance sheet and bolster liquidity.

Redefine’s chief executive officer Andrew Konig says the transformation of the property asset platform is necessary to withstand the impact of the pandemic whose trajectory is still evolving. Recycling out of non-core assets at the top end of their capital value will enable us to strengthen our balance sheet and crystallise the benefits of net proceeds.

We have consistently said our plan is to recycle capital into core markets where there is scope for scale, by disposing assets that no longer fit our long-term value creation strategy.

Redefine’s European logistics platform set to expand its footprint in Poland

JSE listed diversified real estate investment trust Redefine Properties (JSE: RDF) along with equity partners Madison International Realty and Griffin Real Estate in European Logistics Investment BV and in joint venture with its strategic development partner Panattoni Europe, will commence construction on a 50 000 sqm build-to-suit (BTS) manufacturing and warehouse facility for Weber-Stephen Products in Zabrze within the Upper Silesian metropolitan area in Poland. Weber is a privately held US manufacturer of charcoal, gas and electric outdoor grills and related accessories.

The building is planned with over 5 000 sqm earmarked for office space. The site is provisioned for an additional 30 000 sqm if Weber’s growth exceeds expectations.

The project will be Weber’s first manufacturing facility in Europe and when complete will employ approximately 450 people. The construction will begin in August 2020 and will be ready for occupation during the second half of 2021. The BTS facility will serve as Weber’s primary distribution operation for Europe, Asia and Africa.

Zabrze’s proximity to three international airports (Katowice, Krakow, Ostrava) and easy access to the A1 motorway (Gdańsk – Łódź – Czechia – Austria), and the intersection of the A1 and A4 (Germany – Wrocław – Krakow) serve Weber’s interests well.

The logistics real estate sector is proving to be more resilient than other real estate classes during Covid-19. According to Savills, the pandemic has had no significant impact on occupier demand in Poland in the first quarter of the year. The leasing volumes during Q1 2020 have been on a par with the same period last year (1.1 million sqm) with a notable increase in demand for temporary space.

Poland’s total warehouse and the industrial stock reached 19.0 million sqm at the end of March 2020, with the largest markets being Warsaw (4.4 million sqm), Upper Silesia (3.2 million sqm) and Central Poland (3.1 million sqm).

According to Andrew Konig, CEO, Redefine Properties, the coronavirus pandemic is expected to intensify the demand for warehousing as supply chains are restructured and to meet the growth in online spending. The growth in e-commerce is benefitting logistics especially the development of “last mile” delivery facilities.

“Our strategy in Poland is centred around creating a leading logistics platform and Zabrze located in Upper Silesia, one of the most attractive logistics locations in the country was a natural choice for Weber”, says Pieter Prinsloo, CEO of Redefine Europe.

The sustained investments in improving road infrastructure has enabled easy access to other parts of the country, as well as to the rest of Europe making Upper Silesia a popular region among international companies looking for high-quality warehouses in good locations. The facility to be developed in Zabrze is our next investment in the region, following the development of the warehouses and logistic parks located in Ruda Śląska, Sosnowiec and Bielsko-Biała.

ELI’s portfolio includes 16 assets with a total gross lettable area of circa 480 000 sqm and approximately 120 000 sqm under construction. In the next three to four years, ELI plans to expand by about 2 million sqm through development activity.

Growthpoint’s specialised Cintocare Hospital development achieves Africa’s first Green Star rating for a healthcare property

The specialised surgical hospital development by Growthpoint Properties and Cintocare, the first facility of its kind in South Africa, has also become the first healthcare property on the African continent to be awarded a Green Star rating.

In a milestone achievement for green building and healthcare in South Africa, Cintocare Hospital in Pretoria, Gauteng, has received a 5 Green Star Custom Healthcare design certification from the Green Building Council South Africa (GBCSA).

Working closely together to develop this specialist surgical hospital, Growthpoint and Cintocare are creating a tailor-made, high-performance space, which includes positive social and environmental impacts – a clinical centre of excellence.

Lisa Reynolds, CEO of the GBCSA, says, “Earning SA’s first Custom Healthcare Green Star rating for Cintocare Hospital continues Growthpoint’s track record of exceptional green building leadership and displays Cintocare’s innovation. Together, they are creating a sustainable healthcare facility designed around the well-being of patients and hospital staff that supports the environment and its communities, which is changing the future of healthcare properties in SA.”

Rudolf Pienaar, Growthpoint’s Chief Development and Investment Officer, comments: “We are delighted that our collaboration with Cintocare has led to this state-of-the-art hospital becoming the country’s very first certified green hospital property. Growthpoint is very proud to be part of creating a greener, healthier, more sustainable built environment and healthcare sector.”

Andre Brink of Cintocare says, “We appreciate the excellent working relationships that have achieved this, and congratulate everyone who has contributed to the design.”

The benefits of this particular project go well beyond a single hospital. The collaboration between Growthpoint, Cintocare, GBCSA, and the professional team, including Aurecon, has resulted in a new green building certification tool for the healthcare and property sectors, to which Solid Green also contributed its expertise. This green certification tool is a road map to drive the development of more green healthcare buildings in South Africa in future, and it is available to everyone.

Construction of the R470m specialist hospital began in July 2018 and, despite the COVID-19 lockdown, the project is well on track for completion in the final quarter of 2020. The year-long planning for the project included the comprehensive collaboration of its operators, doctors, promoters, developers, owners, green partners and other stakeholders.

The hospital will focus primarily on the head and neck, spinal, neuro and vascular surgery with its highly specialised medical professionals supported by state-of-the-art technology. The development partnership is delivering the full suite of services for the hospital – from inception to completion.

Setting new standards for sustainability in the South African healthcare sector, Cintocare Hospital’s green building rating was achieved through an architectural design that incorporates many sustainable design principles. It is also particularly fitting that the development is in Pretoria’s green precinct of Menlyn Maine.

The building design itself will support the surgeons’ optimal delivery of specialised services, accommodate and operate specialised state-of-the-art equipment, and deliver a world-class facility for patients.

Designed to the highest international standards, the hospital includes seven floors; the hospital plant room, three clinical and consulting levels and three parking levels with 335 secure parking bays. This 100-bed hospital, with a built-in capacity to expand to 160 beds, incorporates five theatres, of which three are banked and one is a hybrid.

The exterior of the building reflects its fundamental purpose. Its glass façade that also serves to shate the building will be complemented by design features evocative of spinal vertebra found in the neck.

Growthpoint’s partnership with Cintocare has provided Growthpoint Healthcare Property Holdings with the opportunity to own this world-class hospital on completion. It is the first unlisted healthcare fund that invests exclusively in healthcare property assets in SA, including hospitals, clinics, pharmacies and laboratories.

Dr Linda Sigaba, Fund Manager of Growthpoint Healthcare Property Holdings, says, “Green healthcare buildings are designed to have positive impacts on their users, their surrounding communities and the environment, and they are the future of healthcare properties globally. Growthpoint is an established leader in green developments, which allows our healthcare fund to grow its portfolio of properties with partners like Cintocare. We will continue supporting the growth of the healthcare sector by providing the capital to build new healthcare facilities and the green buildings of the future.”

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