SAREIT

Spear REIT achieves impressive results with its Western Cape focus

“Spear has delivered distribution growth of 6.06% in one of the toughest trading environments experienced in decades. South Africa finds itself in very uncertain times with low levels of economic growth and the advent of the Covid-19 global pandemic. As the operating conditions present numerous headwinds, the strong performance of the core portfolio is testament to the quality of Spear’s portfolio and its ability to generate income growth for its shareholders. Delivering these types of results would not have been possible without its strategy of being hands-on managers of its assets, its regional focus and having excellent proximity to its assets” – CEO Quintin Rossi

Financial highlights for the full year ended 29 February 2020:

  • Full year dividend declared of 91.66 cents per share
  • Distribution grow per share of 6.06%
  • TNAV per share increased to R 12.17 per share
  • 9.78% increase in asset value
  • Portfolio fair value R 4.18 billion
  • Loan to value 39%
  • Portfolio occupancy 97%
  • Fixed debt ratio 63%
  • Positive rental reversions of 1.95% for the full year

Cape Town, 14 May 2020: Spear REIT Limited (SEA:SJ), the only regionally specialised Real Estate Investment Trust (REIT) listed on the JSE, reported its annual financial results today, posting 6.06% earnings growth amidst some of the toughest trading environments in recent years for the South African listed real estate sector.

Spear’s management team led by CEO Quintin Rossi delivered on both their mission statement which is “to be the leading Western Cape focused REIT growing its distribution per share ahead of inflation annually to its shareholders” as well as their distribution growth forecasts for the 2020 financial year. Spear’s management team equipped with its unique industry knowledge and regional know how were able to maintain a 97% tenant retention rate across the 436 436m2 diversified portfolio. Spear’s regional focus, tenant centric approach and product mix has been the catalyst for the results achieved.

The average property value has increased to R130 million compared to the previous reporting period of R127 million. Spear began the financial period with an opening vacancy of 7 992m2 and with 113 551m2 expiring during the year. Management has successfully renewed and re-let 121 018m2 at a positive reversion of 1.95%

Spear’s Covid-19 response

Spear has implemented all required health & safety measures across its business and portfolio to best safeguard staff, tenants and service providers

Rental collections have continued, be it at a slower rate as the hard lockdown instituted by the South African Government on 26 March 2020 set in. Spear has reported the following FY2021 year to date rental collection profile:

98% of March 2020 rental collected

92% of April 2020 rental collected

64% of May to date rental collected

Management remains optimistic that it can maintain its collection momentum for the remainder of FY2021 (in the absence of any significant tenant failure) as it moved swiftly with lease restructures, temporary cashflow relief and rental deferments for those tenants in severe distress. Management however stressed that it is furthermore imperative for lockdown levels to be relaxed as soon as possible to between level 3 and level 2 as this will re-open vast portions of the economy and allow many more tenants to recommence operations.

It is difficult to predict the progression of Covid-19 globally, the residual risks when the lockdowns are lifted, and by extension the economic outcomes of the virus on the real estate sector and on Spear.

The hospitality portfolio has been most severely impacted YTD as a result of Covid-19 and associated lockdowns. We have not forecasted any hospitality income for FY2021.

Spear remains well capitalised with sufficient liquidity and head room facilities circa R 180m – R200m cash availability post FY2020 final dividend. Ongoing stress tests are conducted as we move through each month of the year to plan for potential but unlikely scenarios during this very volatile time.

Spear will not be issuing any FY2021 distribution guidance. Management will provide regular updates to the market from November 2020 onwards regarding income recoveries, hospitality recovery, retail sector recovery and any disposal of non-core assets.

Rossi concludes that the outlook for the year ahead is largely uncertain as the impact of Covid-19 on our business, economy and citizens remain only partially visible right now. What is certain for our business, however, is that the only way out of this Covid-19 crisis is through it. We will get to the other side operational and on form – our fighting spirit has never been stronger.

Redefine achieves tenant retention of 96%

Johannesburg – 4 May 2020 : With the COVID-19 virus and related uncertainty continuing to weigh on businesses, Redefine Properties (JSE: RDF) has announced a 32% fall in its distributable income per share for the six months ended 29 February 2020 to 33.46 cents from 49.19 cents in the prior comparable period. While this was mainly due to the need for prudence in recognizing offshore dividend streams in the face of the lockdown and global volatility – the local portfolio held up well, with the tenant retention ratio at a pleasing and competitive 96%.

CEO Andrew Konig says given the unprecedented and evolving market conditions, property fundamentals, domestically and globally, are going to be challenged for the rest of 2020 and beyond. A “tale of two halves” for the 2020 financial year can therefore be expected. “We are making decisions and adapting to new rules in an environment where the knowns are outweighed by evolving unknowns. So, while we cannot provide distribution guidance yet due to this evolving, fluid and dynamic situation, we also see this as a unique opportunity to change the way we do things to drive our business forward and to position ourselves to add stakeholder value,” says Konig.

Redefine remains anchored by a diverse property asset platform valued at R89.2 billion and its local portfolio is complemented by property investments in Poland, the United Kingdom (UK) and Australia.

The company continues to make inroads into realising value, with disposals during the period amounting to R707 million and with R1.9 billion deployed into property assets. In South Africa, the active portfolio vacancy rate increased marginally during the period to 6.0% from 5.7% in the same 2019 half year period. The operating cost margin increased to 36.0% of contractual rental income from 34.7% in the comparable half year period in 2019.

Refurbishments completed during the period were for 155 West Street costing R168.5 million, as well as Kenilworth Centre, Knowledge Park and Sammy Marks at an aggregated cost of R87.0 million. Current redevelopments in progress amount to R29.1 million at Black River Park and The Towers.

Financial director Leon Kok says the current environment demanded that Redefine adopt a “manage for liquidity and sustainability and not for profit” attitude. This means Redefine had to be extraordinarily prudent in terms of its approach to revenue recognition and how it manages its balance sheet.

“Historically we relied on underlying dividend income streams which were forthcoming mainly from our international investments. However, due to the massive crosswinds, conventional thinking has had to be pushed aside,” explains Kok.

During this period in particular, impairments on offshore holdings have played a key role in the financial result. This occurred in line with requisite international financial impairment testing standards due to ongoing global volatility and uncertainty. The carrying amount of EPP for instance – in which Redefine holds 45.4% – was impaired by R442.4 million. The carrying amount of RDI REIT plc, in which Redefine holds 29.4%, was similarly impaired by R121.5 million.

In addition, the constrained local economic conditions and lack of catalysts for meaningful recovery, necessitated the impairment of goodwill and intangible assets totalling R5.6 billion. “The upshot of this is that our net asset value now only represents tangible assets and this impairment has no impact on the loan-to-value ratio,” says Kok. Kok says Redefine is satisfied that there is sufficient headroom to absorb unexpected headwinds and impacts on revenue.

“We have sufficient liquidity to absorb pressure and continue to place the highest priority on managing our loan to value ratio – now at 44.2% from 43.9% in August last year. The prudent action we have taken will stand us in good stead as local conditions improve going forward.”

The average cost of debt is 6.1% (FY19: 5.8%) and interest rates are hedged

on 88.7% (FY19: 87.3%) of total borrowings for an average period of 3.0 years

(FY19: 2.9 years). While Redefine can comfortably meet its solvency and liquidity obligations, it was resolved to defer the decision on the dividend declaration for the six months ended 29 February 2020 until the release of results for the year ended August 31 2020, expected on November 2 2020.

Konig says it is too early to call what the future holds from an outlook point of view, but Redefine intends to use this crisis as an opportunity to match future initiatives to expected changed consumer behaviour.

“We will look at each of our properties to position them slightly differently to provide a relevant offering which differentiates us from the rest. How we work, play and live will change and we want to revisit our business model to ensure we adapt quickly and profitably,” explains Konig.

There are some positive signs emerging as a phased period to exit the lockdown begins this month.

“We are pleased with the progress in negotiations with tenants to secure rental income while alleviating pressure for those who are really battling. Generous discounts, for instance, have been given to struggling SMMEs. While the payment of rates and taxes remains a sticking point with large clothing retailers, the spirit of Ubuntu continues to shine through by all players in the property sector. We will get through this crisis if we all work together, adapt to changed circumstances and look forward,” concludes Konig.

Passing away of SA property doyen Marc Wainer is a loss to the entire sector

Johannesburg, South Africa, 20 April 2020: Marc Wainer, founder, former Chairman and CEO of Redefine Properties, who started his career working in his parents’ grocery and fish shop in Yeoville and went on to build one of the country’s largest and diversified Real Estate Investment Trust (REIT) listed on the JSE passed away earlier today at the age of 71.

The legendary founder and pioneering property investor and developer Marc Wainer had retired from the company at the end of August 2019.

Marc established himself as a visionary and an astute deal maker over his more than 40 years in the industry, building Redefine Properties, included in the JSE Top 40 Index, into one of the largest REITs with more than 300 local properties with last reported total assets exceeding R100 billion.

He was also instrumental in transforming Redefine Properties into a global REIT with interests in commercial property diversifying into new markets such as Poland, United Kingdom, Germany and Australia and alternative investments such as student accommodation, as-well-as a once off residential play.

“I am at a loss for words and deeply saddened by Marc’s passing away. He leaves a void in the lives of people in the entire property sector who did not escape his characteristic wit, infectious laughter and his genuine love and concern for those he worked with,” says Andrew Konig, CEO, Redefine Properties.

“Marc was a true family man and our thoughts and prayers are with them during this difficult time.”

“His passing away is also a huge loss to the sector and we will all miss his guidance and encouragement. Marc always said that people are the only thing that matter. Our tribute to him will be who we say we are and continue to grow the business he founded and continue to manage and create our spaces in a way that purposefully changes lives,” adds Konig.

“Marc leaves an extremely powerful legacy. He will always be remembered as a legendary leader, a game-changer in the property sector, and someone who changed the lives of many who had the privilege of working with and knowing him, including those whose lives he touched via The Mentorship Challenge. He truly ‘walked the talk’ on his passion for people, property and giving back through mentorship.”

Marc will be missed but never forgotten.

Balance sheet management in a time of crisis

Balance sheet management in a time of crisis

 

Johannesburg, South Africa – 20 March 2020: The coronavirus (COVID-19) has triggered unprecedented financial market conditions, which emphasises the importance of prudent balance sheet management and demands careful liquidity planning.

 

Redefine’s last reported (as at FY 31 August 2019) currency analysis of its assets and debt position is set out below:

Property assets Debt LTV Weighted average cost
(R’billion) (R’billion) (%) (%)
Net ZAR* 72.8 21.2 29.1 9.1
AUD 3.6 1.9 52.0 4.0
EUR 15.8 14.0 89.2 4.0
GBP 2.8 4.1# 145.5 3.0
USD 0.4 0.6# 141.0 4.5
Total 95.4 41.8 43.9 5.8

 

# Refinanced post 31 August 2019 to be in line with carrying values *Net of cash and cash deposits on CCIRS

 

Cross-currency interest rate swaps (CCIRS) are included at market value in the debt analysis above.

 

Redefine’s loan-to-value (LTV) ratio at 29 February 2020 is expected to be materially unchanged from the position at 31 August 2019.

 

The summary above demonstrates the natural net asset value hedge created by Redefine matching its asset and debt currency exposures. The summary is not however reflective of assets backing secured debt facilities. The analysis below illustrates the last reported assets encumbered to support the various secured loans

Assets Debt LTV
(R’billion) (R’billion) (%)
Local property assets 52.9 21.3 40.3
Offshore property assetsUD 7.0 3.3 47.1
Listed investments 2.9 2.7 93.1
Encumbered assets / secured debt 62.8 27.3 43.5
Unencumbered assets / unsecured debt
32.6 14.5 44.5%
Total 95.4 41.8 43.9%

The following is noted:

  1. 66% of Redefine’s property assets are encumbered, leaving unencumbered assets amounting to R32.6 billion to support unsecured debt of R14.5 billion;
  2. 78% of the secured debt is secured by local property assets, with a LTV ratio of 40.3%
  3. Offshore debt totaling R3.3 billion is secured against offshore property assets, which has no recourse to the South African balance sheet; and
  4. There is no capital margining required to top up or cure a shortfall in the market value versus secured debt in respect of listed investments (including in relation to Redefine’s investment in RDI REIT PLC, EPP N.V and Cromwell Property Group).

Redefine includes the market value of all its CCIRS in the debt balance to calculate its LTV in order to present a complete and prudent picture of its solvency and liquidity position. It must further be noted that none of Redefine’s CCIRS have any credit support arrangements in place, which means that no cash margining or other collateral is required if the Rand depreciates.

As at 31 August 2019, Redefine reported debt amounting to R6.3 billion maturing by 31 August 2020 (of which R1.6 billion was subsequent to 29 February 2020). Substantially all of this debt has been successfully refinanced and management is comfortable the balance will be addressed. We also have taken advantage of the lower interest rate curve to increase and extend our hedging maturity profile.

Although we are operating in a fluid environment, Redefine remains well within all its debt covenants, the most stringent of which being a maximum Group LTV level of 50% and an interest cover ratio of 2 times. Redefine continues to execute on its previously announced strategic priority to reduce balance sheet risk. Working capital management has also been prioritised. Redefine has a strong liquidity position which includes significant cash and access to R2.8 billion in committed undrawn credit facilities.

During this time the health, safety and wellbeing of all our stakeholders remains Redefine’s managements’ highest priority and a dedicated team has been established to ensure a co-ordinated response across the business. The team is tasked with developing and implementing the necessary responses and measures to address COVID-19. Management takes the threat seriously and is implementing practical measures to curb the spread of the virus for as long as the circumstances demand. A curtailment on discretionary costs has been implemented to make allowance for the anticipated costs associated with the various initiatives to combat the spread of COVID-19.

At the time of release of this communication, normal domestic trading has not yet been materially impacted by disaster management regulations and business continuity plans have been implemented to minimise disruption by initiatives implemented to curb the spread of COVID-19.

Despite the limitation of trade in Poland’s shopping centres the movement of freight around, in and out of Poland continues as usual and the manufacturing sector is not shut down. In fact, there is additional demand for logistics space to support the current contingency measures. The Government of Poland has announced the provision of a $51.5 billion rescue package designed to shield the economy from the impact of COVID-19 which includes payments of portion of salaries for businesses affected by trading restrictions and a temporary suspension of the Sunday trading ban.

Redefine is pleased to report that the introduction of an equity partner into its Polish logistics operations successfully closed on 10 March 2020. Management continues to make positive progresson the various initiatives to reduce the LTV ratio, whilst building capacity to absorb any negative LTV triggers arising from the current environment.

Redefine’s purpose-driven strategic approach remains highly appropriate for this environment and its diversified property asset platform is robust and well positioned to withstand prevailing market conditions.

Planned leadership transition at Texton

JSE-listed Texton Property Fund today announced that it is embarking on a planned leadership transition to tailor its executive composition to its new streamlined business structures and shifting operational needs.

The transition in leadership will see Texton’s caretaker CEO, Marius Muller, who has steered the company for the past 15 months, vacating the position at the end of June 2020. As from 1 July 2020 he will revert to his former position as a non-executive director of Texton and also resume his role as a member of the company’s Capital and Investment Committee.

Texton Chairman, Marcel Golding, says, “Marius stepped in to lead the business at an extremely challenging time for the company. Texton has been meaningfully repositioned and its strength as a sustainable long-term business is significantly improved. It has clear strategic direction and a strengthened foundation from which to move forward. We thank Marius for his ongoing leadership and commitment and look forward to his continued contribution on the Texton Board of Directors. The board has full confidence that this transition represents a seamless handover and strong continuity.”

Texton is a diversified REIT with total property assets valued at R4.2bn, of which 60.9% by value is in South Africa and 39.1% in the United Kingdom.

Under Muller’s leadership, key issues have been resolved. It has put a clear strategy in place focusing on tenant retention, filling vacancies and lowering funding risk. Good progress is already being made against its strategic priorities. Texton recently reported its interim results for the six months to 31 December 2019, showing improved operational metrics from its South African portfolio. In the UK, it declared solid figures from its wholly-owned UK portfolio. Its biggest asset, Broad Street Mall, is moving forward with value-adding residential and hotel expansion projects, among others, which will transform it into a mixed-use precinct and unlock value. Texton’s loan-to-value ratio had improved notably to below 45%, with strategies in place to bring it down further

Golding confirms that the process of finding a replacement CEO has already commenced and an update in this regard will be issued in due course. “Given the environment in which we are operating, our new executive structures have been tailored to elevate efficiencies while delivering the company’s strategic priorities and operational key performance areas. In this regard, we will be announcing the appointment of a senior property specialist as the Financial Director of Texton next week. We strongly believe these changes are good for Texton and its stakeholders,” says Golding.

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