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Redefine interim results for the period ending 28 February 2019
Date: 6 May 2019 Category: Stock Market Share price: R10.00 |
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We take a look at the latest results reported by Redefine Properties limited. Property counters have not been very popular investments on the JSE in recent years as high valuations on REITS have been coming down. So what does RDF's results look like?
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Profits declining for one of South Africa's biggest REIT's
About Redefine
Redefine is a leading South African-based Real Estate Investment Trust (REIT), with a diverse, property asset platform valued at R92.0 billion (FY18: R91.3 billion). Redefine's portfolio is anchored domestically in directly held retail, office and industrial properties, and is complemented by property investments in Poland, the United Kingdom (UK) and Australia. Redefine's primary goal is to grow and improve cash flows, which will deliver quality earnings, growth in distributions, and sustain long-term growth in total returns for shareholders.
Redefine is listed on the Johannesburg Stock Exchange (JSE), has a market capitalisation of R57.0 billion (FY18: R56.2 billion) and is ranked in the JSE Top 40 index. By volume, Redefine shares are among the most actively traded on the JSE, making it a highly liquid single entry point for investors to gain exposure to domestic and multiple international real estate markets.
At 28 February 2019, Redefine's diversified local property assets were valued at R72.9 billion (FY18: R72.4 billion). The Group's international real estate investments, valued at R19.1 billion (FY18: R18.9 billion) represented 20.7% (FY18: 20.7%) of total property assets, providing geographic diversification into the Polish, UK, Australian and African markets.
Financial results
The Redefine board of directors has declared a distribution of 49.19 (HY18: 47.30) cents per share for the six months ended 28 February 2019, an increase of 4.0% (HY18: 5.5%) on the previous comparable period which is in line with market guidance. Total revenue and gross distributable income showed growth of 11.7% (HY18: 9.6%) and 4.8% (HY18: 8.6%) respectively. Redefine's property portfolio contributed 97.8% (HY18: 98.0%) of total revenue, with the remaining 2.2% (HY18: 2.0%) arising from investment income. The operating cost margin declined marginally to 34.7% (HY18: 33.9%) of contractual rental income. Net of electricity and utility recoveries, operating costs were 16.8% (HY18: 17.3%) of contractual rental income.
Property cost-to-income ratios:
RDF's South African Property portfolio
So where and in which sectors are RDF's South African property portfolio? The summary below provides a breakdown of the value of their properties per region as well as per sector:
Geographic spread by value:
Sectoral spread by value
Prospects
While policy and political uncertainty has somewhat decreased, decision-makers have adopted a "wait and see" approach, until after the elections to make long-term decisions. Broad-based weakness in business confidence is a persistent trend which is fuelled by the the slow pace of structural reforms, power blackouts and higher inflationary pressures. Household consumption remains constrained by the VAT increase from 14% to 15%, exorbitant fuel price increases and the recently announced increase in electricity tariffs. Dampened confidence and floundering investment spending are negative factors for local property fundamentals as-well-as economic growth in the medium term. With this backdrop we believe that our purpose-driven strategic approach remains appropriate for the environment in which we are operating. We are pleased to report that Redefine has delivered its market guidance of 4% growth (49.19 cents per share) in distribution per share for the first half of 2019. We anticipate maintaining this growth rate for the full 2019 financial year.
There is one certainty and that is that it will remain an uncertain environment in which to operate for some time to come. Uncertainty delivers challenges, but through a purpose-driven strategy, Redefine is well-positioned to take advantage of the resultant opportunities and we remain focused on what matters most (operate efficiently, invest strategically, optimise capital, engage talent and grow reputation) to stay a step ahead of the unexpected. This forecast is predicated on the assumption that current trading conditions will prevail. Forecast rental income is based on contractual terms and anticipated market-related renewals. The forecast has not been reviewed or reported on by the Group's independent external auditors. Redefine's use of distribution per share as a relevant measure of financial performance remains unchanged from prior years.
Redefine is a leading South African-based Real Estate Investment Trust (REIT), with a diverse, property asset platform valued at R92.0 billion (FY18: R91.3 billion). Redefine's portfolio is anchored domestically in directly held retail, office and industrial properties, and is complemented by property investments in Poland, the United Kingdom (UK) and Australia. Redefine's primary goal is to grow and improve cash flows, which will deliver quality earnings, growth in distributions, and sustain long-term growth in total returns for shareholders.
Redefine is listed on the Johannesburg Stock Exchange (JSE), has a market capitalisation of R57.0 billion (FY18: R56.2 billion) and is ranked in the JSE Top 40 index. By volume, Redefine shares are among the most actively traded on the JSE, making it a highly liquid single entry point for investors to gain exposure to domestic and multiple international real estate markets.
At 28 February 2019, Redefine's diversified local property assets were valued at R72.9 billion (FY18: R72.4 billion). The Group's international real estate investments, valued at R19.1 billion (FY18: R18.9 billion) represented 20.7% (FY18: 20.7%) of total property assets, providing geographic diversification into the Polish, UK, Australian and African markets.
Financial results
The Redefine board of directors has declared a distribution of 49.19 (HY18: 47.30) cents per share for the six months ended 28 February 2019, an increase of 4.0% (HY18: 5.5%) on the previous comparable period which is in line with market guidance. Total revenue and gross distributable income showed growth of 11.7% (HY18: 9.6%) and 4.8% (HY18: 8.6%) respectively. Redefine's property portfolio contributed 97.8% (HY18: 98.0%) of total revenue, with the remaining 2.2% (HY18: 2.0%) arising from investment income. The operating cost margin declined marginally to 34.7% (HY18: 33.9%) of contractual rental income. Net of electricity and utility recoveries, operating costs were 16.8% (HY18: 17.3%) of contractual rental income.
Property cost-to-income ratios:
- Gross cost-to-income ratio 34.7
- Net cost-to-income ratio 16.8
- Gross cost-to-income ratio 38.2
- Net cost-to-income ratio 21.6
RDF's South African Property portfolio
So where and in which sectors are RDF's South African property portfolio? The summary below provides a breakdown of the value of their properties per region as well as per sector:
Geographic spread by value:
- Gauteng 73%
- Cape 18%
- KwaZulu-Natal 4%
- Other 5%
Sectoral spread by value
- Retail 39%
- Office 37%
- Industrial 19%
- Specialised 5%
Prospects
While policy and political uncertainty has somewhat decreased, decision-makers have adopted a "wait and see" approach, until after the elections to make long-term decisions. Broad-based weakness in business confidence is a persistent trend which is fuelled by the the slow pace of structural reforms, power blackouts and higher inflationary pressures. Household consumption remains constrained by the VAT increase from 14% to 15%, exorbitant fuel price increases and the recently announced increase in electricity tariffs. Dampened confidence and floundering investment spending are negative factors for local property fundamentals as-well-as economic growth in the medium term. With this backdrop we believe that our purpose-driven strategic approach remains appropriate for the environment in which we are operating. We are pleased to report that Redefine has delivered its market guidance of 4% growth (49.19 cents per share) in distribution per share for the first half of 2019. We anticipate maintaining this growth rate for the full 2019 financial year.
There is one certainty and that is that it will remain an uncertain environment in which to operate for some time to come. Uncertainty delivers challenges, but through a purpose-driven strategy, Redefine is well-positioned to take advantage of the resultant opportunities and we remain focused on what matters most (operate efficiently, invest strategically, optimise capital, engage talent and grow reputation) to stay a step ahead of the unexpected. This forecast is predicated on the assumption that current trading conditions will prevail. Forecast rental income is based on contractual terms and anticipated market-related renewals. The forecast has not been reviewed or reported on by the Group's independent external auditors. Redefine's use of distribution per share as a relevant measure of financial performance remains unchanged from prior years.
Share price performance
The screenshot (taken from Sharenet) below shows the performance of PIK for the day and over various time periods. And as the numbers show the long term returns of RDF has been very close to nothing, with the stock only yielding 0.51% capital growth over the last 5 years.
The summary below shows the share price returns of PIK over various time periods:
- 1 month: 2.06%
- Year to Date (YTD): 2.38%
- 1 Year: -15.24%
- 3 Years: -14.8%
- 5 Years: 0.51%