Redefine pre-close investor roadshow for the half year ... · Strategic matters Strategic...

Redefine pre-close investor roadshow for the half year ending 29 February 2020

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Our conversation

1 Strategic overview

2 Property asset platform

3 Financial insights


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3Strategic overview

1Section Purpose has become the engine of sustained value creation


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The outbreak of the Coronavirus poses a new

humanitarian threat and arrives at a precarious time for

the world economy

Growth prospects will remain tepid due to Eskom

(a major source of fiscal and general macroeconomic

risk), a slow reform agenda and the weak global

environment

A lower but still relevant probability of a slowdown in

the US and Eurozone in a context of growing financial

vulnerabilities and high policy uncertainty (Brexit, trade

disputes) and increased geopolitical tensions (Middle

East) weigh heavily on global economic prospects

Persistently weak business and consumer

sentiment with ongoing bouts of load shedding are

likely to have a significant negative effect on 2020

Fiscal policy is a huge problem with stuttering tax

collections and an apparent unwillingness of the

government to cut the public sector payroll

Operating in a continued vacuum of catalysts to

stimulate meaningful and sustained economic change,

we can expect soft local property fundamentals

to prevail in the medium term

Our operating context

There is no medium-term prospect of improved property fundamentals

Source: RMB


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What keeps us awake at night

Uncertainty pertaining to long-term impact of geo-political and socio-economic growth factors

Impact of disruptive technologies

Deteriorating public/state infrastructure and poor administrative delivery locally

Inability to effectively manage our reputation

Financial market volatility

Inability to be environmentally resilient

Damage to property and security-related threats

Long-term impact of failing to transform at an acceptable rate

Increased competition for tenants, capital and property assets

Failure to comply with local and international laws and regulations

Inability to maintain strong ethical and governance culture

Inability to prevent computer fraud and respond to cyber security attacks

Misalignment with international partners (in-country)

Elevated top risk Unchanged top risk Reduced exposure

World Economic Forum ranked climate action failure as its top global risk in terms of impact in 2020

The above items are extracted from our strategic risk register and reflect our view of inherent risk before application of any mitigating actions


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Strategy

Our purpose is to create and manage spaces in a way that changes lives

We adopt an agile and uncompromising ethical approach to the way we do business

Our focus is on real estate and related investments – not a particular sector

▪ We will continue to build an asset platform that sustains organic growth through:

− Continuously improving, expanding and protecting our domestic portfolio

− Recycling capital through the sale of assets at the end of their investment life cycle

− Unlocking value through active asset management opportunities in offshore markets

− Driving innovative business projects to ensure we remain relevant and futureproof our business

▪ We continue to broaden our

interpretation of sustainability,

looking beyond environmental

considerations

▪ We continue to deepen our

understanding of our

stakeholders’ needs, while

managing their impact on us

and our impact on them

▪ We focus on proactively

managing and enhancing our

reputation in all that we do


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Focusing on what matter most

The critical levers that impact our ability to create value

Grow Reputation

Invest Strategically

Optimise Capital

Operate Efficiently

Engage Talent

Creating sustained

value for all our

stakeholders

Managing capital in a

constrained and costly

environment

Operating responsibly

in a low growth, rising

administered cost

context

Harnessing our

people’s skills,

abilities and attitude

Living our purpose

Strategic matters

Strategic objectives


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Strategic priorities

Our purpose-driven, strategic approach is appropriate for the current environment

How we will get there in 2020 Anticipated outcome

Safeguard Redefine’s brand Improved stakeholder perceptions

Remain relevant to stakeholdersESG considerations embedded in all areas of the business

Heighten focus on ESG

Continued focus on asset quality Improved quality and relevance of local portfolio

Offshore expansion through development activity Expanded offshore logistics platform

Restoring value of underperforming asset TNAV per share lifted by 6%

Right-size asset footprint to capital base Improved forward yield

Introduce dividend pay-out policy Lowered LTV ratio to comfort zone of below 40%

Focus on organic growth Maintained active portfolio margin

Expand non-GLA income sources

Significantly reduced non-recurring incomeRoll out solar PV interventions

Proactive utilities management

Unlock procurement efficiencies

Instil a culture of innovation and accelerate transformationMaintained staff engagement levels

Improved transformation across all levels


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Environmental, Social and Governance

The role of ESG has been elevated in every aspect of what we do

Apart from one, all resolutions tabled at the AGM were passed by the requisite majority of shareholders - it is worth noting:

2020 2019 Action

Number of shares voted 77% 76% Participation to be encouraged

Dividend re-investment option approval 86% 96% A trend to watch

Remuneration policy approval 92% 77% To be continuously reviewed

Implementation of remuneration policy 71% 76% One-on-one engagement with shareholders

Issue of shares to acquire assets 76% 73% Change to 5% of shares in issue

Issue of shares for cash Withdrawn 93% Change to 5% of shares in issue

Level 3 BBBEE

contributor status

maintained

Leon Kok to succeed

David Rice as chief

operating officer effective

1 September 2020

Filling the financial director

role is a strategic

opportunity to address

diversity at executive level

All board committees

comprise independent

non-executive

directors

Staff are highly

engaged with a score

of 87% outperforming

the global and local

benchmark of 64%

Progress in transforming

senior management

through three new

appointments

Received an A (CDP

Supplier Engagement)

rating and the only South

African company included in

the 2019 Supplier

Engagement leader board

Achieved AAA ethics

rating from Ethics Monitor

– up from AA rating in 2019

and the third company to

ever achieve this

We continue to hold our

position as the SA REIT

with largest solar PV

footprint

Actively recruiting for

an additional non-

executive director to

bolster skills


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10Property asset platform

2Section Positioning the portfolio to withstand prevailing conditions


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Local trends

Pursuing a proactive, relational approach to tenant attraction and retention

Retail Office Industrial

South African shopping centres have achieved sales (5.5%), trading density (4.3%) and foot count growth (2.5%) (September: SAPOA)

Consolidation of offices, densification and remote working solutions are impacting demand for space

Aside from pharmaceutical and food production, the manufacturing sectors at large are experiencing continued contraction

Spend per head has dipped to its lowest level since the end of 2015 indicating frequent visits and spreading of spend

Leasing is driven by three key elements being transport, cost and location

Logistics operators in particular continue to consolidate supply chain operations into centralised mega distribution centres as in the case of Massmart, Sparepro and DSV

Continued pressure to right-size retailers’ premises to improve trading performance

Total cost of occupation is under pressure impacted by increases to utility and assessment rate costs. Municipal charges approximates 20% of gross income

The cost of tenant retention and rising operating costs will impact future rental growth

Sector characterised by rental reversions on renewal and continued pressure on vacancies

Quality assets and tenant retention remains the key driver of performance

Previous mainstays of SA's economy suchas the steel and mining sectors remainunder pressure from low demand

Continuous increases to administered costs and irregular electricity supply is impacting the margins of tenants

Office development unlikely unless pre-let Demand for industrial space is expected to continue in the coastal regions with less interest inland

Entertainment, food and healthy living are becoming points of differentiation as-well-as key drivers of footfall and spend

National vacancies have increased to 11% impacting rent reductions and tenant incentives with an unlikely recovery over the next three years

New developments are tenant driven withan emphasis on optimising efficiency in property design


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Retail portfolio

Remaining relevant to the communities in which we operate

Overview

▪ Sales growth was 3.6%, trading density growth 1.6% and footfall reduction 1.8% (FY December 19)*

▪ Christmas spend moved to Black Friday – combined sales for November and December up by 2.8%

▪ Rent to turnover remains constant at 8%

▪ Rent reversions to January were -2.3% mainly driven by tenant retention at Matlosana Mall

▪ Edcon’s trading performance remains weak despite reduction in space. Portfolio exposure is 2% of total gross

monthly rental (GMR)

▪ Massmart portfolio exposure is 1.9% of total GMR. Exposure to one Dion Wired store at Centurion Mall of

800 sqm. We anticipate a future reduction in the Game format

Disposals Developments

▪ Alberton and Ermelo Mall for R435 million

▪ Six properties for R1.6 billion subject to usual

conditions for transactions of this nature

▪ Refurbishment and tenant reconfiguration at

Kenilworth Centre completed and in progress at

Sammy Marks Square, Centurion Lifestyle and

Kyalami Corner totalling R116 million

Priorities

▪ Continue to monitor tenant performance and reduce exposure to tenants at risk

▪ Managing occupancies remains a constant focus

▪ Continuous meetings with national retailers with a focus on early renewal of leases

▪ Strategies for leasing big box vacancies

* Excludes development and new GLA


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Office portfolio

Enabling work-life integration through innovative, modern facilities

Overview

▪ Vacancy has remained constant at 10.2%. (National vacancy is 11%)

▪ Total rent reversions to January were -1.3%

▪ Lacklustre economic growth and muted employment inhibiting new leasing enquiries

▪ Asset management strategies are dictated by growing vacancies, rent reversions and reduced demand

▪ WeWork’s Rosebank Link is 95% occupied. 155 West is 30% occupied (two floors) and the remaining three

floors ready for occupation mid February.


▪ 22 Fredman Drive for R95 million

▪ Two properties for R91.1 million subject to

usual conditions for transactions of this

nature

▪ 155 West Street upgrade completed for R152 million

(currently 60% let)

▪ Refurbishment of Knowledge Park 1 and The Towers

in progress for R47 million

Priorities

▪ Tenant retention and reducing vacancies remain our top priority

▪ Tenant relationship strategies continue, with a focus on early renewal of leases

▪ Improving the quality of assets is imperative to remain competitive in a leasing environment where new

developments have vacancies

▪ Focus on continued leasing campaigns, direct canvassing and relationship building with broker houses


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Industrial portfolio

Providing efficiency to a cost-sensitive market

Overview

▪ Vacancy remains constant at 1.9%. (National vacancy is 3.4%)

▪ Ongoing and indefinite load shedding by Eskom is having a disruptive effect

▪ Lease renewal growth is 8% mainly due to short term and flexible leases over smaller premises

▪ We estimate that 5 000 permanent jobs will be created once S&J is fully developed

▪ Robor – expecting rental payments to April. We continue to engage with interested parties to re-let the property


▪ Various land portions for a total of R121 million

▪ Three properties for R713.2 million subject to

usual conditions for transactions of this nature

plus land at Brackengate and Atlantic Hills for

R200.3 million

▪ S&J Industrial Estate (90%) development of 18 580 sqm

completed and 68% let

▪ Massmart DC at Brackengate 2 (50.1%), Roche/Kapa

Biosystems and Sparepro DC at S&J (90%) are in

progress together with precinct infrastructure

development at S&J, Atlantic Hills and Brackengate 2

Priorities

▪ Early renewals and improving the overall lease expiry profile remain a business imperative

▪ Continued focus on product differentiation to improve and maintain the quality of the properties

▪ Sale and development of land holdings


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European Logistics Platform

Expanding in a growth sector

Priorities are included in offshore activities

Overview

▪ Construction activity in the Polish logistics/warehouse sector is still very strong

▪ The high level of speculative developments has led to a slight increase in national vacancy rates

▪ The vacancy rate for Poland was close to 7% (up 2% year-on-year) at September

▪ Prime rents remained stable but rental growth are somewhat mitigated by the high number of speculative

developments

▪ Prime yields are still strengthening with high investor appetite for long-term Build-to-Suit schemes

▪ The vacancy is currently 14.6% with Lodz (16 685 sqm), Krakow II (12 555 sqm) and newly developed Bielsko

(16 235 sqm) comprising the bulk

▪ Including leases that have been signed with tenants to take occupation, the occupancy increases to 91%


▪ The sale of Strykow was concluded on

31 January 2020 realising a net yield of 6,1%

and a net profit of circa EUR8.1 million for

Redefine

▪ On 31 January Madison received anti-monopoly

clearance from the Polish authorities – clearing

the way to close the transaction during the first

week of March

▪ The first phase of two new developments were

completed being Warsaw Logistics (24 790 sqm GLA)

and Opole (9 074 sqm GLA)

▪ Three projects are currently under construction, the

first phase of Torun and the second phases of

Warsaw Logistics and Opole. The total GLA for the

three projects is 80 062 sqm


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United Kingdom Australia Poland

Redefine’s interests

▪ RDI REIT 29.4% ▪ Journal 90%

▪ Cromwell 2.3%

▪ EPP 45.4%

▪ European Logistics Platform 95%

▪ Chariot Top Group 25%

Priorities ▪ Options are under consideration for

Redefine to realise its stated objective of

recovering value that has been lost

▪ Some options may require Redefine to

remain invested in the medium-term without

committing further equity to RDI

▪ Funding arrangements to be put in place to

allow for the possible early redemption of

EUR117 million exchangeable bond should

corporate activity necessitate this

▪ A competitive bidding process run by JLL is underway

which has drawn a strong response

▪ The process is expected to close mid March

▪ Uni Place bookings for semester one stands at 89%,

impacted by the closure of the borders to anyone

(other than citizens and permanent residents)

travelling from mainland China for 21 days

▪ Central development on track to be completed by

mid-2020 in time for the second semester

▪ Disposal of Journal would release remaining Cromwell

units for disposal on the open market

▪ The disposals will greatly support our strategic priority

to strengthen our balance sheet

▪ Support EPP in recycling assets at upper

end of cycle rather than raising capital at

high yields

▪ Grow logistics platform through

development pipeline

▪ Focus on leasing to extend logistics

standing portfolio WALT of 5.3years

▪ Improve logistics platform occupancy

▪ Support funding of the expansion of

European Logistics Platform, equity partner

introduced

▪ Chariot is expected to unwind by the end of

2020, two DIY outlets were sold in January

Offshore activities

Geographic diversification in hard currency markets


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Student accommodation Other Africa

▪ Redefine is at an advanced stage in

disposing its 53.4% equity interest in

Respublica Student Living and three student

accommodation assets, which will be formally

announced once agreements are signed

▪ Park Central comprising 14 949 sqm (inclusive of

balconies and sky gardens) 40.1% by sqm sold

and 22.5% by sqm let (demand for rental units

growing)

▪ Non-GLA opportunities such as LED screens,

exterior media, kiosks and Wi-Fi roll out is

ongoing

▪ Opportunities to expand solar PV fleet under

constant consideration

▪ Continue to work closely with Cornwall Crescent

to restore some of the value lost on Delta

▪ Growthpoint Investec African Properties

(GIAP) are in the process of acquiring

Oanda Wings

▪ The sale will be for shares in GIAP

Alternative investments

Diversifying income streams and streamlining asset platform


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18Financial insights

3Section Reducing balance sheet risk and improving quality of earnings


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Rigorous review of external interim property

valuations in progress

Solid progress made on a strategic disposal

process to lower LTV - most transactions will be

implemented before year end

Recycling activities will also simplify and

streamline the investment property asset platform

Maintained ample headroom within all Bank debt

covenant thresholds

Moody's affirmed Redefine’s long-term issuer

credit rating of BAA3, with outlook changed to

negative, following similar sovereign rating action

Comfortable liquidity profile, with all debt

maturities addressed well ahead of time

Introduced a dividend pay-out policy, resulting in

retention of R200 million of 2019 distributable

income

Critically evaluating carrying values of intangible

assets and goodwill

Balance sheet management

Strengthening the balance sheet remains a strategic priority


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Realising value from the sale of non-core assets

It is anticipated that right-sizing our asset footprint will improve the LTV

# Actual exit yield

* Anticipated exit yield

Last reported LTV

at 31 August 2019

Disposal of

48.5% of ELI

(#7.1%)

Disposal

of Journal

(*5.0%)

Local disposals

transferred

(#9.1%)

Disposal of

Strykow

(#6.1%)

Disposal of

Cromwell

(*6.5%)

Disposal of

Respublica

(*9.5%)

Local

non-core property

assets to be disposed

(*9.0%)

Headroom to

absorb

adverse

LTV triggers

Targeted LTV

of sub 40% by

31 August 2020

4.4% 39.9%


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The overall risk

environment has

heightened

Recycling activities will have

a dilutionary impact on

current year earnings

Lowering of interest rates

won't have meaningful

impact on earnings

Lower interest rate cycle

presents attractive

opportunity to increase

hedging on local debt

Emphasis on managing

and improving recurring

income streams continues

with non-recurring

income being phased

out

Distributable income per

share for the 2020 financial

year expected to be

between 5% to 7% lower

than 2019

Trading outlook for 2020

Focusing on the variables under our control

Outcomes : On track Requires focus Slow progress

Half year 2020 progress report

Safeguard Redefine’s brand

Remain relevant to stakeholders

Heighten focus on ESG

Continued focus on asset quality

Offshore expansion through development activity

Restoring value of underperforming asset

Right-size asset footprint to capital base

Introduce dividend pay-out policy

Focus on organic growth

Expand non-GLA income sources

Roll out solar PV interventions

Proactive utilities management

Unlock procurement efficiencies

Instil a culture of innovation and accelerate transformation


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Thank you for your engagement

Redefine pre-close investor roadshow for the half year ... · Strategic matters Strategic...

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Transcript of Redefine pre-close investor roadshow for the half year ... · Strategic matters Strategic...