Andrew Konig, president-elect of the South African Property Owners Association (Sapoa) and CEO of SA’s second-largest listed property group, Redefine Properties, believes that to restore credibility property groups will need to be cautious and realistic in the toughest economic environment in SA in decades.
Redefine, which has a portfolio of investments worth more than R95bn, is under pressure in a weak environment, like many of its peers. It is difficult to raise rents when some tenants battle to meet existing contracts. As a result, it is cleaning up its balance sheet and has put R8bn worth of properties, or 8.4% of its asset base, up for sale.
Konig spoke with Business Day about how he will get Redefine, a real estate investment trust worth R42bn, to provide growing dividends and share price uplift in 2020 while some of its peers battle to deliver any returns at all.
What are Redefine’s three main objectives this year?
We need to reduce balance-sheet risk, deliver sustainable quality earnings and to ensure that operational excellence becomes the way in which we approach everything we do.
Can Redefine make any sizeable acquisitions in this weak and unstable economy?
With a constrained capital base and a stated intention to right-size the asset footprint to the constrained base, the short answer is no.
Sizeable acquisitions would be challenging. An ailing economy is also not supportive of growing the portfolio size.
That does not mean we are not able to recycle capital for deployment into assets which offer better long value appreciation prospects through development activity, local and offshore.
What’s holding Redefine and the listed property sector back in general?
The fundamental issue is that it is all about the economy at the moment. You have inflation and a lack of catalysts for growth. There is an oversupply of offices in premium nodes like Sandton. So this is why we and other companies will work to protect our balance sheets. We want to reduce risk on our balance sheets so they can withstand shocks. This why we want to lower our loan-to-value and focus on cutting out non-recurring income.
I’d say the key phrase for the listed sector is reducing complexity. You have very competitive leasing and you really have to focus on being relevant as tenants have so much choice.
How can green strategies and new technology make Redefine more profits?
Green strategies and advancing technology do not mean more profits for Redefine. It’s more about future-proofing our business, which goes to the heart of sustainability; not only environmental, but financial too.
The efficiencies that result from green buildings and using new tech speak rather to relevance, tenant attraction, responsibility to the broader community and ease of doing business. These offer relief from the pressure of inflation, beating administered cost pressures which threaten operating margins.
How can big business help to alleviate SA’s job crisis?
Big business needs to play a broader role in society. We need to involve the local communities in which we operate more; we need to relook at employment and procurement practices. We must offer learnership and mentorship programmes and seek opportunities to grow employment opportunities.
Also, I think ways need to be found of tapping into sectors which by their nature employ large numbers of people; agriculture and mining, for example.
Are you optimistic about the future of the economy and the property sector?
Redefine is still a South African company with more than R70bn of local assets. So we need to be realistic. There will be opportunities for big business in this economy. There are opportunities in risk.
Post the Steinhoff corporate governance scandal, has corporate governance become more important in the listed property sector?
I think the ESG (environmental, social and governance) has become much more important in recent years. After Steinhoff, high profile CEOs have moved out of vogue. There are more professional managers leading companies than rock star CEOs who take high risks, and less of an eye on governance and rules.
Listed property is a very immature industry still, relative to other sectors. When mergers happened a few years ago it was difficult to avoid conflicts between directors. But in 2020 we see property company boards getting people with experience across an array of fields.
Correction: January 29 2020
An earlier version of this article incorrectly stated that Redefine expects distribution growth of about 4% for the year to end-August 2020. The company changed its payout ratio from 100% of distributable earnings to 93% for the second half of the year and expects flat distribution growth for its financial year to end-August 2020. The new payout policy applies to the whole 2020 financial year.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.