Diversified real estate investment trust (Reit) Redefine Properties’ share price has climbed nearly 26% in the past week as some sense of confidence returns to its investors.
It was feared that the company, which owns properties in SA and Poland, would have to raise capital, so diluting existing shareholders’ positions, but this has been avoided so far in 2020.
In November, Redefine’s long-term rival, Growthpoint Properties, raised R4.3bn in capital through an accelerated bookbuild.
Much of the capital raise was used to settle the debt it took on after buying a 51.2% stake in British community shopping centre owner Capital & Regional at the end of 2019.
By lowering its debt, it was able to reduce its loan-to-value (LTV), which refers to debt relative to the value of its investments.
Fund managers have tended to prefer Reits to have LTVs below 40% as after this level is reached they say a company enters a state of financial stress.
Redefine was rumoured to be looking to raise capital too but the company’s CEO, Andrew Konig, said last week at the release of the company’s financial results for the year to August that this was not the case. He said the company had a set a new floor on the value of its assets to sustain value creation in future, having recorded asset valuation writedowns of R9.8bn.
The company’s LTV was 43.9% at end-August 2019 but 47.9% at end-August 2020.
Despite selling R13.4bn worth of assets in the reporting period, the LTV still rose with CFO Leon Kok saying the destructive influence of Covid-19 had the negative effect of increasing the LTV 7.8%.
Shareholders seem confident in Redefine’s ability to lower its LTV in 2021, while economic activity improves due to the economy being reopened after the hard lockdown ended.
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