JSE-listed Redefine Properties is in negotiations with lenders to refinance R4.2bn of its debt that matures during the 2023 financial year — of which R3.2bn relates to the EPP — Echo Kielce and Marcelin facilities.
The remaining R1bn is maturing bonds, which the company said will be refinanced in the bond market or by using available cash resources.
Redefine is a real estate investment trust (Reit) which owns a diversified property portfolio in SA and Poland. The company took over Poland’s largest retail landlord, EPP, in March 2022 — increasing its stake from 45% to 95.5%.
CFO Ntobeko Nyawo told Business Day that funders have appetite to refinance the facilities and that negotiations are expected to be finalised in May.
“Redefine has a healthy liquidity profile and in a tight capital market environment funders have appetite to lend to quality credit,” Nyawo said.
He said Redefine is comfortable with the debt maturity levels. For the 2023 financial year, 11% of its debt is due, increasing to 12% in 2024 and will peak to 16% in 2026-2027.
Nyawo said in a rising interest rate environment, financial risk management is important, and Redefine will focus on preserving its balance sheet strength and flexibility.
Up to end-January, Redefine has R6.2bn liquidity including committed undrawn facilities and cash on hand.
Redefine’s loan-to-value — a measure of the financial health of a property company, reached 40.2% at end-August. Nyawo said they expect this to stabilise to about 40.8%.
Metope CEO & Portfolio Manager Liliane Barnard said with inflation and interest rates having risen materially, SA companies with exposure to European markets are in for a tough year.
She said many of these companies invested in the past 10 years when interest rates were historically low and they benefited from attractive yield spreads.
“Given higher interest rates, refinancing debt will come at higher costs, and companies that have fixed their debt for the medium term will benefit,” said Barnard.
Bongwa Mthembu, head of research at Meago Asset Managers, said there is repricing of offshore property with yields rising across most sectors and geographies.
“Where interest rates settle in Europe will be the key driver of the real estate market reset after an unprecedented and extended period of ultra-loose monetary policy,” he said.
Despite a rising inflation and interest rates environment, Redefine managed to refinance R23bn debt across the group in 2022, said Nyawo.
In 2022 Redefine and the International Finance Corporation (IFC) issued a maiden green bond which raised R1.5bn at an auction — with the IFC investing about R750m in the bond to help the company accelerate its sustainability journey.
Nyawo said Redefine’s environmental, social and governance (ESG) progress helps to diversify the group’s funding portfolio. ESG is becoming an important consideration for funders who want to find out how sustainable the company is, and green bonds add a funding source to the group.
“Given rising inflation and interest rates, uncertainty and volatility in the markets, the cost of debt and liquidity risk has increased, as such, funders consider the quality of credit brought to the market,” said Nyawo.
To this end, Redefine is proactively renewing its maturing debt facilities and extending the debt maturity profile as well as diversifying its funding sources to limit concentration risk.
Nyawo said its EPP investment with assets valued at R25.1bn remains important to the group as it gives investors diversification in an economically stable and hard currency market. In Poland, its retail and logistics portfolios continue to benefit from strong tenant demand and rental growth.
Redefine is entering the Polish self-storage sector through a joint venture partnership with Griffin Capital. Redefine holds a 93% stake with Griffin holding the 7% balance. The venture will acquire 51% of Stokado — the second largest self-storage company and will increase its stake to 75% through new developments.
Nyawo said Redefine is investing €50m over five years to fund the development pipeline of about 50 projects. This amount will be funded by equity and in-country debt.
“We see potential in this complementary sector with attractive income and capital growth prospects,” said Nyawo.
Mthembu said Redefine is one of their top stock picks as it offers an attractive income yield. It continues to trade at a deep discount to book despite rebased earnings, a payout ratio policy of 80%-90% and stabilising asset valuations.
“We continue to believe that current market pricing is not reflective of the improved operation performance and risk profile,” said Mthembu.
The market reacted positively with the share price gaining 1.58% to R3.85 at close of trade. Redefine will release its interim results on May 8.
Correction: February 24 2023
An earlier version of this article stated that Nyawo said Redefine managed to refinance R53bn debt across the group in 2022. In fact, Redefine managed to refinance R23bn debt across the group in 2022.
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