Redefine Properties has reached a pivotal moment by successfully restructuring R27.7bn of its debt. The deal, the largest yet in SA’s listed property sector, is expected to increase competition among funders.
As the second-largest domestic real estate investment trust (Reit) on the JSE, after Growthpoint, the company said the transaction, which was completed in less than six months, improved efficiencies and strengthened the long-term sourcing of capital to support its growth ambitions.
In the past, when the group’s funding pools were fragmented, Redefine had to rely heavily on the risk and pricing conditions set by individual lenders, limiting flexibility in responding to market changes. This often meant the company’s financing costs did not align with the broader market rates.
The group, whose extensive portfolio comprises 127 properties valued at R46.3bn, will act as the common security pool for the funding arrangement. The assets linked to the debt security represent 72% of Redefine’s direct property portfolio in SA.
In an interview with Business Day, Redefine CFO Ntobeko Nyawo said the restructuring of the secured debt in SA was a key component of the group’s long-term capital plan.
“This move is expected to support the company’s strategic growth ambitions. In essence, the structure will improve efficiencies, enhance the diversification of our funding base, reduce complexity and increase competition among funders,” Nyawo said.
Redefine previously had various bilateral collateral structures with each secured funder, he said. However, the restructuring process had created a shared security pool, allowing 11 funders to operate on an “equal footing”, all governed by a common terms agreement.
The 11 funders consist of the big four SA banks and other institutional investors in the secured lending sector. As a result, the assets that underpin the business’s cash generation will now be treated equally among all funders.
African Corporate Investment Bank-RMB carried the role of the mandated lead arranger for Redefine, while Webber Wentzel acted as legal counsel for the lenders.
“The complexity of negotiating common terms among 11 lenders was overcome through deep collaboration among all the parties in the process. This enabled the innovative outcome of the single largest shared security structure in the SA listed property market,” Nyawo said.
The Centurion Mall and East Rand Shopping Centre owner will benefit from a single common collateral pool that aims to enhance its secured debt market appetite. It also enables the group to add potential differentiated funders like a development finance institution to the mix of secured funders, whereas in the past Redefine was unable add such an entity.
“We are an active asset manager, and this structure plays right into that strategy, and enables the business to strive for both organic and inorganic growth through market cycles,” Nyawo said.
The evergreen nature of the structure supported the core requirement of a Reit business model, which was to efficiently source capital and allocate it to investments that achieved superior returns, he said.
“Our investment strategy of being the best diversified listed property player remains intact. The structure supports and plays into the core of the investment strategy. We shared the concept with our investors during our capital markets day in August 2024, and it was well received — we continue to innovate and effectively manage our capital sources to support our strategy.” he said.
He said the restructuring coincided with a time when fundamentals required a listed property re-rating as the government of national unity targeted economic growth of 3.3% a year. This would result in increased confidence in the sector.
“The common funding pool’s evergreen structure we believe is fundamental to our long-term balance sheet management and truly supports our strategic ambitions of building a simplified, diversified cash-accretive listed property investment portfolio.”
Independent property analyst Keillen Ndlovu said Reits had been looking for innovative funding solutions alongside traditional bank financing to diversify their debt sources, profiles and durations, ultimately aiming to lower interest costs.
“Over the past year, we have seen lots of activity in the debt capital markets as Reits look for cheaper financing than traditional bank debt. And now we are seeing Redefine coming with an evergreen secured funding arrangement,” Ndlovu said.
He said Redefine’s loan-to-value, at 43%, was above the market average of 40%.
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