Property valuations back on the up at Redefine

Property valuations are back on the up at JSE-listed Real Estate Investment Trust (Reit) Redefine, which reported on Monday that its portfolio value increased by 1.4% (to R88.9 billion) for the financial year ended 31 August 2022.

While this may be seen as a modest or slight increase, it shows that the group is turning the corner from a property valuations side after its portfolio was significantly written down by almost R10 billion in the wake of the Covid-19 financial fallout in FY 2020.

Read: R9.8bn write-down in Redefine’s property portfolio

Redefine’s executives said on Monday that the Reit saw an increase in valuations across the three major property sectors – retail, office and industrial. The fact that even its commercial office property portfolio saw an increase in valuations is noteworthy, especially as rent reversions in its office properties hit -17%.

Leon Kok, COO of Redefine Properties, said the group’s office portfolio value increased by 0.8%. Despite the modest growth, he added this shows that the office market had “bottomed out” from a valuations perspective for Redefine.

“We had a very decent outcome across all operating metrics in our South African portfolio, despite the ongoing power cuts, policy uncertainty and economic malaise,” he said.

“The group’s overall property vacancies reduce during the reporting period to 6.7% from 7.1% a year ago, while lease tenures increased, as did tenant retention. Our local property valuations have also stabilised with a 1.4% valuation increase across all three sectors on the back of a continued recovery in operating metrics,” noted Kok.

“Redefine continues to benefit from a flight to quality, as tenants seek quality A- and P-grade space, to complement their employee wellness efforts in environmentally friendly buildings or where users seek to consolidate multiple offices into a single location,” he added.

Read: Redefine rallies almost 14% to a 20-month high

Kok said the group had let around 1 million square metres of portfolio space during the financial year, with 40% of this representing new deals. “This shows there is some positivity activity in the market.”

“In the office sector, there is still demand, however, this is skewed towards P-grade and A-grade offices in the top end of the market… Now the focus is on getting rent reversion levels up.”

He said Redefine’s overall (all sectors) property rent reversions were negative at -12%, but what “bodes well” is that the group’s overall rent reversions were at -13% in the last financial year.

Meanwhile, the group reported a further decline in its loan-to-value (LTV) or gearing level to 40.2% for FY 2022, compared to 42.5 for FY 2021.

Redefine CFO Ntobeko Nyawo said the “standout feature” is the sustainability of earnings off the back of a “very stable and strong balance sheet” and LTV “in supporting our strategy and recovery post the Covid-19 pandemic”.

The group reported distributable income of R3.6 billion, representing distributable income of 53.71 cents per share for the year ended 31 August 2022.

A final dividend of 19.28 cents was declared, bringing the full year dividend to 42.97 cents per share, which represents a pay-out ratio of around 80%.