Redefine 'must wait for rewards'

Redefine Properties CEO Andrew Konig expects distribution growth to be between 7% and 7.5% for the year to August.

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Redefine, which is the second-largest real estate investment trust based in SA, increased its distributions 7.1% to 39c a share during the six months to February, in line with its market guidance but short of what analysts expected.

"While we don't see signs that the economy will be in a much better position a year from now, I believe we have positioned ourselves to perform consistently. We are confident we will deliver distribution growth of between 7% and 7.5% for the full 2015 year to August," CEO Andrew Konig said.

Investec Asset Management sector head for property Peter Clark said he was impressed with how the group had enhanced the quality of its portfolio.

"The results were below market expectations but broadly in line with management guidance.

"However, you need to take into account the improved quality of the portfolio, which the management team have done a good job at improving over the last few years.

"This will provide for better quality and more sustainable earnings growth in years to come, but is creating a drag on earnings at present," he said.

"The results are also a fair representation of the tough economic conditions on the ground in the South African market at present."

At the end of February, Redefine's asset base was R55.6bn, having increased about R5bn during the reporting period.

Its market capitalisation increased 23.6% to R45bn, of which 22.95% represented international ownership.

Konig said foreign shareholders had increasingly bought Redefine shares since it became a real estate investment trust more than a year ago. "We have seen notable investor flows from Europe," he said.

"We ourselves are looking at acquiring assets on that continent, which looks attractive currently. We can find investments there at a lower average cost than those here and we expect interest rates to rise here too."

Concerning future deals, Konig said he was confident Redefine's offer to acquire the assets of retail-focused Fountainhead Property Trust that it did not already own would be accepted and finalised by August.

It would then amalgamate Fountainhead into Redefine and delist Fountainhead as a business entity.

Redefine has a 65.9% equity interest in the company and manages Fountainhead's assets.

After acquiring Fountainhead, Redefine would look for more acquisition opportunities in SA and abroad, said Konig.

Maurice Shapiro, fund manager at Ma'alot Investments, said Redefine had improved the quality of its portfolio and bulked up its management team over the past five years, which would stand the property company in good stead in the near future.

"They have really upped their game in the past five years, which included internalising property management. This set of results is solid and I expect to see similar solid performance in the second half of the year."

He said the market recognised that Redefine was a strong deal-finder in SA and abroad.

"While there may not be many obvious large property deals left to do in the country, if anyone can find a deal in the current challenging market place, it is Redefine and their skilled management team," Shapiro said.

"The fact that they have a globally diversified portfolio is attractive.

"I expect that their international property portfolio will grow to 25% of their total asset base in the next few years, which I see as an unique advantage for Redefine," he said.