Investors who have held onto their Redefine International and Redefine Properties International (RIN) shares, which are listed on the London Stock Exchange (LSE) and JSE respectively, are likely to be rewarded by stock reratings.
The offshore property play has had a tough year. However, the future looks much brighter now that management has restructured the portfolio’s debt and successfully raised additional capital.
Though RIN and Redefine International are separate companies and listed on different exchanges, they have the same underlying property portfolio. Locally listed RIN’s only asset is its shareholding in LSE-listed Redefine International.
Redefine International houses the offshore property holdings in the UK, Germany and Australia of Redefine Properties – a separate JSE-listed entity (see page 70).
RIN’s share price has already firmed about 13% since a successful rights issue early last month.
The SA entity raised just over R1bn while its London-listed subsidiary raised £127,5m (R1,78bn), well in excess of the initial target of £100m. The latter’s share price strengthened by more than 10% in October.
Both share prices plunged to record lows at the beginning of August, reaching levels of around 440c and 260p respectively.
Negative investor sentiment was centred primarily on high gearing levels, a weak UK retail sales environment and the timing of the reverse acquisition of London-listed Wichford’s properties in August last year.
The former Wichford portfolio of government-tenanted office buildings hasn’t performed as expected since the introduction of the UK government’s austerity measures.
However, last month’s successful capital raising has enabled the business to significantly strengthen its balance sheet and reduce gearing levels from 79% to less than 60%.
CEO Mike Watters says the group can now shift its focus from restructuring the balance sheet to growing the property portfolio by taking advantage of distressed property sales.
Watters, in consultation with tax advisers, is also looking to simplify the ownership and listing structure of both the LSE- and JSE-listed vehicles over the next few months, which should make the group more investor-friendly.
The pleasing set of annual results that were announced last week should further boost sentiment. Earnings for the property portfolio were up 24,7% and income payouts rose 6,6% for the year to August 31.
The group’s 22% stake in Australian-listed Cromwell, as well as its London hotels, posted particularly strong performances. The six Holiday Inn and Crowne Plaza hotels benefited from near full occupancy during the Queen’s Diamond Jubilee and the Olympics and Paralympics.
Though there’s risk of further negative revaluations and rental reversions in the UK office portfolio, analysts believe most of the pain in this regard has already been taken.
RIN is trading at a forward yield of around 8,5%, which is attractive compared with the 7% average that other SA-based property stocks are offering and double that of dual-listed UK-based Capital Shopping Centres (formerly Liberty International), a long-time favourite among SA investors looking for hard currency income.