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REDEFINE INCOME FUND INCREASES INTERIM REVENUE YEAR ON YEAR,
MAINTAINS DISTRIBUTION LEVEL, AND BUCKS TREND OF DECLINING
PROPERTY SECTOR PERFOMANCE
The R1,4-billion Redefine Income Fund posted an eight percent
increase in revenue for the interim period to February 28, 2002 to
R111-million from R103- million a year earlier and increased the
profit available for distribution to linked unit holders by six
percent annualised to R45,3-million.
The JSE's only hybrid property loan stock company declared a
quarterly interest distribution of nine cents per linked unit,
consistent with its first quarterly distribution for the 2002
financial year.
Headline earnings rose seven percent to 18,22 cents per linked
unit from 17,03 cents a year ago (August 31 2001 year-end: 35,03
cents for the full year).
Chief Executive Officer Peter Penhall said these achievements have
gone against the trend of generally declining performances
reported by the property investment sector since the turn of the
year.
"We have continued to deliver an increasing return on investment
to unitholders. Taking into account the compounding benefit of
quarterly interest payments and appropriate value adding
strategies to the asset base, the total return in income and
capital to a unit holder who paid R2 a linked unit on listing is
approximately 24 percent annualised."
This performance underscores the company's Fitch investment rating
of A+.
Penhall attributed the positive interim results to the hybrid
structure of earning revenue from a carefully balanced and
improved quality property portfolio and from a portfolio of
investments in listed property unit trust (PUT) and property loan
stock (PLS) counters, which gave the company greater flexibility
and agility in responding to market conditions that had changed
rapidly since the events of September 11, 2001.
"It has been a very active six months, with Redefine being
extremely receptive to opportunities to grow the asset base to its
present value through property acquisitions and re-alignment of
the listed securities portfolio.
"Our holdings in ApexHi, considered to be excessive, were reduced
during the interim period and we applied the proceeds for asset
growth in both of our investment portfolios.
"Growth was financed by way of a nominal issue of equity and
increased gearing taking advantage of the low cost of finance. But
this was counter balanced by a significant reduction in property
portfolio operating costs, contributing to an increase in
operating profit by 13 percent to R94,7 million."
Penhall said total investment of R216,5 million in 15 new
properties (six of which are still to be transferred at 28
February 2002) with single or few 'blue chip' tenants had
increased the value of the property portfolio to R664-million and
investment adjustments in listed counters had placed the value of
the listed portfolio at R816-million.
"The significance of these transactions has been to dramatically
reduce the risk profile in both portfolios. For example, our
property portfolio lease expiry profile has been strengthened to
the extent that more than 50 percent of contractual rentals are
secured well beyond the next five years.
"Through our proactive leasing strategy and tenant retention
activities, we have been able to hold vacancies to under six
percent, which is better than prevailing market levels."
Proportionately, 66 percent of Redefine's property portfolio
comprises 'A 'Grade, with the balance being in 'B' Grade
properties. By sector, it holds 48 percent in office, 28 percent
in retail and 24 percent in industrial properties.
On the listed securities front, Redefine is invested in prominent
PUT and PLS counters such as ApexHi, HyProp, Marriott (Martprop),
GrayProp and Sycom. The average trading yields for the listed
securities sector of the JSE has risen sharply of late to levels
approximating 14,5 percent.
However, interest rate increase and currency depreciation-driven
volatility in the listed property sector added to the call for a
constant re-evaluation of Redefine's portfolio of listed
securities investments, Penhall said.
"These pressures have contributed to a general downward re-rating
of listed property counters, a case of cautious perception
outweighing underlying quality."
Penhall said that the impact of the two recent interest rate hikes
on distributable income was minimised by Redefine's prior
implementation of interest rate hedging instruments which
effectively provided a minimum cover of R550-million, representing
70 percent of debt, at an average cost of 13 percent for two
years, dating from February 2002. Long-term debt was associated
with long bond yields, which helped reduce further the effect of
short-term interest rate increases on the uncovered portion of
debt.
On investment strategies, Penhall said the converse of the
sectoral down rating was that the quality listed property
companies were currently trading at advantageous yields, and well
above the yields being delivered by physical property. This
situation was fertile ground for growth opportunities, and was
ideal for Redefine's unique hybrid structure.
"We have increased, and will continue to increase, our asset base
from whichever sector offers the best opportunities at any given
time," Penhall said.
For this purpose, Redefine has unutilised financial facilities of
at least R400-million available to finance asset base growth
exceeding a further R650-million.
"However, with the yield on physical property moving lower than
the yield on listed property stocks, any new investment in the
short term will probably go towards listed stock to earn the
higher yield for unitholders.
"Notwithstanding the prospect of muted distribution growth from
some of the listed securities in which Redefine is invested, we
are confident that we will deliver growth in our distribution for
the 2002 financial year.
"And for the prospective investor, the decline in general market
sentiment represents a super opportunity to take advantage of
Redefine's record of delivering strong positive income yields and
the prospect of further capital growth in the medium to long term.
Redefine offers investors the opportunity of extensive risk
diversification or spread, without a material sacrifice in
yields," Penhall said.
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