REDEFINE DIRECTS FUNDS BASED ON LOCAL AUTHORITIES' SERVICE LEVELS
As part of Redefine’s strategy to restructure and improve the quality of its core property portfolio, the company has taken the decision not to invest any further funds into areas where it has concerns with the administration practices of local authorities.
Marc Wainer, CEO of Redefine explains that Redefine has become increasingly concerned and disillusioned with the provision of services in a number of local authorities. “We have accordingly chosen to ‘vote with our cheque book’ and not invest any further funds in these areas. This will include funding for acquisitions and capital improvements to the properties that we already own in these areas.”
Whilst investing in these areas may well give Redefine attractive initial yields, Wainer says Redefine has to ensure that it obtains the required IRR over a given period. “The prognosis for property in many of these areas, in our view, is that the values will in fact decline or show minimal growth.”
In light of this, Redefine will be keeping the bulk of its portfolio concentrated in the Western Cape, Kwa-Zulu Natal and Gauteng. “Within these areas, the bulk of the portfolio will be located in what we have defined as ‘hotspots’ in respect of offices and industrial. We are still happy to have retail shopping centres countrywide as, provided they are of sufficient size, we are able to control our own environment.” Factors Redefine now has to take into account include the Gautrain, toll roads, electricity charges (which vary from local authority to local authority), as well as municipal rates and taxes and the level of services and infrastructure provided.
“We are also seeking to increase the number and size of single-tenanted properties which have fully maintaining and repairing leases. These will impact positively on our cost ratios and also extend our lease expiry profile,” adds Wainer. The recent conclusion of definitive agreements for the acquisition by Redefine of seven high quality office and industrial investment properties from the Zenprop Group support this strategy. The Zenprop acquisition will be bolstered by another acquisition for a portfolio of six industrial properties that fit Redefine’s current strategy and criteria. This transaction is still subject to sub divisions and Competition Commission approval.
To fasttrack its strategy of disposing properties that no longer fit the investment criteria, Redefine has recently unbundled a substantial portfolio of smaller properties to Arrowhead. Redefine believe that the management of these smaller properties would best be served by specialist managers in a separate portfolio.
“Redefine is committed to transforming our portfolio into one of the best quality portfolios in the sector. Whilst we have all learnt that there is no such thing as too big to fail, we believe that our move to properties of the type that we are now acquiring will ensure good growth both in distributions and capital value over time. We anticipate that most of the acquisitions and disposals, where we have concluded agreements, will be transferred by the second quarter of 2012,” he concludes.