Redefine favourite among property stocks with 15% growth; to unlock value through separately listed spinoff
Marc Wainer, at 64, is having the time of his life. Redefine Properties, the group he co-founded with since retired Wolfie Cessman, has grow to a market cap of R30bn through a focused portfolio with properties worth an average ofR100m each. The share price has risen 15% in the past year, smack in line with the distribution of 7% and capital growth of 8% reported in financial results released today for the year to end August. Wainer is preparing to spin off R2,2bn worth of Government occupied properties into a separate JSE listing. We covered those plans, the sharp rise in foreign shareholding (16%) and the group's ability to keep a lid on costs when discussing the latest financials released today. – AH
ALEC HOGG: Well, here's my favourite property man, Marc Wainer of Redefine, who you snuck into the studio. Good numbers – or so you tell us – you've beaten what the market expected, but it doesn't look that hot in absolute terms. Distribution: up seven percent.
MARC WAINER: That's what the sector does. The market expects anything from six to seven and a bit. Growth point: we're at about seven. I say 'pleasing' because I'm still used to the double digits in my head, so I would have been happier with eight. You're not going to get there when you have a two percent GDP environment, K balances, no confidence…really taking up of space – its musical chairs. You get the odd entrant who needs 100m2 in media space, but other than that, there's not a lot of new space.
ALEC HOGG: So the secret's out…..
MARC WAINER: Not a lot is happening. Ernst & Young moves from Corlett Drive to Sandton, they vacate that, and it puts the market under pressure everybody is just… They're taking more space, but they're vacating good quality space, which stays vacant so it puts the whole market under pressure. You still have cost pressures and the rates thing is never-ending.
ALEC HOGG: You have to manage very aggressively?
MARC WAINER: It's very hard, and I think for us, it's one of the most pleasing things. You'll see that to all intents and purposes our total costs went up R3M – less than .06 percent.
ALEC HOGG: How do you do that?
MARC WAINER: Two things: we contained and we learnt everywhere, but we also internalised our electricity and we're starting to get payoff on what we've invested in more modern and load shedders…don't ask me about all the technical stuff. Our net electricity bill reduced by about 24/25 million and we really got the benefit of that probably for about half the year or seven months, so that will carry on into next year. However, that will be a base and that's a 2015 challenge, so these are the kinds of things… It was cost, lowering of debt, the fact that we grew our income by six percent is huge in this market, particularly offices at five when most of the other guys are doing two and a half, three, or negative so those are the kinds of things I would call pleasing as opposed to good.
ALEC HOGG: Peter Brooke (of OMIGSA) was telling us a little earlier about the search for yield and about how there is very little yield internationally. You have the ADR, in other words letting people from the US investing in Redefine: has it been successful?
MARC WAINER: It just started. I'm told it's a slow process, but it's interesting. In 2008, we had 1.4 percent of our shares in offshore and our market cap was then about R10bn. Today we're R30bn and it is 16 percent, so it's one thing to look at the percentages but if you look at the actual investment… When we had the market dipping, when bond yields went up halfway through the year, we had a trade on one day of about 28 million shares. I said, "I'm sure that's offshore investors bailing". It was just the opposite. Our second-largest shareholder now is a US custodian fund. They own six percent.
ALEC HOGG: I do sense though – in the commentary to the results – a little bit of nervousness from your side. You say that you want to reduce your gearing to below 40 percent. What's going on there?
MARC WAINER: We've always had a target of mid-thirties. We can gear up to 60%. We have a self-imposed limit of 45%. We've had quite a lot acquisitions, so what we want to do – and we have a pipeline now of three or four billion – so we've said we want to exit our government portfolio. That, on its own, has the effect of two billion off the asset base and two billion off the debt, so that reduces it to about 36%. We've substantially reduced our Heart Prop units in swops for Fountainheads. We're left with just short of R1bn. We'll sell those in the next couple of months and that will reduce it, and then we'll have these acquisitions. Don't ask me when they'll come on balance sheet because we're reliant on transfers and the Competition Commission, but let's say over the next six months. We'll then have to fund each of those, and that will push it up again and we should end the year at about 35 percent.
ALEC HOGG: Which is still down from where you are at the moment.
MARC WAINER: That's where we want to be. We're always 33/34 percent, so we're up a little bit but we told the market last year that we would peak at this sort of level and then reduce it.
ALEC HOGG: These government properties, a new listing on the JSE: when is it likely to come and what are you going to call it?
MARC WAINER: We had a name – Sovereign – but that's now become a bit of a problem. We'll find a new name. We were far down the track on this one and then the market turmoil midyear made the yields unattractive, then we had some issues with our BEE partner. We now have a new BEE partner and I think by the next two to three weeks, everything should be signed. Then it's the timetable of going through the process with the JSE and getting all the approvals, so I'm hoping February/March – we could get it away.