REDEFINE PROPERTIES

Is this REIT finally trading at fair value?

Current share price: R4,10

Market Capitalisation: R29 billion

Dividend Yield = 10.5%

P/E Ratio = 2.9

Redefine Properties Limited (JSE: RDF) is a South African-based Real Estate Investment Trust (REIT). Our primary goal is to grow and improve cash flow to deliver quality earnings, which will underpin growth and sustained value creation for all stakeholders. RDF actively manages a diversified property asset platform with a value of R88.9 billion, comprising local and international property assets ( See image attached 66% South Africa and 34% Poland).

Flagship property portfolio includes the likes of Centurion Mall, MacSteel, Alice Lane, East rand Mall, Blue Route Mall and Convention Tower.

THE POSITIVES

The pandemic had devastating effects on the property sector. RDF share price fell from over R7 to just under R2. The share price has since recovered to just over R4.

The foot count in malls is now almost back at pre-pandemic levels. Retailers are however signing significantly shorter leases after the pandemic, indicating that the sector still has some recovery left to do for the rest of this decade. Turnover within our retail portfolio exceeds pre-Covid-19 levels. We  expect this growth to continue, driven by essential services, apparel and a recovery of entertainment in malls, said Nashil Chotoki, national retail asset manager at Redefine.

Sit-down restaurants, which were most affected by the pandemic, recorded a recovery to pre-Covid-19 levels. Still, higher operating costs for owners have affected the profitability of this retail category. Cinemas recorded growth, while sales growth in workwear clothing and formal wear is expected to continue as more people return to the office, said Chotoki.

The current book value per share of RDF is R7,30 per share. This indicates that the share price on the JSE is trading at a discount. At a P/E of 2.9 RDF is also trading well below the sector.

THE NEGATIVES

Retail REITs are dependent on the disposable income of consumers. The higher electricity, food and fuel costs will place increasing pressure on consumers disposable income. As the SARB tries to curb inflation, interest rates will continue to rise until we reach the 3%-6% inflation target. Discretionary spending will come under more and more pressure this year.

CONCLUSION

RDF might be trading at a discount, but 2023 is going to be a tough year for consumers and retailers. This is one to add to your watchlist and add to the portfolio when the economic conditions are more predictable.

Disclosure: I own shares in Redefine Properties at the time of writing.

Disclaimer: Nothing in this article should be seen as financial advice. Everything stated is for educational purposes only. Always do your own due diligence.