Analyst recommendation

                                                                                                           As at June 2023

Executive Summary

We maintain our buy recommendation on Redefine Properties Limited (RDF) with an intrinsic value of R4.61 and an
upside of 22%. RDF recently released its 1H24 results that were mixed but we have not changed our view on the
company.
RDF’s interest cover has decreased from 2.4x in FY23 to 2.2x in 1H24 but is still above its covenant of 2x. The loan-tovalue (LTV) for the group increased from 41.1% in FY23 to 42.6% in 1H24 which is above the medium-term target range
of 38% to 41%. The main drivers of the increase were the recent Mall of the South acquisition, but the group intends to
lower the LTV to the medium-target range.
Revenue was up by 8% with distributable income up by 6% from 23.91 cents per share (cps) to 25.34cps. Dividends per
share decreased marginally from 20.32cps compared to 20.27cps. The payout ratio for the period is at 80%, on the lower
end of the FY24 guided range of 80% to 90%. Over the FY24 period the group anticipates that interest rate relief should
only flow in FY25 due to the expected timing of the rate cuts but also the lagged effects of elevated interest rates that are
still to play out.
Our intrinsic value has remained relatively unchanged from R4.60 to R4.61. The upside since our last report has expanded
due to rising economic uncertainty influencing bond yield levels along with the performance of RDF and the property
sector. Our view is that current bond yield levels (12.12%) are not the new normal but reflect market uncertainty. We
anticipate yield levels to correct to similar or below 2 standard deviation (11.70%) levels above the long-term mean. The
correction provides a base for upside potential in RDF and the property sector, positioning them as undervalued. 

Analyst thesis

A deterioration in property fundamentals
o Office occupancies falling below 80%, reversions below -17% (worst level in last five years)
o Retail occupancies falling below 90%, reversions below -13% (worst level in last five years)
o Industrial occupancies falling below 90%, reversions below -7% (worst level in last five years)
 An outlook change to government bonds increasing from current levels (above 2 standard deviations over the
long-term average) to above 3 standard deviations (12.83% and above)

Results

Table 3: Results summary

Valuation

Table 3: Valuation

Table 6: Valuation multiples

Source: FactSet