Analyst recommendation

                                                                                                           As at November 2024

Executive Summary

• With the release of FY24’s full-year results, we maintain our buy recommendation on Redefine Properties Limited (RDF)
  and upgrade our intrinsic value from R4.60 to R5.50. In the results, the following was highlighted:
  • The South African Real Estate Investment Trust Net Asset Value (SA REIT NAV) increased from 766 to 788 cents per
  share primarily driven by property valuation uplifts.
  • Distributable Income Per Share (DIPS) was down 2.90% to 50.02 cents per share, at the midpoint of FY24’s guidance
  (-7% to +1%). The main driver was funding costs.
  • The SA REIT loan-to-value (LTV) increased from 41.1% to 42.3% with the main drivers being capex and acquisitions
  in the year.
  • The interest cover ratio (ICR) decreased from 2.4x to 2.1x and RDF has negotiated to have its covenant decreased
  from 2x to 1.75x for the next two periods.
  • SA occupancies marginally increased primarily driven by the retail segment.
  • SA rental reversions improved from -6.7% to -5.9% with office reversions being the main detractor.
  • The outlook remains cautiously optimistic as the group looks forward to an upward property cycle in FY25. FY25
  improvements are expected to be gradual as the effects of elevated interest rates are worked off in the current
  interest rate cutting cycle. DIPS a

Analyst thesis

• We maintain our view that RDF should benefit from a decrease in bond yields. Although yields have fallen by almost 130 basis points over the last year, they have yet to normalise to their long-term average. As the interest rate cycle progresses, we anticipate it to be a further driver of yield level depression.
• We expect RDF to work off the impacts of higher interest rates as the cutting cycle progresses while distributable income grows. The growth is expected to be driven by improved property metrics, revenue growth and lower interest rates positively impacting finance costs.
• Retail should gain from an improving consumer environment, with lowering rates and stable inflation driving occupancy improvement and positive rental reversions with improving demand. Industrial should benefit from GDP growth along with increasing e-commerce, supporting reversions and occupancy levels.
• The office segment remains under pressure due to evolving demand dynamics. Although revival efforts may improve occupancies, lease renewals and reversions are likely to stay under pressure given RDF’s exposure to the segment and the concentration being in Gauteng. We continue to monitor the segment as a key risk in RDF and the sector.

Results

Table 1: Results summary

Valuation

Table 3: Valuation

Table 6: Valuation multiples

Source: FactSet