Redefine Properties Redefines Funding Strategy with R27.7bn Success

I am joined by my landlord so you must help me please to heartily welcome my landlord who has got a fantastic story by the way. This is a story about Redefine Properties where they say they have got in here what they are describing as a big milestone with the successful restructuring of R27.7bn of secured funding arrangement based on 11 properties that are worth R46.3bn. Let me get the expert to explain what this is about. Ntobeko Nyawo, CFO, Redefine Properties joins me. Ntobeko, welcome to your home. Thank you, thank you for having me. Thank you for hosting us and thank you for coming through. So perhaps maybe just explain to ordinary people what you have done here and the rationale behind it. So very simply what we have achieved is something that we are very proud of as a business. We have taken 127 properties out of our South African portfolio. That is very significant. That makes about 72% of our property platform in South Africa. We have put it together in one single common pool that is governed by a common terms for our 11 secured funders. Now the rationale for that is very simple, is that Redefine is a diversified investment fund. So it holds properties in retail, it holds properties in office, it holds properties in industrial. So we have put all of that together and we have given our lenders the best cash generating property portfolios as part of our investment strategy to actually use that and raise and secure debt in a very efficient manner which we believe is really suitable for our balance sheet and our long term strategic growth objective as a business. Let me begin with basics. Does it make it cheaper for you? It makes it efficient and cheaper is part of that but effectively what it does also is well, remember that if you had two security pools and one lender was only having exposure to one sector, now he is having the benefit of diversified cash flows that are generated by a retail property, generated by an office property and generated by an industrial property right through market cycles. And we know the reason for diversification is to mitigate risk during cyclical times in the market. And so the way we are raising debt is actually now fully aligned to our investment philosophy as a property fund. Because that was going to be my next question, I wanted to know what's in it for them but we are going to come to that a little later. Let's perhaps just go back a step behind and ask the question, was it difficult to get them to come together and work together? Because let's be clear, you are bringing in all the big four banks here and you are bringing in all these other different types of funders. So I think what you see today is really a huge effort and collaboration and innovation. It has taken us about six months to put this together but I think we are really appreciative of our key funders. Out of the 11 funders, we have got the four as the banks and then seven is the large institutional funders as well that are quite big players in the South African market. So that collaboration, I think we would not have been able to deliver this, which we believe is probably the largest in the listed property sector space. We wouldn't have been able to do this without the collaboration that we really appreciate from our funders. You said it's cost effective and it's efficient but the people that are obviously talking to are people who calculate these things to the smallest detail. Are you able to share with us the sort of reduction in terms of your cost of capital that you have been able to achieve here? I think that will play out over the number of years. The reason for that is that remember, some of our debt is actually term debt. So we actually still have debt that's going to run for the next three years as we refinance those depending on the liquidity points in the market at that time and also the appetite. But I think the point that you are making which is also very important here is that our ability now, if we wanted to add for example a DFI, like maybe guys that we've worked or done businesses with before, it's easier then to make them co-exist because the terms that govern the sharing of the security is already agreed and then it makes our structure very flexible and hence the point that we give it to that it's evergreen in the sense that it actually will exist into perpetuity. Yes, I was actually going to say, please explain the evergreen aspect for me. So it's got no time limit. As long as the business is around, we will use this. So what this structure does, Kofi, it really creates a single market point for secure debt to come into redefine. So that's really one of the innovative parts of this structure is that now we are able on an end-to-end basis really control the supply of our debt in the market. Absolutely. What's in it for them? So very, very, very interesting. I think it is a two-way street and we really approach it even in that way. So what is in it for our funders is really the enhanced credit profile then of our debt. He's no longer linked into a single asset pool. He's now taking the true strength of our business, which is the diversification part of our business. So if you want to think about it, if you had one property and one exposure, that really is your underlying cash flow of that property will be exposure. But if you had 127 properties generating cash flow, one property might not work, but the other 126 will work. You still from a credit point of view, it's enhancing that underlying cash flow for the funders. And that's really where also you innovate at points where you are able to give something to the lenders and also have something that benefits the long-term strategic nature of our business. Yeah. And it's interesting the time at which you are doing this. I mean, I've sat here with the CEO, Andrew Connick, and we've spoken about the tough times that the sector has gone through. And we've spoken about the performance as well. In the past, I think two years before, it's been a tough, tough time. Things are turning up. People are buying again into property and we're beginning to see a normalization, if you like. Does this give you the flexibility to be able to go out again and flex your muscles and perhaps add to the larger pool that is redefined properties? Absolutely. So the reason we did this for us is that it's part of a bigger strategic direction that we have in the business and that has been shared as well, as Andrew has alluded to it as well. But also what is very interesting is that it's also at the time where fundamentals, and you're quite right, fundamentals for the property sector are over time linked to the economic growth. And the prospects, the upside of the prospects that we see with the South African economy starting to go that way is really what is needed. And we believe that this structure supports redefined ability in the market to actually pursue its long-term growth strategic objectives. Since you're here, I might as well ask you, how are things looking? We are looking okay. And we are actually in a closed period at the moment. We will be coming out with the results in November. Okay, so you can't say much to me. But totally appreciate the landlord walking through the door. Thank you. Thank you. Thank you. That's Nontobe Nyao, the Chief Financial Officer of Redefine.

Ntobeko Nyawo, CFO, Redefine Properties joins CNBC Africa to unpack the details. 

Redefine Properties launches R27.7bn evergreen funding

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Redefine Properties launches R27.7bn evergreen funding

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