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Edited Transcript of RDF.J earnings conference call or presentation 4-Nov-19 11:00am GMT

Full Year 2019 Redefine Properties Ltd Earnings Presentation

Johannesburg Nov 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Redefine Properties Ltd earnings conference call or presentation Monday, November 4, 2019 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Joseph König

Redefine Properties Limited - CEO & Executive Director

* Leon C. Kok

Redefine Properties Limited - Financial Director & Executive Director

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Presentation

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Andrew Joseph König, Redefine Properties Limited - CEO & Executive Director [1]

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Okay. Good afternoon, everybody. Welcome to Redefine's results presentation for the year ended 31 August 2019. I've just got an apology from our Chairman, Sipho Pityana, who's unfortunately at a far more important meeting. He's sitting with RDF President at the moment. So hopefully, they develop deliberations that actually make for some fantastic outcomes for us. Also, I want to just mention to everybody, we've got a lot of nonexecs with our executive directors here today, and I just wanted to introduce you to them. In the front here is Amanda Dambuza. Next to her is Ntombi Langa-Royds. Next to her is -- nonexecutive directors, nonexecs. Next to Ntombi is Lesego Sennelo. And then next to Lesego is our newest recruit, Daisy Naidoo. I think Bridgitte Mathews is lurking somewhere in the crowd over there. Bridgitte is our Lead Independent Nonexecutive Director.

Okay, so without further ado, we're going to launch into our results presentation. Redefine follows an iterative approach to making strategic choices, and it's centered around 5 strategic matters: to grow reputation, invest strategically, optimize capital, operate efficiently and engage talent. And with that comes strategic objectives. For growing reputation, it's living our purpose. Investing strategically, it's creating sustained value for all our stakeholders. Optimizing capital means that we want to secure capital in a constrained and costly environment. Operate efficiently is adapting to a low-growth rising administered cost context, where our principal focus is around maintaining operating margins. And last, but very importantly, engaging talents is where we look to harness our people's skills, the abilities and the attitude. And today's presentation will follow this sequence that we have got outlined over here.

So looking at growing reputation, our strategic response is placing people at the heart of what we do. Some key outcomes for 2019, just looking at the environmental side, first. I think just to contextualize our solar PV fleet, which generates about 5% of our electricity consumption, that's equivalent to taking 6,300 passenger vehicles off the road, just to put it into context. We are looking to expand our waste management to office buildings as part of our Green Star program. But if you look at the bottom of that chart there, where we are looking at the impact in terms of return on investments as well as environmental benefit of all the environmental initiatives that we've got. You'll see that waste recycling actually features in the wrong block, which is low return on both fronts. And that's quite a challenge for us, working with our tenants in terms of promoting waste management.

In terms of water, I think all of us are really focused on water at the moment as a scarce resource. For us, unfortunately, we can't make water. What we can do is influence behavior around consumption and making sure that we are responsible in terms of detecting leaks, also making sure that those of our tenants who are wasting water, we are able to monitor and point out to them through smart metering and the like.

In terms of social, we've got 2 awards of many that we were awarded during this period. We got the Solal Award for innovation challenge from the International Council of Shopping Centers. And at Centurion Mall and Kyalami Corner, we won gold at the Footprint Marketing Awards for 2019.

In terms of the second challenge convention at Maponya Mall, we engaged with 233 stakeholders. In terms of governance, our Board independence has vastly improved over the past while, especially now with the addition of Daisy Naidoo to our Board. 88% of our nonexecutive directors are independent, and 50% are female. So we've got a diverse Board, somebody with the skills that we've come together as a collective one.

In terms of our Excellence in Integrated Reporting for 2019, unfortunately, we were third this year for the past -- or the previous 2 years, we came second. So internal challenge to Leon and all the others who are involved in this process, we want to see, #1, please, next time we meet.

In terms of IT governance standards and aligning IT services, that's an ongoing process where we are looking to embed our different systems to ensure that we address current and future business needs.

Just looking ahead for growing reputation. For 2020, we want to safeguard our brand. As you know, one moment of madness undoes all the hard work we've done. And for us, it's absolutely imperative that we strive towards supporting and protecting and growing our brand at every opportunity. Remaining relevant to all our stakeholders is top of mind, and so is a heightened focus on ESG.

From an outcomes point of view, we would like our stakeholder perceptions to improve, and we want to embed our ESG considerations in every aspect of what we do.

Moving on to investing strategically. We want to position our core portfolio to withstand the prevailing conditions.

So just looking at outcomes for 2019. Our property assets under management total ZAR 95.4 billion. During this year, we deployed ZAR 6.9 billion. Our offshore expansion totaled ZAR 4.3 billion, of which ZAR 3.6 billion was invested into Poland.

On the local front, our development activity totaled ZAR 2.4 billion. So it was not the case that we only focused offshore, it was looking at all our well-located existing properties as well. And we've got a video clip to demonstrate exactly what we mean by that.

Unfortunately, our net tangible asset value per share has declined $0.33 per share. I will unpack that in a lot more detail in a few slides to come.

Looking at our local portfolio profile. You'll note that our carrying value is ZAR 73 billion, I'm rounding up. It's roughly about 76% of our total portfolio. The bulk of our assets are located by value in Gauteng at 73%, followed by the Western Cape at 18%. We've maintained a retail bias at 40%, followed by offices at 36%.

In terms of highlights for 2019, the capital growth of the active portfolio was up 3.3%. Our average value per property continues to grow at ZAR 236 million. We completed developments of ZAR 2.7 billion during the year, and we've got a further ZAR 340-odd million in progress at the moment, the biggest one of which is 155 West Street here in Sandton. There have been disposals during the period, totaling ZAR 1.4 billion. We are quite pleased with our active vacancy of 5.1%, slightly up on last year of 4.5%. But in the circumstances, we believe that is a fantastic outcome.

In terms of total letting, you'll see that we let a total of 842,000 square meters. Now that is no mean feat, given that most of the listed counters total GLA isn't even that number. Tenant retention is maintained at a very healthy 93.3%.

In terms of our retail portfolio. I'll just touch on some of the highlights here. I think trading density growth of 3% in the circumstances is good. Our vacancy at 4.6% is healthy, slightly up 10 bps on last year 2018.

Our footfall growth slightly down, 1.8%, but development activity played a big role in that number. I think in the year to come, we're going to see that going positively.

Rent to turnover at 8% is healthy. It's under what we believe to be -- from an affordability point of view, it's a healthy 8%, slightly up on last year at 7.9%. Tenant retention, 94%. That speaks to our brand and delivering consistently on our promise to our tenant base.

Rental reversion sitting at 1.8% for the year.

Completed developments and redevelopments totaled ZAR 959 million, the biggest one of which was Centurion Mall.

Edcon exposure. We continue to reduce our exposure on an ongoing and active basis, and during the year, we reduced our exposure to Edcon by a further 11,500 square meters. And this last point here, renewal success rate by GLA of 72%, that's been put in the presentation to be comparable to the growth point renewal success rate where they were complaining that Redefine's retention rate borne a resemblance to their measure. This is, I'm told, reliably an accurate calculation in line with this. If anyone wants to compare, here's your opportunity, 72% and we're very happy with that.

Moving on to offices. Our active vacancy, as you can see, is at 10.2%, slightly up on 2018 of 9.5%. Our retention by GLA at 91%. We're very happy with that. We target internally at least 85%. Renewal reversions also minus 2%. We're very happy to report that during the period, we were able to increase our number of Green Star rated buildings to 74. In the new year, another 20 will be added to that. And I've challenged the guys to make it around 100 by the time we speak again.

Solar PV, we're going to roll out some more in this area, 2.4-megawatt peaks. WeWork, I think, has been a very topical issue of late. We have installed WeWork at Rosebank Link. They've been in since September and projections are that by January, they will be fully occupied in the premises. We've looked very carefully at their business. And I think the biggest surprise for me was the fact that hot desking is a very small part of their business, they're actually a competitor of ours, and most of the household corporates are their target market as well.

So the bulk of their space is filled by known brands to all of us. And in the event that there were to be a situation where WeWork would collapse financially, we believe we could take over those premises that are fantastically located, well-fitted out and very well tenanted. So in all, we believe it's a small risk for Redefine as the landlord.

In terms of completed developments, that total ZAR 1.3 billion. The 2 biggest developments would have been Rosebank Link, that was completed, as well as 2 Pybus here in Sandton or alternatively called the Advocates.

Okay. Just moving on to our industrial portfolio. As you all know, the industrial sector is more defensive than the other 2 sectors. Our active vacancy sits at 1.8%. We've made some small acquisitions during the period of ZAR 135 million. I think something just to point out is tenant credit risk. It definitely is on the increase. It would seem that every year, we have a casualty. This year it was Robor. The year before it was Le-Sel. And naturally, I think the question would be what about Macsteel if Robor is a casualty? I would like to just suggest that Macsteel is slightly differently positioned to Robor. In that Robor was a manufacturer and was competing with cheap imports and challenged on the export front with all the trade tariffs out of the U.S. And in Macsteel's case, they're a merchant. So a slightly different business. I would suggest, yes, everybody is taking strain at the moment, but then lesser than the case would be with Macsteel.

In terms of renewal success rates, sitting at 66%, tenant retention at 94%. Renewal reversions at minus 3.6% seems high, but I must just remind you that when we stood here 6 months ago at the half year, it was sitting at a negative 17%, and that was because of 2 leases that have come up for maturity. And of course, that 17% negative and it's averaged out now to 3.6%.

In terms of infrastructure projects, this is at land located at S&J, Brackengate and Atlantic Hills, you'll see that significant expenditures going into infrastructure to ready those properties for development. I'm going to play a video now.

(presentation)

Okay. So I'm sure all of you will agree with me that this AV demonstrates that we are still investing in South Africa, and we are leveraging off our existing well-located properties in the process.

Okay, just moving on to alternative investments. We are looking to diversify on an ongoing basis, our income streams. It's got 3 parts to it. The first is local student accommodation, which, as you can see, we've got a bed capacity currently of 8,378. We've got effectively 2 projects that are on the go, which are subject to zoning holdups at the moment. The first is at Yale Village, 196 beds. That's in Parktown. And then in Pietermaritzburg, we want to expand by a further 538 beds.

In terms of loans, sitting within our ZAR 1.9 billion is our exposure to Delta's shares through a loan to a BEE consortium called Cornwall Crescent. We'll touch on it in a short while. So I won't talk about Delta just yet.

In terms of high-yielding income streams. Here, we're looking at expanding our solar PV fleet. We are also looking to leverage off our properties in terms of LED screens. Alice Lane, by the way, has our best-performing screen in the portfolio. And just to put it in perspective, you're looking at about a 1-year payback on that investment, given the income that you get of that kind of situation. They aren't all as good as that, it ranges between 1 year and 36 months.

Oando Wings also sits in here, and I'm pleased to report that we have concluded a transaction, which is just subject to a couple of processes, which hopefully will translate into us being out of asset in Nigeria.

Just moving on to our international property portfolio, totals ZAR 22.6 billion. As you can see, ZAR 12.6 billion thereof is invested into listed securities. We've provided you with our proportional share of debts and assets, and I think the important number here, obviously, is our see-through LTV at 51.7%.

In terms of geographic split. If you recall, we always use to have roughly 1/3 split between Germany, U.K., Poland and Australia. You'll see that, that is shifting significantly towards Poland at 70%, and the U.K. shrinking down to, as you can see at the moment, about 12-odd percent.

In terms of our international portfolio highlights. We invested ZAR 3.6 billion into Poland. A big chunk of that went into our logistics platform. Our EPP investment is doing okay. It had NAV per share of EUR 1.33, bearing in mind in 2016 when we listed, it was about EUR 1 per share NAV. So we've seen quite a substantial uplift there in net asset value per share along the way.

We did sell our interest in GRIT during the year, and our Leicester street facility in Australia, that's in Melbourne, achieved 97% occupancy in its second semester of this year. And it's already sitting with 50% bookings for next year. So we're hopeful that this product is exceeding expectations going forward as well.

RDI, you'll see impaired by ZAR 266 million. And then in terms of our exchangeable bond, that totals a ZAR 150 million, you'll see that ZAR 32.8 million thereof was redeemed in September. We were anticipating the full ZAR 150 million to be redeemed only as you can see there roughly 30-odd percent with their shares to us.

In terms of our European logistics platform. You'll see that the value of the income-producing assets sits at just under EUR 300 million, at EUR 295 million. Under construction is about EUR 64 million. We've added about a 130,000 square meters of GLA through developments activity. It now totals 444,000 square meters. And you'll see that the weighted average lease expiry is moving upwards to 4.5 years. It was in the 3s when we last reported. So the leasing activity certainly helped move it in the right direction. Active vacancy sits at 16% as at 31 August. But bear in mind, as we stand here today, it's actually 8.5% has been letting since.

We, during the period, also completed developments of ZAR 75 million. And very importantly, although we want to grow this platform, and as you know, we are challenged when it comes to equity and -- or capital, I should say, we are at an advanced stage of introducing an equity investor into this platform.

Just in terms of protecting our net asset value, there are 3 pressure points that have given us a lot of sleepless nights. It's RDI REIT. I call it Delta, but it's our loan to Cornwall Crescent and in our Oando Wings.

And in terms of Delta and Oando Wings, I'll deal with the easy ones first. Delta, we are working very closely with the Cornwall Crescent team to restore some of the lost value. I know that there is a possible merger that's being suggested between the Rebosis and Delta. At this stage, having not been consulted as a significant stakeholder within Delta, we're not too sure of the key terms of a possible merger. So it's very difficult for us to comment on it other than to say, based on what we know, it isn't a deal we could support. Perhaps there is something there that we don't know. So we just have to caution everyone to say that we don't actually know what the proposed merger is. If someone knows, please share it with me. That would be fantastic to understand. So I look forward to hearing from whoever knows.

In terms of Oando Wings, I already told you. We're at an advanced stage of selling our asset there to Growthpoint Investec African Property (sic) [Properties] fund for shares in that fund, and we believe it is far better being exposed to a diversified fund than being exposed to a single asset where we have no management presence in country.

In terms of RDI REIT, we're working very closely with the Board of RDI to go through any option available to us to see how we can restore and also protect the last -- well, firstly, let's stem the losses and then let's pullback some of -- or recover some of that lost value in the process that will, in all likelihood, mean that Redefine will need to be invested for the medium term. There's no ways we can just simply sell out, not at whatever price, not at current pricing, certainly. We can't monetize the significant loss of ZAR 2.2 billion at this stage.

Just in terms of capital allocation priorities, we thought we'd put in the slide to give you an idea as to where we want to be focusing our capital allocation going forward. And clearly, you want to play in that top right-hand block, which is to ensure that you get high-income growth as well as long-term value creation potential of significant proportions.

So European logistics platform, we believe, provides that opportunity. Australian student accommodation expansion, similarly. Some local industrial developments and then also student accommodation developments as well. And then as you can see, in terms of enhancing -- or protecting, defending and improving, there is an element of capital expenditure also allocated to those aspects, which is necessary if you're building a sustainable business.

Just looking ahead in terms of investing strategically. Our focus here in South Africa will be on quality. There is flight to quality in these trying times of ours. Offshore expansion will be through development activity, principally European logistics and also Australian student accommodation. And there's a lot of focus around restoring value of underperforming assets. The anticipated outcome is, obviously, to grow our offshore logistics presence. But very importantly, we want to, as a target, lift our net tangible asset value per share by 6% on an annual basis. What I've also provided here is a kind of a look into the future, say, 3-plus years as to where we want to take our portfolio, and you'll see that what we want to create is a platform that is simplified, focused and significant in each of its sectors and geographies in which it operates. And I think this will, hopefully, please a lot of you who are doing the modeling because we want to simplify your lives and also that of our finance team.

Just looking at optimizing capital, our strategic response here is to lower our LTV ratio and also to conserve equity to strengthen the balance sheet.

If we look at key outcomes for 2019, our average cost of debt has declined by 50 basis points to 5.8%. That's group, it includes international as well as local debt funding. Our interest cover ratio is at a healthy 4.3x. We have implemented a dividend payout policy. I will talk a bit about that in due course. And then very importantly, we've hedged 87.3% of our debt book for interest rate fluctuations. And lastly, our loan-to-value ratio sits at 43.9%. It is higher. It's outside of our comfort zone. And once again, I've got a slide explaining how we are going to be addressing this very issue.

Just in terms of our currency analysis. I think what's important here is that what we try and do is we try and match our currencies from an asset point of view and a debt point of view, I'll just point out 2 glaringly obvious issues here, and it's around our pound and our U.S. dollar exposures, both of those will be remedied in due course.

And I think it is a temporary situation. But once again, I think it is a sobering one in that when you are adopting a 100% gearing in a foreign jurisdiction, and you have a falling out of value, you can end up in a dire situation, such as with our British pound. But in the bigger scheme of things, that's quite small, and it can be rectified in due course.

Just looking at our funding snapshot. I'll just draw a few points here to your attention. The first is, if you look at from a debt funding source point of view, we've been very active in terms of our local listed bonds, commercial paper as well as in the unlisted space from a bond point of view. That's where all the additional debt funding has come from. Our loan-to-value ratio, I've already pointed out. And then very importantly, we have undrawn facilities that total ZAR 5.6 billion, that is available on demand. And then once again, our interest cover ratio. I think very importantly is the Moody's investment credit grade rating. As we speak here, it's intact.

However, I need to caution everybody given that the sovereign rating has been moved from a stable to a negative outlook on Friday night, it is only natural that we will follow. So we understand that Moody's will be meeting to discuss Redefine's rating on Tuesday, tomorrow afternoon. And I would imagine that we would follow suit in line with what the sovereign rating has done over the last few days.

Just in terms of lowering our LTV. We have got a multi-pronged approach to reducing our loan-to-value ratio. We can't hitch our wagon to one star in this market, you have to come with plan A, B, C, and D and perhaps a couple of others, too.

So first and foremost, selling noncore assets to realize ZAR 8 billion. I've got a slide on that. I'll talk about that. We are introducing, as I mentioned earlier, an equity invest into our European logistics platform. And that is not to sell our equity, it's to introduce a provider of equity. So we will remain invested there, that we will be invested into a bigger portfolio in due course.

We are limiting speculative capital expenditure going forward. I think it's only responsible to do that in this environment. We are placing our bolt-on acquisitions. We are not saying no to any acquisitions. If one really makes sense, we'll find money somewhere. But I think we're going to be a lot more discerning with our capital deployment. Our dividend reinvestment program for this period was considered to be inappropriate given where our share price sits. We have introduced a dividend payout policy, I'll explain that. And then as I mentioned earlier, we are working very hard on restoring value of our underperforming assets.

Just in terms of our payout policy. We believe that the introduction of a dividend payout policy provides a third source of funding. And the funding that we're holding back is to fund operational capital expenditure. It will be reinvested into the business. So it will -- from an investor point of view, it is not lost. It is going straight back into the property asset base. And this allows for us to raise equity without diluting net asset value. And the payout policy, we believe, is appropriate, if you are to be running a sustainable business for the long haul. And it aligns us to international norms as well. I must add that the level at which we've positioned the payout policy poses no tax leakage to the investor or Redefine as a consequence of holding back on this distribution.

And just to explain, we've taken ZAR 200 million, which is half our operational capital expenditure and held that back, it totals ZAR 200 million. In cents per share, that translates into roughly ZAR 0.037 per share. So in terms of the dividend that we've declared for this half, it's ZAR 0.481. In terms of distributable income, it was ZAR 0.518 per share. So that gives you the ZAR 0.037 per share that is being retained or ZAR 200 million, if you like.

Now that we will implement next year at a similar level. And going forward, we will assess it in relation to our operational capital expenditure. We will always provide you with details of this calculation. So it won't be a method of smoothing, if you like, distributions going forward in terms of playing with the payout ratio.

Just in terms of realizing value from the sale of, and I must stress noncore assets. These are not secondary assets. So these assets will fetch market-related prices. On the local property front, we are looking to sell, hopefully, 1 maybe 2 properties, totaling ZAR 1.5 billion. There's a bit of a work in progress there, given that we want to sell an asset or 2 without deal risk. So these will be strong assets that we will be selling here.

Respublica, in our view, can't grow into a significant sector within the Redefine stable, and this is on a relative basis. So we believe it's a prime candidate for disposal, that's ZAR 2.5 billion. Student accommodation in Australia on a completed basis, we anticipate would yield ZAR 3.3 billion of gross proceeds. And with that, we'll be able to free up our Cromwell shares at 60 million shares that are trading at an all-time high at the moment. That's roughly ZAR 700 million. That gives us the ZAR 8 billion in terms of what we are looking to dispose.

Just looking ahead. It goes without saying that we want to rightsize our asset footprint to our constrained capital base. We have introduced the dividend payout policy. It will play out into the new year as well. The anticipated outcome is that we want to reduce our LTV back to a comfort level between 35% to 40%. And our hope and our pray is that these actions will translate into an improved forward yield as a byproduct of all the actions that we are undertaking as well.

Just looking at operating efficiently. Our strategic response here is to deliver quality sustainable earnings.

In terms of key outcomes, very pleased to report that our operating margin at 83.2% is maintained in line with the prior year. We renewed 454,000 square meters at a negative reversion of 2%. In the circumstances, we believe it's a very good outcome. Our occupancy at the moment at 94.9% is still healthy. Our tenant retention rate 93%, it's fantastic. Our solar PV capacity has been increased, as I said earlier, in terms of 6,300 vehicles, if you like, or 23.7 megawatt peaks, if you want to know the technical aspects hereof. And extremely importantly for us, and this is a trend we want to see going forward, is that recurring income has grown by 6.6% during this period. And that is going to be a core focus of us going forward in terms of delivering quality, sustainable earnings.

Just in terms of financial highlights. I think there are 2 firsts here for Redefine. The first is our distribution. It's actually distributable income per share not distribution, is ZAR 1.01, that's breached ZAR 1 per share. It's the first time. And the other very important one is that total assets now exceed ZAR 100 billion at ZAR 102.7 billion.

If you look at our international distribution, it contributed roughly 27% of our total distribution. Bearing in mind, it is punching above its weight, given that the assets on a relative basis, value wise, is about 24%.

In terms of our operating cost-to-income ratio, very healthy at 16.9%. And if you just look at our local net property income increased by 5.4% on a like-for-like basis.

Just moving ahead in terms of our simplified distributable income statement, I just want to point out here the challenging times for us here in South Africa. Our income grew by 0.8%, and we had a boost from offshore growing at 17% to give us our overall distributable income growth of 4.7%. And as I said earlier, that the recurring distributable income growth of 6.6% is fantastic. Roughly 6% of our distributable income was from nonrecurring sources.

Just in terms of contributors to the growth in distributable income per share. If you just look at the top 4 contributors there, 3 of them are offshore, 1 in South Africa, ZAR 243 million. And if you just look at what reduced or headwinds, the distributable income or where the pressure point was, it's mostly out of RDI, where there was a decrease of ZAR 78 million from an income point of view. The others were disposal activity, so there would have been savings on finance costs and the like.

Just in terms of the active, this is a South African local portfolio. What's very important here is the cost containment at 4.6% in relation to the income growth of 5.2%. That is a relentless focus on every cost that we can control. Now bear in mind, electricity and rates and taxes are administered. We have no control over those. We have got some influence, but no real direct control over those cost increases on a per-usage or a per-item basis. So very important to manage how you use it, how you recover it and perhaps also through solar PV and other interventions we get efficiencies along the way to maintain that margin at 83-odd percent.

Just in terms of net asset value per share. I'm going to single out the drivers of the ZAR 0.33 per share decline, and I'm going to focus on the far right-hand side to RDI, shrinking back ZAR 0.118 per share, EPP 8.4, that was, to some extent, exchange rate related as well as the NAV declining from EUR 135 per share to EUR 133. Our investment in Wings, we wrote down to what we believe is the realizable value now and then also the sale of GRIT of 600 -- sorry, ZAR 0.6 per share.

Okay. Just looking ahead, we're going to have to look at a number of situations here to ensure that we broaden our sources of income. We can't rely on the top line to get growth. But very importantly for us is a focus on organic growth, expanding our non-GLA income sources. They grew by 16% this year. We hope to do the same next year. Rolling out solar PV will continue. For active utilities management is an ongoing challenge for us, and then unlocking procurement efficiency is very, very important for us, and we've already started making progress in that regard.

Anticipated outcomes. They sound pretty small, but they are significant. And maintaining our active portfolio margin at 83% will be a very, very big task for us to achieve. And then significantly reducing our nonrecurring income. That is an ongoing focus for us.

Just in terms of engaging talent. Here, we're looking at our strategic differentiator, that's our people and instilling a culture of operational excellence is our strategic response.

Over here, we are very happy to report on the people front that 200 learners will be complete -- would have competed, I should say, our learnership program since 2013. Business processes are being restructured to enable service excellence. That is a continuous process. We have been certified as a top employer. And I think very importantly for us, we don't know what the future holds when it comes to the jobs of the future. So for us, it's focusing on people and not necessary jobs, which is the key to sustainability. And what's absolutely important is the competencies of our staff, and we continuously remind them that critical thinking, creativity, collaboration and communication are all choices. These are not things you are born with. You can choose to do them, and you will be guaranteed of a role in the future. What that will be, we don't quite know.

Very importantly, our staff are highly engaged. An engagement survey reveal that 80 -- score of 87%. It's well above the international and local benchmarks. And extremely importantly for us is transformation across all levels, that is in progress. At senior level, we've got a lot of work to do, and we've taken on board that challenge.

Just looking ahead, instilling a culture of innovation and accelerating transformation are top of mind issues for us. And here, we are looking from an outcome point of view to maintain our engagement levels and improve transformation across all levels as well in the business.

In terms of outlook. I think where we stand today, it feels very much like 1995. I think the World Cup came at just the right time for all of us. It was a welcome respite from all the negativity and the bad news that all of us have been smothered with in the media. So picking up yesterday's newspaper was actually a very welcome and refreshing read because for a change, there was absolutely fantastic news everywhere. And I think it was so overwhelming that the bad news from Moody's got papered over in the process.

Now I think confidence starts with the little things. And hopefully, the World Cup is going to start turning our fortunes for the better. I think, as a nation, as corporates and just as individuals, we all need a boost. So I think '95, here we come. We were also at an economic crossroads, and hopefully, the cattle prod for some action is going to come as a consequence of the Moody's threat. We've got 3 months to do something. So hopefully, we are going to see some action now.

So for us, our immediate focus is to reduce our balance sheet risk. We will be delivering sustainable quality earnings. We've already seen it start with recurring income growth of 6.6%. We are adopting operational excellence in terms of the way in which we approach everything at Redefine. Living our values to protect and grow reputation in every situation is something we stress continuously.

It takes one slippage to tarnish on that and we are aware of that. And then lastly, placing people at the heart of what we do.

In terms of guidance for 2020, I need to be absolutely clear here, because I think in our endeavors to comply with JSE speak and the like, we may have inadvertently confused people. So I'm just going to explain exactly what we mean. When we say we will anticipate distributable income per share to be in line with 2020, just to make it clear, we delivered in 2018 distributable income of 0.97 cents per share, I'm talking about 2018, and we distributed 100% of that. So we distributed 0.97 cents per share.

In 2019, we delivered distributable income of ZAR 1.01 per share. We have distributed 0.97 cents per share. And the reason for that was that we've retained, as I said earlier, ZAR 0.037 thereof. I'm just rounding it up to, ZAR 0.04 to make it 0.97 cents. Now for next year, we will look to be achieving distributable income per share of ZAR 1.01 cents per share, but we will have a full year of retaining a dividend of, let's just say, roughly 7% to 7.5%. So in cents per share's term, you're probably looking at a distribution per share of 0.94 cents per share for next year after the full implementation of the distribution of the dividend payout policy. So just in percentage terms, if you just look totals versus last year, 0.97 cents was distributed in 2018. We're delivering the same this year. So it's 0% growth. And then going into next year, if you have a look at it, it's roughly a 3% negative growth in terms of distribution per share.

With that, I thank you for your attention. I'm happy to take any questions with my colleagues, the executive directors and I'll introduce you now to them. It's Leon Kok over here, David Rice and Mike Ruttell, who's with me. So if there are questions in the audience, we will take some online first. If you don't have any questions, happy to talk to you afterwards as well.

Okay. Thank you very much.

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Questions and Answers

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Andrew Joseph König, Redefine Properties Limited - CEO & Executive Director [1]

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Okay. So -- okay, this question is from Louis Kruger from 36ONE Asset Management. And his question is, who would be parts of the SA portfolios you're looking to sell given the size of those assets?

Okay. So Louis, just to explain, firstly, the -- we have got -- we don't want to go and mention the assets and -- but we are trying to put people together with the assets. But just on the local students accommodation front, we believe that it would be a club of investors that would most likely be the purchasers of these assets. And I think I have answered your guidance in terms of payout ratio, Louis. If not, please, can we take it offline? Because I think I was quite clear. I don't want to go on and repeat myself in terms of how we arrive at it.

Has anyone got any other questions? Because that was the only question, so...

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Unidentified Analyst, [2]

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Mr. König, the slide that's up on the screen and the one immediately before, I'm grateful to you for being quite truthful about your expectations in the immediate future. The current report shows that total revenue was up by ZAR 350 million approximately. But that was virtually immediately negated by a similar increase in operating costs and administrative costs. But to add to those problems, your interest-bearing debt -- interest-bearing levels are now up by approximately ZAR 5 billion, which means that the interest expense item will go up from the present ZAR 2.5 billion to closer to ZAR 3 billion. In addition, the current liabilities, which stand at ZAR 4.5 billion, meaning that you have to repay them within 12 months, cannot be repaid at these levels within 12 months. Does this mean that you will have to renegotiate with the lenders to get extended repayment terms?

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Andrew Joseph König, Redefine Properties Limited - CEO & Executive Director [3]

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Okay. So I won't let Leon just answer that just yet because it's a pretty convoluted question there. But I just want to set your mind at ease that all near-term debt facilities have already been renewed and extended. So we don't have any liquidity pressures at this point in time. But Leon, if you want to be a little bit more clear on it.

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Leon C. Kok, Redefine Properties Limited - Financial Director & Executive Director [4]

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Yes, sure. Especially, if you look at the current liabilities, which you're quoting there, roughly ZAR 500 million -- odd million is shown is that the 22% book of the exchangeable bond, which was shown as short term. Now that has been settled at -- in September with use of overdraft facility. So rest assured, we do not have any other facilities there to be concerned about, that we will have to renegotiate in the repayment terms or such like.

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Unidentified Analyst, [5]

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Okay. To come back to the point, Mr. König, as this slide -- the second last slide has got a subheading that letting reshape by low levels of confidence and subdued economy demands a broader source of income. I agree entirely with that. And the main item there is focus on organic growth. But to what extent can a focus on organic growth, organic growth, allow you to increase your revenue?

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Andrew Joseph König, Redefine Properties Limited - CEO & Executive Director [6]

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Very challenging, as you know, in this environment, but what we are saying is we're leaving no stone unturned. So it's -- I won't say -- to use a cliché, it's a back to basics for us. But we are encouraging every part of our business to turn over every opportunity and relook at and see how we can be innovative in our thinking. In those markets, you can't come with one approach. You have to think out of the box.

Thank you. Anyone else who's got any questions? We are available afterwards.

Thank you very much for your time and your attention. And we hope to see you soon with far better outcomes than today. But rest assured, we are relentless in our pursuit of our strategic objectives. Thank you.