Property Flash


February 27 2024

Redefine Properties, one of the largest South African landlords by assets should maintain strong metrics in 2024 despite political and economic uncertainty, its management said on Tuesday.

The group released a pre-close update for the half-year to end-February 2024, in which it said positive operational metrics across its South African portfolio supported organic growth and delivered an operating profit margin of 78%.

Redefine owns retail, offices and industrial assets in SA. It also has exposure to residential assets in Poland through its subsidiary, EPP as well as logistics through the company ELI and is building up a personal storage asset portfolio.

“Market recovery and demand for A- and P-grade office space in South Africa continues in select nodes as a result, office rentals are gradually recovering on the back of improved activity in key nodes in Sandton,” said Redefine’s chief operating officer, Leon Kok.

“The effect of increased asking rentals is being monitored to ensure that Redefine’s rental rates remain competitive in the sector,” he said.

A couple of weeks ago, speakers at the SA Real Estate Investment Trust (Reit) conference stressed that demand for new industrial developments in prime locations was high, particularly for racked warehousing. As such, Redefine would focus on renting out rack and shelving systems to increase tenant retention and revenue.

Redefine’s investment at Brackengate 2 Business Park in the Western Cape was growing with a recently completed warehousing and complementary office space development for the Herholdt’s Group.

The Massmart DC wheeling project at Brackengate was targeted for commissioning in October 2024 – a component of the company’s strategic investment focus on resource-efficient green initiatives and creative solutions to reduce reliance on municipality supplied services and secure a stable energy supply.

Redefine’s solar PV pipeline that included installations of 27.2MWp currently in progress and feasibility studies being undertaken on future projects that could add additional capacity of 10.7 MWp of renewable energy supply.

Redefine was investigating ways to increase the efficiency of diesel usage and standby power system recoveries across all its retail assets.

High interest rates and disposable income pressures have hindered sales growth. Tenant retention and vacancy reduction are key priorities for management. Redefine is collaborating with retailers to increase exposure to essential services and value-focused brands – these occupy 37% of retail gross lettable area (GLA) and are forecast to improve to 40% in the short term.

“While Redefine’s improved operating metrics have been offset by higher interest rates, there is optimism that interest rates have reached the zenith of the current tightening cycle,” said CFO Ntobeko Nyawo.

“It is anticipated that rates will begin to ease during the second half of 2024. This would be positive for the investment return profile of our business,” he said.

Aside from interest rates, other macroeconomic challenges have also softened, such as South Africa’s energy supply crisis and Poland’s energy cost crisis. Meanwhile, Poland’s political transition is predicted to benefit the country’s economy overall and commercial real estate, in particular. This is according to Redefine.

Trough its Polish logistics platform European Logistics Investment (ELI) with an income generating asset platform valued at EUR966 million, Redefine says it is “maximising investor returns through strategic portfolio management and development”. This includes recycling non-core assets to fund new developments.

The report notes that the warehouse market in Poland is seeing green shoots of recovery after a marked slowdown in the first half of 2023, based on the expectancy of interest rate cuts in the second half of 2024.

“Regarding the Polish market’s potential, we are still optimistic. Exposure to Polish retail and logistics provides stability to our portfolio. The retail market in Poland is at the final stage of recovery from the pandemic, including sectors that suffered most (entertainment and gastronomy), which are now finally also on a growing path,” said Redefine’s CEO, Andrew König.

But uncertainty might loom.

“National and global elections, continued parastatal frailty in South Africa, and geopolitical instability are issues that we will keep our eye on. But we won’t allow these variables, which are largely out of our control, to distract us from what matters most. We simply need to remain laser-focused on the execution of our strategic priorities, to adapt to an ever-changing landscape,” he said.

König said Redefine will remain focused on conservative balance sheet management to enable sustainable growth as market dynamics continue to evolve.

“We aim to build a quality, diversified portfolio that delivers sustainable risk-adjusted returns, while investing in and transforming our human capital to enable creativity and foster innovation. In opting for the upside, the one thing we shouldn’t be surprised about is that there will be surprises in 2024 and that within each surprise lies an opportunity,” he said.

The company said it is pleased to maintain its earnings guidance distributable income per share range of between 48 cents and 52 cents.

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