August 28 2024 16:00

90 Grayston (Sandton office building)
Redefine Properties CEO, Andrew König said this week that the company’s focus on “mindful optimism” had better positioned its future. He spoke during its Capital Markets Day 2024 in Sandton, Johannesburg, on Tuesday August 27.
He said the business is positioned for growth as shifts in the operating environment, despite the persistence of economic and socio-political stresses, contributed to improved levels of confidence in the property sector, citing anecdotal evidence to support the company’s posturing.
Redefine’s property asset platform is worth R100.4bn, includes real estate assets in the retail, commercial, logistics, and industrial sectors in South Africa and Poland. Over the past five years, Redefine has changed its property asset platform by reducing exposure to multiple geographies through non-core asset disposals and reallocating capital. König said Redefine had looked to growth sectors and geographies like Central and Eastern Europe, where there was the prospect of emerging market growth at a lower risk premium.
König said Redefine’s strategy of sectoral and geographic diversification is aimed at delivering stable returns by mitigating the cyclicality of sectors and reducing economic risks and vulnerabilities in the domestic environment, such as resource and infrastructure crises that impede growth in SA.

Andrew König, CEO of Redefine Properties
“Even though the SA environment remains challenging, we are committed to the continent’s most diversified economy, which continues to demonstrate resilience in the face of adversity,” he said.
Redefine’s South African portfolio benefited from an active asset management strategy to transform it to a defensive portfolio of high-quality assets that is well diversified, according to COO Leon Kok. He said that most of its operating metrics had stabilised and were well positioned to deliver organic growth.
“Take, for instance, the Western Cape’s office sector, which was engulfed in a perfect storm of oversupply, tepid economic growth, and the rise of remote work. Today, office space is in high demand and facing a stock shortage, with the city recording a 20% increase in market rentals over the past few months. This shift is driven by the growing popularity of business process outsourcing, the semigration trend, and the return of businesses to physical office settings,” Kok said.
Nationally, the number of vacancies in the office sector has fallen for eight quarters running. The most recent data from the SA Property Owners Association (Sapoa) for the second quarter of 2024 showed a decrease to 14.2%, which was 2.5% below the high point for office vacancies and falls in line with Redefine’s vacancy rate for the 2024 financial year.
National asset manager for office, Scott Thorburn said the demand for quality A- and P-grade assets, which comprise the majority of Redefine’s office portfolio, bolstered the occupancy rate to 87.8% for the 2024 financial year. According to Thorburn, the rise in market rentals observed in stronger nodes in Johannesburg and Cape Town would help to ensure sustainable and robust returns as the office sector recovers.

Alice Lane (Sandton Office Building)
Redefine has seen positive rental reversions in the retail space, indicating that the industry has turned the corner and is about to enter a growth phase. According to Redefine’s National asset manager for retail, Nashil Chotoki, the retail portfolio’s sales and overall turnover have surpassed pre-pandemic levels. The company expects this growth to continue, driven by its expanding exposure to clothing and necessities, as well as by a potential drop in national interest rates, which would increase consumers’ disposable income.
Along with the sector’s encouraging operational performance, König said that reduced political uncertainty following the formation of the Government of National Unity, a strengthening currency, and advancements made since the launch of Operation Vulindlela in 2020 to address long-standing constraints related to electricity supply and the availability of digital spectrum have all contributed to improved confidence levels in the real estate market.
“The emphasis now needs to shift to addressing the country’s inefficient freight logistics system, the deteriorating performance of local government, and ageing water infrastructure that is impacting supply networks. The new resource challenge is limited water supply, and this is a difficult matter to manage,” he said.
With further major water outages expected due to scheduled maintenance and ongoing infrastructure issues, Redefine is planning to get ahead by executing a water resilience strategy focused on reducing water consumption and on developing additional storage capacity. This strategy aims to provide up to a five-day buffer in certain buildings, increasing their water security in case of a major outage.
Electricity supply has improved significantly, which König said is “confidence-boosting and translates into significant savings for a business like Redefine”, which was previously burning through hundreds of thousands of litres of diesel to supplement energy supply, with those costs having to be shared with tenants.
Strong focus on efficiency, cost reduction supports organic growth
Despite domestic headwinds and administered costs growing faster than rental income, CFO Ntobeko Nyawo said Redefine maintained good operating leverage. Nyawo said the group’s 75.3% net operating profit margin was “a remarkable achievement” given the circumstances and an excellent demonstration of the emphasis on cost containment and efficiency.
“Energy costs continue to drive up operating expenses, but the deployment of solar PV as part of our priority to maximise efficient natural resource consumption is generating cost savings. This, along with other cost-saving initiatives, such as disciplined cost containment while growing revenue, is yielding stable operating leverage,” he said.
Redefine has made strides in sourcing capital, as evidenced by the R15.6bn in green funding it has raised since 2022. This has transformed the group’s funding profile, with 35.3% of group debt now linked to green finance. This promoted the long-term decarbonisation of buildings, which Nyawo said have become more desirable and drive higher value due to reduced operating costs and the systemic risk linked to climate change.
“The business has remained cash-generative, with collections across the Group remaining healthy in both the South African and Polish portfolios due to this efficiency drive and focus,” he said.
Nyawo said Redefine’s balance sheet was stable and would continue to be managed conservatively to sustain growth as market dynamics change. The expectation that interest rates are shifting to a cutting cycle is significant, and a 25 to 50 basis point cut will lower finance costs and support share price growth, enabling the company to consider capital retention opportunities through the dividend reinvestment programme.
Redefine has maintained its earnings guidance of distributable income per share at 48c to 52c for the 2024 financial year.
247@propertyflash.co.za