WORDS: DEBBIE HATHWAY :: PHOTOS: SUPPLIED
SA-based REIT posts strong interim results underpinned by a well-diversified asset base and healthy balance sheet
Redefine Properties’ recent interim results announcement of an increase in distributable income by 7.2% to R1.6 billion for the six months to 28 February 2023 is the highlight among a string of successes during a period plagued by load-shedding, inflation, rate rises, poor public infrastructure and crime. The company’s solid operational performance is thanks to a focus on quality and creating a defensive foundation, according to COO Leon Kok. “The doomsday scenarios predicted by many people at the height of Covid certainly have not materialised, though we need to remain astute and vigilant in the face of persistent challenges,” says Kok. “We have worked hard to get the basics right and focused on the variables under our control while delivering on our purpose. We are poised for organic growth in the eventual upward market cycle.”
Sandton
DIVERSIFICATION PAYS DIVIDENDS
Redefine’s diversified property asset platform is now valued at R94.1bn –up from R88.9bn in 2022, and its offshore component of retail and logistics property assets in Poland is valued at R34.7bn. CEO Andrew König says the consolidation of EPP –the largest asset manager of retail real estate in Poland in gross leasable area –contributed R272 million to distributable income. A corporate reorganisation of EPP in March 2022 saw Redefine take a 95.5% shareholding in line with its strategy to increase exposure to the Polish retail sector. That business has been stabilised and resumed paying dividends. “We are pleased with the way the integration of EPP into the Redefine family has taken place and remain confident about the potential in the Polish market. For instance, vacancies in the EPP stable remain less than 3%, indicating healthy demand despite the ongoing negative news coming out of Europe,” he says.
Other highlights in the period include restructuring the ownership of Redefine’s 11 remaining government-tenanted office properties, strong inflows from green bond issuances indicating a growing interest in environmentally sustainable investments, and continued expansion in the ever-increasing logistics market in Poland. Notably, Redefine has begun building a scalable platform in the underdeveloped self-storage sector in Poland. The initial acquisition of 51% of Stokado has been concluded. Moreover, Redefine could increase its equity holding to 75% within three to five years, signalling a long-term commitment and confidence in the sector’s prospects.
Rosebank Links
GOOD ORGANIC GROWTH
CFO Ntobeko Nyawo says a very healthy cash position has supported a payout ratio of 85%, which equates to an interim dividend of 20.32 cents per share. “Good organic growth in our active portfolio, consistent cash collections, diversified funding, maintaining our loan to value within our medium-term range of 38% to 41%, and the hedge against the weak Rand provided by our offshore exposure have all combined to help us navigate the current volatile external conditions,” he says. Redefine is reaping rewards from its leading position in the ESG space, where it was the first REIT in SA to be awarded a net zero carbon level 2 certification for three properties. Apart from the benefit to the environment and support to tenants, Redefine’s green investing strategy has seen R3.2bn coming on stream through use-of-proceeds green bond issuances, which large institutional investors and the International Finance Corporation supported.
Meanwhile, the tenant retention rate by gross monthly rental was reported at a healthy 96.6% from 95.2% previously and a further 160,076m² was let across the portfolio. “Our office portfolio, for instance, is seeing very good activity and vacancies are stabilising at lower levels. This speaks to the work we started many years ago. Through active asset management, 87% of our portfolio is now A-grade and premium-grade buildings and tenants are spoilt for choice across prime nodes at attractive rentals,” says Kok.
A solar PV rollout of 13MW this year adds to the attraction factor. “Having reliable alternative energy sources will continue to attract tenants and mitigate some of the negatives, like the high cost of diesel. This is why we are motivatedand believe there are clear signs of green shoots. For instance, some high-demand areas like Rosebank and Sandton are in a position where rentals could start increasing,” he adds. The timely restructuring of Redefine’s broader property portfolio has ensured that its asset base is poised to benefit from the return of shoppers to malls, workers to the office and an uptick in industrial activity.
Rivonia
EXPANSION INTO POLAND
König recognises the vast potential for growth in the self-storage industry, particularly in Poland, as the country’s economy continues to exhibit promising growth. In pursuit of this opportunity, Redefine partnered with Griffin Capital Partners, a prominent private equity investment firm. Their joint endeavour involves the acquisition of Stokado, the second-largest self-storage operator in Poland. This collaboration aims to establish a robust platform that facilitates accelerated investment through strategic development activities within the flourishing self-storage sector. Building upon their successful track record of collaboration in Poland, Redefine and Griffin intend to expand Stokado’s operations by creating a comprehensive network of modern, purpose-built self-storage facilities across the country: “This deal leverages the strengths of all parties and opens the door to expansion, diversity and growth in line with Redefine’s focus on strategically allocating capital into areas with upside at low risk. The lack of institutional-grade storage space in the expanding Polish market makes this a particularly attractive proposition. We are convinced that this sector in Poland has many years of stable growth ahead of it.”
Over the last 12 months, the storage space sector in Europe has experienced a notable growth rate of 4.8%. The Polish self-storage market is still in its infancy, with penetration 2.5 times lower than in Germany and 6.7 times lower than the European average. However, there is substantial potential for expansion, as it is projected to grow at a compound annual growth rate (CAGR) exceeding 8% over the next three years.
