Johannesburg, 23 February 2023 – Real estate investment trust Redefine Properties (JSE: RDF) said today in its pre-close update for the half year ending 28 February 2023, that it is responding strategically to evolving, market-shifting dynamics in a decade of “disruption and action”.
Primary among these are the rising cost of doing business, the energy crisis, and elevated interest rates, with these converging realities adding up to a “polycrisis” (a cluster of related global risks).
“We need to pivot to focus on what matters most and realise that polycrises can create opportunities. We need to remain innovative, agile and resilient while placing our purpose and our stakeholders’ needs at the heart of what we do. While we are cautiously optimistic for the future, we must be realists of what we need to deal with,” says Redefine CEO Andrew König.
Redefine is ensuring that it invests strategically, optimises capital, operates efficiently and reviews strategies to attract, retain and develop key talent to provide an internal pipeline of scarce skills.
As an example of the pivot to take advantage of opportunities despite the uncertain world, Redefine is diversifying its real estate interests in Poland by entering the self-storage market.
Shareholders were informed that Redefine and Griffin Capital Partners will create a 93%/7% self-storage venture, with Griffin rendering on-the-ground services to the venture.
“The Polish self-storage market is in its infancy with penetration 2.5x smaller than Germany and 6.7x smaller than Europe’s average. It is expected to grow at a CAGR of over 8% over the next three years,” says König.
Although the risks to the global outlook remain skewed to the downside due to the ongoing tightening of monetary policy and continuing disruptions caused by Russia’s war in Ukraine, König says it is anticipated that the world will likely avoid a recession. He says that in Poland, for instance, the unseasonably warm winter has dampened the expected skyrocketing of gas and energy prices, and so a recession there is unlikely.
Liquidity risk management remains key, and EPP N.V. (recently acquired by Redefine in Poland) has largely dealt with its debt refinancing challenges and will deliver sustainable income going forward by resuming dividend payments.
The other positive strategic responses Redefine is driving include the reduction in consumption of energy through efficiency interventions, collaboration with key stakeholders, and a major solar photovoltaic (PV) expansion.
“We are protecting operating margins through operating efficiencies across the entire business. We are also looking at how we minimise energy usage and are working collaboratively with stakeholders to become more efficient and less reliant on unreliable sources provided by Eskom,” says König.
However, in South Africa, the country's deepening electricity crisis, sharply higher domestic interest rates and slower global demand will likely hurt domestic exports, consumer spending, confidence levels and fixed investment in 2023.
With the 2023 national budget released on Wednesday, König called for tax relief on diesel consumed during back-up power generation.
“Why pay roughly a quarter of the diesel bill to the state when these go to the general coffers and road accident fund? This is not going back to support those assuming the role of the state during the energy crisis. As landlords and tenants who bear a large portion of this cost, we are providing a necessary service, being electricity, and then paying government a tax through the cost of diesel. That is not equitable and these taxes should not be levied on us the way they are,” he says.
Diesel costs averaged R38 000 per hour across Redefine’s South African portfolio in December 2022, with a 69% recovery rate.
Tenant retention in South Africa, however, remained very strong in the Redefine portfolio.
“Our focus remains on managing what we can control and so we are, among others, building supply chain resilience, accelerating our ESG strategy, improving our cybersecurity posture, and reviewing strategies for attracting and retaining key talent,” concludes König.
Redefine’s closed period commences on 1 March until the interim results are released on Monday, 8 May 2023.
