Johannesburg, 29 August 2023 – Real Estate Investment Trust (REIT) Redefine Properties (JSE:RDF) said today in its pre-close update for the year ending 31 August 2023 that the business has been stabilised, with the company's South African and Polish portfolios demonstrating “remarkable operational resilience” across all sectors in the face of the challenging operating environment.
While market-shifting dynamics (such as the aftershocks of the pandemic, elevated inflation, an energy crisis and higher funding costs) remain on the company's radar, the update noted that there is cause for optimism that the property cycle has bottomed and that 2024 will mark a notable turning point for the sector.
Real estate fundamentals are building positive momentum
Notably, the upward trajectory of inflation is tapering, with early signs of cooling off, which brings with it more predictable interest rate expectations. Meanwhile, the government and business's plan to remove obstacles to inclusive economic growth and job creation through priority interventions is expected to restore much-needed confidence.
“We are encouraged by the fact that real estate fundamentals are beginning to build positive momentum that is expected to translate to future upside potential,” says Redefine CEO Andrew König. “This has provided us with a renewed sense of optimism. However, we know that risks such as geopolitical tensions, elevated inflation, high interest rates, rising energy prices and ongoing loadshedding require an unwavering commitment to fostering strategic resilience, as we look to pursue growth and deliver sustainable value.”
As such, Redefine is ensuring that it
- Invests strategically in efficiency interventions to reduce reliance on municipal-supplied utilities
- Optimises capital by diversifying funding sources to spread concentration risk
- Improves operational efficiencies through disciplined cost management and by digitising processes to transform the tenant experience
Signs of stability
Despite loadshedding and related cost headwinds, Redefine reports that operating metrics across its South African portfolio are gradually improving and showing signs of stability. Demand for P and A Grade office space in sought-after locations has strengthened, while the group's industrial portfolio continues to be defensive and is performing well in a competitive landscape.
Considering the prevailing uncertainty around the energy outlook and associated risks to operational performance, Redefine remains focused on improving its energy efficiency and bolstering business resilience by investing in renewable energy in South Africa.
For instance, the group is participating in the City of Cape Town's first electricity wheeling pilot project that enables commercial entities to sell electricity back to the city's grid. Redefine is undertaking a 5.9MWp solar wheeling project on the roof of its Massmart Distribution Centre at its Brackengate 2 development.
Tapping growth opportunities
As an example of its efforts to realise growth and the upside for shareholders despite market uncertainty, Redefine is unlocking opportunities in the retail, logistics and self-storage market segments in Poland.
“We remain confident about the potential in the Polish market,” explains König. “Our exposure to Polish retail and logistics provides stability, and recovery of the shopping centre performance in that market is well on track, with positive retail sales forecast for the next two years.”
The update noted that rental rates continue to rise in the logistics market segment, particularly in sought-after locations and buildings with modern technologies and ESG solutions.
“The self-storage market in Poland represents an emerging asset class with untapped potential,” says König. “Poland has significantly fewer self-storage facilities than other European markets, and demand is underpinned by robust micro business needs, representing 48% of overall users, which is above the EU average of 29%.”
The group reported strong working capital generation, with reason to expect improvements in the near term based on projected collections, which supports a healthy and stable liquidity profile.
The company’s SA REIT loan-to-value (LTV) at the end of May 2023 increased to 42.3% (HY23: 40.9%) on the back of a weaker rand. Redefine expects the LTV to moderate towards its internally set medium-term target of 38% to 41% during 2024. DIPS is expected to be in line with guidance of between 48 cents and 52 cents for the year ended 31 August 2023.
The company's closed period commences on Friday, 1 September 2023 until its annual results are released on Monday, 6 November 2023.
