Redefine Properties lifted distributable income 7.2% to R1.6 billion in the six months to February 28, but warned that load shedding and related costs could impact its performance in the short term.
The group, which saw the value of its portfolio rise to R94.1bn from R88.9bn in 2022, some R34.7bn of which is in Poland, saw improved trading densities and good letting activity, while exchange rates and high interest rates remained key risks in South Africa and Poland.
The interim dividend, representing 85% of distributable income and supported by a healthy cash flow, was 14.2% lower at 20.23 cents per share, chief finance officer Ntobeko Nyawo said in an online presentation.
CEO Andrew König said the consolidation of EPP – the largest retail real estate asset manager in Poland by leasable area – contributed R272 million to distributable income as it had been stabilised and resumed paying dividends.
He said EPP was now integrated into Redefine and they remained confident about the potential in Polish. Vacancies in EPP were less than 3%, indicating healthy demand despite the negative news coming out of Europe.
A corporate re-organisation of EPP in March, 2022, saw Redefine take a 95.5% shareholding in line with its strategy to increase its exposure in the Polish retail sector.
Redefine also announced a restructuring of the ownership of its 11 government tenanted office properties in South Africa, strong inflows from green bond issuances, and continued expansion in the growing logistics market in Poland.
In addition, it had begun to build a platform in the self-storage sector in Poland, which König said was much less developed when compared with its neighbouring countries.
A transaction for a 51% stake in Stokado had been agreed. A development pipeline was being considered to increase the shareholding to 75% in three to five years. Stokado is the second largest self-storage operator in Poland, with 16 facilities in 13 cities.
König said good organic growth in the active portfolio, consistent cash collections, diversified funding, maintaining loan to value within the medium-term range of 38% to 41% and the hedge against the weak rand provided by the offshore exposure had all combined to help navigate volatile external conditions.
COO Leon Kok said load shedding, inflation, rate rises, poor public infrastructure and crime were persistent challenges locally. Although some tenants provided their own generators in the group’s retail centres, the diesel cost to Redefine for its own generators in the six months was R24m.
A solar PV rollout of some 13MW was planned this year to help attract tenants and mitigate some of the load shedding negatives.
Some 7% of the group’s energy requirements were met with solar, but with for instance roof space at offices a limiting factor and assessments still ongoing for battery storage solutions, a fully integrated alternative solution would only be possible once electricity wheeling agreements at municipal-level could be obtained. With the full solution likely to eventually include solar, battery capacity, Eskom power and diesel generators, Kok said.
Nyawo said Redefine’s green investing strategy had seen R3.2bn come on stream through green bond issuances, which were supported by large institutional investors and the International Finance Corporation.
König said in spite of much negative news about South Africa’s economy there was “a decent level” of lease renewal and letting activity taking place in the retail, office and industrial portfolios, which would stand the group in good stead when the property cycle started to turn again.
Kok said the office market remained oversupplied, but they were benefiting from good demand from key nodes such as Rosebank, Sandton and Cape Town.
“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,” he said.
Kok said a timely restructuring of Redefine’s broader property portfolio had ensured its asset base would benefit from the return of shoppers to malls, workers to the office and an uptick in industrial activity.
The industrial portfolio saw an improvement in most of the operating metrics in the interim period.
New developments included a motor dealership at Blue Route Mall, completed at a cost of R12.7m; development taking place at S&J Industrial Park (90% share) for about R150.8m; Hill On Empire (50% share) costing about R172m; and Hertford Office Park (33.3% share) likely to cost about R32.5m.
Seven properties were disposed of in the six months for R313m, the group said.
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