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Growthpoint unveils second phase at Arterial Industrial Estate 

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Growthpoint unveils second development phase for Cape Town’s Arterial Industrial Estate 

85% of the first phase is already let with keen demand for this prime location

Construction of the new Arterial Industrial Estate in Cape Town is steaming ahead, with Growthpoint Properties (JSE: GRT) having moved into phase two of the world-class development.

Arterial Industrial Estate is a development by Growthpoint on a 71,656sqm site in the heart of Blackheath, a growing and modernising industrial node in Cape Town.

After phenomenal success with phase one, during which national and international tenants snapped up 85% of available space, Growthpoint has launched phase two of the Arterial Industrial Estate development.

Growthpoint’s decision is in response to growing demand for space — as seen in four out of five industrial units released in the first phase of the new development, which commenced construction in July 2023 and was completed in April 2024, already being taken up by tenants. Only a single unit of 3,503sqm, perfect for light industrial businesses, remains in the phase.

The first phase of Arterial Industrial Estate spans 19,741sqm, originally featuring six warehouse units, each with a two-storey office block. Jotun, a leading decorative paints and coatings manufacturer, was among the first to secure space at Arterial Industrial Estate, opting to combine two units for its new and larger head office premises of 5,713sqm. Other tenants with facilities at Arterial Industrial Estate include well-known logistics companies Nexus Fulfilment and RTT, as well as leading tyre distributor ATT Auto Truck & Tyres.

Growthpoint has started phase two of construction, which will add 21,840sqm of lettable space, more than doubling the size of Arterial Industrial Estate. This second phase will add a further six warehouse units, ranging from 2,945sqm to 5,713sqm, enhancing the estate’s capacity to cater to diverse business needs. Arterial Industrial Estate Phase Two will be ready for occupation from March 2025.

Timothy Irvine, Growthpoint’s National Client Experience and Western Cape Asset Manager, says the new phase of the development is already seeing great interest from potential tenants. “The demand for space at Arterial Industrial Estate is unsurprising, considering the development’s central and attractive location and the steady demand for industrial space currently being experienced in Cape Town.”

Arterial Industrial Estate is close to Cape Town International Airport, public transport nodes, and arterial routes important for South Africa’s economic activity. The estate is close to the R300, N1, and N2, with prominent visibility along the Stellenbosch Arterial Road highlighting its effortless link to the winelands.

Irvine says Arterial Industrial Estate’s proximity to arterial roads, and the country’s air and sea ports network, makes it a sought-after physical address in Cape Town. “Businesses situated at this prime location can efficiently connect with both local and global markets.”

Growthpoint’s experience in logistics and industrial property investment and development enhances the experience for existing and would-be tenants at Arterial Industrial Estate. The estate boasts 24-hour security and access control, flexibly sized warehouse and office space, and measures for efficient water and energy use. Phase one of the Arterial Industrial Estate has seen the installation of solar panels, which is set to help tenants secure sustainable energy.

The estate has achieved a 4-Star Green Star certification in the industrial property category from the Green Building Council of South Africa. This is aligned with Growthpoint’s goal of making its vast portfolio of properties environmentally sustainable. Growthpoint’s climate commitment target is being carbon neutral by 2050. Its sustainable business practices help tenant businesses towards their own ESG goals and support long-term cost savings for its clients. 

Value in the current oversupply of commercial property space

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At these levels, there’s value in the current oversupply of commercial property space 

For the past seven years, South Africa’s listed property sector has been in the doldrums. A toxic cocktail of economic weakness leading to rising vacancies, the devastating impact of COVID-19 lockdowns and higher interest rates, and the added burden of load-shedding and various other costly utility challenges, created a perfect storm. It brought cruel headwinds for property owners that have left investors wary. But the winds of change are blowing.

Listed property share prices are starting to show an increased value proposition and this will inevitably lead into the physical commercial property market.

So far, in 2024, real estate investment trust REIT returns are up in excess of 50%.

Nowhere are signs of a real estate turnaround more evident than in the Western Cape, where offices that sat vacant just 18 months ago are now full.

The semigration trend to the province is part of this. But it’s not the whole story. Improving sentiment post the Government of National Unity (GNU), less loadshedding easing strain and costs, and the first reduction in interest rates, together with the expectation that they will fall further, are country-wide factors all contributing to a surge in sentiment and confidence.

In addition, most corporates are now insisting on a return to in-office work, resulting in a greater need for office space. This spells opportunity – particularly in Gauteng, which is the hub of South Africa’s economic engine, and where vacancies are still prevalent.

There’s more value to be unlocked

Successful investors look further than headlines to find value. And, as the economy starts to stir, savvy investors can scent opportunity.

Property is inherently cyclical, and it’s starting to pick up the first gusts of coming tailwinds. Yes, the sector still has an oversupply to digest, but there’s value in it if acquired at the current low pricing levels. As offices fill up and economic sentiment improves, their values will increase commensurately.

With the anticipation of reduced vacancy levels, property investment becomes more attractive, and the prospect of new developments becomes increasingly feasible, drawing investors and speculators back into the market. It’s a potentially tantalising prospect after years of stagnation.

Disciplined, sustainable growth

In fact, the future prospect is more alluring than it has been for a long time. This is even true in the local REIT sector, where we still see share prices that significantly undervalue their businesses, but with the incoming tailwinds, we will inevitably see an acceleration towards the recovery on the horizon.

When market sentiment overshoots fundamentals, long term investors like Emira stay focused on what makes business sense, not getting caught up in the hype –  acquiring at below value in places where economics are suppressed and disposing when values are full. It all comes down to strategic capital allocation and responsible growth. When markets show extreme dislocations from value, that is the time to to move and take advantage of what will eventually show as long-term value creation.

Demonstrating its agility and business sense, Emira’s recently sold off its portfolio in sought-after Cape Town at what it perceives as fuller value. This strategically aligned move freed-up capital to be deployed in Poland, where returns are extremely enticing (undervalued with strong economic growth prospects) and where we had identified the right entry point (co-invested into equity with local partners with growth aspirations) – a decision that makes business sense for Emira in its pursuit of diversification and value creation.

The stage is set for a long-awaited turnaround

Rising REIT returns, reducing vacancies, and returning office appetite all point to a sector in recovery mode. The property cycle is turning, and those with a keen eye for value are already taking notice.

The South African property sector still has meaningful operational and infrastructure hurdles to overcome, but the winds of change are starting to blow and, with a nuanced understanding of the sector and a discerning eye for emerging potential, there’s substantial value in listed property stocks right now with further value to be found in the future

Redefine Properties reports solid financial results for FY24

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Redefine Properties reports solid financial results for FY24: A pivotal turning point for the property sector

Johannesburg, 4 November 2024 – Redefine Properties (JSE:RDF) has reported solid improvements across its key operational metrics for the financial year ending August 31, 2024. This year has marked a crucial turning point for the property sector, as easing interest rates and increasing confidence are leading to better property fundamentals and a more favourable operating environment.

Andrew König, CEO of Redefine, stated that the decrease in political risk, along with a stable electricity supply, has boosted confidence. He noted, “Advancements in strategic reforms, such as Operation Vulindlela and the Government of National Unity’s emphasis on supporting local government as well as a commitment to achieving 3% economic growth, are all contributing to this increased confidence, which serves as a cost-effective form of economic stimulus. This, combined with falling interest rates, is helping to propel the property cycle upward.”

Redefine has focused on preparing for a potential recovery in the property cycle. The reported enhancements in operating metrics, though starting from a low baseline, are primarily the result of strategic initiatives. These include efforts to simplify the asset base, optimise capital by restructuring R27.7 billion in local debt, develop talent, and expand sustainability initiatives like the implementation of solar PV systems to meet energy needs.

Redefine’s COO, Leon Kok, noted that during the reporting period, most of the company’s South African operating metrics have either stabilised or improved. “In particular, occupancy rates increased to 93.2%, up from 93.0% in FY23, with noticeable enhancements across all sectors. Tenant retention, which has become more difficult due to heightened competition from excess supply, is nearing 90%. This is a strong result that reflects the quality of Redefine’s portfolio and the strength of our relationships with tenants, who are eager to renew long-term leases with us.”

He stated that Redefine’s retail portfolio continues to perform well, with occupancy rates for FY24 rising to 95.0% (FY23: 93.6%). “We anticipate further improvements in occupancy rates for FY25 due to positive sentiment and decreasing interest rates, which are expected to enhance consumer spending power.”

Redefine reported an overall improvement in renewal reversions, now at -5.9%, up from -6.7% in FY23, primarily driven by the retail and industrial sectors. While the office portfolio saw negative reversions of -13.9%, Kok explained that this was due to market rentals not keeping pace with underlying rental escalations. He anticipates stabilisation as market conditions improve.

However, occupancy in the office portfolio continues to benefit from Redefine’s exposure to P- and A-grade assets. The limited demand in the office market is increasingly focused on higher-quality properties, where Redefine holds a more competitive advantage.

Redefine’s industrial portfolio remains resilient, benefiting from long leases and quality tenants, with renewal reversions increasing by 5.5% during the period. Kok noted that this result reflects both the portfolio’s quality and the underlying activity supporting market rental growth. “Our strategy in this sector is bullish regarding capital allocation, as we have access to developable land in prime locations near key transport hubs, which should create a strong pipeline of leasing opportunities.”

Kok highlighted the increase in solar PV capacity as another positive result from FY24. During the year, Redefine added a further 8MW of solar capacity, with an additional 18MW currently underway. Once completed, this will bring the total installed capacity to over 60MW.

Solar PV accounts for 18% of the energy requirements for the South African retail portfolio, while Polish retail, logistics, and office sectors utilise 25%, 86%, and 100% green energy, respectively.

In Poland, EPP’s core portfolio has achieved an occupancy rate of 99.1% (FY23: 98.4%), with renewal reversions turning positive at 0.2% (FY23: -7.2%), which signals a return to market rental growth.

“The Polish economy is stabilising, and we are beginning to observe a rebound in retail spending growth due to moderating inflation and electricity costs returning to pre-energy crisis levels,” König explained. “Likewise, the logistics sector is performing well, supported by a market that favours infrastructure expansion, particularly in Western Europe and Germany.”

ELI, Redefine’s Polish logistics platform, has an occupancy rate of 93.4%, and the 62,601 sqm of developments completed during the period are fully occupied.

Redefine’s self-storage operations in that market are also growing, following the acquisition of TopBox. Along with seven new developments being considered, this could potentially increase the net lettable area by an additional 33 277 sqm.

Redefine CFO Ntobeko Nyawo said that from a financial standpoint, Redefine’s balance sheet remains strong. “We achieved distributable income per share of 50.02 cents, in line with our market guidance. Net operating income in our South African portfolio grew by 5.2% to R4.967 billion, demonstrating our ability to maintain profitability amidst challenging conditions.”

The EPP core portfolio delivered net property income of R1.3 billion, which is an improvement on last year’s R1.2 billion, and was largely driven by rental indexation and increased occupancy levels. The cash distributions from the joint ventures also increased to R612.4 million compared with R334.3 million in FY23.

“We have acknowledged concerns regarding the complexity and high leverage of our joint ventures. To address these issues, we have developed a comprehensive plan and programme that will be implemented over time. Although this is not an immediate process, we have a medium-term strategy designed to tackle the challenges associated with these joint ventures, including necessary corporate actions. We are also pleased to report that institutional investment is returning to the Polish market, which supports the launch of our action plan.”

Nyawo said that the solid operational results were offset by the net finance charges increasing by 15.1% to R2.1 billion. “However, if we look at the quality of our earnings, it is pleasing that 95.8% of FY24 distributable income is recurring in nature; demonstrating the business’ ability to generate sustainable earnings in a tough operating environment.”

Nyawo stated that a major priority this year has been developing an efficient funding model to support the growth ambitions of the property platform. During the period, Redefine achieved a significant milestone with its innovative R27.7 billion common debt-security structure, which is anticipated to enhance competition among funders.

“The substantial refinancing completed in FY24 has resulted in a very low-risk debt maturity profile for us. In FY25 and FY26, no more than 10% of our group debt will be maturing, and with access to liquidity of R4.8 billion, our business is able to absorb headwinds and cease opportunities as they arise.”

He noted that the SA REIT’s loan-to-value ratio for FY24 stood at 42.3%, slightly exceeding the target range of 38% to 41%. The acquisition of the Mall of the South contributed 1.1% to this figure, which Redefine had previously communicated to the market. There are plans in place to reduce this ratio within the target range over the medium term.

“Finally, we are pleased to report that our distribution results include a payout of 22.2 cents for the second half, bringing our FY24 payout ratio to 85%. This is within our established dividend payout range of between 80-90%.”

Looking ahead, König said that Redefine is optimistic about FY25, with expectations for distributable income per share to range between 50-53 cents. “We are aware of the geopolitical risks that could disrupt inflation trends and monetary easing. Therefore, we are committed to improving our business performance by enhancing operational efficiency, restructuring our debt, and further simplifying our asset base. This approach will enable us to achieve risk-adjusted returns throughout market cycles. We are transitioning from merely identifying opportunities to actively capitalising on them, building on the progress we’ve made over the past year and focusing on the opportunities we identified in FY24.”

He added that much of the recent improvement in Redefine’s share price can be attributed to macroeconomic factors, such as increased confidence and the downward shift in interest rates. “Moving forward, we need to reinforce this improvement with operational results that support our share price. Our strategy emphasises organic growth, and as our share price approaches a level where the forward yield aligns with our debt pricing, we can reassess the overall debt-equity balance. Additionally, we will offer a dividend reinvestment plan, which seeks to conserve cash for the company and give investors the opportunity to cost effectively reinvest in Redefine’s compelling investment proposition.”

 

Spear REIT reports growth and resilience for HY2025

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Strength in strategy: Spear REIT reports growth and resilience for HY2025

Cape Town, 24 October 2024: Spear REIT Limited (SEA: SJ), the only regionally specialised Real Estate Investment Trust (REIT) listed on the JSE, has reported its interim results for the half-year ending on the 31st August 2024 (HY2025). With REITs experiencing varied performance due to challenging macroeconomic conditions, Spear delivered solid results, showcasing the resilience of its portfolio and its strategic focus on the Western Cape. The board of directors maintained a 95% payout ratio and announced a Distribution Per Share (DPS) of 39.53 cents for the six months ended on the 31st August 2024.

Quintin Rossi, CEO of Spear REIT Limited, commented on the results: “Within the context of the persistently tough trading environment, we are pleased with Spear’s performance in HY2025. The interim period has established a solid foundation to build on for the remainder of the financial year. Our Western Cape-focused strategy, coupled with our hands-on asset management approach, have allowed us to continue delivering value to our stakeholders as Spear delivers a mission statement-aligned financial and operational outcome for the reporting period. We continue to be optimistic as the economic landscape shows signs of improvement, particularly since the formation of the Government of National Unity (GNU) in South Africa, the easing off of loadshedding thanks to the stabilisation of the national grid, and the commencement of the interest rate tapering cycle by the SARB, which have all positively impacted investment confidence.” According to Rossi, these are encouraging signs for the real estate market, as sovereign bond yields compress, inflation comes under control and economic expansion commences, the property market is likely to see improved occupancy rates, increased tenant activity, and stronger financial performance.

Key financial and operational highlights

  • Distributable income per share (DIPS) for HY2025: 41.61cps (up 2.05% from HY2024)
  • Dividend per share (DPS) for HY2025: 39.53cps (up 3.14% from HY2024)
  • Payout ratio: 95.08%
  • Occupancy rate: 95.08%
  • Loan-to-Value (LTV) ratio: 23.93%
  • Interest Cover Ratio (ICR): 3.01 times
  • Tangible Net Asset Value (TNAV) per share: R11.74
  • Collection rate: 98,05%

Spear achieved a 6.34% increase in group revenue excluding smoothing, driven by strong leasing activity, reducing vacancies, and maintaining in-force escalations. The net property operating profit for HY2025 saw an increase of 1.92% compared to HY2024 excluding smoothing, reflecting resilient expense management despite difficult trading conditions. Commenting on Spear’s performance, Nesi Chetty, Fund Manager and Head of Property at Stanlib, said, “Leasing fundamentals across the Spear portfolio have been strong over the last 12 months. A buoyant jobs market, scarcity of land, an increasing Business Process Outsourcing (BPO) presence in the Western Cape, along with strong asset management from the company, have contributed to the strong year-to-date occupancies and escalation rates.”

The like-for-like contractual income growth was 9.54%, and the like-for-like net property operating profit grew by 9.48%, driven by decreased vacancies and strong in-force escalations and rental reversions. During the interim period, rental reversions improved to +5.35%, indicating positive outcomes in lease renewals and relets.

At the interim period, Spear’s portfolio was valued at R4.22 billion, consisting of 27 high-quality assets, with a total gross lettable area (GLA) of 405,709m². While the period presented several challenges, including increased property operating and management expenses due to the severe impact of storms and record-breaking rainfall in Cape Town between June and August 2024, profitability was marginally impacted by the higher-than-normal repairs and maintenance interventions required.

Management remains laser focused on absorbing these additional costs in the final six months of FY2025. During the interim results presentation, Rossi commended his team for their hands-on, ‘get stuck in’ approach, which he credits as a core element of the company’s culture and a key driver of its success.

The portfolio’s occupancy rate improved by 200 basis points to 95%, with the commercial office sector being a standout performer, seeing over 9,000m² of commercial office space let during HY2025. This resulted in a 616 basis points improvement in commercial office occupancy, indicating a strong return-to-office trend within the Western Cape. The company’s aggressive marketing and leasing initiatives have contributed to these positive outcomes, as management prioritised reducing overall vacancy rates, particularly in the office portfolio.

At the end of HY2025, the overall portfolio vacancy rate had decreased to 4.92%, down from 6.88% in FY2024. This improvement is well below the national average vacancy rates recorded by IPD and SAPOA, further emphasising Spear’s effective asset management strategy.

Spear’s contractual escalations averaged 7.47%, and the weighted average lease expiry (WALE) remained steady at 26 months, providing stability to the company’s income stream.

Spear’s balance sheet remains robust, with gearing reduced to 23.93% from 31.60% in FY2024. This was largely due to the disposal of non-core assets, including the Liberty Life Building in Century City and 142 Edward Street in Tygervalley. These disposals have strengthened the company’s liquidity position and enabled management to allocate capital into strategy aligned Western Cape investment opportunities.

The company has no immediate debt refinancing obligations, thanks to its proactive management of the debt portfolio, ensuring well-staggered refinancing terms and a defensive expiry schedule across its funding partners.

Spear’s rental collections remained strong, with a collection rate of 98.05% for HY2025, reflecting once again, effective tenant management and operational oversight.

In closing, Chetty added, “From a valuation perspective, Spear is trading at an attractive forward dividend yield, while still reflecting a notable discount to its latest reported NAV. The company maintains a robust pipeline of value-creating opportunities, including planned brownfield redevelopments. Spear is steadily becoming a core holding in many property funds, particularly within the small to mid-cap segment.”

 Outlook for FY2025

Looking ahead, management is optimistic about the prospects for the remainder of FY2025 as it integrates the newly acquired real estate portfolio, valued at R1.146 billion, from Emira Property Fund. This follows the announcement via SENS on 23 October 2024, confirming the successful implementation of the transaction. Following this acquisition, Spear’s total portfolio value has increased to R5.36 billion, with a market capitalisation of R3.2 billion.

Rossi added: “We remain focused on executing our strategic priorities for FY2025. With our high-quality portfolio, strong tenant relationships, and active asset management approach, this is an exciting time for the real estate sector and Spear is well-positioned to continue delivering value to our shareholders and stakeholders in the months ahead.”

Rossi concluded the interim results’ presentation by providing full-year distribution guidance, forecasting DIPS growth of between 2% – 4% compared to FY2024, with the payout ratio maintained at 95%. This outlook is supported by key assumptions, including no load-shedding for the remainder of FY2025, reduced vacancies, successful lease renewals, and stable tenant performance in absorbing rising utility and municipal costs.

“Our full-year guidance reflects the strength of our team and portfolio,” said Rossi. “We are confident that, with these positive indicators, we can continue to achieve our strategic objectives for the year.”

 

Redefine restructuring of R27.7 billion secured evergreen funding

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Redefine Properties launches an industry leading structure with R27.7 billion evergreen secured funding arrangement

 

Johannesburg, 15 October 2024 – Redefine Properties has achieved a major milestone with the successful restructuring of a R27.7 billion secured funding arrangement. This transaction, the largest of its kind in the South African listed property sector, marks a significant shift in how Redefine manages its funding. The innovative structure, designed as an evergreen arrangement, has streamlined business processes and set a new benchmark within the sector.

Redefine previously entered into bilateral loan agreements with funders, who were each given a segregated pool of security with a portfolio of assets. These facilities have now been restructured to allow for all funders to participate in a common shared security pool, which is governed by a common terms agreement upon which all funders can base their terms.

The portfolio of assets that will be used as the common security pool, comprises of 127 properties valued at R46.3 billion, is which represents 72% of Redefine’s direct South African property portfolio.

“By taking the assets that we believe are the core cash generation backbone of our business for the foreseeable future and putting that on equal footing to all of our funders, we are leveraging the strength of our well-diversified investment portfolio, giving us flexibility to price our debt sustainably throughout market cycles,” said Ntobeko Nyawo, CFO of Redefine.

Underlying flexibility agreements for the common security pool will give us the ability to maintain market relevant commercial agreements. Unlike other security structures of a similar nature, Redefine has chosen not to have a single clearing pricing point, giving the company the flexibility to manage concentration risk over time and throughout market cycles when refinancing maturities.

There are 11 funders including the big four SA banks and the typically large institutional investors in the secured lending space. However, the beauty of the structure is its evergreen nature without any lifetime limitations and will thus allow lenders to come and go over time seamlessly.

The new structure will govern Redefine’s lending going into the future with the terms agreed to applying to Redefine’s secured lending going forward. “Essentially, the common security pool structure will be the single market access point for any lender to offer secured debt to Redefine, giving it the flexibility to supply debt on an end-to-end basis,” Nyawo explained.

A simplified, efficient channel for raising debt

The benefit for Redefine is to ease the operational administration of its funding arrangements as the new structure materially simplifies the ways in which the business brings in funders of secured debt due to referencing a single security pool while enabling a channel to secure that debt in an efficient manner.

“One of the key benefits of bringing funders into a singular, common collateral pool is that it will enhance Redefine’s secured debt market appetite,” Nyawo said. “By ringfencing the funding to a single lender, the bilateral funding left little room for competition”.

As a consequence of the lending structure referencing a far more diversified security pool, funders gain cross-sector exposure that enhances their diversification, reducing concentration risk for lenders and thereby improving the credit profile.

It also makes it possible for Redefine to more effectively add potential differentiated funders like a Development Finance Institution (DFI) to the mix of secured funders, whereas in the past Redefine was unable add a DFI to another lender’s portfolio.

Importantly, the structure is underpinned by a mechanism, which has been clearly defined and agreed to by the common terms arrangement, that allows for the release of assets from this pool to support Redefine’s active asset management strategy.

“Through this restructure, Redefine has created a sustainable, diversified funding model that reduces market shadowing of debt and enables the execution of strategic priorities including the efficient sourcing of capital and diversify our funding base,” Nyawo said.

Sourcing capital efficiently throughout market cycles

“Creating a sustainable funding vehicle is central to our business model,” he added. “Since our company primarily depends on gearing, it is essential that we source capital efficiently through market cycles, which we have accomplished with this transaction. When funding pools were dispersed in the past, Redefine was beholden to the incumbent lender’s risk and pricing considerations as opposed to market clearing gearing and pricing. In contrast, a common security pool should support our earnings over time much more when market cycles are turning in our favour. Equally so, when the cycles turn against us, we will be much more adept at managing the challenges brought on by the rising cost of debt.”

Nyawo said that the extensive collaboration with the 11 key funders was instrumental to concluding this transaction, which is the largest common security structure the market has ever seen. “This extremely complex transaction was completed in less than six months, which is a testament to the tremendous work and commitment of the team leads of our partner lenders and advisors.

RMB was the mandated lead arranged for Redefine and Webber Wentzel acted as lenders counsel.

He added that the restructuring coincided with a time when fundamentals required for listed property re-rating, such as economic growth, which the new government of national unity is targeting at 3.3%, are encouraging and resulting in increased confidence in the sector. This, combined with the ability to raise capital efficiently, means Redefine is better positioned to fund both organic and inorganic growth opportunities, he said.

“The common funding pool’s evergreen structure we believe is fundamental to our long-term balance sheet management and truly supports our strategic ambitions of building a simplified, diversified cash accretive listed property investment portfolio,” Nyawo concludes.

ENDS