Archives for January 2022

Sandton, South Africa: The construction on Redefine Properties’ Kwena Square on the West Rand is progressing well and is expected to be completed on schedule during May 2022. The JSE listed diversified real estate investment trust intends to open the shopping centre to the public during mid-2022. Located centrally in Little Falls, Roodepoort, it features over 10 000m2 of convenience shopping space.

The centre gets its name from the Sotho meaning for crocodile, koena (kwena) which accentuates the abundant natural beauty within the Little Falls, Strubens Valley and surrounding areas. The Crocodile River also has its source in the Witwatersrand Mountain range, originating in Constantia Kloof, Roodepoort, which is near the current site.

Developed at a cost of R210 million, Kwena Square will house 23 stores anchored by national retailers like Checkers, Checkers Liquor, Clicks and boasts one of the country’s first drive-thru RocoMamas besides other restaurants and coffee shops. Parking bays to accommodate 407 cars at any time have been provided. Already over 60% of the centre has been pre-let to tenants who represent a diverse line of local and national brands.

An array of rooftop solar panels will generate as much as 25% of the electricity required by the centre, a key feature which will reduce the load on the main grid.

Redefine recently unveiled its Moonshot Strategy setting a target to deliver the smartest and most sustainable spaces by the end of this decade and has since been focusing on energy efficiency and renewable energy to help it to reach its goal. In 2022, Redefine will focus on executing its strategic priorities having introduced a climate resilience framework, striving for more sustainability interventions across its operating environment and investing strategically.

Leon Kok, COO, Redefine Properties says, “We are ready to put the efforts in towards meeting our commitment to convert all buildings in our portfolio to net zero carbon, water and waste by 2050. The process has begun with our newer projects and demonstrates our ongoing focus to reduce our carbon footprint. We have an overarching ambition to be a force for good.”

A new study by MSCI shows that some areas of retail like convenience shopping centres are seeing a rise in sales and visitors with trading densities exceeding pre-Covid levels. Thanks to time-pressed consumers juggling work-from-home and making quick stops for groceries to avoid crowds, the need for convenience became paramount during Covid-19.

“Kwena Square entrenches the trend we first identified on the re-emergence of convenience centres, a shopping format most favoured during the pandemic for its ease of use and open ventilation enhancing safety. The completion of the project during a pandemic reflects our commitment and our tenants’ confidence in the project and the neighbourhood,” adds Kok.

“A convenience centre like Kwena Square addresses changing shopping habits and is positioned to efficiently meet evolving demands of shoppers.”

Johannesburg, 24 January 2022 – Redefine Properties (JSE: RDF) has received the green light from shareholders to finalise the delisting and takeover of EPP (JSE: EPP), Poland’s largest retail landlord.

The deal, which is still subject to finalisation of outstanding conditions precedent and regulatory requirements, amounts to an estimated R7.2 billion in additional equity for Redefine and adds around R19.7 billion of total assets onto its balance sheet.

On Friday last week, the key step to finalisation of this significant transaction was completed when the proposal received overwhelming support from both Redefine and EPP shareholders. It entails a share-for-share offer by Redefine to acquire all the remaining shares in EPP it does not already own upon delisting thereof.

This will take place at a swap ratio of 2.70 Redefine shares for each EPP share held, to a maximum of 1.1 billion if everyone converts to Redefine shares. Redefine currently holds 45.4% in EPP and on completion of the transaction, the Polish-centred offshore component of its overall portfolio is likely to increase to 30%.

“I was very pleased and encouraged by the high level of Redefine’s shareholder support, with an approval of 78.3% being achieved,” says Redefine CEO Andrew Konig.

He says the support reflects the fact that the transaction ticks several strategic boxes. These include reducing risk, simplifying Redefine’s investment and asset platform and eliminating exposure to a listed investment where Redefine as a minority shareholder had limited input over funding or liquidity management. It also opens the door to exciting retail market opportunities in the Polish market as it accelerates its recovery from the Covid-19 pandemic.

“We have always been bullish on the Polish retail market and all indications are the Polish economy will grow in excess of 4% this year. Retail sales are on the rise and we are excited to now have a single entry point into this market via Redefine,” he says.

‘’I am glad that our investors supported EPP delisting and restructuring proposals with a large majority. It was not an easy decision to make. I believe that once the company’s reorganisation is completed, EPP will be in a position to return to the growth path, as well as to regularly deliver dividends to its shareholders,” said Tomasz Trzósło, CEO of EPP. “I also would like to thank the EPP team who put a lot of work into completing this project within a very tight deadline.”

Konig says the deal protects Redefine’s carrying value in EPP from dilutive value destruction and fits perfectly with moves to a more sustainable funding model in which debt is matched to stable assets, rather than underlying listed shares, that are subject to the vagaries of financial markets.

With EPP unable to pay dividends for the past two years and facing significant loan maturities in 2022 and 2023, the deal’s core objective is to significantly reduce EPP’s debt through a liquidity generating restructure, which will restore it to a dividend paying position.

EPP has a loan to value (LTV) of approximately 57% and Konig says it was therefore important to solve the liquidity challenge it was facing, without in any way impacting Redefine’s own LTV ratio.

“Redefine wanted to avoid these liquidity challenges to impact negatively on our own LTV of 41.6%, which we have worked hard to achieve,” explains Konig. As a consequence of the restructure, EPP’s LTV reduces to well below 35% and as a consequence there is a marginal effect on Redefine.

“A lower LTV for EPP bodes very well for its ability to access liquid and well-priced Eurobond markets and open up new sources of funding. This gives us a lot of financial flexibility offshore,” explains Konig.

Redefine’s credit metrics also improve, with its interest cover ratio moving from 2.5 times to beyond 3 times.

Konig explains that as the controlling shareholder of EPP, Redefine will be in a stronger position to drive initiatives to return EPP to a dividend paying position in the short term, thereby delivering improved distributions to Redefine shareholders.

“Redefine’s shareholders will obtain additional exposure to prime Polish retail assets directly held through EPP and there will no longer be two listed entry points to EPP, providing Redefine with a differentiated investment proposition on the JSE and potentially enhanced liquidity. This is a win-win and I believe this is why the results of the shareholder votes were so overwhelming,” he concludes.

The past few months have been tumultuous and volatile for the local and global economies, but Redefine Properties (JSE: RDF) is well positioned for sustained value creation and growth.

Speaking during the pre-close for the half year ending 28 February 2022, CEO Andrew König says the company is firmly focused on executing its strategic priorities further in 2022. These include embedding a revised executive committee structure that drives more inclusion and diversity, on-boarding the R26.2 billion EPP portfolio, the introduction of a climate resilience framework and continuing to de-risk and refine the asset platform.

“Redefine is now primed for growth after we used the crisis to reset and refine every aspect of what we do. We have exited multiple geographies, optimised what we have and positioned every asset for the best possible sustainable capital and income growth prospects, while entrenching ESG into everything we do,” says König.

At a time when growth is constrained for many peers, Redefine is set to expand its asset base and footprint with the takeover of EPP. The transaction received the thumbs up from shareholders in January and the business will be fully integrated into Redefine during the second half of 2022.  With all conditions fulfilled, the delisting of EPP is set to take place on 8 March.

“This deal is transformative as it is Poland’s largest retail landlord and amounts to an estimated R7.2 billion in additional equity for Redefine and adds around R19.7 billion of total assets onto our balance sheet. This equates to about an additional 19.8% of shares in issue for Redefine. In the next six months we will be focusing on integrating EPP into our business in a sustainable way that maximises long-term value creation,” says König.

The strategic reset for Redefine has entailed a recent reconstitution of its executive committee.

“We are bringing more depth and balance to our executive committee (ExCo), incorporating a broader range of strategic skills to take us forward sustainably and effectively,” says König. New additions include the Company Secretary, Chief Sustainability Officer, Chief People and Chief Legal and Regulatory Officers.

“All the good work, restructuring and refining what we have is now bearing fruit and ensuring we are well positioned to benefit from the eventual upward cycle,” says König.

For the future, the focus turns to refining the asset platform further by recycling any remaining unproductive domestic assets. Internationally, numerous logistics developments will be pursued in Poland.

“I don’t think there will be fireworks from the SA economy for some time. We are more focused on the variables under our control,” adds König.

Redefine CFO, Ntobeko Nyawo says the integration of EPP will support Redefine’s medium-term growth outlook, while the company’s credit metrics remain “very stable”.

“We have maintained good liquidity thanks to disposals and strong cash generation. We are actually getting to a point where our recoveries are at 103% as we recover Covid-19 deferrals,” he says.

“The quality of earnings is therefore getting more sustainable, enhancing our ability to build and grow,” says Nyawo.

Nyawo says a loan to value close to 40% should be achieved in FY2022 based on disposals and earnings generated.

COO Leon Kok says while conditions locally remain challenging, there are some signs of recovery, especially in the retail space. He says turnover from retail tenants is now at around 105% of their pre-Covid-19 levels. “The recovery is largely being driven by homeware and essential services, which are now at about 110% of their 2019 levels.”

Online shopping has seen significant growth in reported sales, driven by the grocery and pharmacy sectors. However, Kok says all indications point to online and physical retail co-existing. “As a landlord we are looking at ways to embrace that and make sure offerings are more seamless, for instance by accommodating growing demand for click and collect and to also drive loyalty,” he says.

The office sector is under the most pressure, with vacancy rates increasing to 16% from 14% before – the highest it has ever been.

“I don’t see much in terms of improvement given that a lot of space is available and demand is low thanks to unemployment. However, the key is to make sure we retain the tenants we do have by making sure assets are relevant to their needs. For instance, we are focusing on improved health and safety and sustainability initiatives,” he says.

Kok says the office space is beginning to show some signs of life as workers gradually begin to return to physical offices, though in many cases still for only a few days a week.

“I think we might see that trend continue as many employers embrace flexible working arrangements.”

Kok says the industrial portfolio has remained defensive, with demand for logistics solutions driven principally by the retail growth. “Logistics remains very competitive, but participants are becoming more cost conscious, making cost management critically important,” he says.

Kok says Redefine’s diversity across the sectors remains a key benefit. “Over the years we have been actively recycling assets to improve the overall quality of our portfolio. In these uncertain times, I believe the old adage of a ‘flight to quality’ will hold true.”

Internationally, Redefine’s logistics pipeline in Poland continues to grow. This includes two projects of 96,917 square metres to gross leasable area (GLA) and further projects of 207,420 square metres under construction to be completed in the next six months

Another highlight over the past six months on the international front was the receipt of the proceeds from the sale of the remaining student accommodation property in Australia, during first week of February.

As part of its Moonshot strategy, Redefine is driving ESG as a key strategic thrust. Redefine is SA’s first REIT to become a signatory to the UN Global Compact.

“Redefine’s purpose is to create and manage spaces in a way that changes lives, which requires more than a business as usual approach: it requires an integrated approach to making strategic choices that will sustain value creation for all stakeholders through focussing on what matters most. We are firmly on track to doing just that,” concludes König.

Redefine’s half year results to 28 February 2022 will be announced on 16 May.

JSE REIT Stor-Age, South Africa’s leading and largest self storage property fund, has today announced the acquisition of a regionally dominant four-property portfolio in the UK, while also successfully raising R575 million in a significantly oversubscribed accelerated bookbuild.

The bookbuild saw R575 million of equity raised at a price of R14.30 per share, representing a 0.92% discount to the 30-day volume weighted average traded price.

The capital raised will support the finalisation of the UK acquisition, while also enabling the group to continue taking advantage of development and acquisition opportunities in both South Africa and the UK. The acquisition, secured at £37.5 million and consisting of a four-property portfolio offering 12 400m² of gross lettable area (GLA), has the potential to be expanded to approximately 18 900m² on a fully fitted-out basis.

Stor-Age continues to deploy capital strategically, adding quality and scale to its high-quality portfolio of self-storage assets in both markets. Despite the tough trading conditions and the continued impact of the COVID-19 pandemic, as one of only ten publicly-traded self-storage REITs globally, the company continues to demonstrate its resilience by delivering excellent operational and financial results.

The result of the accelerated bookbuild is a strong vote of confidence in the business and its strategy. Comments Stor-Age CEO Gavin Lucas, “We are pleased with the result of today’s capital raise, which once again demonstrates both the high regard in which Stor-Age is held and the significant appetite for the company’s stock. The capital raised will allow us to successfully continue with our strategy of growing our portfolio in both South Africa and the UK, adding quality and scale in both markets.”

The company’s South African pipeline consists of 10 properties, offering an estimated 59 200m² GLA at an approximate total cost of R850 million. In the UK, the pipeline consists of 4 properties offering an estimated 20 500m² GLA at an approximate total cost of £46 million.

Add Lucas, “Stor-Age and the self storage business model have a track record of resilience in constrained economic environments. The primary drivers of demand for our product are life-changing events and / or dislocation, be they positive or negative in nature. Maintaining a strategically well-placed and conservative balance sheet remains a priority for the company. Our LTV target range of 25% to 35% allows for the consistent execution of the strategy in both South Africa and the UK.”

In a trading update for the third quarter ended 31 December 2021, Stor-Age confirmed that total occupancy in the same store portfolio increased by 10 500m² (2.6%), whilst the closing average rental rate increased by 1.6% (annualised 6.3%) and 1.5% (annualised 6.0%) in SA and the UK respectively.

The group continues to be well-positioned to benefit in the medium to long-term from the rapid acceleration of change brought about by the pandemic.

The share closed yesterday at R14.88.