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Redefine navigates uncertainty with focus on organic growth

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Redefine Properties (JSE: RDF) announced in its pre-close investor update for the half-year ending 28 February 2025 that its earnings outlook has stabilised despite a challenging operating context, driven by a focus on efficiency and strong demand for quality assets.

The company reported that its South African portfolio achieved a net operating profit margin of 77.8%, while EPP, its directly owned Polish retail property platform, improved its margin from 66.4% to 71.7%. This led to a consolidated group net operating profit margin of 75.9%.

Redefine CEO Andrew König highlighted that the global path to economic normalisation has been disrupted by changes in US policy under President Donald Trump, which introduced uncertainty around interest rates and inflation. “The stage is now set for a shallow easing cycle, and rates may not reach the levels we previously expected. While European interest rates continue to trend downward, escalating geoeconomic tensions cloud the 2025 outlook. To sustain growth in valuations, we cannot rely solely on interest rate movements. Our strategic focus remains on organic income growth, as this will drive value creation in the current market.”

Looking ahead, Redefine’s strategy is focused on disciplined capital allocation, the sale of non-core assets to reduce its loan-to-value ratio, restructuring joint ventures to enhance visibility of income streams, whilst delivering income growth. König noted that commercial real estate transactional activity is on the rise, which will support the company’s plans to offload non-core assets, with growing interest in the market.

Despite the disruption caused by the delayed national budget speech, König pointed to two promising initiatives from the National Treasury: efforts to remove South Africa from the greylist by October and the restoration of the country’s investment-grade credit rating. “This is critical for our business, as Redefine’s Moody’s rating was downgraded alongside South Africa’s. A reversal of this could improve access to international debt markets, and the delayed budget may even help with these efforts.”

 Green shoots in the SA portfolio

 Redefine’s South African portfolio has demonstrated solid performance, particularly in the industrial and retail sectors, which drove a 1% increase in overall occupancy since August 2024. Additionally, 80% of renewals were completed at stable or increased rental terms, a positive indicator of growth.

The industrial sector has proven especially resilient, with occupancy rising to 97.6%, alongside positive rental reversions in a competitive market. “The industrial sector continues to be one of our strongest performers, and we see potential for further growth if capital availability allows us to expand,” said Leon Kok, Redefine’s COO.

Conversely, the office sector remains challenged by excess supply and limited demand, except in select nodes. A significant lease renewal resulted in a -17% renewal reversion during the period. However, Redefine mitigated this impact through strong leasing activity in other locations, such as the Western Cape and Sandton, which benefit from proximity to the Gautrain. “Demand is focused on high-quality assets, and our active asset management ensures our portfolio remains well-positioned to attract this limited demand,” Kok added.

Sustainability commitments

 Redefine is making notable strides towards its sustainability goals, with an ambition to become the most sustainable property company by 2030. The company plans to expand its renewable energy capacity by 47%, with an anticipated 17% of energy consumption coming from renewable sources by year-end. Additionally, Redefine has achieved a 38% reduction in greenhouse gas emissions across its European portfolio, further solidifying its commitment to environmental sustainability.

The company also received recognition from Sustainalytics, earning three badges, including being ranked the 16th most sustainable global real estate company, the only South African REIT to place among the top 50 worldwide.

Growth in Poland

 While South Africa faces ongoing challenges, Poland’s economic growth has benefited from European interest rate cuts and social grants that have boosted household spending and retail conditions. EPP’s core properties have seen impressive occupancy levels of 99.3%, with rental reversions rising from 0.2% to 1.5%. The rent-to-sales ratio remains well below 9%, indicating healthy tenant affordability.

Redefine is pursuing a strategy of selling non-core assets and restructuring joint ventures in Poland to reduce complexity and lower the see-through LTV. “We are exploring options to simplify our joint ventures to either exit or fully own them,” König explained.

 Strong cash generation

 Redefine’s financial position remains strong, with a liquidity profile of R6.4 billion as of November 2024. The company has also proactively managed its debt profile, including the FY25 maturities that are progressing well on the back of improved liquidity levels in the capital markets. As of February 2025, Redefine’s weighted average cost of debt decreased to 7.2%, providing some relief amid global inflationary pressures.

Ntobeko Nyawo, Redefine’s CFO, emphasised, “Our focus continues to be on generating organic growth from our existing portfolio, maintaining a strong balance sheet, and weathering the current economic cycle. We are positioning the company to capture opportunities in high-quality assets, while ensuring strong cash generation to support our dividend payouts.”

Looking ahead: Living the upside

Redefine enters 2025 with a focus on “living the upside,” aiming for sustainable, long-term value creation. König concluded, “While some macroeconomic factors, including US policy shifts, remain unpredictable, we are confident in our ability to create our own upside and deliver on our strategic goals.”

Despite macroeconomic challenges, the company is maintaining its earnings guidance for FY25, with distributable income per share expected to be between 50 and 53 cents.

 

 

 

SA REIT Association expects steady sector growth in 2025

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The South African Real Estate Investment Trust (REIT) sector is poised for growth in 2025 driven by improving investor sentiment and property fundamentals, rising consumer confidence and falling interest rates.

According to the SA REIT Association December and January Chart Books, the sector is expected to deliver strong income returns of c.8%-9%.

Itumeleng Mothibeli, Chairperson of the SA REIT Research Committee and Managing Director of Vukile Property Fund Southern Africa commented:

“With the economic recovery, lower interest rates and robust demand for commercial property—particularly in the retail,  industrial and logistics sectors – we anticipate growth in the REIT sector this year. Our members are consistently reporting improvements in property fundamentals and the quality of earnings.”

“Township, urban and rural malls will continue to show resilience, while demand for logistics and warehousing space will remain strong. In the office sector, vacancies are falling as demand increases for smaller, high-quality spaces with features like co-working spaces, wellness facilities and smart technology are a draw card for tenants.”

Mothibeli said the defensive qualities of South African REITs such as their inflation protection, mandatory income distributions, liquidity and diversification advantages make them essential for building resilient portfolios. The predictability of real estate leases and rental income gives REITs a defensive edge, enabling more accurate earnings forecasts and lower share price volatility. REIT dividends are known to hedge against inflation, as asset values and rental rates often rise ahead of inflation.

“The cumulative 75-basis point interest rate cut will support sector growth, reduce borrowing and debt repayment costs for REITs, increase property values and returns for investors and boost distributions,” said Mothibeli.  

Despite the economy’s prolonged stagnation in 2024, Nedbank forecasts modest growth of 1.4% in 2025 and 1.8% in 2026. However, the bank expects fewer interest rates this year.

Nicky Weimar, Nedbank Group Economist commented: “Growth will be driven mainly by firmer consumer spending, supported by rising real incomes, subdued inflation, modestly lower interest rates and the withdrawals of contractional savings through the two-pot retirement fund system.

“Commercial property mortgages are recovering while home loans continue to slow. Nedbank expected both the commercial and residential property markets to improve moderately as the year progresses.”

Weimar stressed that the rapidly changing global landscape would probably deliver stickier global inflation and fewer US interest rate cuts, pointing to high-for-longer risk-free rates and continued US dollar strength. Against this backdrop, the South African Reserve Bank is likely to remain cautious.

Given upside risks to the local inflation outlook from a vulnerable rand, elevated US interest rates and the threat of global trade war, the current rate-cutting cycle is likely to be shallow. Nedbank forecasts only one more rate cut of 25 basis points in July. Consequently, monetary policy easing is unlikely to provide a significant boost to the property market. Instead, moderately faster economic growth in response to easing structural constraints and stronger consumer demand will support a reasonable recovery in the property market, said Weimar.

Gary Garrett, Managing Executive of Property Finance at Nedbank CIB commented: “We saw a significant increase in activity in the sector in the second half of 2024 which we attribute to the stability created by the Government of National Unity (GNU) as well as real evidence of interest rate cuts. We believe that this momentum will continue in 2025 should current economic conditions hold.”

The listed property sector outperformed other asset classes, including equities and bonds in 2024, further highlighting the positive sentiment and investor confidence in the sector, Garrett added.

Growthpoint delivers Longkloof Precinct heritage development

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Growthpoint Properties (JSE: GRT) has delivered the multi-year, multi-million-Rand revitalisation of the historic Longkloof precinct, creating a uniquely Capetonian urban gem.

The precinct redevelopment was thoughtfully curated by Growthpoint, South Africa’s leading real estate investment trust (REIT), in a heritage-led project to inject new life into the Longkloof Precinct. The multifaceted project involved the renovation of several Growthpoint-owned buildings and the creation of an attractive public square at their heart, which connects to the city via four different access routes.

“Growthpoint’s vision was to reimagine six buildings — made up of a historical school and an industrial building with its boiler room — and a vacant parking lot as a hip and vibrant mixed-use precinct that embodies Cape Town’s essence in something new and exciting, yet respectful of its heritage,” says Wouter de Vos, Growthpoint’s Regional Head: Western Cape.

This flagship precinct exemplifies Growthpoint’s commitment to enhancing the city’s built environment​ through urban renewal with quality assets. Its low vacancy rate, below 2%, reflects its desirability in Cape Town’s thriving real estate market.

Work on the precinct began in 2019 after several years of painstaking planning and most elements were completed by 2021. The 21,164sqm multi-use property has become a desirable address for innovative, creative and entrepreneurial businesses. Major office tenants include Travelstart, Mushroom Media and Workshop17. Longkloof is also the fifth Cape Town location of WorkAgility, Growthpoint’s pioneering agile ready-to-occupy office concept, which eliminates traditional office costs and complexity and can be secured for periods as short as one year.

The final hospitality and retail elements were originally planned to open in 2021 but were delayed by the Covid-19 lockdowns and the subsequent period of global and local uncertainty, and now complete and are coming to life around the precinct.

“Five years after the start of the pandemic, the resilience of the Cape Town market is undeniable, with an upswing in international tourism since mid-2023, together with ongoing ‘semigration’ from other parts of South Africa to the Western Cape,” highlights de Vos.

The 154-room Canopy by Hilton Cape Town Longkloof Hotel is the first of its kind in Africa and incorporates the façade of the former MLT House, the structure of which has been carefully preserved and integrated into the new design. The hotel entrance leads from Longkloof’s public open square – Longkloof Square – with newly curated retail and social spaces that enhance the precinct’s connectivity and community focus.

De Vos says the hotel is the perfect complement to the mix of uses and tenancies in the Longkloof precinct. “We are proud to welcome Canopy by Hilton to South Africa, which brings fresh, dynamic energy to the city’s hospitality scene, and captures the character, culture and creative charm of its location.”

This thoughtfully designed Canopy by Hilton Cape Town Longkloof hotel blends upscale comfort with the charm of Cape Town’s rich cultural tapestry, featuring custom art pieces that reflect the neighbourhood’s creative spirit, articulated in a Cape Malay colour palette, and inspired by fynbos, the ocean and nearby Bo-Kaap on different floors. With its prime Longkloof location, historical setting, and deep connection to local culture, the precinct offers seamless access to major landmarks and public transport, while the hotel delivers everything you expect from Canopy by Hilton—authentic connections, stylish design, and a vibrant social atmosphere.

Andreas Lackner, Vice President Operations, Africa & Indian Ocean, Hilton, says, “We are delighted to start welcoming guests to the much-anticipated Canopy by Hilton Cape Town Longkloof and are proud to be the centrepiece of the iconic precinct. We congratulate our partners at Growthpoint for completing the development of Longkloof, revitalising the historic precinct with this world-class hotel, an attractive public square and more. The neighbourhood is set to be a destination in its own right, and we are pleased to be at the heart of it.”

Growthpoint has devoted specific attention to ensuring the right retail mix for the precinct, with only a few signs left to hang above its restaurant windows and storefronts. “In keeping with the intention to ensure that Longkloof Square is a destination and meeting point for the local community, we have sought out a mix of food and fashion that is unique to Cape Town. The retail premises are deliberately tailored to create a boutique environment with diversity and interest and will open over the next two months, and we’re excited to share these details soon,” says de Vos.

The retail is on ground level fronting Park Road, extending into Summit Lane and spilling into the square. Each shopfront expresses the identity of its occupant through a mix of timber finishes and different window choices, adding to the charm of the precinct’s distinctive red-brick facades and quirky industrial interiors.

Not all developments can be done with this degree of time and patience, but a heritage-focused project of this nature is an exception. “There is certain value in more difficult developments,” says Neil Schloss, Growthpoint’s Head of Asset Management SA. “The fact that they are hard to do, and there are few property investors who have the capacity to take them on, gives them scarcity and, given the right project, this creates greater value.”

“We are extremely pleased with what has been achieved with the redevelopment of the historic Longkloof precinct and we fully believe that it enhances its surrounds and the city, as well as the Growthpoint portfolio of property assets,” he continues. “This is a new gem to be discovered in Cape Town and aligns perfectly with Growthpoint’s strategy of creating assets that have value and growing relevance into the future.”

Redefines’retail portfolio grows as trading conditions in SA improve

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Redefine Properties’ retail portfolio continues to deliver as trading conditions in South Africa improve

Johannesburg, 2 December 2024 – Redefine Properties (JSE: RDF), one of South Africa’s leading real-estate investment trusts (REIT), has noted an improvement in trading conditions in South Africa’s retail sector going into the 2024 holiday season. With positive trends in retail sales, rental renewal rates and visitor foot count, the momentum in the sector bodes well for South Africa’s future growth.

In August 2024, retail sales in South Africa increased year-on-year by 3.2%. This marked the sixth consecutive month of growth in retail activity and at a robust pace. Additionally, foot traffic in major shopping centres rose by 8.3% year-on-year during the second quarter of 2024, a positive trend that has continued since December 2021. The rent-to-turnover ratio, which is a measure of retailer’s cost of occupancy, is now at its best level in more than ten years.

Nashil Chotoki, Retail national asset manager at Redefine, attributed the growth in retail activity to non-discretionary spending, with food and value-focused retailers serving as the main industry drivers. “Within the Redefine portfolio, grocers contribute 64% of turnover growth. Therefore, a tenant mix of essential services and retailers aligned with value offerings that is relevant to the demographics of the catchment areas will be a key success factor for shopping centres. It is why Redefine will increase its exposure to this category to 40% of its GLA in the next financial year,” Chotoki explained. “Lower interest rates and improved consumer confidence will further drive retail sales growth into some of the discretionary retail categories, and, ensuring that the tenant mix of a shopping centre is aligned to this will create sustainable growth.”

These trends come on the heels of the release of Redefine’s annual results for the 2024 financial year (FY24). The REIT’s retail portfolio accounts for 45% of its South African property asset platform, with a carrying value of R28.3 billion (up from R24.6 billion in FY23). Redefine owns 59 retail properties nationwide, occupied by 2,807 tenants with an annual trading density of R34,700 per sqm. The portfolio’s rent-to-turnover ratio of 7.7% reflects sustainable revenue growth prospects across its retail formats.

Redefine also enjoys an active occupancy rate of 95%, which it expects to increase in FY25 due to healthy letting demand. Furthermore, with the help of tenant support programmes and data-driven insights, Redefine ensures tenants are placed in optimal macro-locations to enhance their trading performance. This has enabled Redefine to improve its rent reversion rate on renewal to 0.2% and achieve a renewal success rate of 88%. Our analysis goes way beyond shopper data and combines a variety of data to drive insights to make decisions that inform our strategy at an asset level.

“We have also found that upgrades to stores, particularly grocers, drive improvements in turnover through attracting new customers to shopping centres. That is why Redefine is working closely with national retailers to support this, culminating in 8,500 sqm worth of upgrades scheduled to commence in February 2025,” Chotoki added.

To further diversify income streams, Redefine has pursued alternative revenue opportunities through in-mall and exterior billboards, and electric vehicle charging infrastructure installed at eight sites. Sustainability remains a top priority, with solar photovoltaic plants generating 18% of the portfolio’s energy needs thanks to an installed capacity of 34,587 kWp. Expansion plans will add another 12,351 kWp in capacity.

“There are still challenges in our path, but what is certain is the resilience and promise that South Africa’s retail industry poses from both a consumer and business perspective. Through strategic planning and implementation, and by prioritising the needs of consumers and our tenants, we are fully tapping into the power of retail spaces as social and economic enablers,” Chotoki concluded.

Vukile’s first-half puts it firmly on track for full-year guidance

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Vukile’s excellent first-half puts it firmly on track for full-year guidance

Vukile Property Fund (JSE: VKE) has reported an impressive 6.0% increase in its interim cash dividend to 55.2cps for the six months to 30 September 2024. The consumer-focused retail real estate investment trust (REIT), distinguished by its sector specialisation and international diversification, has reported excellent half-year operational results. This strong performance positions it comfortably to meet its full-year guidance of growth in FFO per share of 2% to 4%, with a trajectory towards the upper end of its 4% to 6% DPS growth target.

Laurence Rapp, CEO of Vukile Property Fund, comments, “Our strong first-half performance delivered outstanding operating results and solid trading metrics across our property portfolios, which positions us well for continued growth. Vukile’s businesses in South Africa and Spain are intentionally structured for seamless success, driving the strategic and operational progress that we’re pleased to report.”

Vukile is a leader in consumer-focused shopping centres with total property assets of R40.1bn. Its commitment to customers shines through in its convenient, community-focused, needs-based retail centres. It is invested in a portfolio of 33 urban, commuter, township, and rural malls in South Africa. Through Vukile’s 99.5% held Spanish subsidiary Castellana Properties, it has a portfolio of 15 shopping centres in Spain and a portfolio of three newly acquired shopping centres in Portugal. Some 59% of Vukile’s assets are in the Iberian Peninsula, and almost 48% of its property net operating income is earned in Euros.

In South Africa, Vukile’s robust operating platform, coupled with a strengthening macroeconomic environment, has delivered outstanding results.

“With sentiment improving, loadshedding decreasing, consumer confidence rising, and interest rates falling, the sustained strong metrics produced by our successful operating platform enjoyed a welcome boost. We anticipate this momentum to persist into the second half and beyond,” notes Rapp.

Valued at R16bn, Vukile’s defensive, dominant South African portfolio delivered strong performance and growth, with like-for-like net operating income growth of 4.6% and a 3.7% increase in the value of its retail portfolio. Vacancies remain at an exceptionally low 1.9%, supported by active letting, with 85% of leases signed at better or the same rental level and 93% tenant retention success. The portfolio achieved impressive trading density growth of 4.2%, with Vukile’s shopper-first focus driving increased footfalls and sales. A key highlight is the portfolio’s decreased cost-to-income ratio, down to 15%, the lowest level in a decade.

Vukile’s solar PV rollout in South Africa has been tremendously successful, driving margin and propelling it towards carbon neutrality. During the six months, it added four PV plants with 4.9MWp of capacity to its existing 28 plants of 21.6MWp. It is also applying the same focus to water management and efficiency.

Adding value to its South African portfolio through acquisitions and developments, Vukile’s redevelopment of the recently acquired Mall of Umthatha is on of schedule, with completion and substantial letting expected by the first quarter of 2025. Vukile anticipates a minimum 10% yield on this acquisition. The reconfigured East Rand Mall in Boksburg is trading exceptionally well following the introduction of Checkers FreshX as its first-ever grocery anchor. The R141m Bedworth Centre upgrade in Vanderbijlpark is progressing rapidly, with both new anchor tenants, Boxer and Shoprite, opening in time for the festive season. The development of Thavhani Retail Park in Thohoyandou, Limpopo, where Vukile acquired a 33% stake for R101m on an 8.6% yield, has broken ground. It is located adjacent to Vukile’s very successful Thavhani Mall asset.

Vukile remains keen to invest in South Africa. “We are actively exploring opportunities and are currently in the early stages of evaluating several potential deals in the market,” confirms Rapp.

Vukile’s well-established investment in Spain has cemented Castellana’s position as a market leader, capitalising on the advantages of the country’s status as a European growth powerhouse. The on-the-ground presence of Castellana not only ensures first-hand market knowledge but operates as a local business, which has proven a distinct advantage in accessing opportunities.

With Spain’s economy leading the Eurozone and its financially healthy consumers driving growth, Castellana’s consistent consumer-focused model has excelled, surpassing market benchmarks and outshining peers with high footfall and sales.

The Spanish portfolio remains fully let, with marginal vacancies of around 1% and 95% of space let to blue-chip international and national tenants. It achieved like-for-like rental growth of 2.1% and exceptionally high positive rental reversions of 45.5%. The portfolio has the market’s lowest occupancy-cost ratio, 9.5%, providing further room for future rental growth.

Vukile is well-known for its astute capital allocation. Post-period in October, it accepted the offer to sell its entire 28.8% stake in Lar Espana for €200 million, generating a capital profit of some €70 million and an IRR exceeding 30% in Euros. The proceeds will be redeployed into physical assets in well-advanced transactions currently being evaluated

As previously disclosed, Castellana remains in exclusive discussions to acquire the largest shopping centre in Spain’s Valencia province, Bonaire Shopping Centre, from multinational retail REIT Unibail-Rodamco-Westfield. The transaction’s closing has been extended due to the tragic floods in Spain, pending a full damage assessment and remediation timeline for the flood-impacted shopping centre.

Rapp notes that a key highlight executed post the reporting period was Castellana’s strategic entry into Portugal, a compelling new market, which has expanded its Iberian investment footprint. “The move capitalises on Portugal’s strong economic growth and fragmented retail property sector ripe for consolidation, mirroring opportunities seized in Spain.”

With its investment in a high-quality, blue-chip-tenanted portfolio of three Portuguese shopping centres valued at €176.5m, the expected 10%-plus cash-on-cash yield in Euros underscores the market’s potential for value creation. Castellana’s on-the-ground expertise positions it to add substantial value to the Portuguese assets while growing in this market, with liquidity in place and further transactions under consideration.

Vukile’s robust balance sheet and disciplined capital allocation are enduring merits for this REIT. Its balance sheet remains exceptionally strong, with a reduced LTV of 35%, an increased ICR of 2.5-times, and R6.4 billion in liquidity, including R5.1 billion of cash on hand and R1.3 billion undrawn facilities.

Vukile remains one of the most highly rated credits in the property sector with its AA(za) corporate rating reaffirmed by GCR, with an upgraded positive outlook. Fitch also upgraded Castellana’s Long-term Issuer Rating of BBB- with a positive outlook. These high international investment-grade credit ratings underscore excellent access to debt and equity capital markets. Vukile raised approximately R2bn during the period from new share issuances.

“We are tremendously appreciative of the support shown for our capital allocation strategy, as evidenced in our equity and debt capital raises. Strong capital allocation lies at the heart of our expansion strategy, and we are dedicated to dealmaking discipline in seeking new opportunities that are strategically aligned and financially accretive in our core markets of Spain, Portugal and South Africa,” says Rapp.

He concludes, “Vukile delivered excellent first-half operating performance and has laid a firm foundation for future growth. We remain committed to our scalable consumer-led model to create value for all our stakeholders.”