Redefine’s ‘focus on the positives’ reaps rewards

● With property stocks recovering after Covid, Redefine Properties CEO Andrew König is optimistic about the company’s prospects, having increased its assets under management to R96.8bn in the year ended August 2023.

“We have chosen to be optimistic. South Africans in general are programmed to think negatively about everything. We are always complaining about something. For us, it is a mindset shift to rather say let us focus on the positives and see the opportunity within each challenge. It is a choice.”

Redefine is the second-biggest JSE-listed real-estate investment trust. Sixty-two percent of its portfolio is invested in South Africa in retail, office and industrial assets, with the difference in Poland, where it has retail and logistics property investments.

In the year under review, its assets increased to R99.4bn from R92.4bn a year earlier.

Occupancy levels in South Africa were 93%, slightly down from 93.3% a year earlier. Occupancy in Poland was 98.4%, up from 96.5% last year. To cushion tenants from load-shedding and improve its green footprint, Redefine is adding 9.5MW of solar capacity, increasing its installed capacity to 46.4MW.

Commenting on the results, Ann-Maree Tippoo, portfolio Manager at Ninety-One, said Redefine has been among the better-managed larger market caps and more liquid South African property players.

“It has outperformed many of its peers and looks set to continue along that trajectory.” Real estate, as a sector, is interest-rate sensitive and will typically be negatively affected in a rising-rate environment, she said. “Conversely, as rates peak and start to descend, levered plays like property tend to benefit through valuation and positive earnings impacts.”

While inflation can erode the spending power of consumers and have a knock-on impact on tenants, including retailers, corporates, manufacturers and logistics players, maintaining strong relationships is important, Tippoo said.

“The landlord-tenant relationship is governed by leases of around five years in general. Baked into these leases are agreedupon escalations. Thus, Redefine can weather changes through the cycle, its diversified portfolio further contributing to its resilience”.

Speaking at the company’s financial results presentation, Redefine COO Leon Kok said the group’s focus on diversified quality assets has been key to its resilience against a subdued economic climate.

“A total of 71% of tenants are what we classify as A-grade and are able to meet their rental commitments. Those are the tenants we try to retain,” he said.

The group’s local property portfolio boasts Alice Lane and 115 West Street in Sandton, Johannesburg, and the Kenilworth Centre in Cape Town.

It is invested in self-storage facilities in Poland with partner Griffin Capital Partners.

However, König said that while Covid is past, the economy is still challenging for the office sector.

“The office sector is in trouble because there is no new demand for tenants as a consequence of sluggish economic growth and high unemployment levels. For the office sector to get back to a position where there is new demand coming from businesses expanding, we believe we need [sustained] GDP growth of 3.5%.”

Redefine has repositioned itself in a difficult operating environment to focus on quality in well-located nodes, “which has benefited our portfolio”, he said.

“Ninety-five percent of our portfolio is invested in premium and A-grade property assets in the office space. That is why we are able to do better than the rest of the market. We have been selling our lower-grade assets over the last 10 years. In this environment there is a flight to quality because it is the tenant’s market.”

He expects interest rates to start easing by 2025.

“It will be a bit of a relief and a tremendous boost. Property is based on confidence. People will make long-term decisions around commitment to leases if they are confident about the future and the economy, if they are confident about the government and if they are confident about municipal infrastructure being there to serve their long-term needs.”