Redefine Properties has published its group interim results for the six months ended February 2024, reporting an increase in its distributable income of 6.1% to R1.7 billion, translating to 25.3 cents per share (HY23: R1.6 billion, 23.9 cents per share).
The Group was able to sustain its operating profit margin at 76.5% (HY23: 76.7%) despite the tough conditions that local property counters and other interest rate-sensitive companies find themselves in.
“Like other counters, we have navigated a difficult downturn and maintained our resilience,” said Andrew König, CEO of Redefine. “The higher-for-longer interest rates remain a persistent theme and relief is critical to moving the dial on most outcomes … We have focused on variables within our control that can directly influence value creation like capital allocation, capital sourcing, maximizing rentals, and containing costs.”
The Group’s year-on-year trading densities increased by 4.8% to R34 460 per square meter which contributed to an average rent-to-turnover ratio of 7.4% across its retail portfolio. According to Redefine’s COO, Leon Kok, this means there is opportunity for rental growth which will enable a more aggressive pursuit of renewal rates in the retail sector.
As part of its retail strategy to enter the rapidly expanding township market, the Group raised funds through the sale of non-core assets to purchase a stake in Pan Africa Mall in Alexandra, Johannesburg and acquired the Mall of the South for R1.8 billion during the reporting period.
“The future of physical shopping is not as bleak as many expected it to be post-COVID,” said Redefine COO Leon Kok. “Despite interest rate pressures and shoppers’ limited disposable income, the retail sector, supported by demand for essentials, value, and apparel, is performing relatively well.”
Both Redefine’s retail and industrial portfolios reported a substantial improvement in rental renewal reversions with renewal rates now marginally negative in retail (-0.5%) and positive (4%) in industrial.
On a total portfolio basis, negative reversions came down to -0.5% compared to -3.7% in HY23 but this result was skewed by higher negative reversions (-13.6%, HY23: -12.4%) in its office portfolio.
Kok noted the current oversupply of office space, and somewhat muted demand: “As a result, we can anecdotally refer to it as a tenant market, because they have options and the ability to shop upwards and occupy well-located, quality office space at relatively affordable rentals … The office portfolio at a net operating income level grew by 4.1%, outperforming our industrial portfolio, which speaks to its quality.”
In Poland, the energy price crisis, which was the biggest driver of high levels of inflation in that jurisdiction, has recovered and returned to near pre-crisis levels. This is leading to an increase in disposable income, which has also been helped by policies implemented by the new government, such as an easing of the ban on Sunday trading and raising the child social grant.
Redefine increased its exposure in Poland by lifting its ownership level in Polish retail platform EPP from 95.5% to 99.2%. Occupancy levels in the core EPP portfolio sit consistently at 98.4% and the portfolio is essentially considered fully let.
According to Ntobeko Nyawo, CFO of Redefine, the group’s healthy liquidity profile, which it has maintained at R4.2 billion, remains at levels that provide sufficient strategic headroom to weather any unforeseen events in the near term, thereby anchoring balance sheet strength.
He added that the group’s healthy debt maturity profile has helped its liquidity position with no more than 18% of facilities coming up for maturity in FY25 to FY27, which can be comfortably refinanced.
“When interest rates are high, it’s imperative to adequately hedge and protect ourselves. Approximately 76.7% of the group’s debt is hedged; during this time, we are hedged for an average term of 1.5 years, and the short, dated tenors seek to avoid baking in long-term pain of higher rates.”
The REIT’s loan-to-value (LTV) sits at 42.6% on the publication of these results.