Archives for August 2023

Hotel construction commences to add the final touch to Growthpoint’s historic Longkloof precinct

Growthpoint Properties (JSE: GRT) is moving ahead with its final improvement to the historic Longkloof precinct in Cape Town – the development of the Canopy by Hilton Cape Town Longkloof hotel.

The project was originally planned for completion towards the end of 2021 but was put on hold as South Africa has navigated a period of uncertainty. With increased tourism in Cape Town, and in particular the material growth in tourist numbers over the usually quiet winter months, as well as a general upswing in economic activity evident in the city, Growthpoint believes the time is now right to get the project back on track.

The Western Cape, and Cape Town in particular, have exhibited economic resilience. Semigration from other parts of South Africa to the Western Cape is steady and is boosting Cape Town’s appeal as an attractive city to live and work in. Reflecting this appeal, Growthpoint’s office vacancies in the Mother City are steadily improving and recently dropped below the 10% mark for the first time since 2020, significantly outperforming the SAPOA national average of 15.8% (March 2023).

Timothy Irvine
Timothy Irvine, Growthpoint Regional Asset Manager for the Western Cape

International tourism has also picked up again, with international flights to Cape Town numbering higher than ever before and a strong flow of tourists year-round. Tourist centres in South Africa are also likely to get a boost from the current exchange rates, with a positive effect on Cape Town’s attractiveness to international travellers.

The heritage-led project to revitalise the Longkloof Precinct includes the renovation of several Growthpoint-owned buildings and the creation of an attractive public yard that connects to the city via four different access points. Growthpoint’s vision was to reimagine the six buildings and vacant parking lot that are made up of a historical school and a historical industrial building with its boiler room as a modern and trendy mixed-use precinct that embodies the essence of this unique city in something new and exciting, yet respectful of its heritage.

The plans were painstakingly developed and refined over several years before work began in 2019, and most elements, with the exception of the hotel, were completed in 2021. This created unique and desirable offices now occupied generally by entrepreneurs, tech and marketing-related companies.

One of the highlight features of the precinct is the 150-room Canopy by Hilton Cape Town Longkloof Hotel – the first of its kind in Africa – which leads out onto the public yard offering curated ground-level retail. The façade of the former MLT House, the structure of which is being incorporated into the hotel, has been carefully preserved and integrated into the new design.

Timothy Irvine, Growthpoint Regional Asset Manager for the Western Cape, says that while delaying construction was correct in the economic uncertainty, market conditions are indicating that it is now the right time to resume work. “The hotel will round off the precinct, which is now ready for it. It will complement the mix of uses and tenancies there,” he says.

These include tech-orientated and entrepreneurial businesses as well as Workshop 17, which is now expanding. Workshop 17 is located in 32 on Kloof, which was the first building in the precinct to be renovated and which opened its doors in August 2019.

The building known as the Refinery, a gracious Herbet Baker-designed historical school building, underwent a modernisation of its services. The buildings known as Darter Studio and Threshers Studio, in deference to their surroundings and former use, were also revamped to create connected office buildings which have proven popular with creative and tech businesses.

There is a total of just under 17,000sqm of space available in Longkloof, of which some 16,600sqm is occupied, and by excellent tenants.

The public yard functions as a central space, along with its connectors into the rest of the city. It was important that it should be accessible to the general public, as something that anyone in the city could enjoy. A new coffee shop, Vine & Dandy, has now opened there, enlivening the space and reinforcing its importance as a place of socialisation and connection.

Irvine believes that the completion of the hotel and its operation under the Hilton Canopy brand will round out the special appeal of the precinct. Careful consideration of the precinct parking requirements and the addition of another 150 underground parking bays to the others in the precinct bolsters the attractiveness of what has already become one of the ultimate spots in Cape Town.

The Longkloof Precinct is on the Mother City’s famous Kloof Street in an area that has a distinctive character and culture. It is rich in history and beautiful buildings – authentically Cape Town.

“Introducing Canopy by Hilton, a hotel that is unique in Africa, to the revitalised Longkloof Precinct is the fantastic final finishing touch to the new dynamic that Growthpoint has created to be a perfect fit for this unique neighbourhood.”

Redefine fosters strategic resilience, opts for the upside

Real estate investment trust (REIT) Redefine Properties (JSE:RDF) said today in its pre-close update for the year ending 31 August 2023 that the business has been stabilised, with the company’s South African and Polish portfolios demonstrating “remarkable operational resilience” across all sectors in the face of the challenging operating environment.

Redefine Alice Lane South Africa
Redefine Alice Lane South Africa

While market-shifting dynamics such as the aftershocks of the pandemic, elevated inflation, an energy crisis and higher funding costs remain on the company’s radar, the update noted that there is cause for optimism that the property cycle has bottomed and that 2024 will mark a notable turning point for the sector.

Real estate fundamentals are building positive momentum

Notably, the upward trajectory of inflation is tapering, with early signs of cooling-off, which brings with it more predictable interest rate expectations. Meanwhile, the government and business’s plan to remove obstacles to inclusive economic growth and job creation through priority interventions is expected to restore much-needed confidence.

Redefine Pasaż Grunwaldzki Wroclaw Poland
Redefine Pasaż Grunwaldzki Wroclaw Poland

“We are encouraged by the fact that real estate fundamentals are beginning to build positive momentum that is expected to translate to future upside potential,” says Redefine CEO Andrew König.

“This has provided us with a renewed sense of optimism. However, we know that risks like geopolitical tensions, elevated inflation, high interest rates, rising energy prices and ongoing load shedding require an unwavering commitment to fostering strategic resilience as we look to pursue growth and deliver sustainable value.”

As such, Redefine is ensuring that it:

  • Invests strategically in efficiency interventions to reduce reliance on municipal-supplied utilities
  • Optimises capital by diversifying funding sources to spread concentration risk
  • Improves operational efficiencies through disciplined cost management and by digitising processes to transform the tenant experience.
Redefine Warsaw Airport Vi Poland
Redefine Warsaw Airport Vi Poland

Signs of stability

Despite load shedding and related cost headwinds, Redefine reports that operating metrics across its South African portfolio are gradually improving and showing signs of stability. Demand for P- and A-grade office space in sought-after locations has strengthened, while the group’s industrial portfolio continues to be defensive and is performing well in a competitive landscape.

Considering the prevailing uncertainty around the energy outlook and associated risks to operational performance, Redefine remains focused on improving its energy efficiency and bolstering business resilience by investing in renewable energy in South Africa.

For instance, the group is participating in the City of Cape Town’s first electricity wheeling pilot project that is enabling commercial entities to sell electricity back to the City’s grid. Redefine is undertaking a 5.9MWp solar wheeling project on the roof of its Massmart Distribution Centre at its Brackengate 2 development.

Andrew König
Redefine CEO Andrew König

Tapping growth opportunities

As an example of its efforts to realise growth and upside for shareholders despite market uncertainty, Redefine is unlocking opportunities in the retail, logistics and self-storage market segments in Poland.

“We remain confident about the potential in the Polish market,” explains König. “Our exposure to Polish retail and logistics provides stability; recovery of the shopping centre performance in that market is well on track, with positive retail sales forecast for the next two years.”

The update noted that rental rates continue to rise in the logistics market segment, particularly in sought-after locations and buildings with modern technologies and ESG solutions.

“The self-storage market in Poland represents an emerging asset class with untapped potential,” says König. “Poland has significantly fewer facilities than other European markets and demand is underpinned by robust micro business needs, representing 48% of overall users, which is above the EU average of 29%.”

The group reported strong working capital generation, with reason to expect improvements in the near term based on projected collections, which supports a healthy and stable liquidity profile.

The company’s SA REIT loan-to-value (LTV) at the end of May 2023 increased to 42.3% (HY2023: 40.9%) on the back of a weaker Rand. Redefine expects the LTV to moderate towards its internally set medium-term target of 38% to 41% during 2024. DIPS is expected to be in line with guidance of between 48 cents and 52 cents for the year ended 31 August 2023.

The company’s closed period commences on Friday, 1 September 2023 until its annual results are released on Monday, 6 November 2023.


Redefine raises R1 billion green bond in line with its expanding pool of sustainable funding

Redefine Properties, one of South Africa’s leading real estate investment trusts (REITs), has issued another green bond as it leverages its sustainability journey.

Redefine will use the money raised to refinance eligible green assets across its property portfolio aligned to the group’s over-arching, long-term climate-resilient framework. The assets include highly rated green buildings that incorporate various initiatives to improve their energy and water efficiency.

Redefine’s third green bond was oversubscribed 1.9 times with R1.9 billion received in bids and resulted in an upsized allocation to ZAR1.0 billion across 3, 5 and 7 years at an auction on 21 August.

“Demand for the bond issuance was particularly high in the seven-year tenor, resulting in the allocation of ZAR425 million to that tranche, which bodes well for our long-term funding structure,” says Ntobeko Nyawo, Chief financial officer of Redefine. “South Africa’s debt capital market is experiencing a recovery in demand for high-quality commercial instruments with an ESG underpin.”

This green bond will further support the long-term decarbonisation of Redefine’s buildings, focusing primarily on reducing energy consumption through efficiency interventions, mutual collaboration with tenants and solar PV expansion.

“This latest green bond issue further improves our funding match between our assets and liabilities in our capital structure and reaffirms our commitment to placing ESG at the heart of what we do,” Nyawo says. “We believe this will continue to play a critical role in strengthening and solidifying our balance sheet.”

The capital raised will be deployed in refinancing qualifying buildings that have achieved a 4 Star or higher Green Building certification, a tool used to rate the environmental impact and sustainability-related performance of buildings, as defined by the Green Building Council South Africa.

The green bond aligns with Redefine’s sustainability goals to transform its properties into environmentally sustainable and resource-efficient assets.

The green bond also aligns with the International Capital Market Association’s green bond principles. It was listed on the JSE in the Sustainability Segment, a platform for companies to raise debt for green, social and sustainable initiatives.

Nyawo adds that Redefine will continue its strategic participation in SA’s deep and liquid debt capital market as it provides the opportunity to raise competitive funding to enable the group to achieve its mission as it aims to deliver the smartest and most sustainable spaces the world has ever known.

About Redefine Properties

Redefine is a Real Estate Investment Trust (REIT) with a sectoral and geographically diversified property asset platform. Redefine’s portfolio is predominately anchored in South Africa through directly held and managed retail, office and industrial properties, complemented by a strong presence in Poland’s retail and logistics property assets.

Redefine’s purpose is to create and manage spaces in a way that transforms 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 by putting people and purpose at the heart of what we do and focusing on what matters most by executing our strategic priorities.

Redefine is listed on the Johannesburg Stock Exchange (JSE). By volume, Redefine’s shares are among the most actively traded in the SA REIT sector. This makes it a highly liquid, single-entry point for investors to gain exposure to the South African and Polish real estate markets.

SA REITs show resilience amid adversity

South Africa’s listed property sector has demonstrated its resilience even in the current tough economic and high interest rate environment.

The sector’s fortunes look set to gradually improve in the medium to long term, based on forecasts that interest rate hiking has reached its peak and a predicted improvement in the availability of electricity, which will have a positive impact on economic growth.

Performance of the REIT sector improved to deliver a better-than-expected total return of 0.7% in 2Q 2023, although performance was flat for 1H 2023.

SA REIT Association Chairman and Growthpoint Properties SA Chief Executive Officer, Estienne de Klerk, says that he is optimistic about the resilience of the sector even though the second half of the year will remain tough.

De Klerk points out that leasing has picked up in the office sector, although it still lags other commercial property sectors owing to some businesses consolidating space, adding to an over-supply in the market. “Businesses that previously gave up offices are returning to the market. Office vacancies in Cape Town and Durban have reduced remarkably and letting activity has increased significantly in Gauteng,” says de Klerk.

This is acknowledged by SA REIT Association CEO Joanne Solomon, who is optimistic about the rental market and demand for office space in particular. “The rental market is showing signs of gradual recovery, despite challenges posed by municipal rates and utility increases in metropolitan areas. The industry is working together to try and reduce the impact in the future of municipal increases,” says Solomon.

De Klerk notes that the logistics and healthcare property sectors are performing well, with the former showing strong results despite some fluctuations in key metrics. Supply and demand in the logistics sector have become more evenly balanced as new development has slowed due to high construction costs linked to higher inflation.

He also says that even though there are good investment opportunities in the market, disposal and acquisition activity in the sector is subdued due to the higher cost of funding and constrained balance sheets, with many companies focusing on managing their loan-to-value ratios.

“Liquidity remains limited and there are not many buyers in this market. Buyers are generally owner-occupiers or small investors assembling portfolios. In certain cases, vendor finance is required, and this is not attractive to many sellers,” says de Klerk.

Keillen Ndlovu, an independent property analyst, says the strategy that various REITs have adopted to dispose of assets to help reduce debt is likely to remain in place. “Dividend reinvestment options or scrip dividends will continue to be a source of funding. Given the massive divergence between listed property prices and physical property values, we may see further consolidation and delistings,” Ndlovu says.

He also says that although the sector is cheap, prospects will further improve once South Africa sees a decrease in load shedding, lower interest rates and a more optimistic economic growth forecast.

In response to the shrinking base of the listed property sector, which has fewer counters on the JSE and a market cap of around 48% less than its peak in December 2017, de Klerk notes the current situation is common for this business cycle and may reverse in more favourable market conditions.

Commenting on listed property companies with offshore exposures, de Klerk says they have not been immune to the high interest rates and inflation which have affected the global real estate sector.

“South African companies that have invested offshore generally adhere to the same conservative principles and disciplines for managing their offshore debt as they do in the more volatile South African environment. As a result of this prudent approach they have performed better than many other investors in these international markets,” he says.

Looking ahead to the future prospects of SA REITs, de Klerk says property remains a long-term investment game and those investors prepared to invest now will reap the rewards when the interest rate cycle improves.

“In the short term, however, most REITs’ distributions will be negatively impacted by higher interest rates on their variable debt. This will reverse when rates start reducing. Several SA REITs are trading at significant discounts to their stated NAVs and offer strong long-term value,” de Klerk says.

SA REITs sector champions women’s empowerment with steadfast progress

Embracing transformation within the South African economy, women professionals are achieving remarkable feats despite historical barriers. The Real Estate Investment Trust (REIT) sector proudly contributes to this positive trend by actively fostering greater female representation at executive and board levels.

While acknowledging past disparities in the distribution of roles, we’re forging a new path of inclusivity and opportunity. It’s heartening to observe the sector’s determination to enhance diversity by bolstering the presence of women in key decision-making roles. Our dedication extends beyond the executive level, as we aim to empower women across all echelons of the REIT profession.

In our pursuit of progress, there’s a wealth of potential for growth. We’re propelling gender diversity by elevating women to senior roles and cultivating an environment that encourages young women to join our ranks. Through mentorship, support, and opportunities, we’re nurturing the next generation of leaders, enabling them to ascend the ranks steadily.

As the landscape of our industry evolves in a rapidly changing marketplace, it’s only fitting that women take the lead in steering the ship. The competence and capabilities of women are unquestionable, mirroring those of their male counterparts. This transformation is not just a strategic imperative; it’s a testament to our commitment to equity and fairness.

The infusion of women’s perspectives within the REIT sector is invaluable. Their distinctive viewpoints enhance the sector’s vitality, leading to a sustainable future for the sector. While acknowledging that there’s still a journey ahead, we’re celebrating the transformative strides made thus far.

We proudly highlight some remarkable women REIT board members on our social media platforms through August. Their journeys have shattered glass ceilings and continue to inspire leadership within the sector. They stand as living proof that determination and dedication know no bounds when pursuing a vision.

The sector is privileged to be enriched by these talented women. Their astute insights have catalysed progress, benefitting the businesses they represent and the wider community. As we push forward, we’re committed to further enriching our sector with the dynamism and brilliance of women leaders.

By Joanne Solomon, Chief Executive Officer, SA REIT Association

Sa Reit Womens Month