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Redefine Properties (JSE:RDF) continues to operate efficiently and allocate capital with discipline, strengthening and positioning its balance sheet to withstand the challenging environment and seizing opportunities as they arise.

The company reported on Monday that distributable income increased by a respectable 6.1% to R1.7 billion during the six months leading up to 29 February 2024. This is against the R1.6 billion achieved in the comparable period and translates to 25.3 cents (HY23: 23.9c) per share.

Ntobeko Nyawo, CFO of Redefine, said 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 local counters, we’ve navigated a difficult downturn and maintained our resilience,” said Redefine CEO Andrew König. “The higher-for-longer interest rates remain a persistent theme and relief is critical to moving the dial on most outcomes.”

He said Redefine is, however, not hitching its fortunes to interest rate cuts. “Instead, we have focused on variables within our control that can directly influence value creation, like capital allocation, capital sourcing, maximising rentals, and containing costs.”

Redefine has been highly strategic about where it allocates capital, focusing on recycling non-core assets to fund expansion activities where possible.

In an effort to enter the rapidly expanding township market, the company raised funds through the sale of non-core assets to purchase a stake in the retail establishment Pan Africa Mall in Alexandra, Johannesburg. The R1.8 billion purchase of Mall of the South was another significant deal concluded during the 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.”

Redefine grew year-on-year trading densities by 4.8% to R34 460 per sqm, which contributed to an average rent-to-turnover ratio of 7.4% across the retail portfolio. According to Kok, this means there is opportunity for rental growth and will enable the company to pursue renewal rates in the retail sector more aggressively.

Both the retail and industrial portfolios reported a substantial improvement in rental renewal reversions during the period, with renewal rates now marginally negative in retail (-0.5%) and positive (4%) in industrial.

On a total portfolio basis, negative reversions have come down to -0.5%, compared to -3.7% in HY23. This result was skewed by higher negative reversions (-13.6%, HY23: -12.4%) in the 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.”

Nevertheless, companies are continuing to make their return to physical office spaces and are seeking high quality P and A grade space, of which 95% of Redefine’s portfolio is comprised.

While the group reported slight deterioration in occupancy and Kok noted that pressure will remain, Redefine continues to hold its own. “The office portfolio at a net operating income level grew by 4.1%, outperforming our industrial portfolio, which speaks to its quality,” Kok said.

He reiterated that Redefine is geographically diversified and has scale across the three traditional property sectors of South Africa: retail, office, and industrial. “When there is instability and unfavorable economic conditions, this diversity becomes most beneficial because it allows us to mitigate some of the challenges that sectors or geographies may encounter.”

South Africa’s property owners continue to face significant challenges from increased load shedding, rising municipal rates, and utility bills. Redefine is proactively managing these risks and costs by implementing renewable energy and working with City Improvement Districts to improve municipal services in the areas where it operates.

“We are proud of our 41MW of installed Solar PV capacity across all sectors in the country, the bulk of which sits in retail space. Another 21MW is currently in progress, as we look to increase our capacity in the next 12 to 18 months. This will stand us in good stead to mitigate some of the cost pressures we face locally,” Kok said.

Meanwhile, 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.

These factors, König said, bode well for the retail sector in Poland, which Redefine increased its exposure to 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.

“This forms part of the goal,” König said, “to create a high-quality, diversified portfolio that can generate long-term, risk-adjusted returns in a hard currency.”

“We don’t have many levers at our disposal to alter the circumstances of the external environment. So, for us, it comes down to concentrating on what we can control, such as investing strategically and focusing on conservative balance sheet management.”

According to Nyawo, 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.”

König concluded by saying: “We intentionally chose not to be sidetracked by the noise, knowing there will be aftershocks along the way as we move toward a normalised interest rate environment. There will, however, be new opportunities and, across our organisation, we are aligned to mindfully opting for the upside.”

Two years since launching, Growthpoint Student Accommodation REIT has introduced R1.5bn in new investment to this alternative property sector, added 4,000 new beds for students and created a strong pipeline of future developments. Its demonstrated execution has expanded its portfolio value to approximately R3.5bn, representing 12 residences with 9,000 beds in three South African cities – Cape Town, Johannesburg, and Pretoria. With two new developments in the ground, it expects to increase its beds to 10,400 for the 2025 academic year.

“We are pleased to report that our portfolio occupancy is 98% for the 2024 academic year, exceeding that of 2023,” reports Amogelang Mocumi, Fund Manager of Growthpoint Student Accommodation REIT. “Our new purpose-built properties, developed by Growthpoint Properties and Feenstra Group, are proving particularly popular, attracting the highest demand and occupancy.”

Growthpoint Student Accommodation REIT was launched in December 2021 by Growthpoint Investment Partners, the co-investment business of SA REIT Growthpoint Properties (JSE: GRT). It invests in purpose-built student accommodation located and designed around students to help them succeed and make the most of their university experience.

Two new properties opened in the portfolio, branded Thrive Student Living, for the 2024 academic year, and both have been enthusiastically welcomed by the market. Horizon Heights in Johannesburg is 99% occupied for its first year of housing students, proving popular with those from the nearby University of Johannesburg as well as the University of the Witwatersrand. Fountains View in Pretoria is 98% full, primarily let to students from Sefako Makgatho Health Science University (SMU) and the University of Pretoria’s Groenkloof campus.

“Our high occupancy levels demonstrate strong demand and the commercial success of our purpose-built student accommodation model, which is supported by quality development and the Thrive Student Living brand, which resonates with our target market,” says Mocumi.

Continuing its growth, Growthpoint Student Accommodation Holdings has two new properties under development for the 2025 academic year: a R300m 900-bed property located in Braamfontein and a R200m 500-bed located in Parktown, both targeting Wits University students.

It is also planning a development near the University of KwaZulu-Natal’s Howard College Campus in Durban for the 2026 or 2027 academic year intake.

These new developments boost job and economic opportunities, making Growthpoint Student Accommodation REIT a compelling proposition for impact investors to participate in this alternative asset class that has strong fundamentals and proven resilience, together with the long-term positive socioeconomic impacts of education support.

Even with the extensive processes and time required for institutional investors to allocate capital to new investments, Growthpoint Student Accommodation REIT continues to attract serious interest from large investors. “Investors remain positive about purpose-built student accommodation, even while they have short term reservations about the commercial real estate asset class as a whole,” reports Mocumi.

Growthpoint Student Accommodation REIT aims for total returns of 13% to 16% in the long-term. Its target is to grow the portfolio to R12bn worth of assets and achieve a stock exchange listing within the next seven years.

Fashioning vibrant campus communities aligns with many investors’ environmental, social and governance (ESG) goals. Each building added to the Thrive Student Living portfolio is unique in its architecture and design to reflect and foster its specific community. They all have the advantage of being purpose-built and operated and benefit from Growthpoint’s recognised green building leadership, creating healthy, sustainable environments and operating with a social consciousness that adds value to communities.

Thrive Student Living accommodation provides amenities like study areas and games rooms, backup power and water, as well as its Student Life programme which offers 24/7 support to students for academic performance, physical health, and mental wellness. It gives parents and bursary providers peace of mind, knowing that students are in the best possible environment.

Growthpoint Healthcare REIT has successfully completed the R106.4m acquisition of the Johannesburg Eye Hospital in Northcliff, which has transferred to become the ninth asset and the second specialist healthcare facility in its portfolio.

The premier specialist eye hospital in South Africa, and arguably on the African continent, the Johannesburg Eye Hospital has an esteemed 20-year history and is a valued member of its neighbourhood and community. The hospital specialises in eye surgery, laser eye procedures and includes the Medwedge Stepdown Facility.

Growthpoint Healthcare Property invests in licenced healthcare facilities which include acute, day and specialist hospitals, laboratories and biotechnology – such as pharmaceutical – manufacturing and warehousing facilities.

Launched in 2018 as SA’s first unlisted REIT focused exclusively on healthcare real estate, Growthpoint Healthcare REIT has R3.8bn of assets under management. After two-plus years of lost growth stemming from the impact that the COVID-19 pandemic had on the healthcare sector, it is asset-hungry with cash on hand to invest.

Dr Linda Sigaba, Fund Manager of Growthpoint Healthcare REIT, confirms that investment in specialist healthcare properties, such as the Johannesburg Eye Hospital, are attractive options in the current market.

“While there is an oversupply of private acute and multidisciplinary medical facilities in several areas, there is still a real need for specialist healthcare facilities,” says Sigaba.

These include sub-acute and stepdown facilities as well as those catering to mental wellness, oncology, urology and cardiology, among others.

“South Africa certainly needs more healthcare properties, and whether operated by the public or private sector, Growthpoint Healthcare REIT is positioned to support the healthcare sector in meeting the needs of South Africans,” notes Sigaba.

Growthpoint Healthcare REIT’s mandate is to acquire and develop healthcare properties, whether building new facilities, expanding or upgrading standing facilities, or acquiring existing properties to unlock operational and growth capital for their operators.

Its portfolio now includes a pharmaceutical warehousing and distribution facility, a medical chambers property and seven hospitals. These facilities are managed by some of South Africa’s finest medical providers, enjoy long leases and are considered long-standing landmarks in their communities.

Growthpoint Healthcare REIT distributes at least 90% of its distributable earnings to investors and targets gross ungeared total returns of between 13 and 16% a year. It remains focused on achieving a significant liquidity event for investors in future. Its current loan-to-value ratio is only 17%, and it already ticks all the boxes for an IPO and stock exchange listing.

Vukile Property Fund (JSE: VKE), the specialist retail real estate investment trust (REIT) has secured R1.1bn of funding through an innovative green loan and sustainability-linked loan with Absa. The loans, which are refinancing existing debt facilities, will be enabled as part of the refinancing process of existing debt and will be specifically directed to Vukile’s solar PV project and linked to its sustainability targets. The goals include reducing carbon emissions, boosting water savings and educating property professionals — initiatives that benefit the environment and society and align with Vukile’s wider environmental, social and governance (ESG) commitments.

Vukile’s approach to sustainability is ingrained into its culture with transparent measurement and reporting of sustainability targets to ensure alignment of its ESG strategy throughout the organisation. This supported the efficient and creative funding solution with Absa, which promotes greater alignment of Vukile’s financial strategy to positive environmental and social outcomes, where interest rates are directly linked to the achievement of preset targets.

Laurence Rapp, CEO of Vukile Property Fund, comments, “This sustainability-linked loan is a first for Vukile and represents a significant milestone in our ongoing commitment to sustainability.”
Through its expertise and commitment to sustainable finance, Absa played a crucial role as lender and sole sustainability coordinator, ensuring alignment with the Loan Market Associations’ Green Loan and Sustainability Linked Loan Principles.

Heidi Barends, Head of Sustainable Finance for Absa, says, “We partnered with Vukile to ensure market leading performance indicators are set for this funding solution, that are relevant to their sector and aligns to their business strategy. By combining environmental and social objectives, we’ve set a new standard for sustainable investment. Vukile is clearly committed to sustainability and we’re proud to have advised it on this strategic transaction. Our guidance throughout underscores our commitment to driving meaningful change in the financial landscape.
Maurice Shapiro, Group Head of Treasury of Vukile, remarks, “As our partners and a key stakeholder, Absa played an important role in delivering a fit-for-purpose innovative solution that helps align Vukile’s funding strategy with its ESG goals. Vukile is committed to making a difference for our communities, and we are pleased to partner with Absa.”

Vukile is committed to advancing its positive impacts through renewable resources, water-saving initiatives and education of property professionals, in line with its well-defined business strategy, based on the belief that thriving communities create successful shopping centres.

Rapp concludes, “Vukile aims to drive economic growth and be a change agent for social well-being and environmental stewardship, which ultimately assists our customers, our tenants and our business. We are committed to leading the way in sustainability and reporting openly about our practices.”

As a specialist retail REIT, Vukile was developed on the foundation of a well-defined, specialised growth strategy, with a focus on owning dominant retail assets across South Africa and Spain. Vukile’s assets are valued at around R40 billion, with 40% in South Africa and 60% in Spain. The Spanish assets are held in the 99.5% Vukile-owned Madrid-listed subsidiary, Castellana Properties Socimi. Vukile adopts a proactive approach to asset management and a strong focus on customer centricity as the driver of stakeholder value creation.

 
Image: Laurence Rapp, CEO of Vukile Property Fund

In the eye of a storm, the South African commercial real estate sector has proven to be a linchpin of our nation’s economic and societal fabric. Its pulse is the pulse of South Africa.

Our sector has been pummelled by various local pressures, many resulting from the country’s ‘own goals’, which can be frustrating and wearisome, especially when also managing through many external headwinds of high interest rates in the global markets.

As we navigate the current unpredictability of load shedding, deteriorating water supply and market fluctuations, among others, it can be difficult to maintain optimism.

However, there are signs that we can be cautiously optimistic about what lies ahead.

The consensus view is that the painful tide of rising interest rates has reached a peak and should begin ebbing from later in the year, better positioning real estate for investor confidence and attracting more capital. A fair election process is also likely to support better investor sentiment. A capital injection will fuel our sector, which is an engine for job creation and new opportunities.

Plus, the property industry is a source of good news for the troubled energy space, as we continue to make positive strides in promoting sustainable energy adoption and relieving the pressure on the national grid.

Listed property was the best-performing asset class in 2023, with the All Property Index (ALPI) returning 10.7%, outpacing government bonds at 9.7%, equities at 9% and cash at 8%. Extending this good performance record will further help restore confidence in our asset class.

However, the recent SA REIT Conference highlighted that to futureproof our sector and our investments, we must find ways to exert more influence on the external factors that pose risks to our sector, especially at the municipal level.

Property sector stakeholders and government leaders must find common ground and work together to improve our cities, towns, townships, and rural areas in South Africa. By collaborating, we can gradually arrest the decline of our municipalities and, leading on from this, bolster the return to meaningful growth in the national economy.

This joint effort is key to unlocking economic growth in the long run. It will take concerted and consistent effort, but we have an opportunity to reverse the course of one of the biggest risks to South Africa.

Our sector has proven it has the potential to enhance the quality of our collective existence in South Africa. Our dedication to transparency, straight talk, and a resilient can-do attitude drives our impact on the broader spectrum of life in South Africa.

Emira, together with our sector peers and partners, takes seriously our impacts. We are committed to fact-based solutions, learning, doing the right thing and saying it like it is. As we go forward, we are holding nothing back.

By Geoff Jennett, CEO of Emira Property Fund

In the evolving South African built environment, the debate on the future of office spaces is intensifying, particularly in light of a growing number of South African companies requiring their workforce to either return to the office or be in the office for a minimum of three days a week. This local hybrid trend echoes a global shift to a hybrid work model, spotlighting the need to adapt office spaces to these new working patterns.

Hybrid work models – blending remote and in-person collaboration – are transforming organisational strategies. As a result, this shift is altering office space demand, prompting organisations to rethink their gross leasable area (GLA) strategies. Amidst this change, the need for more engaging and flexible work environments becomes paramount.

The transition towards hybrid work models and the accompanying shift in organisational strategies has resulted in an industry-wide anticipation of reduced traditional office space requirements. However, the expected decrease in GLA is being balanced by the intention to ensure office workplace environments entice workforces to choose to be at the office. This intention can often lead to GLA requirements increasing or remaining constant.

Office planning decisions need to be carefully considered, taking into account the nature of the company’s industry and their workforce preferences. The layout of each company’s workspace will need to be reflective of their workforce preferences and output requirements to ensure improved productivity, collaboration, and office attendance.

The hybrid model necessitates the correct mix of personal space, hot desking, and communal collaborative and relaxation areas. It is often the case that individuals prefer their own personal constant environment, including desks, to attract them back to the office. Hot desking is not suitable for all job types and may not be preferred by all employees.

The integration of this refined approach to GLA into the evolving narrative of office space utilisation, highlights the industry’s capacity to adapt to the changing needs of the workforce. Additionally, the adoption of activity-based working (ABW), offering various spaces for different tasks, supports the hybrid workforce’s diverse needs, promoting a flexible and vibrant office environment. This strategy emphasises the importance of a flexible and resilient approach to office space management.

The focus on workplace flexibility now includes not only adaptable working hours but also versatile spatial configurations and operational practices. Such flexibility involves the provision of office layouts that can be reconfigured for different activities and the integration of technology that facilitates both in-office and remote collaboration. Moreover, it involves policies that balance individual and collaborative work, allowing office spaces to evolve with the changing needs of businesses and their employees.

Addressing infrastructural challenges, such as loadshedding, is essential, underscoring the need for office environments that can maintain operational continuity during power outages. For many, particularly those without adequate remote work setups, the office acts as a crucial base of operations, emphasising the need for spaces that offer both design flexibility and operational resilience.

The re-evaluation of real estate priorities has placed a renewed emphasis on health, safety, and flexibility. Properties that meet these evolving demands, offering health-oriented features and adaptable communal areas, are becoming increasingly sought after, reflecting a shift towards workspaces that support holistic well-being.

As the industry navigates the adoption of hybrid work models and addresses infrastructural challenges, the focus for office landlords is on creating environments that meet the diverse needs of tenants, ensuring the long-term sustainability and growth of office assets.

Despite initial uncertainties about the future of office spaces, optimism remains high regarding their resurgence. The anticipated growth of the office market, fuelled by strategic investment in high-quality properties, points to a positive trajectory for the sector. Strategic asset management plays a pivotal role in this context, where the refurbishment of existing properties in strong nodes is essential to retain and improve the value of the current portfolio.

As the property sector faces significant changes, driven by hybrid work models and evolving market dynamics, the emphasis on quality, adaptability, and tenant well-being grows stronger. Redefine is committed to innovation and collaboration. We are actively engaging with the changing needs of our tenants to ensure our office environments enhance productivity and well-being. Our goal is to create sustainable workspaces that meet the future of work’s demands. We encourage all stakeholders and tenants to join us in shaping work environments that set new industry standards.

Written by Scott Thorburn, National Asset Manager for Offices at Redefine