JSE-listed Redefine Properties reported solid results for the six months to February 29, despite prevailing challenging economic conditions in South Africa, including the impact of high interest rates, loadshedding and consumer strain, CEO Andrew König said in a briefing on May 6.

He said the group was choosing to be "mindfully optimistic" about the future, cognisant of the challenges, but also of the opportunities it could capitalise on.

Redefine’s distributable income for the six-month interim period increased by 6.1% to R1.7-billion, compared with the distributable income of R1.6-billion reported for the six months to February 28, 2023.

CFO Ntobeko Nyawo said the group was able to sustain its operating profit margin at 76.5% despite the tough conditions that local property counters and other interest rate-sensitive companies found themselves in.

Redefine, however, was not relying on interest rate cuts and had instead focused on variables it could control, including capital allocation, capital sourcing, maximising rentals and containing costs, König pointed out.

Redefine has been strategic about capital allocation, focusing on recycling noncore 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 noncore assets to buy a stake in retail establishment Pan Africa Mall in Alexandra, Johannesburg.

The R1.8-billion acquisition of the Mall of the South was another significant deal concluded during the six months under review.

COO Leon Kok pointed out that the future of physical shopping was not as bleak as expected post-pandemic.

“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 46 /m², which contributed to an average rent-to-turnover ratio of 7.4% across the retail portfolio.

According to Kok, this meant there was an opportunity for rental growth and would enable the company to pursue renewal rates in the retail sector more aggressively.

Both the retail and industrial portfolios reported a considerable 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 with -3.7% in the prior comparable period.

Kok noted that the current oversupply of office space had muted demand somewhat.

The group reported a deterioration in occupancy, and while pressure would remain, Kok said Redefine continued to maintain its position.

“The office portfolio, at a net operating income level, grew by 4.1%, outperforming our industrial portfolio, which speaks to its quality,” he averred.

He reiterated that Redefine was geographically diversified and had scale across the three traditional property sectors – retail, office and industrial.

The group said it was also proactively managing the challenges facing property owners in the country by implementing renewable energy and working with City Improvement Districts to improve municipal services in the areas where it operated.

“We are proud of our 41 MW of installed solar photovoltaic capacity across all sectors in the country, the bulk of which sits in retail space. Another 21 MW is currently in progress, as we look to increase our capacity in the next 12 to 18 months,” Kok pointed out.

Meanwhile, Redefine lifted 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 fully let.

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

According to Nyawo, the group’s healthy liquidity profile, which it had maintained at R4.2-billion, remained at levels that provided 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 had helped its liquidity position with no more than 18% of facilities coming up for maturity in full-year 2025 to full-year 2027, 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.”