JSE-listed real estate investment trust Redefine Properties increased revenue by 20.2% to R9.9-billion for the year ended August 31, and declared total dividends for the year of 43.8c a share, up from 42.97c a share in the 2022 financial year, but group distributable income decreased by 4.1% to R3.5-billion driven mainly by elevated interest rates which increased net funding costs.

The company increased its property assets under management to R96.8-billion, up from R88.9-billion in the 2022 financial year, increased net asset value a share to R7.66 a share, up from R7.20 a share in the prior year, and total shareholder return to 12.5%, up from 10.7% in the prior financial year.

Further, its loan-to-value ratio increased to 41.1% from 40.2% in the prior financial year, and its interest cover decreased to 2.4 times, down from 2.8 times in the 2022 financial year. Headline earnings a share decreased 74.9% to 21.01c a share for the 2023 financial year, from 83.8c a share in the preceding financial year.

However, Redefine said there was cause for optimism that the property cycle has bottomed out and that 2024 will be the turning point when interest rates begin to ease.

“Redefine will not rely on external factors to change our fortunes. We need to build on the positive momentum seen in the stabilised operating metrics and remain focused on executing our strategic priorities.

“This requires that we cost-effectively source and allocate capital while operating efficiently in an environment with higher operating costs and a competitive rental market,” said Redefine Properties CEO Andrew König.

Further, the operating cost and expected credit losses on trade receivables to contractual rental income ratio increased to 39.9%, from 38.1% in the 2022 financial year.

However, net of electricity costs and utility recoveries, operating costs decreased to 15.4% of contractual rental income, down from 16.7%. in the prior financial year.

The cost of debt on a weighted average basis across the group increased by 110 basis points, from 6% in financial year 2022 to 7.1% as a function of higher interest rates, said Redefine Properties CFO Ntobeko Nyawo.

Additionally, net group interest costs, including finance costs and income received from cross-currency and interest rate swaps, increased by 34.2% during the year, mainly driven by the consolidation of EPP for the full year, the steep increases in the base interest rates in both South Africa and the Eurozone, and the weaker rand.

“The group continues to develop logistics properties in Poland through its investment in joint venture European Logistics Investment (ELI), which continued to achieve a healthy capital uplift from completed developments during the year,” the company said in its results statement.

“To remain relevant, we will continue to adapt how we create value, focus on developing skills to navigate challenging circumstances, foster inclusivity to cultivate a fertile environment for diversity of thought to stimulate innovation and create the maximum sustainable impact.

“Navigating the effectiveness of the structural energy transition and the expected shift of the interest rate cycle and responding to evolving stakeholder needs will be critical to positioning Redefine for its growth trajectory beyond the 2024 financial year,” König said.

“There are signals that Redefine is at the bottom of the cycle and is well poised for when interest rates start easing,” he added.

Meanwhile, in terms of its strategy and focus during the 2024 financial year, Redefine will continue to implement its multi-pronged strategy and focus on sustainability, and on energy, water and waste solutions.

“This is not just about reducing our reliance on municipal services, but is important from an efficiency point of view, given that many of these are administered tariffs that are outside of our control, hence our focus on managing consumption in partnership with our tenants,” he said.

Additionally, the global energy crisis has resulted in cost challenges in Poland and the company significantly reduced energy consumption by 20% over two years, while the energy crisis in South Africa has created an investment opportunity into renewable energy.

"The investments made into our 36 MW solar photovoltaic (PV) capacity in South Africa will stand the business in good stead going forward,” said Redefine Properties COO Leon Kok.

The company has a further 9.5 MW of solar developments in progress and, once it acquires the Mall of the South, it will add another 5 MW to its capacity.

“This is highly relevant in an environment where we are not only battling an energy crisis, but severe cost pressures. Solar PV makes for a stable investment that can provide an attractive financial return,” he said.

Further, 56% of the company's South Africa portfolio was Green Star-certified, while its EPP portfolio was 83% certified under the Building Research Establishment Environmental Assessment Methodology and its ELI portfolio is also 80% certified under this standard, said König.

“We are actively engaged in environmental and social initiatives, and this is just the start. We will focus on rolling these initiatives out more aggressively in the current financial year, as there is more that can be achieved in collaboration with our tenants in terms of consumption and reduction of environmental impacts,” he said.

“We have adapted and responded to several market dynamics as they evolved and strengthened our business as a result. Importantly, we will focus on the consistent delivery of our strategy and 2024 will be a turning point for Redefine,” he added.