Redefine Properties is responding strategically to evolving market-shifting dynamics in a decade of “disruption and action”.
Primary among these is the rising cost of doing business, the energy crisis and elevated interest rates, with these converging realities adding up to a “polycrisis” – a cluster of global related risks.
“We need to pivot to focus on what matters most and realise that polycrises can create opportunities. We need to remain innovative, agile, and resilient while placing our purpose and our stakeholders’ needs at the heart of what we do. While we are cautiously optimistic for the future, we must be realists of what we need to deal with,” said Redefine CEO Andrew König during the REIT’s pre-close update for the half-year ending 28 February 2023.
The company is ensuring that it invests strategically, optimises capital, operates efficiently and reviews strategies to attract, retain and develop key talent to provide an internal pipeline of scarce skills.
As an example of the pivot to take advantage of opportunities despite the uncertain world, Redefine is diversifying its real estate interests in Poland by entering the self-storage market.
Shareholders were informed that Redefine and Griffin Capital Partners will create a 93% / 7% self-storage venture, where Griffin will render on the ground services to the venture.
“The Polish self-storage market is in its infancy with penetration 2.5x smaller than Germany and 6.7x smaller than Europe’s average. It is expected to grow at a CAGR of over 8% over the next three years,” said König.
Although the risks to the global outlook remain skewed to the downside due to ongoing tightening of monetary policy and continuing disruptions caused by Russia’s war in Ukraine, König says it is anticipated that the world will likely avoid a recession. He says that in Poland, for instance, the unseasonably warm winter has dampened the expected skyrocketing of gas and energy prices, and so a recession there is unlikely.
Liquidity risk management remains key and EPP, recently acquired by Redefine, has largely dealt with its debt refinancing challenges and will deliver sustainable income going forward through resuming dividend payments.
Among the other positive strategic responses Redefine is driving are the reduction in consumption of energy through efficiency interventions, collaboration with key stakeholders and a major solar PV expansion.
“We are protecting operating margins through operating efficiencies across the entire business. We are also looking at how we minimise energy usage and are working collaboratively with stakeholders to become more efficient and less reliant on unreliable sources provided by Eskom,” says König.
However, in South Africa, the country’s deepening electricity crisis, sharply higher domestic interest rates and slower global demand will likely hurt domestic exports, consumer spending, confidence levels and fixed investment in 2023.
With the SA Budget due to be released on Wednesday, König called for tax relief on diesel consumed during back-up power generation.
“Why pay roughly a quarter of the diesel bill to the state when these go to the general coffers and road accident fund? This is not going back to support those assuming the role of the state during the energy crisis. As landlords and tenants who bear a large portion of this cost, we are providing a necessary service, being electricity, and then paying government a tax through the cost of diesel. That is not equitable, and these taxes should not be levied on us the way they are,” he says.
Diesel costs averaged R38 000 per hour across Redefine’s SA portfolio in December 2022, but with a 69% recovery rate on diesel costs.
But he said that tenant retention in SA remained very strong in the Redefine portfolio.
“Our focus remains on managing what we can control and so we are, among others, building supply chain resilience, accelerating our ESG strategy, improving our cyber security posture, and reviewing strategies for attracting and retaining key talent,” concludes König.
Redefine’s closed period commences on the 1st of March until the interim results are released on Monday, the 8th of May.
