Redefine says malls won’t suffer at hands of online shopping

Property group Redefine Properties says physical shopping is here to stay in SA despite the rise of online shopping.

This is as the real estate investment trust (Reit) pursues “aggressive” renewal rates in the retail sector as it expects footfall in malls will not decline due to a surge in online shopping. 

Its strategy to enter the fast-growing township market is gaining momentum, with its latest acquisition in Alexandra bumping up its total township retail presence to 8% of its retail portfolio.

Redefine owns retail, industrial, office, logistics and self-storage space in SA and Poland. At the end of February, its property assets under management were valued at R100.4bn.

On Monday COO Leon Kok said that despite interest rate pressures and shoppers’ limited disposable income, the retail sector was performing relatively well, supported by demand for essentials, value and apparel.

“The future of physical shopping is not as bleak as many expected it to be [after] Covid,” said Kok, adding that foot traffic levels had recovered reasonably well compared with before the pandemic. “Turnover levels and footfall certainly have demonstrated that physical shopping is still very healthy and most of our retailers managed to show growth year on year.”

Kok said the group’s national retail tenants had expressed the need for an omnichannel model to remain competitive. “One channel is not to the exclusion of another. In fact, they do believe that if you can offer a proper online experience it supports in-store purchases.

“They have indicated that typically your online basket is substantially smaller than your in-store basket, and a number of them have deployed successful strategies around click and collect,” he added, pointing to Clicks and Dis-Chem.

According to Kok, the momentum experienced in the half year to end-February signalled an opportunity for rental growth, enabling the Reit to aggressively pursue renewal rates in the retail sector.

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

Inflation remains “stubbornly sticky”, so any interest rate relief could be expected to flow only in financial year 2025.

CEO Andrew König said that while the higher-for-longer interest rate outlook remains a persistent theme, Redefine was “not hitching its fortunes to interest rate cuts”.

Instead, it would focus on variables within its control that could directly influence value creation, like capital allocation, capital sourcing, maximising rentals and containing costs, said König, adding that it has been recycling noncore assets to fund expansion activities where possible.

Township market

As part of its bid to enter the rapidly expanding township market, it raised funds through the sale of noncore assets to purchase a 50.9% stake in the retail establishment Pan Africa Shopping Centre in Alexandra, Johannesburg.

The CEO said that after the conclusion of the acquisition on May 2, the mall was in the process of being expanded by a further 9,300m². “The mall gives us exposure to that township economy, which is very defensive and is consistent in terms of its output.”

Redefine also made a R1.8bn purchase of Mall of the South, which is now its second-largest retail property after Centurion Mall.

König said the opportunities for strategic investment lay in the Pan African mall, in logistics in Poland, and in developing self-storage in Poland.

In SA, Redefine will continue to look at all of its assets regularly to determine what is worthy of retaining for the longer term.

“So with a constrained balance sheet from a capital point of view, expansion is very selective. We are managing with what we’ve got,” he said.

The results showed that the Reit increased distributable income in the first half by 6.1% to R1.7bn and declared a dividend of 20.27c per share for the six months. Distributable income per share was 25.34c compared with 23.91c a year ago.

The increase in the value of the property asset platform was primarily due to the acquisition of the Mall of the South, expansion through logistics development activity in Poland, and the depreciation of the rand, which was marginally offset by the disposal of noncore assets, the group said on Monday.

Revenue from the SA portfolio increased by 5.6%, driven by the acquisition of Mall of the South, Hertford Office Park and Massmart DC (49.9% share), new developments coming online, higher rentals achieved on new lets and improved reversions on the renewal of leases, as well as better cost recoveries offset by properties sold during the prior and current periods, and the restructuring of the government-tenanted portfolio.

The active portfolio delivered organic growth in revenue of 3.4% on a like-for-like basis. 

In Europe, EPP core revenue increased by 10.6%, mainly driven by a weaker rand. Redefine took over EPP, Poland’s largest retail asset manager in terms of gross lettable area, in March 2023.

Redefine cited SA’s elections, continued parastatal frailty and geopolitical instability as issues it would be watching.

Update: May 6 2024
This story has been updated with more information.
 
mackenziej@arena.africa
gumedemi@businesslive.co.za