The JSE-listed real estate investment trust (REIT) Redefine Properties recently announced its plan to establish an office in Europe, enticing outgoing Hyprop CEO Pieter Prinsloo to head up Redefine Europe.
With that came the REIT’s stated intention to advance its offshore strategy through direct investment in Central and Eastern Europe.
Redefine is targeting 25% to 30% of total offshore assets. And it looks to be banking on Poland in the drive to reach this number.
Investment in Poland already comprises a hefty 13% of the REIT’s current 21% offshore exposure, up from 19% a year ago.
In Poland, Redefine is primarily exposed to the retail sector through Polish-based EPP in whom it has a majority interest, as well as Chariot Top Group through its 25% stake.
But it intends building a significant logistics platform and has already invested R3.1bn in nine logistics properties across Poland.
The Polish industrial market is benefitting from a significant increase in demand for logistics space on the back of robust retail growth.
Redefine’s logistics drive has much to do with the Polish government’s recently introduced limitations on agricultural land trades.
Earlier in the year, it entered into a five-year exclusive priority right for a pipeline of 24 new warehousing and logistics developments with Panattoni, a leading logistics property developer in Europe.
Two of these development projects have already been committed to.
“Control of agricultural land means it is becoming difficult to rezone to industrial,” Redefine CEO Andrew König tells finweek.
“We believe there will be a scarcity of industrial land that will chase up prices, especially in light of the increasing number of manufacturers setting up in Poland.”
Says 36ONE Asset Management analyst Wessel Badenhorst, “Once government starts restricting access to land, then the value of the [zoned] land will increase in the long term.”
Redefine, says Badenhorst, is more opportunistic offshore than other funds.
“Redefine wants to go where the opportunities are at any given point in time,” says Badenhorst.
“They seem to be less married to a specific region,” he says, citing the REIT’s disinvestment in both Spain and Germany.
And a “divorce” from Africa (outside of South Africa) and the UK is waiting in the wings.
Redefine intends disposing of its African (excluding South Africa) assets, and no longer regards its investment in the UK through RDI REIT as core.
Then there’s Australia. Redefine has not explicitly voiced its Australian assets as non-core.
But actions speak louder than words.
During the year it exited Cromwell and sold its 50% interest in Northpoint, the sales fetching R5.2bn and deployed it into the Polish logistics platform.
But what of its two student accommodation developments in Australia?
“Redefine is getting good yields on its assets, but is concerned that the market may become overheated. And it is concerned about impending tax changes.
“Redefine says student property is overpriced and this might present an opportunity to recycle the assets. It suggests to me that they may consider that as non-core as well.”
All told, Redefine’s actions suggest that its medium- to long-term plan is to become a South African and Polish fund, adds Badenhorst.
Redefine, which reported its results for the year to 31 August 2018 recently, lifted full year distribution by 5.5% and grew total assets to R98.7bn.
Property assets constitute R91.3bn. Its loan-to-value (LTV) for the period was 40%, down from 41.1% at the previous reporting period.
During its results presentation, the group said its priorities for 2019 are the phasing out of non-recurring income, optimising capital (includes recycling capital and lowering LTV closer to 37%), and accelerating transformation.
It’s forecasting distribution growth of 4% to 5% for 2019.