South Africa’s second-largest primary JSE-listed real estate investment trust (Reit) Redefine Properties is close to finalizing its takeover deal for majority control of EPP – Poland’s largest retail property group in terms of gross lettable area.
It’s a big deal for Redefine, which had around a 45% stake in the EPP before the takeover bid was announced in November.
Read: Redefine returns to paying dividends and makes a surprise offer for EPP
Valued at around R7.2 billion, the share-swap offer also represents the most significant acquisitive move by a local property counter since the Covid-19 economic fallout in 2020.
In this latest episode of The Property Pod, we speak to Andrew König, CEO of Redefine Properties, who gives us more insight into the EPP takeover and what it means in terms of Redefine’s refreshed strategy.
Highlights of his interview appear below. You can also listen to the full podcast above or download it from iono, Spotify or Apple Podcasts.
“The EPP offer is now unconditional and the delisting of EPP is set for March 8, 2022.”
“We won’t know at this point in time exactly what our percentage holding will be. We’ll only know this for certain when the offer closes on March 4. But we do know that the EPP is tightly held, with the bulk of its shares subject to the takeover offer in institutional hands. ”
“Generally speaking, the investment mandates for such institutions preclude them from owning shares in unlisted property companies. As a consequence, we are expecting a majority holding in excess of 90%. ”
“But, as I said, we’ll only know that when the offer closes on March 4 and it’ll be announced to the market on March 7.”
How important is this deal for Redefine in relation to its refreshed strategy?
“We utilized the last two years during the pandemic to reset every aspect of what we do. The reorganization of EPP is now the last piece of the puzzle to reposition our asset platform for sustained growth. So our exposure to Poland provides us with geographical risk diversification, which is to maintain sustained value creation for all our stakeholders despite any volatility on the home front. ”
Read: Redefine takeover will see EPP delisting from the JSE in March
“This deal is very much part of our refreshed strategy to create a future-fit business, to deliver on our purpose – which, as you know, is to create and manage spaces in a way that changes lives – and, very importantly, play our part to create a more inclusive, equitable and sustainable environment in which to operate. ”
“Our exposure will be contained to South Africa and Poland, and our offshore-asset platform, being Poland, will grow from the current circa 15% to around 30%.”
“So, in line with our stated objective, we will now have a simplified investment proposition that will be focused on South Africa and Poland with exposure – this is very important – with exposure to sectors where we have scale and the ability to expand, and also where we have control over every aspect of what we do, such as capital allocation, risk management and cash flows. ”
Retail and logistics property focus in Poland
“For now the two investments we have – being retail-specific through EPP, and logistics-specific through European Logistics Investment in which we have a 46.5% interest – are very distinct and separate businesses.”
“We believe a specialist focus for each really focuses the mind from a management point of view and from an activity point of view. So we don’t want to intermingle the two for now. ”
“But we need to come back to why Poland is a stronger commercial property market than South Africa. I believe it comes down to the fundamentals of commercial property, which are largely a function of economic growth and business confidence. ”
“This really speaks to why Poland is stronger because, if you look at the domestic economy, we are unlikely to maintain our momentum in 2022 from a GDP-growth point of view due to ongoing concerns around the omicron variant [of Covid-19]electricity-supply constraints, a difficult jobs outlook, and similarly material fiscal constraints. ”
Redefine rallies almost 14% to a 20-month high
Capital flight: SA property companies invest billions more offshore
“Although the retail market was adversely affected by Covid-19, Poland is expected to record GDP growth of about 4.3% in 2022. As a result, it is one of the countries expected to experience the fastest return to pre-pandemic GDP levels. ”
“I think what sets Poland [apart] – once again from a retail point of view and a property perspective – is that personal debt levels in Poland are far lower than they would be in South Africa, which is once again supportive of discretionary consumer spending. ”
“Coming back to the logistics platform, as I said, we’ve got a 46.5% interest in this business. This sector across Europe, but in Poland similarly, is benefiting from significant investment, as well as tenant demand… ”
“Our investment in Polish logistics is benefiting from capital growth as well as strong tenant demand, which is enabling us to expand, while at the same time we can realize some capital to fund such expansion.”
Despite Poland offering Redefine more opportunities for growth, the group still has a major South African property portfolio – so one would expect Redefine to still invest locally?
“Absolutely. We are by no means on an investment strike here domestically. What we are looking at is ensuring that our properties remain relevant to their user needs. We are not expanding to new-development activity. ”
“Although there are select developments underway, it’s not wholescale. We are more focused on refining and repositioning every asset in our portfolio to ensure sustained growth over the medium to longer term. ”