Office Over-Supply in South Africa Puts Redefine Rents Under Pressure

Office Over-Supply in South Africa Puts Redefine Rents Under Pressure

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(Bloomberg) — Redefine Properties Ltd., South Africa’s second-largest real estate investment trust, said an oversupply of offices has kept rents under pressure.

The company’s profit plunged 63% to 798.5 million rand ($43.5 million) in the six months ended Feb. 28. Rising interest rates and unprecedented power outages prompted the company to lower its earnings per share forecast for the year to as low as 48 cents per share from 54 cents a share, according to Chief Financial Officer Ntobeko Nyawo.

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“The downgrade in guidance is mainly due to more punitive refinancing rates than initially envisaged,” Pranita Daya and Mweisho Nene, analysts at SBG Securities Ltd. said in a note to clients. “Diesel costs have detracted 1.5% from” first-half earnings, they said. 

Africa’s most-developed nation is reeling under an energy crisis. The nation’s central bank forecasts the outages will shave off 2 percentage points of growth this year. Incessant blackouts because the state-power utility’s failure to generate enough electricity is forcing companies to buy diesel to run generators, increasing costs.

Redefine’s shares fell as much as 6% as of 1:10 p.m. in Johannesburg, the biggest intraday drop since Dec. 1.

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Rentals for the company including in Johannesburg’s Sandton — dubbed as the richest square mile in Africa — and Cape Town average 182 rand a square meter, Leon Kok, Redefine’s chief operating officer, said in an email response to questions. 

“We will only see net new growth in demand once we experience sustained economic growth of 3% and above and unemployment levels improving,” he said. “As long as we have a general over supply of space, rental growth will be very limited.”

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Net group interest costs increased 31.5%, mainly driven by the consolidation of EPP NV, its Polish unit, Redefine said in an exchange filing. 

In South Africa, Redefine’s active portfolio vacancy rate increased to 7.5% in the period, from 6.7% in the year ended Aug. 31.

—With assistance from Khuleko Siwele.

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