Redefine Properties’ Polish deal impresses market analysts

SA property funds are increasingly looking abroad, and Europe’s fastest growing economy, Poland, is a top destination for many.

Given its aspirant young population and growing market for business process outsourcing, the country holds opportunities for property funds that can also fund deals more cheaply there than at home.

Market commentators believe Redefine Properties’ first foray into Poland — a deal in which the group is investing nearly R20bn in retail and office properties — may be among chairman and founder Marc Wainer’s best deals.

To clinch the deal, Redefine beat more than 10 bidders including Rockcastle Global Real Estate, which was the first South African property group to invest in that country.

“This could be Marc Wainer’s best deal yet and he has done well to pull it off in only a few months,” says Anas Madhi, an executive director at Meago Asset Management.

There is speculation that Redefine’s old rival, Growthpoint Properties, is considering investing in Poland, having consulted research house and facilitator Jones Lang LaSalle.

Since 1989, the country’s gross domestic product (GDP) per capita has more than doubled, coming in ahead of all of its European peers.

The country has been supported by the highest allocation of structural funds by the European Union (EU). Commercial property and real estate services adviser CBRE says retail is one of the fastestgrowing sectors of the Polish economy, and it is ranked as the 19th most attractive market globally for retail brands.

Poland has also become a popular market for the business process outsourcing industry. Many multinationals with head offices in Europe’s largest economies choose Poland for their secondary call centre and back-office operations. Labour costs are lower, but the quality of service is still high, says Tomasz Trzoslo, the MD of Jones Lang LaSalle Poland.

“We have a country that is growing strongly. Its economy expanded 3.5% last year, and since 2007, the economy has grown by a combined 27%.

“It was also the only EU state to avoid the 2008-09 recession in that its economy did not contract during this period.

“This is attracting large companies who can run their secondary operations at a relatively low cost in Poland,” he says. Redefine’s Polish deal is the biggest single offshore investment by a South African property fund.

The deal is being administered through a share purchase and subscription agreement with Echo Investment and Echo Prime Properties (EPP). Redefine is acquiring 75% plus one share of the issued share capital of EPP, which indirectly owns a portfolio of prime real estate assets throughout Poland.

Stanlib’s head of listed property funds, Keillen Ndlovu, who visited the assets and met with EPP last week, said he was impressed with Redefine’s Polish mission.

“Redefine has managed to get a good deal here, which includes a growth platform. This includes the expansion of offices and the building of Jupiter Shopping Centre in the capital, Warsaw,” he said.

Jupiter’s first phase will be 100,240m². Construction is set to begin in the fourth quarter of next year.

Mr Ndlovu said some critics believed Redefine overpaid, but the investment held long-term benefits and had support.

“The Polish management team is strong, and has depth, drive, energy, passion and diverse skills. The price, at face value, looks full, but the pipeline brings hope, and is diverse too, across the office and retail sectors,” he says.

“It will be interesting to see how Redefine will structure the funding of this transaction when they announce their results in May. Redefine has also attracted the Ellerines and Moolmans, as well as Pivotal (Property Fund) in this transaction. That’s great support.”

Redefine Properties’ share price has climbed 30.89% in the year to date, and the company has been one of the best performers on the JSE.

Bandile Zondo, the head of property research at Standard Bank, said the acquisition of EPP’s portfolio was “one of the better deals Redefine has concluded in a long time”.

“Redefine needed this deal; they really did. I was quite sceptical at first. The key upside is the platform and development pipeline, as well as the local team’s skill and strength. It is a huge opportunity for Redefine to unlock value in portfolio, both domestically and internationally,” Mr Zondo said.

Mr Ndlovu said one challenge for Redefine in Poland would be an increase in supply, especially on the office side.

“There is increased supply in the office market, due to the demand coming from the business process outsourcing industry and that could limit rental growth in the next year to two. Securing the best tenants with long-term leases will be key,” Mr Ndlovu said.

nAlistair Anderson was a guest of Redefine Properties and Echo Investment in Poland.