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Interim Management Statement
REDEFINE PROPERTIES INTERNATIONAL LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2010/009284/06)
JSE share code: RIN ISIN code: ZAE000149282
(“RIN”)
Set out below is an announcement which was released by Redefine International P.L.C. (“Redefine
International”), the London Stock Exchange-listed subsidiary of RIN, on the Regulatory News
Service (“RNS”) of the London Stock Exchange today, 15 January 2013.
In terms of the Disclosure and Transparency Rules of the UK Listing Authority, Redefine
International is required to publish a statement by its management, disclosing all material events
and transactions that have occurred since Redefine International’s year end and their impact on the
financial position of Redefine International.
15 January 2013
REDEFINE INTERNATIONAL P.L.C.
(‘Redefine International’ the ‘Company’ or the ‘Group’)
Interim Management Statement
The Board of Redefine International, the diversified income focused property company, today issues the
following Interim Management Statement relating to the period from 1 September 2012 to 14 January 2013.
Greg Clarke, Chairman of Redefine International, commented:
“The period under review has been transformative for the Company. The successful capital raising in
October has enabled the Company to address many of our legacy debt issues and simultaneously move
the Company into a more proactive acquisition phase which will lay the foundations for the future delivery of
shareholder value.”
Investment of Capital Raising Proceeds
Following the completion of the equity capital raising on 9 October 2012, the Company has made good
progress in deploying the £122.5 million of net proceeds to positively restructure existing debt facilities and
to make new investments into good quality assets with attractive income returns.
Approximately £94.0 million of the net proceeds has been invested to date. The transactions summarised
below have previously been announced and full details can be obtained from the Company’s website
www.redefineinternational.com.
VBG Portfolio
The Company completed the restructuring of all four VBG assets and the associated financing facilities in
October 2012. The restructuring and refinancing resulted in the Company owning a 50% interest in the
VBG assets together with Menora Mivtachim, a major Israeli pension fund, via a newly established joint
venture company.
The gross acquisition cost (inclusive of transaction costs) of approximately €84.9 million was partly funded
by the joint venture company with a new five year €57.0 million non-recourse debt facility secured from a
German bank, with both joint venture partners injecting €14.0 million (£11.7 million) for their 50% interests.
The new debt facility was secured at an all-in rate of 2.8% p.a. resulting in an initial yield on equity in
excess of 19.0% on the Group’s investment.
The VBG portfolio comprises four individual German office properties situated in Berlin, Dresden, Cologne
and Stuttgart, all of which are currently let to a German government-backed social insurance body. The
leases have current unexpired terms of between 7.2 years and 12.1 years and are indexed to 100% of
German CPI. The VBG portfolio has a rent roll of €7.6 million p.a.
Hückelhoven
In December 2012, Redefine International announced the acquisition of a newly developed retail property
in Hückelhoven, Germany. The property was acquired through the Group’s jointly controlled entity RI
Menora German Holdings S.a.r.l. (“RI Menora”), and represents the fourth acquisition in joint venture with
the Menora Mivtachim Group.
RI Menora acquired the shares in the property owning company, ITB FMZ Hückelhoven BV & Co. KG for
€4.2 million (including acquisition costs). The property has a value of €11.6 million and has a non-recourse
senior debt facility of €7.9 million secured against it from Bayerische Landesbank. The senior debt facility
has a term of five years and bears interest at a rate of 1.5% above Euribor. An interest rate fix is currently
being negotiated.
Earls Court Holiday Inn Express
In November, the Company, through its 71% held subsidiary Redefine Hotels Holdings Limited (“RHH”),
acquired a 60% share in BNRI Earls Court Limited, the owner of the 150 bedroom Earls Court Holiday Inn
Express Hotel in London, for a purchase price of £8.7 million. The purchase price plus transaction costs of
£0.4 million reflected a net initial yield of 7.5% and was funded by the Company and its co-investors in RHH
on a pro-rata basis.
The hotel is well located close to the Earls Court Exhibition Centre and Arena and the Olympia Exhibition
Centre. The area is earmarked for large-scale redevelopment and the hotel is expected to complement the
Group’s existing portfolio of six high quality hotels.
Cromwell Property Group (“Cromwell”)
Cromwell announced on the Australian Stock Exchange on 7 December 2012 that it was undertaking an
equity capital raising of up to AUD163 million to seed a new unlisted property trust, reduce debt and
provide additional working capital.
The Company subscribed for AUD40 million (£26 million) worth of new securities in the capital raising.
Furthermore, the placement was subject to a sub-underwriting commitment from Redefine Australian
Investments Limited (the Company’s 100% owned subsidiary) for which it received a cash fee of
AUD800,000 (£523,000).
The Company’s current shareholding in Cromwell is 321.5 million securities or 22.84% (31 August 2012:
22.08%)
Debt Repayments
The Company used £7.8 million to repay the Coronation Facility in October 2012. The £20.0 million facility
remains available and is currently undrawn.
The extension and restructuring of the £114.6 million Delta facility was completed in October 2012. Seven
assets were released from security in return for a £33.5 million repayment. The assets included the Lyon
House development site in Harrow and six other assets let to predominantly UK central government
occupiers. The repayment of debt associated with the six income producing assets reflected a net initial
yield of 7.6% and a weighted average unexpired lease term in excess of 17 years.
The remaining £81.1 million Delta facility balance was extended to April 2015 subject to meeting limited
annual disposal targets. The disposal proceeds, together with amortisation requirements, will be applied to
reducing the facility balance. The facility remains non-recourse to the Group.
Operations
UK Stable Income
The regional office market remains challenging as occupiers continue to vacate surplus space to reduce
their property overhead costs. The public sector, in particular, continues to be under renewed pressure to
reduce its exposure to property costs and vacate space on expiry of leases or, alternatively, to co-locate
with other Government departments. Co-location will continue to provide opportunities across the portfolio
as the process of rationalising the regional office portfolio will see a focus on core public sector assets.
Occupancy in the period under review remained largely unchanged at 93.6% (31 August 2012: 93.3%).
The redevelopment of certain assets with higher value alternative uses remains an important strategy such
as the project the Company is undertaking in respect of Harrow (details of which are set out below). The
Company has submitted a planning application for the conversion of St Anne House, Croydon to a mixed
use development comprising a 144 bed hotel and 46 residential units. A planning decision is expected
toward the middle of 2013.
Harrow Redevelopment
Preliminary development works are anticipated to start in the first calendar quarter of 2013. Significant
progress has been made in securing a preferred development partner and a joint venture agreement is
expected to be formalised shortly. It is anticipated that the Company will utilise the current land value as its
50% equity share with no further equity commitments anticipated during the course of the redevelopment.
UK Retail
Occupancy in the first quarter of the year increased to 95.9% (31 August 2012: 95.2%) reflecting a number
of successful lettings and tenant retentions. A total of 20 leases totalling 47,425 sqft were completed during
the period which reflects positively against the 7 leases totalling 19,400 sqft that expired or were subject to
tenant break options.
Although the total number of insolvencies for UK retailers increased from 2011, Q4 2012 showed a
significant improvement over Q4 2011. This, coupled with marginally improving national vacancy rates and
healthy turnover growth from a number of retailers, is giving the sector a small measure of confidence.
Debenhams, a key anchor tenant occupying two of the Company’s centres, reported a 2.9% increase in
like-for-like sales in the first four months of its financial year, as well as its highest ever December sales.
The UK economy and consumer confidence however remain volatile.
The strategy to reposition the St George’s Shopping Centre, Harrow as the leisure and shopping
destination of choice in the wider catchment area is progressing well following the successful planning
application to convert certain retail units to A3 (restaurant) use and the negotiation of key lettings to food
operators. The first phase of the refurbishment work is complete with phase two anticipated to start in
February 2013.
Europe
Occupancy remains unchanged at 99.3%. Those properties subject to vacancies are in the process of
being sold, in line with the Company’s strategy of reducing exposure to smaller and non-core assets.
A number of minor leases were renewed or extended during the period.
Hotels
Underlying occupancy rates since 31 August 2012 has remained robust at 86.1% across the portfolio with
revenue per available room marginally lower than the same period last year.
Southwark, Holiday Inn Express
The Company has forward funded a 50 bed extension of the hotel which will double the number of rooms
available. £5.0 million has been committed at a yield of 10% p.a. The development is anticipated to reach
practical completion in August 2013.
Following the acquisition of the Earls Court Holiday Inn Express, the Company has established a significant
London-focused portfolio of branded limited service hotels. The Company continues to leverage the
Group’s management expertise to seek investments that complement the existing portfolio.
Cromwell
Cromwell was active in the period under review, raising AUD143.0 million (£94.0 million) of new equity to
seed the unlisted Box Hill Property Trust, reduce debt and provide additional working capital. Since the
Company’s 31 August 2012 year end, the Cromwell share price has consistently traded in a range of 83 to
86 cents, an increase of between 10.7% and 14.7% from the 31 August 2012 closing price of 75 cents.
Including the new securities subscribed for as stated above, the current market value of 83 cents equates
to an increase in the market value of the Company’s holding equivalent to 1.6 pence per Redefine
International share.
Cromwell announced on 18 December 2012 that its 31 December 2012 quarter distribution was 1.8125
cents per security. The aggregate distribution due to be received by the Company on or about 13 February
2013 is approximately AUD5.1 million (£3.3 million). Cromwell has re-iterated its guidance of
$AUD 7.25 cents per security for the 2013 financial year.
The Company continues to see value in its strategic holding in Cromwell which is expected to provide
consistent and growing income returns.
Debt Facilities
Gamma
Despite on-going negotiations to restructure the £199.7 million loan facility, the servicer has confirmed that
it will be accelerating the loan and will be appointing a receiver.
The loan facility is entirely non-recourse to the Group and, as a result of the negative net asset value
position in relation to the portfolio of assets secured by the Gamma facility, the Company does not attribute
any economic value to the portfolio. The Company’s 31 August 2012 Adjusted EPRA NAV of 39.06 pence
reflects this position by removing the negative equity associated with this portfolio. Furthermore, since the
maturity date of October 2012, the Company has not benefited from any cashflow releases from the facility
and the acceleration of the loan does not impact negatively on expectations of future distributable earnings.
The anticipated sale of the assets secured by the Gamma facility will accelerate the Company’s strategy to
reduce its exposure to UK regional office assets and, although it was expected a consensual workout would
be agreed, the process now provides some clarity on the exit strategy for this non-core portfolio. The
Company remains in a strong position to acquire selected assets at attractive prices given its knowledge of
the portfolio.
Cromwell Investec Facility
The Company’s investment in Cromwell is part-funded through a non-recourse facility with Investec
Australia. As part of the recent subscription in Cromwell’s capital raising, the Company has agreed terms
with Investec Australia to increase the facility to AUD60.0 million (£39.3 million) and extended the term to
March 2016. Although the margin remains unchanged, the overall facility cost is anticipated to reduce by
approximately 200 basis points due to lower market rates. The new facility reflects a loan to value of 22.5%
against the current market value of the Company’s shareholding in Cromwell.
Dividend
On 22 November 2012, the second interim dividend of 2.30 pence per share was paid to all shareholders
on the register as at 28 September 2012. The total dividend for the financial year ended 31 August 2012
was 4.40 pence per share.
Corporate Restructuring and REIT conversion
The Company has received confirmation from the South African Reserve Bank that it is agreeable to an
application for an inward listing onto the Johannesburg Stock Exchange (“JSE”) which will be subject to all
necessary approvals. This will enable the Company to simplify its corporate structure and consolidate its
shareholder base by distributing Redefine Properties International Limited’s current 65.8% shareholding in
the Company. This should have the impact of enhancing the Company’s liquidity and free float with existing
shareholders in Redefine Properties International Limited becoming direct shareholders in the Company
through a dual listing on the LSE and the JSE.
The Company continues to be advised on converting to a UK REIT and will, subject to confirming the
necessary steps for the above mentioned corporate restructuring, look to adopt UK REIT status should it be
in the interests of the Company and its shareholders. The Company will update shareholders as
appropriate.
Outlook
Despite the persistent weak economic outlook in the UK and Europe, investment market activity was
stronger in the last quarter of 2012 with better quality assets receiving strong interest from the investment
market. The Company is undertaking due diligence on a number of potential investments. Further
announcements in relation to potential investments will be made as and when appropriate.
The successful restructuring of the majority of legacy financing facilities and the resolution with regard to
the Gamma facility will allow for a renewed focus on enhancing the Group’s investment portfolio. The
strategy to significantly reduce the Company’s exposure to UK regional offices is underway together with
the redevelopment of assets with alternative uses.
Further enquiries:
Redefine International Property Management Limited
Investment Adviser
Michael Watters, Stephen Oakenfull Tel: +44 (0) 20 7811 0100
FTI Consulting
Public Relations Adviser
Stephanie Highett, Dido Laurimore, Faye Walters Tel: +44 (0) 20 7831 3113
Sponsor to Redefine Properties International Limited
Java Capital
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