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Redefine International P.L.C. - Interim Management Statement
REDEFINE PROPERTIES INTERNATIONAL LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2010/009284/06)
JSE share code: RIN ISIN: ZAE000149282
(“RIN”)
INTERIM MANAGEMENT STATEMENT, CAUTIONARY ANNOUNCEMENT AND TRADING STATEMENT
UPDATE
INTERIM MANAGEMENT STATEMENT
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, 18 July 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 (“Interim Management Statement”), disclosing all
material events and transactions that have occurred since Redefine International’s interim period end
and their impact on the financial position of Redefine International.
CAUTIONARY
RIN linked unitholders are referred to the two significant acquisitions discussed in the “Investment
Opportunities” section of Redefine International’s Interim Management Statement.
The acquisitions are still subject to the conclusion of binding agreements and, accordingly, RIN linked
unitholders are advised to exercise caution when dealing in their securities until further
announcements are made
TRADING STATEMENT UPDATE
In terms of the Listings Requirements of the JSE Limited, property entities are required to publish a
trading statement as soon as they are satisfied that a reasonable degree of certainty exists that the
distribution for the period to be reported upon next will differ by at least 15% from the distribution for
the previous corresponding period. In light of the additional linked units that were issued as part of the
capital raise in October 2012, linked unitholders were advised in RIN’s unaudited interim results for the
six months ended 28 February 2013 that RIN anticipated that its distribution per linked unit for the full
year ending 31 August 2013 would be within the range of 3.07 to 3.29 pence per linked unit as
compared to 4.40 pence per linked unit for the year ended 31 August 2012. RIN linked unitholders are
advised that this range is still applicable.
The information on which this trading statement has been based has not been reviewed or reported on
by the RIN’s auditors.
“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 March 2013 to 17 July 2013.
Greg Clarke, Chairman of Redefine International, commented:
“The Company has previously highlighted its intention to create a simplified corporate structure and I am
pleased to announce the decision by the South African Reserve Bank (“SARB”) to approve an inward listing on
the Johannesburg Stock Exchange (“JSE”) subject to certain conditions which are within the Company’s
control. This paves the way for unbundling the South African intermediate holding in the Company,
internalising the management company and converting to a UK Real Estate Investment Trust (“UK REIT").
Furthermore the Company continues to deliver on its strategic objectives and is increasingly well positioned to
take advantage of the improving economies in its investment markets to create strong income returns for its
investors.”
Overview
Highlights for the period included:
- Approval received from the SARB for an inward listing on the JSE;
- Sale of a 6% stake in Cromwell, delivering gross proceeds of £52.8 million in cash;
- Refinancing of the £46.0 million Zeta facility;
- An increase in portfolio occupancy to 97.6% (28 February 2013: 95.9%);
- Acquisition of minority interests in three investments, further streamlining the ownership structure; and
- Progress to conclude terms for two significant high quality acquisitions which are anticipated to exchange
in the near future.
The investment market, particularly in the UK, has seen a marked increase in activity. Strong investment
demand for good quality assets is being reflected in competitive bidding with pricing often exceeding asking
prices. This is starting to extend to good quality secondary assets outside of London, most notably from UK
institutions and foreign capital, suggesting a limited supply of prime investments.
At the same time, concerns over tighter monetary policy, increases in interest rates and a sharp rise in bond
yields has seen significant volatility in the financial markets. Despite improving UK economic data, financial
and capital markets are likely to remain volatile.
Corporate Restructuring and UK REIT conversion
The Company has received approval from the SARB to inwardly list on the JSE, subject to certain conditions,
and eliminate Redefine Properties International Limited (“RIN”) as an intermediate holding company.
This eagerly awaited approval is a significant milestone and will allow the proposed corporate restructuring to
proceed, subject to all necessary shareholder and other regulatory approvals being obtained.
The Board has now commenced the process to agree a price and mechanism to internalise the management
function. In addition the Company has engaged with HMRC to agree the necessary steps to implement a
conversion to a UK REIT.
A shareholder circular is in the process of being prepared which will set out full details of the proposed
corporate restructuring and the UK REIT conversion and will be posted to shareholders in due course.
Acquisitions
Investment opportunities
The Company is currently finalising terms on two significant acquisitions which will enhance the quality of the
Company’s existing portfolio. Detailed announcements will be made as soon as legal agreements are
exchanged.
Acquisition of minority interests
As previously announced on 1 July 2013, the Company has acquired the remaining minority interests in
Newington House Limited, Ciref Malthurst Limited and Trito Kwik-Fit Limited for an aggregate purchase price of
£1.99 million, payable by the issue of 5.1 million Redefine International shares at 39 pence per share.
The acquisition, which is in line with the Company’s strategy of acquiring the underlying minority interests in its
portfolio, simplifies the ownership structure and enables the Company to benefit from 100% of the income and
potential capital gains from its investment properties.
Disposals
Cromwell Property Group (“Cromwell”)
As previously announced on 3 April 2013, the Company took the opportunity to capitalise on the strength of the
Cromwell security price and the Australian Dollar and disposed of £52.8 million worth of Cromwell securities at
a weighted average price of AUD 90.1 cents, achieving a Pound Sterling internal rate of return of 22.9%.
Sapphire House, Telford
Sapphire House, Telford was sold for £535,000, in line with the February 2013 book value. The sale removes
approximately 90,000 sq ft of vacant space from the portfolio and is in line with the Company’s strategy of
selling smaller non-core assets to enhance the overall quality of the portfolio.
Delmonhorst, Germany
The Delmonhorst property (part of the Lidl Portfolio) was sold for €240,000. The sale removes 2,500 sq ft of
vacant space and is in line with the Company’s strategy of selling smaller non-core assets. The proceeds of
the sale have been used to part repay the loan on the remaining portfolio.
Operations
UK Stable Income
Reduction in vacancy
Following the sale of Sapphire House, Telford and the completion of new lettings at The Observatory, Chatham
and Crescent Centre, Bristol, occupancy of the UK Stable Income portfolio (excluding the Delta portfolio) has
increased to 96.8% (28 February 2013: 91.0%).
Harrow residential development
A number of developers and potential joint venture partners have been approached while Section 106
requirements have been progressed. The level of interest, supported by a strong residential market, has been
encouraging. A preferred exit strategy and/or development partner is anticipated to be finalised before the
financial year end.
Croydon
Good progress has been made toward securing planning permission to convert the 73,000 sq ft of vacant
office space to hotel and residential uses. The property, located opposite the proposed Whitgift Centre
redevelopment, stands to benefit from this improving location. The Company is at advanced stages of
negotiating a long-term lease to a major hotel operator.
UK Retail
The second quarter of 2013 has been far more positive for the retail market than it has been for a considerable
period of time. The general UK trend, which is backed up by evidence in the Company’s retail centres, is of
declining footfall but higher than average spend per shopping visit. Retailer insolvencies during the period have
declined significantly and retailer profitability appears to be on the increase.
Occupancy at the end of June 2013 declined marginally to 95.7% (28 February 2013: 95.9%).
St Georges, Harrow
The new Nandos restaurant opened on 11 July 2013 and is trading ahead of expectations. Phase two of the
refurbishment started in February 2013 and is expected to be complete in early 2014. Following the investment
into St Georges, the centre is expected to be the leisure and shopping destination of choice in the wider
catchment area.
Birchwood redevelopment
The remaining large 10,000 sq ft unit has been let to 99p Stores at £14 per sq ft for a 10 year term. Phase
three of the redevelopment is now complete with phase four, which includes the refurbishment of the mall, now
underway with completion anticipated at the end of August 2013.
Hotels
Following a slow start to the calendar year, underlying operating measures improved markedly in May, June
and July 2013 with increased occupancy and room rates.
The recently acquired Earls Court Holiday Inn Express is trading ahead of expectations. Occupancy levels
have been maintained following the additional 50 rooms which were completed in November 2012.
The redevelopment and 48 bedroom extension of the Southwark Holiday Inn Express in London is on schedule
in terms of both timing and cost.
During the period under review, the Redefine Hotel Management Group, the lessee of the Company’s hotel
portfolio, announced a merger with the BDL Hotel Group to form Redefine BDL Hotels UK Limited. This group
is now one of the largest independent hotel management companies in the UK and manages 60 hotels
representing 6,700 rooms for major hotel brands such as Intercontinental Hotels Group, Wyndham Worldwide,
Starwood Hotels & Resorts, Hilton Hotels and Resorts and Best Western. The Company’s focus remains on
London based limited service hotels, however the establishment of a leading management company within the
wider Group will provide improved access to market opportunities.
Europe
Occupancy improved to 99.8% (28 February 2013: 99.03%) following the sale of Delmonhorst and letting of
vacant space at Moelnn and Bremenvorde.
4,100 sq ft of vacant space was let to Getrankeland at Moelnn on an eight year unexpired term for €30,000 p.a.
A 15 year lease agreement with quasi government entity Die Borne was completed at Bremenvorde which is
now fully occupied. In addition, Hol Ab has extended its lease by seven years at the existing passing rental of
€64,140 p.a.
Edeka exercised its option at Aachen to extend its lease by three years to May 2016 on the same terms and
conditions, and at a rental amount of €129,262 p.a.
Cromwell
Operations
Cromwell was active in the period under review, and announced on 11 June 2013 that it had completed the
acquisition of a portfolio of seven office assets from the New South Wales State Government for AUD405
million, as well as the acquisition of two buildings let to the State Health and Forestry Departments in the
Brisbane CBD for AUD68.4 million.
The purchase price of both transactions was funded by a combination of debt and the issue of 250 million
securities at AUD1.00 per security to raise AUD250 million of new equity.
Redefine International, although supportive of the transaction, chose not to participate in the equity raise. As a
consequence the Company’s shareholding in Cromwell reduced from 16.1% to 13.7%. Cromwell reiterated its
distribution guidance for the 2013 financial year to 30 June 2013 of 7.25 cents per security and gave guidance
of not less than 7.5 cents per security for the 2014 financial year.
Post the disposal of the Cromwell securities, the Australian Dollar has declined by approximately 12% against
the Pound Sterling and indications are that the Australian economy may be slowing after its recent strong
performance. The lower Australian Dollar will impact on the Pound Sterling investment value and the
distributions to be received from Cromwell in the year ahead, although this is partly offset by Australian Dollar
gearing.
Notwithstanding the expected weakening of the Australian Dollar, the Company remains a strong supporter of
Cromwell and is committed to its investment in Australia. It will however remain vigilant in terms of timing the
market to re-invest or take further profit.
Debt Facilities
Aviva restructuring
A non-binding agreement has been entered into with Aviva Commercial Finance Limited (“Aviva”) to
restructure the debt facilities which fund part of the Company’s UK Retail portfolio.
The restructure is being undertaken as part of a simultaneous significant acquisition referred to above.
As part of the transaction, Aviva is expected to fair value its debt to the current market value of the assets in
response to a substantial capital injection by the Company.
Zeta Facility
As announced on 29 May 2013, the Company completed the refinancing of the £46.0 million Zeta facility with
Lloyds TSB Bank PLC.
A new £38.5 million facility, reflecting a 55% loan to value ratio, has been agreed for a three year term with
options to extend for two further one year periods. 75% of the loan amount has been fixed for the initial three
year term at an all-in rate of 4.06% with the balance of the loan bearing interest at a rate of 3.25% above three
month Libor.
The £7.5 million reduction in the loan balance was funded with £5.5 million of cash already secured by the
facility following a previously announced lease surrender and the subsequent sale of the Telford property. The
remainder was funded utilising existing cash resources. The loan is secured against the Company’s UK
Government let offices (excluding the Delta portfolio assets).
The refinancing of the Zeta facility secured the last of any material near term debt maturities and further
enhances the Company’s already significantly improved financial position.
The Group’s average cost of debt (excluding the Delta facility) remains largely unchanged at 5.1%. The
Group’s loan to value ratio at 28 February 2013 was 51.2%.
Delta and Gamma facilities
The Delta and Gamma portfolio assets are in the process of being marketed for sale. The debt facilities
associated with these portfolios remains entirely non-recourse to the Group.
Dividend
On 24 May 2013, the interim dividend of 1.475 pence per share was paid to all shareholders recorded on the
register on 10 May 2013.
Outlook
After an extended economic downturn, the UK and northern European economies are showing signs of
stabilising. Activity in the investment market has picked up considerably in recent months with competition
being reflected in more aggressive pricing for good quality assets and demand starting to spill over into
secondary markets.
The Company is well placed to take advantage of the economic upturn when it arrives and is focusing on:
- Maximising the potential within the existing asset base through redevelopment and extension;
- Disposing of non-core properties into a rising market; and
- Managing the interest rate profile to protect against the expected rising interest rate environment.
The Company will remain opportunistic in seeking out good quality and well-priced acquisitions but remains
focused on existing markets in which it has established expertise and resources.
The Company refers to the announcement made in the interim results released on 29 April 2013 by its largest
shareholder, RIN. In terms of the Listings Requirements of the JSE Limited, RIN is required to publish a trading
statement as soon as it is satisfied that a reasonable degree of certainty exists that the distribution per linked
unit for the period to be reported upon next will differ by at least 15% from the distribution for the previous
corresponding period. The Company notes RIN’s trading statement and that its expected range of distribution
per linked unit, for the year ending 31 August 2013, is broadly consistent with the latest published analyst
guidance for Redefine International. The financial results on which RIN’s trading statement is based have not
been reviewed or reported on by RIN’s external auditors.
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, Olivia Goodall Tel: +44 (0) 20 7831 3113”
18 July 2013
Sponsor to Redefine Properties International Limited
Java Capital
Date: 18/07/2013 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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