Wrap Text
Agrees €49 million investment to acquire control of German retail portfolio joint venture
REDEFINE INTERNATIONAL P.L.C.
(Incorporated in the Isle of Man)
(Registered number 010534V)
LSE share code: RDI
JSE share code: RPL
ISIN: IM00B8BV8G91
(“Redefine International” or “the Company” or “the Group”)
REDEFINE INTERNATIONAL AGREES €49 MILLION INVESTMENT TO ACQUIRE CONTROL OF GERMAN RETAIL PORTFOLIO JOINT VENTURE
Transaction highlights:
- Acquisition of controlling interest in the Leopard portfolio consisting of 66 German retail properties currently held in
joint venture
- Total portfolio independently valued at €175.5 million reflecting a net initial yield of 7.4 per cent.
- Aggregate consideration of €49.0 million, comprising both increased equity interest and associated shareholder loans.
The investment is expected to deliver a cash on cash yield of 10 per cent. p.a.
- The consideration will be funded from cash resources. The Portfolio’s existing debt facilities will be retained and
reflects an overall portfolio leverage of 49 per cent.
- Portfolio provides exposure to high quality, secure, indexed-linked cashflows with opportunities to extend existing
stores and re-gear leases
- Efficient reinvestment of capital following the recent sale of the VBG German offices portfolio
- The investment simplifies the Company’s portfolio and structure and provides greater flexibility over future asset
management initiatives and reinvestment decisions
Redefine International, the FTSE 250 income focused UK-REIT, is pleased to announce that the Company has reached a
conditional agreement with Redefine Global (Pty) Limited (the “Seller”) to acquire control of the German Leopard Portfolio
joint venture, in which it holds an existing 50 per cent. equity interest, for an aggregate consideration of €49 million
(€49.4 million including transaction costs) (the “Acquisition”).
Following the Acquisition, the Company will hold an effective 94 per cent controlling interest in the portfolio, whilst
providing 100 per cent. of its non-bank financing requirements by way of shareholder loans.
The Leopard Portfolio comprises 66 German retail properties generating gross rental income of €13.9 million, of which
99.2 per cent. is indexed to between 60 – 70 per cent. of German CPI subject to indexation reaching a cumulative hurdle of
10 per cent. The portfolio is independently valued at €175.5 million reflecting a net initial yield of 7.4 per cent.
The consideration of €49.0 million reflects taking on existing debt facilities totalling €86.1 million (€43.1 million being the
Company's existing share). The facilities have an average all-in cost of 1.4 per cent. per annum which supports a 10 per
cent. geared income return on the total consideration payable by the Group, including transaction costs.
The Seller is a wholly-owned subsidiary of Redefine Properties Limited (“Redefine Properties”), which is a substantial
shareholder of the Company. Accordingly, the Acquisition constitutes a related party transaction for the purposes of Chapter
11 of the UK Listing Rules and is therefore conditional on Independent Shareholders' (excluding Redefine Properties and its
associates) approval, which will be sought at an Extraordinary General Meeting convened for 2.00 p.m. on 25 April 2017 at
2nd Floor, 30 Charles II Street, London SW1Y 4AE.
Mike Watters, CEO of Redefine International commented:
“In line with our strategy, this transaction represents a good opportunity to recycle capital into assets which generate a
strong income yield, having sold the VBG portfolio of German offices at an 8.6 per cent. premium to book value.
Furthermore, our controlling interest in the portfolio will provide more flexibility over future asset management initiatives
and reinvestment decisions.”
Strategic rationale for the Acquisition
The Company recently disposed of its interest in the VBG portfolio of German offices, in which it had a 49 per cent. share,
for €106 million which reflected an 8.6 per cent. premium to book value. The Company received net disposal proceeds of
approximately €24.9 million. The sale delivered an IRR of 27 per cent. over the investment period and was in line with the
Company’s strategy to recycle capital out of assets with limited income growth potential.
The acquisition of a further 44 per cent. overall equity interest in the Leopard Portfolio provides an efficient reinvestment of
this capital into a portfolio which it is wholly responsible for management and administration of, and has external financing
arrangements already in place (with no arrangement or break fees payable). The Acquisition provides a secure, high
yielding income return from strong tenant covenants with the benefit of inflation linked rent reviews on 99.2 per cent. of the
leases by gross rental value, whilst not materially changing the Group's overall exposure to German real estate from that
reported as at 31 August 2016.
Further to this, the Company, through its subsidiary Ciref Europe Limited, has agreed to acquire all shareholder loans
outstanding between the Seller and the SPVs and therefore provide the subordinated debt financing requirements of the
Leopard Portfolio, at an externally benchmarked commercial rate of interest.
The Acquisition also simplifies the Company’s portfolio and structure, with the Leopard Portfolio assets becoming fully
controlled by the Company, providing greater flexibility over future asset management and reinvestment decisions.
Information on the Leopard Portfolio
The Leopard Portfolio comprises 66 properties and totals over 138,000 square metres of lettable area. It includes a mixture
of stand-alone supermarkets, foodstore anchored retail parks and cash and carry stores. The properties are well located
within their respective micro markets, with 86.4 per cent. of the total annual rental income located in Western Germany and
Berlin and the remainder in Eastern Germany. Key portfolio attributes include:
- Gross rental income of €13.9 million.
- Edeka, Netto, Rossmann and Real account for over 85.6 per cent. of gross rental income providing strong tenant
covenants.
- An aggregate WAULT of 8.4 years.
- Portfolio occupancy of 99.2 per cent. by estimated market rental value.
- 99.2 per cent. of gross rental income is subject to indexation of typically between 60 per cent. - 70 per cent. of German
CPI, subject to cumulative indexation reaching a hurdle of 10 per cent. since the last rent review date.
The portfolio provides exposure to high quality, secure, indexed-linked cashflows with opportunities to extend existing
stores and re-gear leases.
Gross rental Net initial Reversionary
Portfolio summary by Market income ERV yield yield WAULT Indexation
occupier value (€m) (€m) (€m) (%) (%) (years) (%)
Edeka 90.8 6.8 6.5 7.1 6.7 9.7 100.0
Netto 25.4 2.1 2.0 7.7 7.3 8.9 100.0
Real 28.8 2.4 2.2 7.9 7.1 6.3 100.0
Multi-let assets(1) 30.5 2.6 2.5 7.9 7.7 6.3 93.2
Total 175.5 13.9 13.2 7.4 7.0 8.4 99.2
(1) Multi-let assets include lettings to Real
Consideration and financial effects of the Acquisition
The Company has reached agreement to acquire 88 per cent. of the issued share capital of Leopard Holdings South Africa
S.à r.l. (an effective 44 per cent. equity interest in the Leopard Portfolio) for €0.3 million and 100 per cent. of the associated
outstanding shareholder loans for €48.7 million.
The aggregate consideration payable of €49.0 million is based on an adjusted net asset value ("NAV") of the Leopard
Portfolio (€43.6 million as at 31 August 2016). Adjustments have been made to take account of certain balance sheet
adjustments agreed between the parties. A further allowance has been made to give recognition to the considerable savings
achieved from completing the Acquisition by way of a share transaction as opposed to a direct property acquisition
(whereby a property acquisition of this size could be expected to attract standard purchaser's costs of 8.5 per cent.
(€7.5 million)). In addition, under the terms of the Acquisition, the Company will acquire the Leopard Portfolio with
economic effect from 1 March 2017, thereby receiving the benefit of c. €0.8 million in net income which would otherwise
accrue to the Seller between 1 March 2017 and the proposed completion date.
The Company currently reports its existing 50 per cent. shareholding in the Leopard Portfolio as a joint venture and has
historically consolidated its results using the equity method of accounting. This reflects only its proportionate share of the
joint venture’s net profit or loss within the Group’s consolidated income statements, and discloses its proportionate share of
the joint venture's net assets as a single line investment within the consolidated balance sheet.
The proposed Acquisition of a further 44 per cent. Shareholding which will increase the Group’s total equity interest in the
Leopard Portfolio to 94 per cent., will result in the investment being fully consolidated on a line by line basis into the
Group’s consolidated income statement and consolidated balance sheet. The residual 6 per cent. minority shareholding,
which will be held by Secure German Investments Limited, will be accounted for as a non-controlling interest share and
reflected within the single line item in both the consolidated income statement and Group balance sheet.
Based upon the 31 August 2016 audited accounts, this would have the following headline financial effect in pounds sterling
(the Group’s functional currency) and based on a currency conversion rate of £1.00 : €1.177:
On the consolidated balance sheet:
- Reduce Loans to Joint Ventures by £37.0 million
- Increase investment property by £150.4 million
- Increase external borrowings by £73.7 million
- Reduce cash by the consideration payable, being £41.6 million
On the consolidated income statement:
- Increase net operating income by £8.9 million
- Increase external finance costs by £0.9 million
- Reduce finance income by £2.5 million
- Increase losses incurred from change in fair value of derivative financial instruments and revaluation of investment
property by £1.7 million
- Increase profit for the year by £3.2 million
On a proportionate basis, the Acquisition will contribute an additional £5.4 million in gross rental income to the Group and
approximately £4.6 million in net rental income after all landlord costs. The increase in underlying earnings of £4.2 million,
which excludes the impact on earnings of unrealised gains and losses, results in a cash on cash yield of approximately
10.0 per cent. on the consideration payable by the Company, including transaction costs.
Funding the acquisition
The consideration payable by the Group will be funded from existing cash resources. The Leopard Portfolio is currently
part funded by four bank facilities totalling €86.1 million (€43.1 million being the Company's existing share) which will
remain in place. The facility has an all-in cost of 1.4 per cent. per annum, with the only significant maturity occurring in
May 2020.
Related Party Transaction
Redefine Properties is the ultimate holding company of Leopard Holdings South Africa S.à r.l., the target company in
connection with the Acquisition. By virtue of Redefine Properties’ 29.79 per cent. shareholding in the Company, Redefine
Properties is a related party due to it being a substantial shareholder of the Company under the UK Listing Rules. The
Acquisition constitutes a related party transaction under Chapter 11 of the UK Listing Rules.
Consequently, the Acquisition is conditional upon, and must be approved by, the Independent Shareholders before it can be
completed. Accordingly, the approval of the Independent Shareholders will be sought at the Extraordinary General Meeting
to be held on 25 April 2017.
A Circular containing the Notice of the Extraordinary General Meeting has been sent to shareholders today and in
accordance with LR 9.6.2 R of the Listing Rules of the UKLA, a copy of the Circular is expected to be submitted today to
the UK's National Storage Mechanism and will be available for inspection at: http://www.morningstar.co.uk/uk/NSM and
will also be available on the Company's website, www.redefineinternational.com.
For further information:
Redefine International P.L.C.
Mike Watters, Stephen Oakenfull Tel: +44 (0) 20 7811 0100
FTI Consulting
UK Public Relations Adviser
Dido Laurimore, Claire Turvey, Ellie Sweeney Tel: +44 (0) 20 3727 1000
Instinctif Partners
SA Public Relations Adviser
Frederic Cornet, Lizelle du Toit Tel: +27 (0) 11 447 3030
Java Capital
JSE Sponsor Tel: +27 (0) 11 722 3050
Important notices
This announcement does not constitute or form part of, and should not be construed as, an offer, solicitation or invitation to
subscribe, for, underwrite or otherwise acquire, any securities of the Company or any member of its group in any
jurisdiction or an inducement to enter into investment activity.
The release, publication or distribution of this announcement in jurisdictions other than the United Kingdom may be
restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the United Kingdom
should inform themselves about, and observe, any applicable requirements. This announcement has been prepared for the
purposes of complying with the Listing Rules and the information disclosed may not be the same as that which would have
been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction
outside of England and Wales.
Forward-looking statements
This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-
looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates",
"plans", "anticipates", "targets", "aims", "continues", "projects", "assumes", "expects", "intends", "may", "will", "would" or
"should", or in each case, their negative or other variations or comparable terminology. These forward-looking statements
include all matters that are not historical facts.
They appear in a number of places throughout this announcement and include statements regarding the directors', the
Company's and the Group's intentions, beliefs or current expectations. By their nature, forward-looking statements involve
risk and uncertainty because they relate to future events and circumstances. A number of factors could cause actual results
and developments to differ materially from those expressed or implied by the forward-looking statements, including without
limitation: conditions in the markets, market position of the Group, earnings, financial position, cash flows, return on
capital, anticipated investments and capital expenditures, changing business or other market conditions and general
economic conditions. These and other factors could adversely affect the outcome and financial effects of the plans and
events described in this announcement.
Forward-looking statements contained in this announcement based on past trends or activities should not be taken as a
representation that such trends or activities will continue in the future. However, these forward-looking statements and other
statements contained in this announcement regarding matters that are not historical facts involve predictions. No assurance
can be given that such future results will be achieved.
Neither the Company nor any member of the Group undertakes any obligation to update publicly or revise any of the
forward-looking statements, whether as a result of new information, future events or otherwise, save in respect of any
requirement under applicable laws and regulations, the Listing Rules, the Prospectus Rules, the Disclosure Guidance and
Transparency Rules, the EU Market Abuse Regulation and the City Code on Takeovers and Mergers.
Rounding
Certain figures in this announcement have been subject to rounding adjustments. Accordingly, any apparent discrepancies
in tables between the totals and the sums of the relevant amounts are due to rounding.
Other
No statement in this announcement is intended as a profit forecast or profit estimate and no statement in this announcement
should be interpreted to mean that the earnings per share of the Group for the current or future financial periods will
necessarily match or exceed the historical or published earnings per share of the Group.
7 April 2017
Note to editors:
About Redefine International
Redefine International is an income focused FTSE 250 UK Real Estate Investment Trust (UK-REIT) committed to
delivering superior distributions to its shareholders throughout the property cycle.
The Company’s income driven total returns are underpinned by a diversified portfolio, together with an efficient capital
structure. The continued transformation of both the corporate structure and asset base offer a solid foundation to drive
further value. At 31 August 2016, the diversified portfolio, independently valued at £1.5 billion, is focused in Europe's two
strongest economies, being the United Kingdom and Germany. The portfolio is weighted towards well located properties
across a range of sectors, including retail, offices, distribution and hotels, which benefit from strong demand and from
which they can capture income and value growth by attracting high calibre occupiers on long leases. The Company’s
investment philosophy is to effectively allocate recycled capital from mature assets into sectors and locations with strong
occupier fundamentals and individual assets with realisable upside.
The secure income stream is supported by a diversified portfolio and tenant base, with a WAULT of 7.8 years
complemented by an average debt maturity of 6.9 years of which over 95 per cent. of interest costs are either fixed or
capped. The Company is focused on all aspects impacting shareholder distributions and boasts one of the lowest cost ratios
in the industry whilst continuously driving lower cost of debt.
Redefine International holds a primary listing on the London Stock Exchange and a secondary listing on the Johannesburg
Stock Exchange and is included within the FTSE 250, EPRA and GPR indices.
For more information on Redefine International, please refer to the Company’s website www.redefineinternational.com.
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