From Bloomberg
Redefine to Buy U.K. Commercial Properties for $744 Million
By Dalia Fahmy
Redefine International Plc, a British real estate investment company, agreed to buy commercial properties for 490 million pounds ($744 million) from Aegon UK Property Fund.
The acquisition includes retail parks, offices and industrial buildings across the U.K., including 19 properties that comprise the AUK Portfolio, Redefine said in a statement on Monday.
“This is a transformational deal for Redefine International, which rapidly improves the quality and scale of our overall portfolio” Redefine Chief Executive Officer Mike Watters said in the statement.“This also represents an efficient recycling of our cash balances following sales of Cromwell and other non-core assets.”
The AUK Portfolio has a net initial yield of 5.0 percent, the company said. The transaction is subject to shareholder approval.
Redefine said it has arranged 303 million pounds in loans to help finance the deal.
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Redefine International Media Release
REDEFINE INTERNATIONAL ANNOUNCES R10 BILLION TRANSFORMATIONAL DEAL
In one of the largest property transactions in South Africa this year, Redefine International, the FTSE 250 UK Real Estate Investment Trust (“UK-REIT”), has acquired a R10 billion (£489 million) property portfolio. The transaction will result in the Company’s portfolio increasing by 50 per cent to over R30 billion (£1.5 billion) and generate nearly half a billion rand in additional rental income.
In terms of the transaction, Redefine International has reached a conditional agreement with the Aegon UK Property Fund (the “Seller”) to acquire the AUK Portfolio through its wholly-owned subsidiary, Redefine AUK, for an aggregate consideration of R9 billion (£437.2 million).
The Company also announces today that, separate to this transaction, it has exchanged contracts unconditionally with the Seller, to acquire Banbury Cross Retail Park for a consideration of R1.09 billion (£52.5 million) which is expected to complete later today.
Commenting on the Proposals, CEO Mike Watters said:
“This is a transformational deal for Redefine International, listed in London and on the JSE, which rapidly enhances the quality and scale of our overall portfolio, supporting our growth plans and strategy to generate consistent and growing income returns. It further cements our position as a leading rand hedge property stock for South African investors wanting to diversify their portfolio offshore.
“The transaction, which has taken a considerable period to negotiate and structure, offers the opportunity to efficiently recycle capital from non-core sales. In this regard, the proceeds from the recent Cromwell disposal will be almost instantly re-deployed, limiting any potential cash drag on earnings.
“The 20 assets acquired present a number of attractive opportunities where we can enhance and capture value over time by applying disciplined asset management initiatives, while their geographic and sector spread will provide yet further income diversification. Together with a very attractive £303 million new debt facility, we have secured, believe that this transaction positions the business in a very strong and exciting place, from which we can continue to drive Shareholder value.”
Rationale
The Board believes the acquisition of the AUK Portfolio provides the Company with an opportunity to acquire a substantial portfolio of institutional quality assets which provide enhanced income and capital growth opportunities to the Group. The acquisition of the AUK Portfolio also provides a number of strategic benefits in terms of scale, liquidity and access to alternative sources of funding as the value of the Company’s portfolio increases to c. R30 billion (£1.5 billion).
The portfolio is predominantly focused on the retail and office sectors which fit well within the Group’s existing asset base and areas of expertise. It also includes R2.04 billion (£98.1 million) of well-located industrial and distribution assets, a sector which the Company has limited exposure to and which is currently experiencing strong demand and rental growth potential.
* Based on an exchange rate of R20.8/£1
Transaction highlights
AUK Portfolio
- The AUK Portfolio comprises 19 properties valued at £439.9 million. Of these, six assets are single let, with the balance being multi-let
- The portfolio comprises largely institutional quality assets which have strong property fundamentals and scope for adding capital value through active asset management
- The net initial yield is 5.0 per cent and the topped up net initial yield (post expiry of rent free periods) is 5.4 per cent., both assuming standard purchaser’s costs of 5.8 per cent.
- The topped up net initial yield excluding the Grosvenor Street property and reflecting actual purchaser’s costs is anticipated to be over 5.8 per cent.
- The portfolio generates an annual passing rent of £23.5 million (increasing to £25.3 million after the expiry of rent free periods) and with an estimated rental value of £27.8 million
- By gross income, 45.2 per cent of the portfolio is comprised of retail properties (principally retail parks), 26.7 per cent offices and 28.1 per cent industrial
- The weighted average unexpired lease term is 7.6 years to the first break option and 9.7 years to expiry
- Although the portfolio has a high overall occupancy of 96.7 per cent. (by area) there are numerous identified asset management opportunities to reduce voids and associated carrying costs, which will drive both higher income returns and capital values
Banbury Cross
- The acquisition of Banbury Cross completes today for £52.5 million (£54.7 million including costs) reflecting at a topped up net initial yield of 6.4 per cent.
- The Banbury Cross Retail Park is an open A1 retail warehouse park which generates an annual passing rent of £3.1 million, rising to £3.5 million once existing rent free periods come to an end
A summary of the property assets is as follows:
| % of portfoliovalue | WAULT to firstbreak | Net rentalincome(£k p.a.) | Net initialyield (%)** | ||
| Retail Parks | £136.30 | 31 | 10.1 | £7,769 | 5.5 |
| Offices | £159.60 | 36 | 4.3 | £6,275 | 3.7 |
| Industrial | £98.10 | 22 | 4.8 | £6,598 | 6.4 |
| Car Showroom/High Street | £45.90 | 11 | 14.6 | £2,853 | 5.9 |
| Total | £439.90 | 100 | 7.6 | £23,4945 | 5.0 |
** Net yields include standard purchaser’s costs of 5.8 per cent.
Financing
- The timing for the completion of the acquisition of the AUK Portfolio will be split into two tranches:
- Tranche 1, which comprises nine properties and which is expected to complete on or around 2 October 2015 at a purchase price of R4.17 billion (£203.5 million) (R4.41 billion (£212.1 million) including costs); and
- Tranche 2, which comprises 10 properties and which is expected to complete on or around 1 March 2016 at a purchase price of R4.86 billion (£233.7 million) (R5 billion (£243.6 million) including costs).
- A £303 million new bank facility (“New Facility”) has been secured from a syndicate comprising Barclays Bank PLC, HSBC Bank plc, Royal Bank of Scotland and Santander, consisting of a R3.22 billion (£155 million) term loan and R3 billion (£148 million) revolving credit facility, at a margin cost of approximately 1.9per cent. to finance the Acquisitions and otherwise available for other corporate purposes.
- The Company also intends to raise funds from assets sales, new equity and / or debt capital, subject to market conditions, to part fund the consideration of Tranche 2. Failing that, a back-stop solution has been provided by Redefine Properties Limited via the RPL Loan to guarantee completion of Acquisitions which, if utilised, would result in the Combined AUK Portfolio being formed as a 50:50 Joint venture (“RPL JV”) through the Conversion and Disposal. RPL has also conditionally committed to participate in any equity raise up to a threshold of £70 million to fund the Acquisitions.
Banbury Cross
- The acquisition of Banbury Cross completes today for R1.09 billion (£52.5 million) (R1.13 billion (£54.7 million) including costs) at a net initial yield of 6.4 per cent.
- The Banbury Cross Retail Park is an open A1 retail warehouse park which generates an annual passing rent of R65 million (£3.13 million), rising to R72.5 million (£3.49million) once existing rent free periods come to an end.
Conditions
The Acquisition constitutes a Class 1 transaction for the purposes of the UK Listing Rules and therefore requires the approval of Shareholders.
In addition, as Redefine Properties is a substantial shareholder of the Company, each of the Related Party Transactions constitute a related party transaction for the purposes of Chapter 11 of the UK Listing Rules. Should the RPL Loan convert into a 50 per cent interest in Redefine AUK held by Redefine Properties, as explained in detail in paragraph 5 below, then that conversion would constitute a Class 1 disposal for the purposes of Chapter 10 of the UK Listing Rules as well as a related party transaction for the purposes of Chapter 11 of the UK Listing Rules. As such, the Related Party Transactions and the Disposal are conditional on Independent Shareholders’ approval.
The Resolutions are inter-conditional and therefore all are required to be passed for the Proposals to proceed.
Accordingly, an Extraordinary General Meeting has been convened for 9:30 a.m. on 25 September 2015 at 2nd Floor, 30 Charles II Street, London SW1Y 4AE. At the EGM, authority is being sought to proceed with the Acquisition and to approve the Related Party Transactions and the Disposal, in each case to support the Acquisition.
