Redefine tables offer for largest Polish retail landlord EPP
Reit aims to swap its stocks for shares in a proposed deal that will cause delisting of European company Redefine gains R3.5bn on plan to buy largest Polish retail landlord EPP
Redefine Properties gained R3.5bn in market value on Monday as it unveils plans to take control of Polish retail landlord EPP, in a deal that bulks up SA’s largest landlord by assets exposure in the eastern European country’s red-hot commercial real estate market.
The share price share jumped as much as 13%, the most since early December 2020, before easing off to trade 12% higher at R5.37 by 3.10pm on the JSE, giving Redefine a market capitalisation of R31.28bn.
“As you would note, EPP has not paid a dividend for the past 24 months, so we want to enter into this transaction on the basis of restoring much needed liquidity to EPP to assist them with significant debt maturities, which is impeding [its] ability to declare dividends,” CEO Andrew Konig said in a virtual media briefing.
“We also want to lower the loan to value ratio (LTV) and very importantly we want get control over EPP so that we control its universe from a risk management point of view as well from the opportunity point of view going forward. There are other side benefits, for example, a single entry point from an investment into EPP via Redefine.” LTV measures the company’s debt relative to its assets.
Redefine already owns 45.4% shareholding in EPP, which in turn owns 28 retail assets in Poland. EPP shares jumped 9.24% to R13 on the JSE, the most in a year, suggesting that investors were in favour of the proposal, whose precise details are yet to be released to the market. EPP market value stands at about R11.62bn
An independent committee constituted by the EPP board is currently evaluating the merits of the potential share swap deal, which would give the Johannesburg-based company a bigger exposure in Poland, a country that attracts the most capital in commercial property than any other in eastern and central Europe.
According to Cushman & Wakefield, a global real-estate consultancy house, the volume of transactions in the Polish commercial property sector in the first quarter was 10% above the five-year average for pre-pandemic first quarters.
Nedbank Corporate & Investment Banking property analyst Ridwaan Loonat said Redefine would gain increased exposure to a company that has “strong” management team and a geography that is offering attractive growth compared to SA.
“This deal could see EPP’s LTV being reduced quicker than expected and result in EPP being able to reinstate its dividend, thus restoring Redefine’s investment into a productive one.” EPP's LTV stood at 55.8% in the six months to end-June.
Evan Robins, portfolio manager at Old Mutual Investment Group’s MacroSolutions boutique, said Redefine has made “commendable progress in tidying up and simplifying the business and this would further advance that objective. EPP was not thriving in the listed environment reflected in market pricing”.
Redefine managed to restore its own dividend in the year to end-August, reflecting progress in its debt-reduction efforts, which included selling off noncore assets.
A dividend of 60.12c per share was declared, after none was declared a year ago, due to uncertainty about Covid-19.
Real-estate investment trusts are mandated to pay a minimum of 75% of their distributable income as a dividend each financial year, as long as they pass a liquidity and a solvency test.
Rental concessions provided to struggling tenants dropped R125.7m from R355.3m. The SA active portfolio vacancy rate decreased during the year to 7.1% from 7.3%.
The value of Redefine’s property portfolio, which straddles retail, office and industrial sectors, dropped to R72.9bn during the review period from R81bn the year before.
Update: November 8 2021
This article has been updated with new information and the share price.