RDI buys into London’s flexible office market

RDI Reit, the western European-focused real estate group, has acquired a £161.7m portfolio, which significantly improves the company’s asset base.

The portfolio includes properties in London’s popular flexible office market and is a boon for RDI, which has struggled to create value for shareholders over the past couple of years.

In 2017, it managed a negative total return of 0.36%, according to research by analyst Garreth Elston.

Its share price has fallen 36% over the past three years.

RDI, previously called Redefine International, acquired an 80% interest in four flexible offices in central London for £161.7m at an anticipated net initial yield of more than 6%.

The funds come from the sale of a German retail portfolio at the end of 2017.

Deputy CEO Stephen Oakenfull said the deal was earnings accretive and "especially pleasing" as the assets would be acquired at a better yield than the retail portfolio had offered.

In November, it announced the sale of its German Leopard portfolio to Patrizia Immobilien for €205m, reflecting a 10.8%, or €20m, premium to the portfolio’s August 31 book value.

Office Space in Town (OSIT) will retain a 20% interest in the London office portfolio and will operate the assets. Oakenfull said OSIT was an expert manager of flexible offices in the UK.

Serviced offices are in very high demand in the UK, according to Oakenfull.

"Listed real estate has shifted from being product-to service-driven in Europe. This is a trend that will soon come to SA.

"We have an excellent partner in OSIT and are excited that this is our first venture with them," said Oakenfull.

RDI CEO Mike Watters said it was key that RDI had managed to secure the acquisition so soon after selling the Leopard portfolio, given how competitive flexible office space was in the UK.

"We are very pleased....

"The long-term market outlook for the flexible office sector remains extremely positive, with structural and behavioural change driving the momentum behind strong occupier demand," said Watters.

The portfolio would be financed at 45% loan-to-value.

Investec Asset Management’s Peter Clark said RDI had managed to keep its loan-to-value ratio under 50%, which made the deal even better as RDI was looking to reduce its debt.

RDI has a medium-term target of delivering between 3% and 5% growth in underlying earnings per share.

andersona@businesslive.co.za