Durban - Redefine International, the FTSE 250 income-focused UK-based property group, on Friday announced that it had reached a conditional agreement with Redefine Global to acquire control of the German Leopard Portfolio joint venture, in which it holds an existing 50 percent equity interest for 49.4 million euros (R719.32 million).
The company said the proposed acquisition included transaction costs, adding that it was going to seek shareholder approval at an extraordinary general meeting convened later this month.
Redefine International chief executive Mike Watters said the transaction was in line with the group’s growth strategy.
Watters said the proposed purchase also represented a good opportunity to recycle capital into assets which generate a strong income yield “having sold the VBG portfolio of German offices at an 8.6percent premium to book value. Furthermore, our controlling interest in the portfolio will provide more flexibility over future asset management initiatives and reinvestment decisions.”
The company said following the acquisition, it would hold an effective 94percent controlling interest in the portfolio, while providing 100 percent 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 euros, of which 99.2 percent is indexed to between 60 to 70 percent of German CPI subject to indexation reaching a cumulative hurdle of 10 percent.
The portfolio is independently valued at 175.5 million euros reflecting a net initial yield of 7.4 percent.
The consideration of 49 million euros reflects taking on existing debt facilities totalling 86.1 million euros being the company’s existing share.
The facilities have an average all-in cost of 1.4 percent per annum which supports a 10 percent geared income return on the total consideration payable by the group.
Redefine said the aggregate consideration payable of 49 million euros was based on an adjusted net asset value of the Leopard Portfolio (43.6 million euros as at August 31, 2016).
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The company said adjustments had been made to take account of certain balance sheet adjustments agreed between the parties.
“The portfolio provides exposure to high quality, secure, indexed-linked cash flows with opportunities to extend existing stores and re-gear leases,” it said.
In January Redefine International and Israeli pension group Menora Mivtachim sold four German office assets to a US private equity group for 106 million euros.
Watters said the company was looking for value from other opportunities and that the lease on the German portfolio was nearing its end.
The assets, held in a joint venture with Menora Mivtachim, were disposed of as a portfolio via a share sale.
Redefine International owned 49 percent of the assets and the sale price was at an 8.6 percent premium to the book value.
The properties are based in Berlin, Dresden, Cologne and Stuttgart and are let to a German government-backed social insurance body, VBG. The portfolio generated a total annual gross rental income of 8.1 million euros.
Redefine shares dropped 0.28 percent on the JSE on Friday to close at R10.71.