Redefine International, the Financial Times Stock Exchange (FTSE) 250 income-focused UK Real Estate Investment Trust (REIT), announced the submission of their proposal to International Hotel Properties Limited (IHL) to increase its shareholding in IHL from 17.24 percent to 50 percent. IHL is listed on the Euro MTF market of the Luxembourg Stock Exchange (LuxSE) and on the AltX of the JSE.
Redefine International intends to increase its current shareholding in IHL to 50 percent by acquiring 18,343,166 IHL shares from the minority shareholders by way of a scheme of arrangement under the BVI Business Companies Act, 2004.
The consideration for the IHL shares will be made through the issuing of 2.5 Redefine International shares for every one IHL share held, for which an additional 45,857,915 new Redefine International shares will be allocated and on implementation of the scheme, the listing of IHL’s shares on the JSE and LuxSE would be terminated (the “Proposed Transaction”).
After this transaction, hotels would then be expected to comprise approximately 19 percent of the Company’s gross assets, up from 16 percent at 20 February 2017.
However, it is anticipated that material savings will be generated through the integration of the hotel assets into the Company’s existing hotel portfolio and REIT status.
The IHL portfolio is made up of nine good quality UK hotels valued at £104.35 million and complements Redefine International’s standing hotel portfolio.
A statement by Redefine stated that “Four of the hotels, comprising 27.7% of the portfolio, are let on long term leases to Travelodge with an effective average unexpired lease term of over 20 years. The Travelodge portfolio reflects a net initial yield of 5.3% and benefits from five yearly RPI escalations providing attractive rental growth prospects in a higher inflationary environment.”
The remaining five hotels that are valued at £75.4 million, will be managed by company’s associate, RedefineBDL Hotel Group, of which four are franchised to Holiday Inn Express and one to Hampton by Hilton. These five hotels have a strong trading record and provide exposure to the Hampton by Hilton at Gatwick airport, which is integrally linked to the airport terminal building and the Holiday Inn Express, Edinburgh and has shown strong growth since acquisition. The hotels are anticipated to deliver an effective net initial yield of over 7.5 percent. The portfolio is currently financed at 50.0 percent loan to value at an all-in cost of debt of 3.32 percent.
If the Proposed Transaction proceeds, it will “include the acquisition of 2,410,315 IHL shares from Marc Wainer and his associates, 28,316 IHL shares from Mike Watters, both of whom are directors of Redefine International, and the acquisition (post implementation of the Proposed Transaction and outside of the scheme of arrangement) of a further 1,913,479 IHL shares from Redefine Properties Limited, a substantial shareholder of the Company (the “Related Parties”). The acquisition of the IHL shares from the Related Parties will be on the same terms as those for all other minority shareholders.”
Redefine will only proceed with the Proposed Transaction if they are satisfied that it has sufficient support from the minority IHL shareholders, is in compliance with Chapter 11 of the UK Listing Rules and has final ratification by the Redefine International Board.
CEO of Redefine International, Mike Watters said: “This is an opportunistic acquisition which increases the Company’s ownership in a high-quality and high yielding hotel portfolio to 50% and increases our exposure to the strong UK hotel market, whilst increasing our exposure to RPI-linked leases.”