Company News

Redefine International acquires controlling stake in German retail portfolio

Redefine International CEO Mike Watters

Redefine International, the FTSE 250 income focused UK-REIT, announced today  that the company has reached a conditional agreement with Redefine Global (the “Seller”) to acquire control of the German Leopard Portfolio joint venture, in which it holds an existing 50 per cent equity interest, for an aggregate consideration of €49 million (€49.4 million including transaction costs) (the “Acquisition”).

Following the acquisition, Redefine International will hold an effective 94 per cent controlling interest in the portfolio, whilst

providing 100 per cent 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, of which

99.2 per cent is indexed to between 60 – 70 per cent of German CPI subject to indexation reaching a cumulative hurdle of

10 per cent. The portfolio is independently valued at €175.5 million reflecting a net initial yield of 7.4 per cent.

The consideration of €49.0 million reflects taking on existing debt facilities totalling €86.1 million (€43.1 million being the

Company’s existing share). The facilities have an average all-in cost of 1.4 per cent. per annum which supports a 10 per

cent. geared income return on the total consideration payable by the Group, including transaction costs.

 

The seller is a wholly-owned subsidiary of Redefine Properties Limited (“Redefine Properties”), which is a substantial

shareholder of the company. Accordingly, the Acquisition constitutes a related party transaction for the purposes of Chapter

11 of the UK Listing Rules and is therefore conditional on Independent Shareholders’ (excluding Redefine Properties and its

associates) approval, which will be sought at an Extraordinary General Meeting convened for 2.00 p.m. on 25 April 2017 at 2nd

Floor, 30 Charles II Street, London SW1Y 4AE.

Mike Watters, CEO of Redefine International commented:

“In line with our strategy, this transaction represents a good opportunity to recycle capital into assets which generate a

strong income yield, having sold the VBG portfolio of German offices at an 8.6 per cent. premium to book value.

Furthermore, our controlling interest in the portfolio will provide more flexibility over future asset management initiatives

and reinvestment decisions.”

 

Strategic rationale for the Acquisition

 

The company recently disposed of its interest in the VBG portfolio of German offices, in which it had a 49 per cent. share,

for €106 million which reflected an 8.6 per cent. premium to book value. The Company received net disposal proceeds of

approximately €24.9 million. The sale delivered an IRR of 27 per cent. over the investment period and was in line with the

Company’s strategy to recycle capital out of assets with limited income growth potential.

 

The acquisition of a further 44 per cent. overall equity interest in the Leopard Portfolio provides an efficient reinvestment of

this capital into a portfolio which it is wholly responsible for management and administration of, and has external financing

arrangements already in place (with no arrangement or break fees payable). The Acquisition provides a secure, high

yielding income return from strong tenant covenants with the benefit of inflation linked rent reviews on 99.2 per cent. of the

leases by gross rental value, whilst not materially changing the Group’s overall exposure to German real estate from that

reported as at 31 August 2016.

Further to this, the company, through its subsidiary Ciref Europe Limited, has agreed to acquire all shareholder loans

outstanding between the Seller and the SPVs and therefore provide the subordinated debt financing requirements of the

Leopard Portfolio, at an externally benchmarked commercial rate of interest.

The acquisition also simplifies the company’s portfolio and structure, with the Leopard Portfolio assets becoming fully controlled by the Company, providing greater flexibility over future asset management and reinvestment decisions.

Information on the Leopard Portfolio

The Leopard Portfolio comprises 66 properties and totals over 138,000 square metres of lettable area. It includes a mixture

of stand-alone supermarkets, foodstore anchored retail parks and cash and carry stores. The properties are well located

within their respective micro markets, with 86.4 per cent. of the total annual rental income located in Western Germany and

Berlin and the remainder in Eastern Germany. Key portfolio attributes include:

– Gross rental income of €13.9 million.

– Edeka, Netto, Rossmann and Real account for over 85.6 per cent. of gross rental income providing strong tenant

covenants.

– An aggregate WAULT of 8.4 years.

– Portfolio occupancy of 99.2 per cent. by estimated market rental value.

– 99.2 per cent. of gross rental income is subject to indexation of typically between 60 per cent. – 70 per cent. of German

CPI, subject to cumulative indexation reaching a hurdle of 10 per cent. since the last rent review date.

The portfolio provides exposure to high quality, secure, indexed-linked cashflows with opportunities

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