7 Sep 2015 07:00
REDEFINE INTERNATIONAL P.L.C.
("Redefine International" or the "Company")
(Registered number 010534V)
LSE share code: RDI
JSE share code: RPL
ISIN: IM00B8BV8G91
REDEFINE INTERNATIONAL ANNOUNCES £490 MILLION TRANSFORMATIONAL DEAL
Redefine International, the FTSE 250 UK-REIT, announces that it has reached a conditional agreement with the Aegon UK Property Fund (the "Seller") to acquire the AUK Portfolio through its wholly-owned subsidiary, Redefine AUK, for an aggregate consideration of £437.2 million (£455.7 million after costs). The Acquisition is conditional upon shareholder approval, for which an EGM will be convened on 25 September 2015. The Company also announces today that, separate to this transaction, it has exchanged contracts unconditionally with the Seller, to acquire Banbury Cross Retail Park for a consideration of £52.5 million (£54.7 million including transaction costs), which completes today (together the "Combined AUK Portfolio").
Transaction highlights
AUK Portfolio
· The AUK Portfolio comprises 19 properties valued at £439.9 million. Of these, six assets are single let, with the balance being multi-let
· The portfolio comprises largely institutional quality assets which have strong property fundamentals and scope for adding capital value through active asset management
· The net initial yield is 5.0 per cent and the topped up net initial yield (post expiry of rent free periods) is 5.4 per cent., both assuming standard purchaser's costs of 5.8 per cent.
· The topped up net initial yield excluding the Grosvenor Street property and reflecting actual purchaser's costs is anticipated to be over 5.8 per cent.
· The portfolio generates an annual passing rent of £23.5 million (increasing to £25.3 million after the expiry of rent free periods) and with an estimated rental value of £27.8 million
· By gross income, 45.2 per cent of the portfolio is comprised of retail properties (principally retail parks), 26.7 per cent offices and 28.1 per cent industrial
· The weighted average unexpired lease term is 7.6 years to the first break option and 9.7 years to expiry
· Although the portfolio has a high overall occupancy of 96.7 per cent. (by area) there are numerous identified asset management opportunities to reduce voids and associated carrying costs, which will drive both higher income returns and capital values
Banbury Cross
· The acquisition of Banbury Cross completes today for £52.5 million (£54.7 million including costs) reflecting at a topped up net initial yield of 6.4 per cent.
· The Banbury Cross Retail Park is an open A1 retail warehouse park which generates an annual passing rent of £3.1 million, rising to £3.5 million once existing rent free periods come to an end
Commenting on the Proposals, CEO Mike Watters said:
"This is a transformational deal for Redefine International, which rapidly improves the quality and scale of our overall portfolio, supporting our growth plans and strategy to generate consistent and growing income returns. This also represents an efficient recycling of our cash balances following sales of Cromwell and other non-core assets and investment of March's placing into this high quality portfolio.
"The portfolio, which includes two prime central London offices valued at £76.0m, provides a number of attractive short and longer term opportunities where we can enhance and capture value by applying disciplined asset management initiatives, whilst the geographic and sector spread will provide yet further income diversification.
"In addition, the £303 million debt facility secured as part of this transaction provides the Company with additional flexibility as part of its future funding strategy. This transaction puts the business in a strong and exciting position from which we can continue to drive shareholder value."
A summary of the Combined AUK Portfolio is set out below:
Sectors
| Value (£m) | % of portfolio value | WAULT to first break | Net rental income (£k p.a.) | Net initial yield (%)* |
Retail Parks | 136.3 | 28% | 10.1 | 7,769 | 5.5 |
Offices | 159.6 | 33% | 4.3 | 6,275 | 3.7 |
Industrial | 98.1 | 20% | 4.8 | 6,598 | 6.4 |
Car Showroom/High Street | 45.9 | 9% | 14.6 | 2,853 | 5.9 |
AUK Portfolio sub-total | 439.9 | 90% | 7.6 | 23,495 | 5.0 |
Banbury Cross Retail Park | £50.0 | 10% | 4.7 | 3,127 | 5.9 |
Combined AUK Portfolio | 489.9 | 100% | 7.3 | 26,622 | 5.1 |
* Net yields include standard purchaser's costs of 5.8 per cent.
Financing
· Timing for the completion of the acquisition of the AUK Portfolio is split into two tranches:
· Tranche 1, comprising nine properties is expected to complete on or around 2 October 2015 at a purchase price of £203.5 million (£212.1 million including costs); and
· Tranche 2, comprising 10 properties is expected to complete on or around 1 March 2016 at a purchase price of £233.7 million (£243.6 million including costs).
· A new £303.0 million bank facility ("New Facility") has been secured from a syndicate comprising HSBC Bank plc, Barclays Bank PLC, Abbey National Treasury Services PLC and the Royal Bank of Scotland plc, consisting of a £155.0 million term loan and £148.0 million revolving credit facility, to assist in funding the Acquisition and otherwise available for corporate purposes. The New Facility has a ratcheted margin structure, however following completion of Tranche 2 it is anticipated that the margin will be 1.90% pa.
· The Company also intends to raise additional funds from assets sales, new equity and / or debt capital, subject to market conditions, to part fund the consideration of Tranche 2. In order to provide certainty of funds to complete Tranche 2, Redefine Properties has agreed to provide the RPL Loan which, if utilised and not repaid, would result in the Combined AUK Portfolio becoming a 50:50 joint venture (the "RPL JV") through the Conversion and Disposal. Furthermore, should the Board proceed with an equity capital raise to fund all or part of the amount required to finance the completion of Tranche 2, Redefine Properties has irrevocably agreed to subscribe up to £70.0 million in any equity capital raise undertaken by the Company to finance Tranche 2.
Rationale
The Board believes the acquisition of the Combined AUK Portfolio gives the Company the opportunity of acquiring a substantial portfolio of institutional quality assets which provide enhanced income and capital growth opportunities to the Group. The acquisition of the Combined AUK Portfolio also has a number of strategic benefits in terms of scale, liquidity and access to alternative sources of funding as the value of the Company's portfolio increases to c.£1.5 billion.
The portfolio is predominantly focused on the retail and office sectors which fit well with the Group's existing asset base and its areas of expertise. It also includes £98.1 million of well-located industrial and distribution assets, a sector which the Company has had limited exposure to and which is currently experiencing strong demand and rental growth potential.
Conditions
The Acquisition constitutes a Class 1 transaction for the purposes of the UK Listing Rules and therefore requires the approval of Shareholders.
In addition, as Redefine Properties is a substantial shareholder of the Company, each of the Related Party Transactions constitute a related party transaction for the purposes of Chapter 11 of the UK Listing Rules. Should the RPL Loan convert into a 50 per cent interest in Redefine AUK held by Redefine Properties, as explained in detail in paragraph 5 below, then that conversion would constitute a Class 1 disposal for the purposes of Chapter 10 of the UK Listing Rules as well as a related party transaction for the purposes of Chapter 11 of the UK Listing Rules. As such, the Related Party Transactions and the Disposal are conditional on Independent Shareholders' approval.
The Resolutions are inter-conditional and therefore all are required to be passed for the Proposals to proceed.
Accordingly, an Extraordinary General Meeting has been convened for 9:30 a.m. on 25 September 2015 at 2nd Floor, 30 Charles II Street, London SW1Y 4AE. At the EGM, authority will be sought to proceed with the Acquisition and to obtain approval of the Related Party Transactions and the Disposal, in each case to support the Acquisition.
In accordance with LR 9.6.2 R of the Listing Rules of the UKLA a copy of the Circular is expected to be submitted today to the UK's National Storage Mechanism and will be available for inspection at: http://www.morningstar.co.uk/uk/NSM and will also be available on the Company's website, www.redefineinternational.com.
Conference call
A conference call for analysts and investors will take place today at 10:30 a.m. UK local time (11:30 a.m. South African local time) which can be accessed using the details below.
Dial in numbers:
United Kingdom Local +44(0)20 3427 1913
South Africa Local: +2711 019 7074
Confirmation Code: 3706064
For further information:
Redefine International P.L.C. |
|
Michael Watters, Stephen Oakenfull | Tel: +44 (0) 20 7811 0100 |
Peel Hunt LLP | |
Sponsor, financial adviser and joint UK broker | |
Capel Irwin, Hugh Preston | Tel: +44 (0) 20 7418 8900 |
JP Morgan Cazenove | |
Joint UK broker | |
Bronson Albery, Tara Morrison | Tel: +44 (0) 20 7742 4000 |
FTI Consulting UK Public Relations Adviser | |
Dido Laurimore, Claire Turvey, Ellie Sweeney | Tel: +44 (0) 20 3727 1000 |
FTI Consulting SA Public Relations Adviser |
|
Max Gebhardt | Tel: + 27 (0) 11 214 2402 |
JSE Sponsor Java Capital
| Tel: + 27 (0) 11 283 0042 |
1. Introduction
The Company today announces that it has reached a conditional agreement with the Seller to acquire the AUK Portfolio through its wholly-owned subsidiary, Redefine AUK, for an aggregate consideration of £437.2 million (£455.7 million after costs). Separate to this transaction, the Company also announces that it had exchanged contracts with the Seller on 4 September 2015 to acquire Banbury Cross Retail Park for a consideration of £52.5 million (£54.7 million including transaction costs).
The AUK Portfolio comprises 19 properties, six of which are single let, with the balance being multi-let. By gross income, 45.2 per cent of the portfolio is made up of retail properties (principally retail parks), 26.7 per cent offices and 28.1 per cent industrial, generating a passing rent of £23.5 million (increasing to £25.3 million after the expiry of rent free periods) and with an estimated rental value of £27.8 million. The portfolio is largely institutional quality stock with strong property fundamentals and scope for adding capital value through active asset management.
Banbury Cross is a purpose built open A1 retail warehouse park comprising 17 retail units totalling approximately 170,500 sq ft. The annual passing rent of £3.1 million will rise to £3.5 million once existing rent free periods come to an end.
A summary of the AUK Portfolio with individual values and key tenants is set out in paragraph 6 below and in more detail in Part 6 of the Circular.
The timing for completion of the AUK Portfolio will be split into two tranches:
(a) Tranche 1, which comprises nine properties and which is expected to complete on or around 2 October 2015 at a purchase price of £203.5 million (£212.1 million including costs); and
(b) Tranche 2, which comprises 10 properties and which is expected to complete on or around 1 March 2016 at a purchase price of £233.7 million (£243.6 million including costs).
In connection with Tranche 2, the Company has entered into a conditional agreement with Redefine Properties pursuant to which Redefine Properties has agreed to support the Company in financing the further consideration by way of the RPL Equity Commitment and the RPL Loan for which the Company has agreed to pay Redefine Properties a fee of £2.5 million. The RPL Loan, if drawn down and not repaid within three months of such drawdown, will result in a conversion of the loan into equity in Redefine AUK (being the Conversion), and consequently a disposal of 50 per cent of Redefine AUK to Redefine Properties (being the Disposal) resulting in the formation of the RPL JV. Further details of each of these arrangements are provided in in Part 9 of the Circular.
The Acquisition constitutes a Class 1 transaction for the purposes of the UK Listing Rules and therefore requires the approval of Shareholders.
In addition, as Redefine Properties is a substantial shareholder of the Company, each of the Related Party Transactions constitute a related party transaction for the purposes of Chapter 11 of the UK Listing Rules. Should the RPL Loan convert into a 50 per cent interest in Redefine AUK held by Redefine Properties, as explained in paragraph 5 below, then that conversion would constitute a Class 1 disposal for the purposes of Chapter 10 of the UK Listing Rules as well as a related party transaction for the purposes of Chapter 11 of the UK Listing Rules. As such, the Related Party Transactions and the Disposal are conditional on Independent Shareholders' approval.
The Resolutions are inter-conditional and therefore all are required to be passed for the Proposals to proceed.
Accordingly, an Extraordinary General Meeting has been convened for 9:30 a.m. on 25 September 2015 at 2nd Floor, 30 Charles II Street, London, SW1Y 4AE. At the EGM, authority is being sought to proceed with the Acquisition and to approve the Related Party Transactions and the Disposal, in each case to support the Acquisition.
2. Background to AND rationale FOR the Acquisition
The Company has previously highlighted its intention to improve the overall quality of its portfolio through the acquisition of assets which exhibit strong property fundamentals including, inter alia, being located in areas of robust economic activity and being of a size, configuration and specification that meet occupiers' requirements.
The Company has assessed a wide range of opportunities following the capital raising in March 2015 and has maintained a disciplined approach in determining the value of various opportunities and therefore the price at which risk-adjusted returns are sufficiently attractive.
Following extensive due diligence, the Company's wholly owned subsidiary, Redefine Banbury, exchanged contracts on 4 September 2015 to acquire Banbury Cross Retail Park for a consideration of £52.5 million (£54.7 million including transaction costs) to be paid from existing cash resources. The acquisition of Banbury Cross Retail Park completed on 7 September 2015. The property is a purpose built open A1 retail warehouse park comprising 17 retail units totalling approximately 170,500 sq ft. The passing rent of £3.13 million will rise to £3.49 million once existing rent free periods come to an end.
In addition, the Acquisition SPVs have agreed to acquire the AUK Portfolio, which comprises 19 assets, subject to Shareholders approving the Resolutions. The AUK Portfolio and Banbury Cross Retail Park (together the Combined AUK Portfolio) form the majority of the Aegon UK Property Fund, currently managed by Kames Capital.
The Board believes the acquisition of the Combined AUK Portfolio provides the Company with an opportunity to acquire a large portfolio of institutional quality assets which provide enhanced income and capital growth opportunities to the Group. The acquisition of the Combined AUK Portfolio also provides a number of strategic benefits in terms of scale, liquidity and access to alternative sources of funding. The strategic rationale is set out in more detail below:
Strategic rationale
· The AUK Portfolio provides exposure to a high quality diversified UK portfolio where the Company expects to capture rental growth as the UK economy continues to improve and supply of available space continues to reduce.
· The portfolio is predominantly focused on the retail and office sectors which fit well within the Group's existing asset base and areas of expertise.
· The portfolio is geographically diversified throughout the UK with over 75.6 per cent by value located in the following key regions: London (37.1 per cent), the South East (23.0 per cent) and the 'Big Six' regional cities of Manchester, Leeds, Bristol, Birmingham, Edinburgh and Glasgow (15.5 per cent) providing exposure to areas with strong and improving economic fundamentals.
· The acquisition of the AUK Portfolio increases the Company's exposure to the UK, meaning that, following the disposal of the Cromwell Securities, the Group's portfolio is now focused on the UK (78.3 per cent) and Germany (21.7 per cent), two of the strongest economies in Europe.
· The portfolio has an overall occupancy of 96.7 per cent (by area) providing asset management opportunities to reduce voids and associated carrying costs which will drive both higher income returns and capital values.
· The overall yield on the portfolio may be further enhanced through a number of asset management initiatives including recycling capital from certain lower yielding assets into higher yielding opportunities.
· The portfolio provides exposure to £98.1 million of well-located industrial and distribution assets; a sector in which the Company has limited exposure and which is currently experiencing strong demand and rental growth potential.
· The acquisition of the AUK Portfolio provides scale and critical mass to the Company's portfolio, increasing the value of the property portfolio to approximately £1,468 million. The increased number of assets in predominantly well located areas provides opportunities to work with occupiers across the enlarged portfolio.
· The acquisition of the AUK Portfolio enhances the ability of the Company to recycle capital. The increased size of the Company's overall portfolio will allow the sale of mature or underperforming assets without materially impacting on the Group's short term earnings expectations.
· The Company has previously announced its intention to diversify its sources of debt funding away from bilateral banking facilities to provide improved liquidity, lower its cost of funding and provide improved operational flexibility. The acquisition of the AUK Portfolio and the New Facility support the acceleration of this strategy through establishing a more flexible banking facility with a group of relationship banks well known to the Company. The New Facility is being used to part fund the Acquisition and includes a revolving credit facility of £148.0 million with the remaining term loan element providing sufficient flexibility for sales, acquisitions and early repayment.
3. Summary of the Terms of the Acquisition
On 5 September 2015, the Company and the Acquisition SPVs entered into the Acquisition Agreements with the Seller to acquire the AUK Portfolio. The transaction consideration is £437.2 million before costs (approximately £455.7 million including costs) with completion of the Acquisition being split into two tranches:
(a) Tranche 1 to be completed on or around 2 October 2015 at a value of £203.5 million (£212.1 million after costs); and
(b) Tranche 2 to be completed on or around 1 March 2016, at a value of £233.7 million (£243.6 million after costs).
The Acquisition will constitute a Class 1 transaction for the Company under Chapter 10 of the UK Listing Rules. In addition, the proposed arrangements with Redefine Properties regarding the RPL Loan, the RPL Equity Commitment, the RPL Fee and the potential RPL JV (each as more particularly described in paragraph 5 below and Part 9 of the Circular) constitute related party transactions pursuant to chapter 11 of the UK Listing Rules. Further, the Disposal, resulting from the Conversion should it occur, would also constitute a Class 1 transaction for the Company under Chapter 10 of the UK Listing Rules as well as a related party transaction for the purposes of Chapter 11 of the UK Listing Rules.
The Acquisition Agreements are therefore conditional upon Shareholders passing the Acquisition Resolution and the Independent Shareholders passing the Related Party Resolution and the Disposal Resolution at the EGM. Each Resolution is inter-conditional on the other Resolutions and, therefore, if any Resolution was rejected, then the overall transaction would not proceed.
The Acquisition and the related Shareholder approvals exclude the acquisition of Banbury Cross Retail Park which, due to the size of that acquisition, is not subject to the approval of Shareholders. Furthermore, in respect of the Grosvenor Street property within the AUK Portfolio, the Company and the Seller have agreed to market this property for sale immediately following the Resolutions being passed with such a sale, if it proceeds, being subject to an overage arrangement, further details of which are set out in Part 9 of the Circular.
4. FUNDING OF THE ACQUISITION
Following completion of the sale of the Cromwell Securities as announced on 1 September 2015, the Group has approximately £135.0 million of available cash resources.
The Cromwell Securities, being the Company's remaining 9.95 per cent shareholding in the Cromwell Group, were sold at AUD$1.00/£0.465 per share giving gross proceeds of AUD$172.8 million/£80.4 million. After costs and repayment of the AUD$50.0 million facility secured against the Cromwell Securities, the disposal generated net proceeds of AUD$122.4 million/£56.9 million.
The Company (through its wholly-owned subsidiary, Redefine AUK) has also entered into a banking facility of £303.0 million with a syndicate of banks, being HSBC Bank plc, Barclays Bank PLC, Abbey National Treasury Services PLC and the Royal Bank of Scotland plc, conditional only on the Acquisition proceeding. The New Facility will comprise a £155.0 million five-year term loan and a £148.0 million revolving credit facility expiring in 2020 which will be secured against the Combined AUK Portfolio, but will have no recourse to the Group (other than the Redefine AUK Group). The Company intends to utilise approximately £270.0 million of the New Facility to fund the Acquisition, with the balance of the New Facility providing additional headroom and working capital flexibility to the Group and, subject to the terms of the loan, may be used to support future acquisitions. The New Facility has been structured in order to provide the Company with a more flexible funding structure and to accommodate alternative sources of debt funding in the future.
Funding of Tranche 1
The gross acquisition cost of Tranche 1 is approximately £212.1 million and is to be funded with approximately £155.0 million of bank debt to be secured over the Tranche 1 Properties and Banbury Cross Retail Park, and £57.1 million of cash.
Funding of Tranche 2
The gross acquisition cost of Tranche 2 is approximately £243.6 million and is to be funded with approximately £115.0 million of bank debt, £6.5 million of existing cash resources to ensure the Company has a minimum 50 per cent equity interest in the Combined AUK Portfolio should the Conversion occur, and approximately £122.1 million from the net proceeds of a fundraising which may include asset sales and new equity and/or debt capital. Should sufficient new funds not be available, the Company would utilise the RPL Loan as described below.
Fundraising and RPL Equity Commitment
Given the expected completion date for Tranche 2 of 1 March 2016, the Board considers raising funds significantly in advance of this date to be an inefficient use of Shareholders' funds, which would result in temporary but significant dilution in earnings. The Board will consider raising the necessary funds closer to the timing for completion of Tranche 2 to support the funding of Tranche 2 subject to prevailing market conditions and ensuring any fundraise is in the best interests of Shareholders as a whole and having regard to the Company's overall level of gearing.
Should market conditions permit, and should the Board proceed with an equity capital raise to fund all or part of the amount required to finance the completion of Tranche 2, Redefine Properties has irrevocably agreed to subscribe for up to £70.0 million in any equity capital raise undertaken by the Company to finance Tranche 2. Depending on the size and structure of any equity capital raise, further shareholder approvals may be required at that time. Redefine Properties' participation in such an equity capital raise, pursuant to the RPL Equity Commitment, may also require further approval from Independent Shareholders. To the extent that such equity capital raise requires further shareholder approval, Redefine Properties has irrevocably agreed to vote in favour of all resolutions on which it is entitled to vote in respect of such approvals, save that it has irrevocably undertaken not to vote on any resolutions required to approve Redefine Properties' participation in such equity capital raise.
RPL Loan
In addition, and in order to provide certainty of funds to complete Tranche 2, Redefine Properties has agreed to provide a loan (being the RPL Loan) of up to £135.0 million to the Company. The RPL Loan is conditional only upon the passing of the Resolutions.
Options available to the Company
If market conditions permit the Board to proceed with raising funds, including from asset sales and new equity and/or debt capital, the Company can choose not to draw the RPL Loan and instead utilise the proceeds from any such fundraise to finance the consideration payable for completion of Tranche 2.
However, if market conditions do not permit the Board to proceed with raising funds, the Company can choose to draw the RPL Loan to complete Tranche 2. The Company would then have three months from the date of drawdown in which to either:
· repay the proceeds from any subsequent fundraising, again should market conditions permit the Board to raise such funds after completion of Tranche 2; or
· failing that, elect to convert the loan (or otherwise allow the loan to convert automatically at the end of the three month period) in either case leading to Redefine Properties taking a 50 per cent equity interest in the Acquisition SPVs and Redefine Banbury, through an allotment of new shares by Redefine AUK representing 50 per cent of the then enlarged issued share capital of Redefine AUK.
If the Conversion were to occur, the Disposal would occur and the RPL JV would be formed at that stage, as the Company and Redefine Properties would then each own 50 per cent of Redefine AUK, subject to the provisions of the RPL JV Agreement which would then apply. Redefine AUK would, at that stage, own Banbury Cross Retail Park and 100 per cent of the Tranche 1 Properties and Tranche 2 Properties by virtue of completion of the Acquisition Agreement. The RPL JV in respect of Redefine AUK would be a deadlock joint venture, with neither the Company nor Redefine Properties capable of forcing the other to sell its shareholding in Redefine AUK. Further details of the RPL JV Agreement are set out in Part 9 of the Circular.
The Company has agreed to pay Redefine Properties a fee of £2.5 million in consideration for supporting the Acquisition in this way by providing the RPL Loan and the RPL Equity commitment.
Summary of funding for Tranche 2
In summary there are three scenarios to the funding of completion of Tranche 2, as follows:
Scenario 1
The Company raises sufficient funds prior to completion of Tranche 2, with the net proceeds utilised together with the New Facility, to finance completion of Tranche 2. In this scenario, the RPL Loan is never utilised and it would fall away. The Disposal does not happen and the Company will own 100 per cent of the Combined AUK Portfolio.
Scenario 2
The RPL Loan is drawn down, together with the New Facility, to complete the acquisition of Tranche 2, but the RPL Loan is repaid within three months following completion of Tranche 2 from the proceeds of a subsequent fundraising. Again, the Disposal does not happen and the Company will own 100 per cent of the Combined AUK Portfolio.
Scenario 3
The RPL Loan is drawn down, together with part of the New Facility, to complete the acquisition of Tranche 2 and the Company either elects to convert the loan within three months of the drawdown date (or allows the loan to convert automatically at the end of such three month period) in either case into a 50 per cent equity interest in Redefine AUK, thus creating a 50/50 joint venture between the Company and Redefine Properties (the RPL JV) and resulting in the Disposal.
5. RELATED PARTY TRANSACTIONs and Disposal
By virtue of Redefine Properties' 30.07 per cent shareholding in the Company, Redefine Properties is a related party due to it being a substantial shareholder of the Company under the UK Listing Rules. Each of the RPL Loan, the RPL Equity Commitment, the RPL Fee and the possible RPL JV (if the RPL Loan is drawn and converted into a 50 per cent equity interest in Redefine AUK by virtue of the Disposal) constitute a related party transaction under Chapter 11 of the UK Listing Rules.
In the 12 month period prior to the date of the Circular, the Company has also entered into three other related party transactions with Redefine Properties which are described in more detail in paragraph 6 of Part 10 of the Circular.
In the event of the Disposal, the valuation of Redefine Properties' investment in Redefine AUK will be equivalent to 50 per cent. of the Combined AUK Portfolio as set out in Part 6 of the Circular. Accordingly, the Disposal would be a Class 1 transaction under Chapter 10 of the UK Listing Rules as well as a related party transaction under Chapter 11 of the UK Listing Rules.
Consequently, the Related Party Transactions and the Disposal are conditional upon, and must be approved by, the Independent Shareholders before they can be completed. Accordingly, the approval of the Independent Shareholders will be sought at the EGM to be held on 25 September 2015.
6. Information on the AUK PORTFOLIO
The AUK Portfolio is a portfolio of 19, typically institutional quality assets, with strong property fundamentals including the following key features:
· The portfolio is geographically diversified throughout the UK with over 75.6 per cent by value located in the following key regions: London (37.1 per cent), the South East (23.0 per cent) and the 'Big 6' regional cities of Manchester, Leeds, Bristol, Birmingham, Edinburgh and Glasgow (15.5 per cent) providing exposure to areas with strong and improving economic fundamentals.
· The portfolio is principally freehold or virtual freehold title with only 7 per cent of the portfolio subject to leasehold title with less than 150 years to expiry.
· The portfolio is focused on retail, office and industrial assets with 45.2 per cent of the portfolio by rental income made up of retail assets (principally retail parks), 26.7 per cent offices and 28.1 per cent industrial.
· Key tenants include B&Q P.L.C., Royal Mail, DSG Retail (Dixons Carphone) and Sytner Properties (part of the Sytner Group, the UK's largest prestige motor dealer).
· The portfolio provides a total annual rental income of £23.5 million (increasing to £25.3 million on expiry of contracted rents in rent free periods) and an estimated rental value of £27.8 million based upon reversions and the letting of vacant space.
· The average initial yield across the portfolio is 5.0 per cent rising to 5.4 per cent following the expiry of leases currently subject to rent free periods.
· The weighted average unexpired lease term is 7.6 years to the first break option and 9.7 years to expiry.
· The portfolio has an overall occupancy of 96.7 per cent (by area) providing asset management opportunities to reduce voids and associated carrying costs which will drive both higher income returns and capital values.
Retail Parks
Property | Value (£m) | Area (sq ft) | WAULT to be first break option | Net rental income (£k p.a.) | Net initial yield (%)* | Key Tenants |
Arches Watford | £48.0 | 124,635 | 11.4 | £3,045 | 6.0 | B&Q and Mothercare |
Priory Merton | £39.0 | 76,392 | 10.1 | £2,160 | 5.2 | DSG, Mothercare and Toys'R'us |
Queens Drive Kilmarnock | £24.4 | 113,551 | 7.7 | £1,523 | 5.9 | Next, DSG, B&Qand Carpetright |
St David's Bangor | £14.9 | 96,734 | 10.1 | £1,041 | 6.6 | Matalan, DW Sports and B&M Retail |
Milton Link Edinburgh | £10.0 | 75,297 | 17.7 | -** | -** | The Range |
Total | £136.3 | 486,609 | 10.1 | £7,769 | 5.5 |
Note:
** Milton Link, Edinburgh has a contracted rent of £754,780 p.a. but is currently subject to a rent free period.
Car Showroom and High Street Retail
Property | Value (£m) | Area (sq ft) | WAULT to be first break option | Net rental income (£k p.a.) | Net initial yield (%)* | Key Tenants |
London Rd High Wycombe (Car Showroom) | £24.9 | 64,720 | 9.6 | £1,398 | 5.3 | Sytner Properties Ltd |
House of Fraser Hull | £17.5 | 188,457 | 23.9 | £1,142 | 6.2 | House of Fraser Ltd |
Albion Street Derby | £3.5 | 55,103 | 3.2 | £313 | 8.5 | Disney, Monsoon, Burger King and Pep & Co |
Total | £45.9 | 308,280 | 14.6 | £2,853 | 5.9 |
Offices
Property | Value (£m) | Area (sq ft) | WAULT to be first break option | Net rental income (£k p.a.) | Net initial yield (%)* | Key Tenants |
Charing Cross Road | £45.0 | 40,649 | 5.3 | £1,666 | 3.5 | Advent Europe, 3 Monkeys Communications, Superdrug and Starbucks |
Grosvenor Street | £31.0 | 15,709 | 0.1 | £747 | 2.3 | Vacant (occupational lease expires October 2015 but 12 month guarantee from vendor at £1.3m on completion) |
Deansgate Manchester | £25.8 | 79,375 | 5.1 | £1,385 | 5.1 | Royal London, AIG and TD Waterhouse |
City Point Leeds | £21.6 | 61,404 | 4.3 | £629 | 2.8 | HSBC Plc, Ashcourt Rowan Plc, JLL, Savills and GVA Grimley |
Omnibus Reigate | £19.8 | 63,274 | 4.4 | £883 | 4.2 | Updata Infrastructure and 1st Credit Ltd |
Lochside View Edinburgh | £11.0 | 61,164 | 3.4 | £477 | 4.1 | WSP, JDSU UK Ltd, Scottish Water and Business Stream Ltd |
Lakeview Warrington | £5.4 | 30,536 | 5.1 | £488 | 8.5 | Countryside Properties |
Total | £159.6 | 352,111 | 4.3 | £6,275 | 3.7 |
Industrial
Property | Value (£m) | Area (sq ft) | WAULT to be first break option | Net rental income (£k p.a.) | Net initial yield (%)* | Key Tenants |
Camino Crawley | £42.0 | 384,697 | 3.6 | £2,694 | 6.1 | Royal Mail and Evans Cycles |
Express Park Bridgewater | £41.5 | 508,905 | 5.5 | £2,863 | 6.5 | Exel Europe Ltd, Toolstation Ltd and Refresco Gerber UK Ltd |
Kingsthorne Kettering | £11.2 | 154,745 | 6.7 | £741 | 6.3 | Rexson Systems Ltd, Certas Energy UK Ltd, Eclipse 4DM Ltd and Delice De France Ltd |
Severalls Colchester | £3.4 | 54,995 | 5.1 | £300 | 8.3 | Polestar UK Print Ltd |
Total | £98.10 | 1,103,342 | 4.8 | £6,598 | 6.4 |
Sectors | Value (£m) | % of portfolio value | WAULT to first break | Net rental income (£k p.a.) | Net initial yield (%)* |
Retail Parks | £136.3 | 31 | 10.1 | £7,769 | 5.5 |
Offices | £159.6 | 36 | 4.3 | £6,275 | 3.7 |
Industrial | £98.1 | 22 | 4.8 | £6,598 | 6.4 |
Car Showroom/High Street | £45.9 | 11 | 14.6 | £2,853 | 5.9 |
Total | £439.9 | 100 | 7.6 | £23,495 | 5.0 |
Note:
* Net yields include standard purchaser's costs of 5.8 per cent.
Further details of the valuation of the AUK Portfolio, together with Banbury Cross Retail Park are set out in Part 6 of the Circular.
In the event of the Disposal, the valuation of Redefine Properties' 50 per cent interest in Redefine AUK will be equal to 50 per cent. of the valuation of the Combined AUK Portfolio as set out in Part 6 of the Circular.
7. Current trading and prospects
The Group
The economic backdrop in both the UK and Germany remains supportive of further improvements in occupier demand and rental value growth. Productivity in the UK economy is showing positive trends and while inflation remains low, expectations of interest rates rises are likely to remain on hold for the remainder of 2015 (source: Capital Economics, UK Commercial Property Monthly, August 2015).
The investment market continues to be very active in both the UK and Germany. Competition for assets remains high with UK investment in the first half of 2015 up by over 40 per cent compared to the same period last year. London's share of total investment activity has fallen back to approximately 42 per cent indicating confidence in the strength of the UK's recovery with investment increasing outside of London. A total of €24.2 billion was invested in the equally competitive German commercial investment market in the first half of 2015, a 40 per cent year-on-year increase. Just over 49 per cent of this total was directed towards the 'Big Seven' key markets (Berlin, Dusseldorf, Frankfurt, Hamburg, Munich, Stuttgart and Cologne), where investor appetite is strong for core assets. (sources: Capital Economics, UK Commercial Property Monthly, August 2015 and Colliers International, Germany Market Report, Office and Investment Market, Mid-year 2015).
All UK Property initial yields continue to decline averaging 5.2 per cent in June 2015. Combined with a rise in rental values, capital values have continued to rise with an annualised rate of growth of 8.2 per cent in the second calendar quarter of 2015. Outside of Central London, yield compression remains the key driver of capital value growth although rental growth in the regional office markets appears to be gathering pace. In Germany, prime yields have seen some slight compression since January 2015, as market momentum continues unabated with downward pressure expected for the remainder of the year.
The Group's UK Retail portfolio remains close to full occupancy with leasing and asset management focussed on the discount and convenience sector, which continues to expand its footprint in the UK.
The Group's Hotel portfolio, with a focus on the London limited service sector, continues to show growth in underlying RevPARs with PricewaterhouseCoopers forecasting RevPAR growth in London of 5.1 per cent in 2015 (source: PricewaterhouseCoopers UK Hotels Forecast 2015). Underlying trading within the Group's portfolio remains positive.
The Group's exposure to Germany is considered to be strategically placed to capitalise on the improving occupational market and the expected further yield compression. Occupancy remains high and the Group will continue to focus its equity on assets with strong property fundamentals.
The AUK Portfolio
The AUK Portfolio comprises mostly core assets with strong property fundamentals that are well positioned for future rental growth. The portfolio is also well diversified both geographically and across the key market sectors. The income stream is relatively granular, with no single property representing more than 13.0 per cent of the portfolio and the 15 largest tenants accounting for approximately 63.9 per cent of the total income, with key tenants including Royal Mail, B&Q and House of Fraser. The acquisition of the AUK Portfolio is anticipated to be beneficial to the wider portfolio already owned by the Group, making the portfolio more liquid and better placed to capture future rental growth.
8. Management of the Combined AUK Portfolio
Kames Capital will continue to manage the Combined AUK Portfolio under a contract for a term of three years, pursuant to which they will earn a fee of 0.5 per cent per annum of the market value of the portfolio. Redefine AUK has an option to break the contract after 12 months subject to a 6 month notice period.
The retention of Kames Capital provides a highly experienced team which will complement the Company's existing asset management team and assist in providing a smooth transition and additional resourcing given the proposed significant increase in size in the Group's portfolio.
More details of this arrangement and the fee arrangements are set out in Part 9 of the Circular.
9. Financial Effects of the PROPOSALS
A pro forma statement of the net assets of the Group and illustrations of the effect of the Proposals on the Group as at 28 February 2015 is set out in Part 7 (Unaudited Pro Forma Financial Information) of the Circular.
10. General Meeting
The Acquisition constitutes a Class 1 transaction for the purposes of Chapter 10 of the UK Listing Rules. As such, the Acquisition requires the approval of Shareholders.
Each of the Related Party Transactions constitute a related party transaction for the purposes of Chapter 11 of the UK Listing Rules and the Disposal would constitute a Class 1 disposal for the purposes of Chapter 10 of the UK Listing Rules. As such, the Related Party Transactions and the Disposal are conditional on Independent Shareholders' approval.
The notice convening the Extraordinary General Meeting to be held at 2nd Floor, 30 Charles II Street, London, SW1Y 4AE on 25 September 2015 at 9:30 a.m. (London time), at which the Resolutions summarised below will be proposed, is set out in Part 12 of the Circular.
11. Irrevocable Undertakings
Redefine Properties has irrevocably undertaken to vote in favour of the Acquisition Resolution at the EGM, representing approximately 30.07 per cent of all votes capable of being cast in respect of the Acquisition Resolution.
Those Directors who own Ordinary Shares have irrevocably undertaken to vote in favour of the Acquisition Resolution, representing approximately 0.58 per cent of all votes capable of being cast in respect of the Acquisition Resolution.
Those Directors who own Ordinary Shares have irrevocably undertaken to vote in favour of the Related Party Resolution and the Disposal Resolution, representing 0.58 per cent of all votes capable of being cast in respect of each of such Resolutions.
expected timetable of principal events
Extraordinary General Meeting | 9:30 a.m. on 25 September 2015 |
Expected date for completion of Tranche 1 of the Acquisition | 2 October 2015 |
Expected date for completion of Tranche 2 of the Acquisition | 1 March 2016 |
IMPORTANT NOTICES
Peel Hunt LLP, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as sole sponsor, financial adviser and joint broker to the Company in connection with the Proposals and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Peel Hunt LLP, nor for providing advice in relation to the Proposals.
J.P. Morgan Limited (which conducts its UK investment banking business as J.P. Morgan Cazenove), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as joint broker to the Company in connection with the Proposals and will not be responsible to anyone other than the Company for providing the protections afforded to clients of J.P. Morgan Limited, nor for providing advice in relation to the Proposals.
Java Capital is acting solely for the Company in relation to matters referred to in the document and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Java Capital, nor for providing advice in relation to the Proposals.
This announcement has been issued by and is the sole responsibility of the Company. None of Peel Hunt LLP, J.P. Morgan Limited, Java Capital or any of their respective affiliates accept any responsibility or liability whatsoever for, nor make any representation or warranty, express or implied, as to the contents of this announcement, including its accuracy, fairness, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company or the Proposals and nothing in this announcement is, or shall be relied upon as a promise or representation in this respect, whether as to the past or future. Each of Peel Hunt LLP, J.P. Morgan Limited and Java Capital and their respective affiliates accordingly disclaims to the fullest extent permitted by law all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this announcement.
DEFINITIONS
The following definitions apply throughout this announcement unless the context otherwise requires:
Acquisition | the acquisition by the Group of the AUK Portfolio from the Aegon UK Property Fund |
Acquisition Agreements | the two acquisition agreements each dated 5 September 2015 between the Seller, the Company and (in the case of those Properties located in England and Wales) 16 Acquisition SPVs and (in respect of those properties located in Scotland) 3 Acquisition SPVs, in each case setting out the material terms and conditions upon which the Acquisition SPVs will acquire the AUK Portfolio, as more particularly described in Part 9 of the Circular |
Acquisition Resolution | the ordinary resolution numbered 1 approving the Acquisition, as set out in the Notice of EGM |
Acquisition SPVs | the 19 newly formed special purpose vehicles, each of which are incorporated in the British Virgin Islands and are a wholly-owned subsidiary of Redefine AUK |
Aegon UK Property Fund | Aegon UK Property Fund Limited |
AUK Portfolio | the 19 properties held by the Aegon UK Property Fund, comprising the Tranche 1 Properties and the Tranche 2 Properties, as more particularly described in paragraph 6 above |
Banbury Cross Retail Park | Banbury Cross Retail Park, Oxfordshire, OX16 1LX |
Board | the board of directors of the Company |
Combined AUK Portfolio | Banbury Cross Retail Park and the AUK Portfolio, as more particularly described in paragraph 6 above |
Company or Redefine International | Redefine International P.L.C., a company registered in the Isle of Man with registered number 010534V and having its registered office at Merchants House, 24 North Quay, Douglas, Isle of Man IM1 4LE |
Conversion | the conversion of the RPL Loan resulting in the Disposal |
Cromwell Group | Cromwell Property Group, Australia, an Australian property trust which has stapled securities consisting of units in an Australian real estate investment fund (Cromwell Diversified Property Trust) |
Cromwell Securities | securities listed on the Australian Securities Exchange (ASX) in the Cromwell Group |
Directors | the executive directors and non-executive directors of the Company, whose names appear on page 5 of the Circular |
Disposal | the effective disposal on Conversion of a 50 per cent interest in Redefine AUK to form the RPL JV |
Disposal Resolution | the ordinary resolution numbered 3, approving the Disposal, as set out in the Notice of EGM |
Enlarged Group | the Group following completion of the Acquisition |
Extraordinary General Meeting or EGM | the extraordinary general meeting of the Company to be held at 9:30 a.m. on 25 September 2015, notice of which is set out in Part 12 of the Circular |
Financial Conduct Authority or FCA | the Financial Conduct Authority of the United Kingdom |
Group | the Company and its subsidiaries at the date of the Circular, including Redefine Banbury |
Independent Shareholders | the Shareholders, other than Redefine Properties and its associates |
IPD | Investment Property Databank |
J.P. Morgan Cazenove | J.P. Morgan Limited (which conducts its UK investment banking business as J.P. Morgan Cazenove) |
JSE | Johannesburg Stock Exchange, being the exchange operated by the JSE Limited (Registration number 2005/022939/06), licensed as an exchange under the Financial Markets Act of South Africa (Act 19 of 20 12), as amended, and a public company incorporated in terms of the laws of South Africa |
Kames Capital | Kames Capital plc |
Management Agreement | the management agreement dated 4 September 2015 between Redefine AUK and Kames Capital, as more particularly described in Part 9 of the Circular |
New Facility | the facility agreement dated 5 September 2015 between Redefine AUK and Barclays Bank PLC, HSBC Bank plc, Royal Bank of Scotland plc and Abbey National Treasury Services PLC, as more particularly described in Part 9 of the Circular |
Notice of EGM or Notice of Extraordinary General Meeting | the notice of the Extraordinary General Meeting contained in Part 12 of the Circular |
Official List | the list maintained by the FCA in accordance with section 74(1) of the FSMA for the purposes of Part VI of FSMA |
Ordinary Shares | ordinary shares of 8.0 pence each in the share capital of the Company |
Peel Hunt | Peel Hunt LLP |
Pounds Sterling or £ | the lawful currency of the United Kingdom |
Proposals | the Acquisition, the Related Party Transactions and the Disposal |
Redefine AUK | Redefine AUK Holdings Limited, a company registered in the British Virgin Islands with registered number 1884800 and having its registered office at Coastal Buildings, Wickham Cay II, PO Box 2221, Waterfront Drive, Road Town, Tortola, British Virgin Islands VG1110 |
Redefine AUK Group | Redefine AUK and its subsidiaries from time to time, which includes as at the date of the Circular, the Acquisition SPVs and Redefine Banbury, and "Redefine AUK Group Company" means any one of them |
Redefine Banbury | Redefine Banbury Cross Limited, a company registered in the British Virgin islands, with registered number 1884801 and having its registered office at Coastal Buildings, Wickham Cay II, PO Box 2221, Waterfront Drive, Road Town, Tortola, British Virgin Islands VG1110, and being a wholly-owned subsidiary of Redefine AUK |
Redefine Properties | Redefine Properties Limited (Registration number 1999/018591/06), a public company duly incorporated and registered in terms of the laws of South Africa and listed on the JSE, with its registered address at 3rd Floor, Redefine Place, 2 Arnold Road, Rosebank, 2196, South Africa |
Related Party Resolution | the ordinary resolution numbered 2, approving the Relating Party Transactions, as set out in the Notice of EGM |
Related Party Transactions | the RPL Loan, the RPL Equity Commitment, the RPL Fee and the possible RPL JV (each of which are more particularly described in Part 9 of the Circular) |
Resolutions | the resolutions to be proposed at the EGM, as set out in the Notice of EGM |
RevPAR | revenue per available room |
RPL Equity Commitment | the underwriting commitment from Redefine Properties as more particularly described in Part 9 of the Circular |
RPL Fee | the £2.5 million fee payable to Redefine Properties by the Company in consideration of Redefine Properties agreeing to provide the RPL Loan and the RPL Equity Commitment |
RPL JV | the potential 50/50 joint venture created in respect of Redefine AUK in circumstances where the RPL Loan is drawn down and the Company exercises its rights to convert such loan into equity in the capital of Redefine AUK to be held by Redefine Properties or otherwise such loan automatically converts three months following the date of completion of Tranche 2 |
RPL JV Agreement | the conditional joint venture agreement dated 5 September 2015 between (1) the Company (2) Redefine Global (Pty) Limited (a subsidiary of Redefine Properties) and (3) Redefine AUK in connection with the RPL JV, if it were ever to come into existence, as more particularly described in Part 9 of the Circular |
RPL Loan | the loan facility to be provided by Redefine Global (Pty) Limited ( a subsidiary of Redefine Properties) to the Company in connection with the Acquisition as more particularly described in Part 9 of the Circular |
SA or South Africa | the Republic of South Africa |
Seller | Aegon UK Property Fund Limited |
Shareholder | a holder of Ordinary Shares from time to time |
subsidiary | has the meaning given to it in section 220 of the IOM Acts |
Tranche 1 | pursuant to the Acquisition Agreement, completion of the acquisition of the Tranche 1 Properties |
Tranche 1 Properties | the 9 properties that are proposed to be acquired on completion of Tranche 1, as set out Part 9 of the Circular |
Tranche 2 | pursuant to the Acquisition Agreement, completion of the acquisition of the Tranche 2 Properties |
Tranche 2 Properties | the 10 properties that are proposed to be acquired on completion of Tranche 2, as set out on Part 9 of the Circular |
United Kingdom or UK | the United Kingdom of Great Britain and Northern Ireland |
UK Disclosure and Transparency Rules | the disclosure and transparency rules made under Part VI of FSMA and as set out in the FCA Handbook, as amended from time to time |
UK Listing Rules | the listing rules made under Part VI of FSMA and as set out in the FCA Handbook, as amended from time to time |
UK Prospectus Rules | the prospectus rules made under Part VI of FSMA in relation to offers of securities to the public and admission of securities to trading on a regulated market and as set out in the FCA Handbook, as amended from time to time |
UK share register | the share register maintained on behalf of the Company in the Isle of Man |
Valuation Report | the valuation report dated 7 September 2015 and prepared by Savills Advisory Services Limited, details of which are set out in Part 6 of the Circular |
WAULT | weighted average unexpired lease term |
Notes to editors:
Redefine International is a FTSE 250 income focused UK-REIT with a primary listing on the London Stock Exchange and a secondary listing on the Johannesburg Stock Exchange.
The Group invests in large, well developed economies with established and transparent real estate markets. Within these markets, Redefine International's £1 billion investment portfolio provides diversified exposure to the commercial, industrial, retail and hotel sectors.
Redefine International is focused on delivering sustainable and growing income to shareholders through investment in income yielding assets let to high quality occupiers on long leases. Capital values are enhanced and protected by asset management and other low capex development activities.
As a UK-REIT, the Group aims to distribute the majority of its earnings available for distribution on a semi-annual basis, providing investors with attractive income returns as well as exposure to capital growth opportunities.
www.redefineinternational.com