Tuesday, January 18

Redefine rallies from nearly 14% to a 20-month high

Shares in Redefine Properties, South Africa’s second-largest publicly traded real estate investment trust (Reit), rallied to their highest level in 20 months on Monday, closing nearly 14% at R5.45 per share.

This follows Redefine and reveals to the market that he is back on the acquisition path with the group announcing plans to acquire Polish property accountant EPP in a share exchange offering.

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Redefine already has a 45.4% stake in EPP with a book value of 6.5 billion rand, but its offer is aimed at securing a majority stake in the JSE and Reit, which is listed on the Luxembourg Stock Exchange.

Read: Redefining pays dividends again and makes a surprise offer for EPP

EPP’s share price also rose on the news. It closed 10% firmer at R13.11, highlighting the positive market reaction to the proposal.

Redefine’s takeover offer was announced alongside its 2021 annual results on Monday, which showed better financial performance than Covid’s fiscal 2020.

The group resumed paying dividends thanks to the improvement in fiscal 2021. Redefine declared a dividend of 60.12 cents per share, which was also likely to have influenced its share price rise on Monday.

Redefine CEO Andrew Konig tells Moneyweb that the group has been working on plans to acquire a majority stake in EPP for about a year.

“Redefine has now submitted a non-binding proposal to the EPP. If approved, it will constitute EPP as an unlisted subsidiary of Redefine. In terms of the proposal, Redefine will make an offer to EPP shareholders to exchange their EPP shares for Redefine shares with a fair exchange rate independently verified, ”he says.

“It is a very complicated transaction… But the offer is part of our focused approach to exit minority investments. [such as in Australia and in the Lango Fund] and obtain strategic control of assets such as EPP, where we already have a significant stake, ”says Konig.

He says more details will be revealed in due course, however, he hopes the transaction can “be concluded in February next year.”

Due to the impact of Covid-19, EPP has not paid dividends for the past 24 months, according to Konig. The decision to redefine to secure a majority stake in EPP would also give it more voice in decisions about dividends and the leverage or loan-to-value (LTV) levels of the Polish group.

Konig expects EPP to restore its dividend payments. The transaction is also expected to result in EPP selling part of its assets to reduce its LTV.

“This is a cashless transaction that we are proposing, but the exact share exchange numbers have yet to be determined,” he says.

“I don’t want to be lured into speculation about which assets will be sold … More details will come in the next few weeks. [But] absorbing EPP should not affect Redefine’s LTV, ”Konig tells Moneyweb.

In terms of approvals, Redefine needs 50% of its shareholders to approve the transaction through a blanket resolution, while it also needs to secure 50% support from EPP’s other shareholders (Redefine cannot vote on EPP’s side) .

Meanwhile, Redefine reported a notable reduction in its LTV for its financial year through August 31.

The group’s chief financial officer, Ntobeko Nyawo, says there were improvements in several key indicators.

“LTV decreased 6.3% to 41.6%, net asset value [NAV] per share improved to 733.24c from 714.85c, portfolio active occupancy increased to 92.9% versus 92.7% and available cash and committed access facilities was R5.8 billion [from just R2.8 billion].

“We realized 5 billion rand of sales, which contributes to the reduction in LTV, but we also have late-stage transactions of another 6.2 billion rand,” adds Nyawo.

Redefine’s board had resolved not to pay dividends in 2020 in the face of current Covid-19 uncertainty about liquidity, but Konig says the group has turned around and resumed paying dividends for fiscal year 2021.

Read: Vukile, redefines deferring dividend payments due to Covid-19 success

He thanked shareholders for “staying the course during a difficult period,” adding that they are now “being rewarded for their patience.”

Commenting on Redefine’s results, Stanlib-listed real estate analyst Ahmed Motara says the dividend resumption was key to showing solvency and liquidity strength, with sustainable distributable earnings (excluding non-recurring ones) per share online. with the broadest expectations of the market.

“The reduction in LTV was pleasant, driven in part by the retention of the FY2020 dividend and the divestment program… Operationally, a good result with the decrease in vacancies and reversals, although still negative, showing signs of moderation ”He adds.

“The unexpected announcement was, of course, Redefine’s proposal for EPP to be delisted and for EPP shares to be exchanged for Redefine shares as a mechanism. While a swap ratio has yet to be determined, a successful transaction leading to EPP’s delisting will likely cause Redefine to be more aggressive on EPP provisions, resulting in a more rapid reduction in LTV to acceptable levels and a EPP’s return to being a revenue generator for Redefine, ”says Motara.

“Remember, the Redefine results for fiscal 2021 did not include any dividends received from EPP,” he adds.


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