Redefine’s ‘Brexit’ and Australian exit to unlock R7.7bn

Divestments aim to significantly reduce its debt and strengthen its balance sheet.
Journal Uni Place, one of the student accommodation properties in Australia that Redefine Properties has sold. Image: Supplied

Redefine Properties is set to make headway in lowering its debt or loan-to-value (LTV) ratio following two major offshore disposals, which total R7.7 billion and will see the JSE-listed real estate fund effectively exit the UK and Australian markets.

The JSE-listed diversified property fund on Monday announced a R2.3 billion deal to sell its long-time stake in London-based RDI Reit (formally Redefine International) to global private investment firm Starwood Capital Group.

This comes hot on the heels of Redefine announcing on Friday the sale of its majority stake in two student accommodation properties in Australia for A$459 million (around R5.4 billion) to two indirectly wholly-owned subsidiaries of German financial giant Allianz SE.


Redefine’s half-year distributable income dives 32%

Redefine to exit Australia, looks to bring down debt

The moves are in-line with its commitment, made even before the Covid-19 pandemic had struck, to reduce its debt by disposing of some R8 billion in “non-core assets”. Nevertheless, Redefine’s “Brexit” is seen as a watershed moment, as its investment in the UK represented the group’s first offshore foray back in 2006.

While the Australian disposals are at top of the market, the UK sale follows RDI poor performance in recent year in the face of Brexit, which has seen Redefine having to write down the stake. However, both disposals were positively received by the market, with Redefine’s shares up 4% on Friday and buoyed by another 2.9% on Monday.

Redefine’s LTV hit 44.2% at the end of its half-year to 29 February 2020, which concerned listed property analysts in the wake of expected further pressure from the economic impact of the Covid-19 pandemic. The group’s executives reiterated during Redefine’s interim results presentation in May of plans to ideally bring its LTV down to around the 40% mark.

Speaking to Moneyweb on Monday, Redefine CEO Andrew Konig said the group’s exit from the UK and Australian markets would contribute to around a 3.8% reduction in the group’s LTV.

“This will include around R600 million we are expecting to get from disposing our shake in Cromwell Property Group, which is linked to our student accommodation property disposals in Australia… The RDI sale will reduce our LTV by 1.1%, while the student accommodation disposal and Cromwell sale, will reduce our LTV by around 2.2% and 0.5% respectively,” he explained.

Redefine CEO Andrew Konig. Image: Moneyweb

Konig, however, warned that the reduction would be against Redefine’s February half-year LTV levels. He noted that with Covid-19 uncertainty, he could not say exactly where LTV levels could stand post the pandemic, due to revaluations of properties.

Read: Growthpoint warns of up to 20% decline in SA property values

Redefine noted in its Sens statement that the RDI deal, at 95 pence per share, represents a 20.9% premium to the ruling share price.

“This means we will recover some lost value through this deal… We believe it is a good deal compared to several offers we have had for RDI over the past year, which have been around the ruling market price. We could not entertain those offers as we knew the investment had more value,” he told Moneyweb.

Part of the proceeds from the sale will go towards settling an encumbered exchangeable bond linked to RDI.

“The exit out of RDI substantially advances Redefine’s stated intention of simplifying and solidifying its asset platform, as well as eliminating multiple entry points for South African equity investors into the same investment opportunities. Furthermore, it also improves the company’s risk profile through eliminating a risk universe over which it has no direct management influence,” Konig added in a statement.

“Redefine’s strategic intent to strengthen its balance sheet, recycle non-core assets and boost liquidity continues to place the company in a strong position to withstand the risks and challenges of the current uncertain operating environment… The disposal will also allow Redefine to re-strategise and re-allocate its financial and capital resources to position the company for sustained value creation in a post Covid-19 environment,” he said.

Meanwhile, Redefine’s move to sell its prized Australian student accommodation properties comes just three year after its first foray into this sub-sector of the market down under.

During 2017 Redefine had acquired a 90% beneficial interest in Journal Student Accommodation Fund and in 2018 the Journal Swanston Sub Trust to develop the purpose-built student accommodation (PBSA) properties in Melbourne. Development of Leicester Street, an 804-bed facility, was completed in 2018 whilst the development of the 587 bed Swanston Street was completed in May 2020.

“The PBSA market in Australia is a relatively new sector with limited supply and has recently attracted significant investor interest. The transaction [with the Allianz subsidiaries] concludes the sale process for the properties launched during November 2019 and in terms of which the purchase price was determined through a highly competitive open-market sale process,” Redefine noted in its JSE Sens statement on the deal.

Commenting on the deal, Redefine’s financial director Leon Kok said a portion of the proceeds from the disposal will be used to settle the Australian loan facilities on the properties, which amounts to some A$132 million.

“The remaining proceeds will be utilised to reduce Redefine’s other interest-bearing borrowings and enhance its liquidity… This transaction forms an integral part of Redefine’s loan-to-value improvement plan, which includes the disposal of approximately R8 billion of non-core assets across Redefine’s property asset platform,” he added.

Redefine also pointed out that the transaction will secure the release of 60 million Cromwell Property Group shares from an “encumbrance”. Redefine said its intention is for the Australia group’s shares to be sold on the open market. This would “further advance Redefine’s stated intention to strengthen its balance sheet and bolster liquidity”.

Craig Smith, head of research and property at Anchor Stockbrokers, said Redefine’s offshore disposals are in-line with its stated strategy to exit or reduce holdings in non-core assets.

“These assets were already earmarked for sale pre Covid-19, so it is a good outcome for Redefine… The disposals are part of the group’s process to simplify its holdings, reduce its LTV and de-lever its balance sheet,” he said.

Reitway Global’s chief investment officer Garreth Elston says considering “the stress Redefine has been under”, it makes sense for the group to accelerate non-core asset sales in order to raise cash.
“Their business will be better structured as a result which should benefit shareholders in the long run.”
However, he warns: “There is still pain to come for all the local landlords. Reducing debt and retaining cash will help, but it all depends on how long and severe the downturn is … Once all the noncore [assets are] sold, and the local market for core is moribund, the challenge for survival will be even more difficult.”



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When you are selling in a panic to recover lost value, something is wrong.

Finally they see the light. Australia and the UK have been Dud investments for Investors. People go there, lose their cash and come running back to recoup their losses and move back to their Great lifestyle in SA. Please tell Woolies to stop wasting our money in Australia and focus on the great business they already have!

It was a currency play that went wrong.

End of comments.



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