Deal will boost portfolio with more UK properties

Rand hedge property play Redefine International is bound to pique the interest of a larger pool of investors now that the company has bulked up assets with a R10bn UK-based portfolio of 20 retail, office and industrial buildings.

The deal, concluded in two off-market transactions earlier this month, will increase Redefine International’s existing UK and Germany-based portfolio by a substantial 50%, bringing the total value of its assets to around R30bn. A large chunk of the properties is located in the greater London area, which should place Redefine International on the radars of JSE punters looking for an alternative route to Covent Garden owner Capital & Counties Properties to gain access to the London real estate market.

Following the transfer of the R10bn portfolio, Redefine International will have an 82% exposure to the UK and 18% to Germany by value.

Around 32% (R9,6bn) of the enlarged portfolio will consist of London-based properties. That includes a R4,5bn hotel portfolio — mostly London-based Holiday Inns — making Redefine International the only JSE-listed counter that offers investors access to London’s hospitality sector. The deal, which will generate nearly half a billion rand in additional rental income, is quite a coup for management, given the amount of global money that is chasing real estate investment opportunities in the British capital. As Redefine International CEO and former South African Mike Watters puts it: “Every man and his dog wants to own a piece of London, so it’s becoming difficult to find good deals at the right prices.’’

The new additions include a R9bn (£437,2m) portfolio of offices, retail and warehouses bought from UK life assurer Aegon as well as the Banbury Cross Retail Park in Oxfordshire, bought for R1,09bn (£52,5m).

The Aegon portfolio was acquired at a net initial yield of a 5% and Banbury Cross at 6,4%, which Old Mutual Investment Group portfolio manager Evan Robins says is not cheap.

“But what is attractive is the potential rental upside that can be unlocked in the portfolio over time. Often in the UK and Europe, one buys at a yield that offers little rental upside.’’

Robins says the scale of the deal means that Redefine International is taking a big bet on the UK, as it skews the portfolio away from the company’s initial strategy of diversifying among various geographic areas.