Deal will boost port­fo­lio with more UK prop­er­ties

Financial Mail - Investors Monthly - - Analysis -

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.

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