November 2021 - SA REIT

Sandton, South Africa, 29 November 2021: Redefine Properties today announced that it proposes to make a share-for-share offer to acquire all the remaining shares in EPP it does not already own (excluding the shares held by IGroup). By implementing the delisting and acquiring control of EPP, Redefine will be able to procure the implementation by EPP of a reorganisation which is aimed at bolstering EPP’s balance sheet and significantly reduce the extent of its gearing to restore EPP to a dividend paying position.

The EPP Board has expressed its intention (subject to EPP’s independent expert financial advisor confirming its preliminary opinion that Redefine’s offer is fair) to recommend that the proposed delisting and Redefine offer as being in the best interests of EPP and its shareholders and that EPP shareholders approve of all required resolutions to effect the proposed transaction.

If approved, the transaction will see EPP delist from the JSE and Luxembourg Stock Exchanges and operate as a subsidiary of Redefine Properties.

“The reorganisation will resolve EPP’s liquidity issues and eliminate the potential need for EPP to undertake an equity capital raise, which given the current economic climate be value destructive to existing EPP shareholders. Redefine will also become the sole listed point of entry into EPP, differentiating Redefine’s investment proposition, thereby potentially improving the liquidity of Redefine shares,” adds Konig.

Redefine holds 45.4% of EPP with a R6.5 billion carrying value. The proposal places Redefine in a good position to benefit as retail demand improves in Poland. It will also drive diversification, with the Polish-centred offshore component of its overall portfolio likely to increase to 30%.

EPP’s high level of gearing (c.55.6%) and liquidity challenges including significant loan maturities in 2022 and 2023 has meant that EPP has not been able to pay dividends since mid-2019. Besides impacting Redefine’s distributable income, the loss of dividend income from EPP has also impacted negatively on Redefine’s interest cover ratio and corresponding loan covenant headroom.

“The EPP transaction is a compelling opportunity for us to stabilise and simplify our international investment in a portfolio of assets we know well and which are well-located in key metropolitan areas of Poland,” says Andrew Konig, CEO, Redefine.

“Given challenging market conditions some on the back of ever evolving Covid-19 situation, EPP has not been able to deliver on its asset disposal strategy required to bolster its balance sheet and to manage liquidity requirements. The transaction will strengthen EPP’s balance sheet and gives us the mandate to pursue opportunities throughout EPP’s portfolio.”

Without intervention, the prospect of EPP resuming regular dividend payments in the short to medium term are slim. This creates high potential for a longer-term dividend drought which has a material adverse impact on Redefine and is not aligned to Redefine’s REIT ‘income fund’ investment proposition.

According to Redefine, the acquisition of a controlling stake in EPP furthers its strategy to simplify its investment proposition and actively manage risks and opportunities by exiting minority investments or gaining strategic control of assets where it already has a major stake.

The Redefine offer will be made to all other EPP shareholders at a swap ratio of 2.70 Redefine shares for each EPP share held.

Should shareholders of EPP approve the transaction, Redefine will (assuming 100% acceptance of the Redefine offer) issue up to 1 135 037 043 new Redefine shares. Redefine shareholders will also need to approve a shareholder resolution giving authority to Redefine to issue these new shares.

The deal is subject to satisfaction of various conditions precedent, including the execution of transaction agreements and those agreements becoming unconditional, securing all required regulatory approvals and the approval of by a majority of EPP shareholders (other than Redefine and I Group), of the EPP delisting.

SAREIT Research Committee’s Second Report shows remarkable contribution of the listed property sector to the economy.

The SA REIT Association (“SAREIT”), a representative umbrella body for the 27 South African REIT companies focused on promoting the sector as an attractive asset class; today released the second instalment of its Research Committee’s Rental Relief Report covering the period from January to June 2021.

Combined, the reports provide comprehensive insights into the sector’s response to the crisis of its tenants following the roll-out of restrictions by the government in response to the Covid-19 pandemic. Between April and December 2020, a total of R3 billion in support had been provided by REITs, with 69% of the relief dispensed between April to August 2020. REITs issued a further R500 million between January and June 2021, bringing the total relief comprising rental discounts and deferrals to R3.5 billion.

Joanne Solomon, CEO of the SAREIT, commented: “We estimate that in total, SA REITs provided over R3.5 billion in rental relief to their tenants over only 15 months. This is a material number in any environment, particularly in the face of already pressurised earnings and weak macroeconomic fundamentals. The tremendous collective effort that our members made to enable business sustainability during the pandemic is a clear demonstration of their continuing role as a key player in the economy.”

The REITs’ relief measures played a key stabilising role in the overall economy by supporting all its tenants, especially SMMEs, which are a critical segment of the economy. 80% of the relief came through in the form of unrecoverable discounts intended to sustain tenants’ cashflows and curb business failures, with the remaining 20% as deferrals on rental payments.

Amelia Beattie, Chairman of the Research Committee and CEO of Liberty Two Degrees said: “The rental relief reports offer a clear look into the role we have played in ensuring business sustainability during the worst of the pandemic, and also throughout the moves across various lockdown levels. Given SA’s shift to lockdown Level 1 in October 2021, we anticipate that rental relief provisions will be reduced even further, enabling our sector to move fully towards a recovery phase.”

As part of SAREIT’s repositioning process in 2020, the Association formed the Research Committee aimed at generating and providing access to high quality, independent research related to the listed property sector in South Africa and other relevant markets, as well as act as a trusted research hub for members and the industry at large.

Solomon commented: “The establishment of the SAREIT Research Committee was a critical element of our renewed strategy, and we are pleased to have seen the high level of collaboration from our members to deliver such an important set of inaugural reports. We look forward to delivering more insights on material topics affecting the South African listed property sector.”
This report’s contributors are Pranita Daya, Ndivhuho Netshitenzhe, and Phil Barttram.

Read the full report