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Redefine Properties In Prime Position To Benefit From Increased Exposure To The Polish Retail Sector After Receiving R7.2 Billion EPP Re-Organisation Green Light

Johannesburg, 24 January 2022 – Redefine Properties (JSE: RDF) has received the green light from shareholders to finalise the delisting and takeover of EPP (JSE: EPP), Poland’s largest retail landlord.

The deal, which is still subject to finalisation of outstanding conditions precedent and regulatory requirements, amounts to an estimated R7.2 billion in additional equity for Redefine and adds around R19.7 billion of total assets onto its balance sheet.

On Friday last week, the key step to finalisation of this significant transaction was completed when the proposal received overwhelming support from both Redefine and EPP shareholders. It entails a share-for-share offer by Redefine to acquire all the remaining shares in EPP it does not already own upon delisting thereof.

This will take place at a swap ratio of 2.70 Redefine shares for each EPP share held, to a maximum of 1.1 billion if everyone converts to Redefine shares. Redefine currently holds 45.4% in EPP and on completion of the transaction, the Polish-centred offshore component of its overall portfolio is likely to increase to 30%.

“I was very pleased and encouraged by the high level of Redefine’s shareholder support, with an approval of 78.3% being achieved,” says Redefine CEO Andrew Konig.

He says the support reflects the fact that the transaction ticks several strategic boxes. These include reducing risk, simplifying Redefine’s investment and asset platform and eliminating exposure to a listed investment where Redefine as a minority shareholder had limited input over funding or liquidity management. It also opens the door to exciting retail market opportunities in the Polish market as it accelerates its recovery from the Covid-19 pandemic.

“We have always been bullish on the Polish retail market and all indications are the Polish economy will grow in excess of 4% this year. Retail sales are on the rise and we are excited to now have a single entry point into this market via Redefine,” he says.

‘’I am glad that our investors supported EPP delisting and restructuring proposals with a large majority. It was not an easy decision to make. I believe that once the company’s reorganisation is completed, EPP will be in a position to return to the growth path, as well as to regularly deliver dividends to its shareholders,” said Tomasz Trzósło, CEO of EPP. “I also would like to thank the EPP team who put a lot of work into completing this project within a very tight deadline.”

Konig says the deal protects Redefine’s carrying value in EPP from dilutive value destruction and fits perfectly with moves to a more sustainable funding model in which debt is matched to stable assets, rather than underlying listed shares, that are subject to the vagaries of financial markets.

With EPP unable to pay dividends for the past two years and facing significant loan maturities in 2022 and 2023, the deal’s core objective is to significantly reduce EPP’s debt through a liquidity generating restructure, which will restore it to a dividend paying position.

EPP has a loan to value (LTV) of approximately 57% and Konig says it was therefore important to solve the liquidity challenge it was facing, without in any way impacting Redefine’s own LTV ratio.

“Redefine wanted to avoid these liquidity challenges to impact negatively on our own LTV of 41.6%, which we have worked hard to achieve,” explains Konig. As a consequence of the restructure, EPP’s LTV reduces to well below 35% and as a consequence there is a marginal effect on Redefine.

“A lower LTV for EPP bodes very well for its ability to access liquid and well-priced Eurobond markets and open up new sources of funding. This gives us a lot of financial flexibility offshore,” explains Konig.

Redefine’s credit metrics also improve, with its interest cover ratio moving from 2.5 times to beyond 3 times.

Konig explains that as the controlling shareholder of EPP, Redefine will be in a stronger position to drive initiatives to return EPP to a dividend paying position in the short term, thereby delivering improved distributions to Redefine shareholders.

“Redefine’s shareholders will obtain additional exposure to prime Polish retail assets directly held through EPP and there will no longer be two listed entry points to EPP, providing Redefine with a differentiated investment proposition on the JSE and potentially enhanced liquidity. This is a win-win and I believe this is why the results of the shareholder votes were so overwhelming,” he concludes.

Ceo Welcome Message by Joanne Solomon

The new year is upon us, and for most people and businesses, it represents an opportunity to push the reset button and start anew. However, like all things in life, one cannot look to the future without reflecting on the past.

2021 offers many lessons but, on the whole, will be remembered as a year of resilience and undying fortitude. It began with much uncertainty and trepidation, given the ongoing effects of the COVID-19 pandemic but ended in renewal and optimism.

As the year progressed and we found our footing, people and businesses began to navigate the new ways of living and doing business. For SAREIT, it was encouraging to see the sector’s commitment to improving the business environment, contributing to the betterment of South Africa’s economic situation. Between April 2020 and June 2021, REITs issued a total of R3.5 billion in rental discounts and deferrals to enable business sustainability during the pandemic. Therefore, these collective efforts reassure me that 2022 will be the long-awaited year of rebuilding and recovery.

During 2021, we experienced some significant shifts within the sector. Most of our members and the majority of the industry continued to focus on debt reduction and portfolio optimisation. The emphasis on optimising operations resulted in tenant retention and, for some, improved leasing activity. I am pleased that the efforts from all industry players have led to significant progress, reminding us of the sector’s income-yielding characteristic, which makes the property industry attractive. This positivity will aid the sector in reclaiming its position as a top-performing asset class.

With the peak of the fourth wave now passed and South Africa’s vaccination programme in full swing, we are excited to be hosting the much anticipated SA REIT Conference 2022, sponsored by Nedbank CIB. Set to take place on 3 February 2022, the specifically designed programme will highlight diverging views from the sector’s most influential players. Some of the high-profile
keynote speakers include Bart Gysens, Managing Director at Morgan Stanley London; Gina Schoeman, Managing Director at Citibank; Paul O’Flaherty, Executive Director for EY-Parthenon; Paul Badrick, Partner and Head of Public Practice at BDO South Africa; Dominique Moerenhout, Chief Executive Officer at European Public Real Estate Association (EPRA) and John Worth, Executive Vice President: Research and Investor Outreach at Nareit.

The conference will also afford us the opportunity to discuss critical issues affecting the sector. Key amongst them being: The Path to the Next Normal, Investing in SA REITs, SA Business Environment, ESG, SA REITs – An Extraordinary Journey, Transpiring Global Trends in REITs and Growth in Alternative Sectors. These robust discussions will be conducted by leaders from REITs, affiliate associations and industry bodies, asset and fund management, financial services, energy and ICT, government advisory and management consulting sectors. The diverse pool of panellists will provide an unmatched authentic and critical debate that will encourage us to challenge our current way of doing business and devise innovative ways to take our sector to the next level. To register and view the full programme, click here: https://bit.ly/3Bz80yp or follow us on Twitter @SA_REIT or LinkedIn SA REIT Association for regular updates on the conference.

Regardless of what lies ahead, I am confident that we are better equipped to navigate the year ahead.

Happy 2022 and the very best wishes to you, your loved ones and your businesses.

Hyprop Maintains Strong Liquidity

Hyprop, owner of premier retail properties in South Africa, Eastern Europe and the rest of Africa, has strengthened its balance sheet post its year-end, 30 June 2021, as a result of asset sales and shareholder reinvestments. It currently holds R1.6 billion of cash and R900 million of unutilised revolving credit facilities.

The strong liquidity position reflects the completion of the sales of Atterbury Value Mart in South Africa and Delta City Mall in Belgrade, Serbia, as well as R876 million received through an 85% uptake by shareholders of the share reinvestment alternative. As a result, Hyprop’s loan to value (LTV) ratio has firmed to 34%, on a like-for-like basis, from 37.2% at year-end.

In a financial and operating pre-close update for the four months to 31 October 2021, the Group warned that the emergence of a new variant of Covid-19 was likely to have an impact on most jurisdictions where Hyprop operates.

“We are confident that the Group’s strategy and key priorities remain relevant, even in a prolonged Covid-19 environment,” CEO Morné Wilken said. “Our priorities over the next months are to complete negotiations on the Hystead liquidity event, continue strengthening the balance sheet, reposition the South African portfolio for future growth, increase the dominance of the Eastern European properties in our overall portfolio, and pursue our non-tangible asset strategy.”

Operational performance

Hyprop was pleased to report a 4.6% increase in visitors to its South African malls and a 6.7% increase in Eastern Europe in the four months to end-October 2021 compared with the same period in 2020.

However, in both areas footfall has not yet reverted to pre-Covid levels. In Eastern Europe, the various restrictions imposed by governments to control the fourth wave of infections have had a negative effect on operations.

In South Africa, the group plans to launch its digital mall application in some of its malls in 2022. This will enhance its ability to communicate with shoppers and offer a range of unique services. There has been a visible improvement in the performance of travel and entertainment tenants, as well as luggage and jewellery. Only a few smaller tenants and cinemas are still receiving assistance.

Hyprop’s retail vacancies in South Africa were 2.6% in October, having shown a steady month-on-month improvement since end-June.

In Eastern Europe, tenant vacancies remained low at 0.2%, and the seven stores vacated by Inditex were successfully re-let – proof of the dominance of Hyprop’s malls in the region. Refurbishments of Skopje City Mall and the Mall Sofia are progressing well.

As the roll-out of vaccines in Eastern Europe advances, Hyprop is optimistic that restrictions will be further relaxed, and footfall will recover further in the first quarter of 2022.

In the sub-Saharan Africa (excluding South Africa) portfolio, most metrics are tracking above the same period last year. In Ghana, footfall is almost back to pre-Covid levels.Hyprop continues to pursue an exit from the sub-Saharan assets, while actively managing them to create value. Because of the US dollar liquidity crisis in Nigeria, it has been impossible to close out the sale of Ikeja City Mall, but progress is being made in disposing of the remaining three malls in Ghana.

Hyprop is pursuing a number of sustainability initiatives, including improving recycling, reducing waste, becoming more water- and energy-efficient and reducing carbon emissions in line with national targets. It has completed its waste audits and is finalising its energy audits.

“This data will aid us in ensuring that we manage our malls in the most effective way,” said Wilken.

“We remain committed to creating safe environments and opportunities for people to connect and have authentic and meaningful experiences, by owning and managing dominant retail centres in mixed-use precincts in key economic nodes in South Africa and Eastern Europe,” Wilken closed.

Redefine making headway following its announcement to acquire balance of EPP shares

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.

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