Redefine’s acquisition of Polish landlord EPP is in line with strategic objectives of reducing risk, while simplifying the company’s investment and asset portfolio, CEO Andrew Konig says, days after shareholders of the target firm overwhelmingly gave the R7.2bn all-share deal the thumbs up.
The acquisition, which will also allow Redefine to have more input into EPP’s funding and liquidity management, and first announced in November, expands the exposure of SA’s largest landlord by assets in the Eastern European country’s red-hot commercial real estate market.
Redefine said it wanted to be able to implement the EPP restructure as it would solve EPP’s liquidity challenges, and Redefine would also become the sole listed point of entry into EPP.
Konig said Redefine has always been bullish about the Polish retail market, and the deal opens up new opportunities, with the Polish economy expected to grow above 4% this year. Retail sales are also increasing and Redefine aims to take advantage of these opportunities.
The majority 78.3% of Redefine Properties’ shareholders has given the company the green light to finalise the delisting and takeover of the Polish-based retailer, resulting in Redefine acquiring R7.2bn in additional equity, and adding about R19.7bn of assets to its balance sheet.
Redefine will acquire all the remaining shares in EPP it does not already own upon delisting, at a swap ratio of 2.70 Redefine shares for each EPP share held, to a maximum of 1.1-billion shares if all holders convert to Redefine shares.
“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,” said Koning.
The company 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%.
Konig said 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.
The transaction is aimed at solving EPP’s liquidity challenges so it can start paying dividends. For the past two years, EPP was not able to pay dividends and faced significant loan maturities in 2022 and 2023, with a loan-to-value (LTV) of about 57%.
As a controlling shareholder of EPP, Redefine will be able to drive initiatives to return EPP to a dividend-paying position in the short term, thereby delivering improved distributions to Redefine shareholders, said Konig.
“Redefine wanted to avoid these liquidity challenges to impact negatively on our own LTV of 41.6%, which we have worked hard to achieve,” said Konig, adding that as a result of the restructure, EPP’s LTV will be reduced to below 35%.
He said 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, while giving Redefine increased financial flexibility offshore.
Redefine’s credit metrics also improved, with its interest cover ratio moving from 2.5 times to 3 times.
EPP CEO Tomasz Trzósło said: “I am glad that our investors supported EPP delisting and restructuring proposals with a large majority. 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.”
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