Redefine rallies almost 14% to a 20-month high

Shares in Redefine Properties – South Africa’s second largest primary listed real estate investment trust (Reit) – rallied to their highest level in 20 months on Monday, closing almost 14% up at R5.45 a share.

This follows Redefine revealing to the market that it is back on the acquisition trail with the group announcing plans to takeover Polish property counter EPP in a share-swap offer.

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Redefine already holds a 45.4% stake in EPP with a R6.5 billion carrying value, but its offer is aimed at securing controlling interest in the JSE and Luxembourg Stock Exchange listed Reit.

Read: Redefine returns to paying dividends and makes a surprise offer for EPP

EPP’s share price also surged on the news. It closed over 10% firmer at R13.11, highlighting the market’s positive reaction to the proposal.

Redefine’s takeover offer was announced together with its 2021 annual results on Monday, which showed a better financial performance than Covid-hit FY2020.

The group resumed paying out a dividend on the back of its FY2021 improvement. Redefine declared a dividend of 60.12 cents a share, which is likely to also have played a part in the surge in its share price on Monday.

Redefine CEO Andrew Konig tells Moneyweb that the group has been working on plans to acquire a controlling interest in EPP for around a year now.

“Redefine has now submitted a non-binding proposal to EPP. If approved it will constitute EPP as an unlisted subsidiary of Redefine. In terms of the proposal, Redefine will make an offer to EPP shareholders to swap their EPP shares for Redefine shares at an independently verified fair swap ratio,” he says.

“It is a very complicated transaction … But the offer is part of our focused approach to exit minority investments [such as in Australia and in the Lango Fund] and gain strategic control of assets like EPP, where we already have a major stake,” Konig points out.

He says further details will be revealed in due course, however he is hoping the transaction can “wrapped up by February next year”.

Due to the impact of Covid-19, EPP has not paid out any dividends over the last 24 months according to Konig. Redefine’s move at securing a controlling interest in EPP would also give it more say in decisions around dividends and the Polish group’s gearing or loan-to-value (LTV) levels.

Konig is hoping that EPP restores its dividend payouts. The transaction is also expected to result in EPP selling some of its asset to bring down its LTV.

“This is a cashless transaction that we are proposing, but the exact share swap numbers still need to be determined,” he says.

“I don’t want to be drawn into speculation on what assets will be sold … More details will come over the next few weeks. [But] absorbing EPP must not impact Redefine’s LTV,” Konig tells Moneyweb.

In terms of approvals, Redefine needs 50% of its shareholders to approve the transaction through a general resolution, while it also needs to secure 50% support of EPP’s other shareholders (Redefine cannot vote on the EPP side).

Meanwhile, Redefine reported a notable reduction in its LTV for its financial year to August 31.

Group CFO Ntobeko Nyawo says there were improvements across several key indicators.

“LTV reduced a full 6.3% to 41.6%, net asset value [NAV] per share improved to 733.24c from 714.85c, active portfolio occupancy increased to 92.9% versus 92.7% and cash on hand and committed access facilities was R5.8 billion [from just R2.8 billion].

“We realised R5 billion from disposals, which plays into the reduction of LTV, but in addition we have transactions at an advanced stage of a further R6.2 billion,” adds Nyawo.

Redefine’s board had resolved not to pay a dividend in 2020 in the face of ongoing Covid-19 uncertainty on liquidity, but Konig says the group has now turned the corner and resumed paying a dividend for FY2021.

Read: Vukile, Redefine defer dividend payouts due to Covid-19 hit

He thanked shareholders for “staying the course through a tough period”, adding that they were now “being rewarded for their patience”.

Commenting on Redefine’s results, Stanlib listed property analyst Ahmed Motara says the resumption of dividends was key to showing solvency and liquidity strength, with the sustainable distributable earnings (excluding non-recurring) per share in line with broader market expectations.

“The reduction in LTV was pleasing, driven in part by withholding the FY2020 dividend and the disposals programme … Operationally, a good result with vacancies declining, and reversions, while still negative, showing signs of moderating,” he adds.

“The unexpected announcement was of course the proposal by Redefine for EPP to delist and for EPP shares to be swapped for Redefine shares as a mechanism. While a swap ratio is still to be determined, a successful transaction that leads to the delisting of EPP will possibly see Redefine being more aggressive on EPP disposals, which would result in a faster reduction in LTV to acceptable levels and a return of EPP to being an income generator for Redefine,” says Motara.

“Remember, Redefine results for FY2021 did not include any dividend received from EPP,” he adds.