Redefine International, an AIM-listed hybrid property fund that houses the international assets of South Africa’s second largest listed property group Redefine Properties, is restructuring its German real estate holdings and associated financing facilities, the company said recently.
The company’s VBG portfolio is made up of four individual office properties situated in Berlin, Dresden, Cologne and Stuttgart, all of which are currently let out to a German government-backed social insurance body. The leases have unexpired terms of between 7.8 years and 12.6 years, and are indexed to 100% to Germany’s price index. The VBG portfolio currently generates an annual rent roll of €7.6m.
Redefine describe the somewhat complicated procedure as follows: Following the restructuring, Redefine will own a 50% interest in the VBG assets along with a major German pension fund as its joint venture partner. As part of the deal, Redefine is selling, for a nominal amount, 50% of its interest in the VBG holding company to the pension fund. This newly established JV company, together with certain of its subsidiaries, has reached agreement with the servicer of the VBG facilities to dispose of the VBG assets to new subsidiary companies within the joint venture vehicle. The proceeds from the disposal of approximately €80.0 million will be used to settle the original VBG facilities in full. The facilities have a current outstanding balance of €117.3 million.
The gross acquisition cost (inclusive of transaction costs) of approximately €84.9 million will be partly funded by the joint venture company with a new five-year €57.0 million debt facility secured from a German bank, with both joint venture partners injecting €14.0 million for their 50% interests. The new debt facility has been secured at a margin of 1.72% p.a. which, together with current five-year swap rates, provides an indicative all-in-rate of 2.8% p.a. This will result in an initial yield on equity in excess of 19.0% on Redefine’s investment.
In a statement from the company, Redefine International chairman Greg Clarke said the restructuring of the portfolio was another milestone in implementing the group’s strategy of reducing the group’s leverage and exposure to short-term debt maturities. The deal is expected to be completed before the end of August.