In a significant transaction, Redefine International, the diversified income focused property company, announced that it has agreed revised arrangements with Aviva Commercial Finance Limited with respect to the Company’s UK shopping centre portfolio which will reduce the Group’s loan to value ratio on a see through basis from approximately 63.7% following the previously announced CMC acquisition, to approximately 57.3%. As part of the arrangements the Company has exchanged contracts to purchase the Weston Favell Shopping Centre, Northampton. Completion of the Transaction is subject to certain conditions as set out below which the Company expects to be fulfilled by 6 December 2013.
This Transaction, once completed, will result in a restructuring of the Aviva debt secured against Grand Arcade Shopping Centre in Wigan (‘Grand Arcade’) and West Orchards Shopping Centre in Coventry.
The debt against the West Orchards property will be repaid in cash from the Company’s existing cash reserves at the current market value of the property (£37 million, (€43.6 million)) and will result in the property becoming unencumbered.
The debt against the Grand Arcade property will be reduced by approximately 50% to £73 million (approx. €86.1 million) in consideration for a cash payment of £7 million (approx. €8.26 million) (also from the Company’s existing cash reserves). The Company will assume 100% ownership however, Aviva will retain the right to participate in 50% of the income and capital growth generated by Grand Arcade (after all costs, expenses and interest) going forward. The Company will have the right to “buy-back” the profit share for a maximum cash payment of £18.5 million (approx. €21.83 million) in five installments upon the valuation of Grand Arcade increasing by certain agreed benchmarks.
As part of the arrangements with Aviva, contracts have been exchanged for the purchase of Weston Favell Shopping Centre, Northampton for a total consideration of £84 million (approx. €99.1 million). Aviva will provide Redefine International with a finance facility of £50 million (approx. €59 million), with the balance of the purchase consideration being funded by internal cash resources. The interest rate on this Aviva facility will be fixed at circa 5.7% p.a. and the loan will be repayable in November 2038.
One of the conditions precedent to the acquisition of Weston Favell is that it may be subject to JSE Listings Requirements which may require the approval by Redefine Properties International Limited linked unitholders in the event that the unbundling of the Redefine International shares held by the Company’s holding company, RIN, and the de-listing of RIN from the JSE, as announced on 19 September 2013, are not implemented.
Following completion of the Transaction, the facilities currently provided by Aviva with respect to two of the Company’s other shopping centres, at Birchwood (Warrington) and Byron Place (Seaham) as well as Grand Arcade, will be cross collateralized with the facility to be provided for Weston Favell.
The Company Voluntary Arrangements.
It was determined that restructuring the sums owed by Grand Arcade Wigan Limited, Standishgate Wigan Limited and West Orchards Coventry Limited‘s debts under CVA’s would be the most appropriate option. This will enable the Property Owning Companies to continue operating as going concerns and will also ensure that the third party creditors (other than Aviva) of the Property Owning Companies are settled in full.
Weston Favell is an enclosed shopping center situated on the edge of Northampton. The property comprises approximately 307,763 ft² (approx. 28,592 m²) of retail accommodation arranged over two floors with 1,150 free parking spaces. Anchored by one of the largest Tesco Extra supermarkets in the UK (156,987 ft² (approx. 14,585 m²), with a 14.3 years unexpired lease term), the center has a total of 56 retail units and seven kiosks let to a variety of national and local retailers. The center, which produces a net rental income of £6.4 million p.a., was acquired on a net initial yield (after acquisition costs) of 7.2%. The key investment attractions include the centre’s dominance in the wider catchment, the lack of supermarket competition in the north east of Northampton and the strength of the Tesco covenant which accounts for 53% of the net passing rent. The current void rate is 3.4% by ERV and 2.2% by area.
Greg Clarke, Chairman of Redefine International, commented:
“This Transaction not only produces a reduction in the Company’s see through leverage ratio, but is expected to be earnings accretive from day one. The Weston Favell Shopping Centre is dominant in its local area and will benefit from our long term focus on delivering income through focused asset management activity.”