In a significant transaction, Redefine International, the diversified income focused property company, announces that it has exchanged contracts to acquire the entities owning three shopping centers in Germany from various funds managed by CMC Capital Limited valued at €189.0 million and reflecting a blended net initial yield of 5.5%. Completion of the Transaction is subject to certain conditions which the Company expects to be fulfilled by 30 August 2013.
Overview
This Transaction, once completed, will substantially expand Redefine International’s portfolio of European assets to approximately £360 million or 30% of the Company’s total portfolio by value (February 2013: 197.9 million or 19%), and which is focused on income producing assets in Germany and Switzerland.
The Properties, located in the core German investment markets of Berlin, Hamburg and Ingolstadt, are all situated within established prime retail destinations. The Transaction is expected to produce an initial yield on equity in excess of 12.0% with strong rental growth potential as well as opportunities to add income and value through asset management opportunities.
Consideration and Financing
The consideration for the equity in the Target Entities of approximately €47.1 million will comprise a fixed cash payment of €5.4 million with CMC having the option to elect to receive the remaining consideration either entirely in cash, at a discount of approximately 4.0% to the equity value of the Target Entities, or partly in cash and up to approximately €34.3 million by the issue of up to 74.9 million new ordinary shares in the Company at an effective issue price of 40.0 pence per share (the “Consideration Shares”). The Transaction is expected to complete by 30 August 2013 with CMC making its election to receive any Consideration Shares in respect of all three Target Entities prior to this. Approximately €20.6 million of the consideration for the equity in respect of the Berlin Target Entity will be deferred to 6 December 2013.
Any Consideration Shares issued in respect of the Hamburg and Ingolstadt Target Entities will be subject to lock-in arrangements for between four and six months. The cash portion of the consideration can be funded utilizing the Company’s existing resources.
As part of the Transaction, Redefine International will assume existing bank debt facilities totaling €141.4 million provided by HSH Nordbank and Hypothekenbank which are fully drawn. The existing bank loans have a weighted average maturity of 4.9 years and a weighted average interest cost of 3.12% per annum. The gross rental income of the three Properties is approximately €10.9 million per annum with a weighted average lease length of 5.4 years.
The Properties
Details of the Properties to be acquired, all of which offer the opportunity to increase income through asset management or development initiatives, are as follows:
Schloss-Strassen Shopping Centre, Berlin
This recently developed shopping center was opened in 2007, and is valued under the Transaction at €93.0 million. The center is located in a prime retail location in South West Berlin with strong transport links including direct access to the Walter-Schreiber-Platz U-Bahn (underground) station and provides approximately 19,000 m² of retail space over six storeys, including 365 parking spaces on the upper floors. The building is 99% occupied (by gross lettable area) and key tenants include Primark (of which it is one of the retailer’s best performing stores), REWE, dm, Toys R Us, Fitness First and Cyperport.
As part of the Transaction, the Company will assume €72.0 million of existing bank debt secured against this property from HSH Nordbank with a total interest cost of 2.94%. The facility matures on 30 August 2017.
Bahnhof Altona Shopping Centre, Hamburg
This former Kaufhof department store, which was converted to its existing form in 2005, is valued under the Transaction at €72.5 million. The center is situated in one of the strongest retail locations in Hamburg and is integrated with the Altona long distance overland and S-Bahn train stations, providing approximately 15,500 m² of retail space over three storeys. The asset also has an adjacent car park offering 500 spaces. A number of asset management opportunities are at advanced stages of negotiation and offer opportunities to add both significant value and income over the next two to four years. The building is currently 100% occupied and key tenants include Lidl, Media Markt, McDonalds, Le Crobag and Rossman.
As part of the Transaction, the Company will assume €56.0 million of existing bank debt secured against this property from HSH Nordbank with a total interest cost of 3.68%. The facility matures on 28 February 2020.
City Arkaden Shopping Mall, Ingolstadt
The property, which was formerly used as a department store, is valued under the Transaction at €23.5 million. The center enjoys a prominent location on Ludwigstrasse, one of the prime retail streets in Ingolstadt, and provides approximately 10,400 m² of retail space over five storeys. The building is 87% occupied (by gross lettable area), with key tenants including H&M and Thalia.
As part of the Transaction, the Company will assume €13.4 million of existing bank debt secured against this property from Hypothekenbank with a total annual interest cost of 1.15% above three month Euribor. The facility matures on 1 June 2016.
Greg Clarke, Chairman of Redefine International, commented:
“The acquisition of these three shopping centers represents the first of two significant planned transactions for the Company flagged in our recent Interim Management Statement. These well located shopping centers will be attractive additions to our portfolio which will enhance the overall quality of our assets and provide the opportunity to create both strong income returns and long-term capital growth for our shareholders."
Source: Redefine
