Redefine International, the European arm of blue-chip property company Redefine Properties, is trying to cement its presence in Western Europe by focusing on investing in premium rather than fringe assets.
Redefine International CEO Mike Watters says the company believes its expertise is strongest when it comes to the UK and
Germany.
The company sold its stake in four German office assets last week. It had co-owned them with Menora Mivtachim, one of the largest pension funds based in Israel. The buildings were sold as a portfolio to a US private equity group for €106m (R1.53bn).
Redefine International owned 49% of the properties and the sale price was at an 8.6% premium to the book value. The company’s net proceeds after debt were €24.9m, which included a performance fee of about €2.4m.
The proceeds will be reinvested into value-accretive opportunities and used to reduce debt.
“In line with our strategy to improve the quality of our portfolio continuously, these four offices were identified for sale. We are very pleased with the transaction, having achieved a 27% internal rate of return over the investment period,” says Watters.
The properties are in Berlin, Dresden, Cologne and Stuttgart, and are let to a German government-backed social insurance body, VBG. The portfolio earned a total annual gross rental income of €8.1m, of which €4m was attributable to Redefine International.
The company entered into a joint venture deal with the Israeli group in 2012 to undertake co-investments in Germany. Watters says the two had worked well together and would co-invest in properties in the near future.
“Menora Mivtachim was an excellent partner. We found value in this portfolio. But the lease is coming to an end soon and we need to deploy our capital elsewhere. I believe Redefine International and Menora Mivtachim can repeat our success on future projects,” he says.
Watters believes Redefine International will rebound as certainty returns to the UK real estate market. The company’s share price has come under pressure because of currency volatility owing to the fallout from the UK’s Brexit vote on June 23 last year. It caused a drastic fall in the share prices of various UK-based JSE-listed property stocks the following day. Prices have hardly recovered since.
Redefine International returned a negative 38.6% last year, including share price movements and income payouts.
A number of SA analysts are now wary of listed property that is invested in the UK.
Garreth Elston, portfolio manager at Alternative Real Estate Capital Management, says the UK government needs to lay out a clear plan of how it is to deal with the effects of Brexit.
“Our view is that the UK is best avoided for the time being as the risk is not offset by the possible returns. The government appears to still be unprepared to deal with Brexit, and its negotiation strategy and planning remain very unclear. This creates uncertainty in the market.
“In the run-up to the triggering of article 50 [of the Lisbon Treaty, which will put Brexit in motion] we expect a great degree of volatility in UK real estate investment trust prices,” he says.
Elston says UK retailers have warned that they are being hit hard by a decline in trading volumes, weakening economic fundamentals and low inflation, with a corresponding impact on landlords.
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