London-listed REIT Redefine International (RI) plans to take control of International Hotel Properties (IHL), in the latest sign of consolidation among South African-back listed vehicles operating in European real estate.
RI already owns a little over 17% of IHL and plans to increase its stake to 50%.
IHL's portfolio comprises nine UK hotels valued at £104 mln (€117 mln). The company which has a remit to invest in Europe was incorporated in the British Virgin Islands in February 2015 and listed on the Euro MTF market of the Luxembourg Stock Exchange and on the AltX market of Johannesburg Stock Exchange (JSE).
Commenting on the proposed stake increase, Mike Watters, CEO of RI, said, 'This is an opportunistic acquisition which increases the company’s ownership in a high-quality and high yielding hotel portfolio to 50% and increases our exposure to the strong UK hotel market, whilst increasing our exposure to RPI-linked leases.'
RI, part of South African group Redefine Properties, manages a €1.7 bn diversified portfolio focused on the UK and Germany. The UK REIT has a secondary listing on JSE, alongside the primary one in London.
Redefine Properties is one of the largest listed REITs in South Africa. Aside from RI and IHL, it is an investor in European real estate via a 2% stake in Australian listed group Cromwell which includes the former Valad Europe business, and a 44.9% stake in Echo Polska Properties.
RI also had another indirect link to IHL. Two RI directors, Marc Wainer and CEO Mike Watters, own shares in IHL. The proposed transaction would include the acquisition of 2.4 million shares from Wainer and his associates and 28,316 shares from Watters.
As such, Redefine International's proposed investment in IHL is the latest move in the consolidation of South African-backed listed real estate vehicles operating in the European arena.
In recent days, New Europe Property Investments (NEPI) and Rockcastle, JSE-listed companies focused on real estate in Central and Eastern Europe, completed a merger and the new group, NEPI Rockcastle, started trading on JSE.
Hotels
RI already owns a little over 17% of IHL and it now plans to acquire 18.3 million shares from minority shareholders in accordance with the Business Companies Act of the British Virgin Islands. IHL shareholders will receive 2.5 Redefine International shares for every 1 IHL share held. As a result, 45.8 million new RI shares will be allotted.
IHL will be delisted from SE and LuxSE if and when RI completes the bid to take control of the company.
Following the transaction, hotels are expected to comprise 19% of RI's gross assets, up from 16% at 28 February 2017. IHL's assets will be integrated into RI's existing hotel portfolio and REIT status.
Four of the IHL hotels, comprising 27.7% of the portfolio, are let on long term leases to Travelodge with an effective average unexpired lease term of over 20 years. The Travelodge portfolio reflects a net initial yield of 5.3% and benefits from five yearly RPI escalations.
The remaining five hotels, valued at £75.4 mln, will be managed by Redefine International's associate RedefineBDL Hotel Group. Four of the hotels are franchised to Holiday Inn Express and one to Hampton by Hilton.
The five franchised hotels are anticipated to deliver an effective net initial yield of over 7.5%. The portfolio is currently financed at 50.0% loan to value at an all-in cost of debt of 3.32%.
RI said that it will only proceed with the transaction if it receives sufficient support from minority IHL shareholders.
