FOR IMMEDIATE RELEASE
20 July 2012
REDEFINE INTERNATIONAL P.L.C.
('Redefine International' the 'Company' or the 'Group')
Interim Management Statement
The Board of Redefine International, the diversified income focused property company, today issues the following Interim Management Statement relating to the period from 1 March 2012 to 19 July 2012.
Greg Clarke, Chairman of Redefine International, commented:
"The Company has made good progress during the period with £47.5 million of legacy financing facilities having been restructured or repaid, significantly reducing both leverage and near term refinancing requirements. In conjunction with this, we are pleased to have been able to take advantage of some market opportunities to make acquisitions of high quality income yielding assets. Despite the on-going challenges posed by uncertain markets, and evidence of lower valuations in certain of the Company's portfolios, we believe these activities will position us well as we work towards our capital raising and restructuring later this year."
There has been substantial progress in meeting the Group's strategic objectives, particularly in respect of exiting non-core assets, restructuring debt facilities and investing into sectors which continue to perform and deliver strong income returns.
These actions, together with the previously announced intention to raise capital, will result in a significantly strengthened balance sheet and reduction in exposure to near term debt maturities.
The Company is pleased to announce that the following transactions have taken place since the interim reporting period to 29 February 2012:-
· The shares in the companies which held a 96% shareholding in the Justice Centre in Halle, Germany were sold for a consideration which reflects an 8.4% uplift in the value of the investment and removes €37.1 million of debt from the Company's balance sheet;
· Repayment of the £17.15 million Aviva, Delamere Place Crewe loan at a 36% discount to face value;
· Repayment of the Kwik-Fit Stockport and Stafford loans of £1.18 million; and
· Acquisition of a 50% interest in two German discount centres situated in Kaiserslautern and Waldkraiburg for a total consideration of €16.0 million (£12.6 million) as part of a joint venture with a major pension fund.
Further details of these transactions are provided below.
UK Stable Income
The investment market for UK regional offices remains subdued as concerns over excess supply, government austerity measures and the availability of bank funding continue to impact demand for these types of assets. Transactional activity and values have been negatively impacted but the Company remains focused on maintaining occupancy levels and income across the portfolio. The Company's exposure to UK regional offices is anticipated to reduce materially as a result of the negotiations on the Delta and Gamma financing facilities.
Overall occupancy reduced slightly to 93.6% (February 2012: 95.0%). A number of smaller asset management initiatives are in progress and shorter term leases totalling 195,000 sq ft are under negotiation for extension or renewal.
Following the refurbishment of Coburg House in South London, the Company has let the top floor (5,550 sq ft) to InterHealth Medical at a rent of £69,313 p.a. This recent letting successfully completes a complex asset management plan to retain the existing tenant in occupation while refurbishing the property, extending the existing tenants lease to 2023 with a break in 2018 and re-letting the vacant top floor. The property is now fully occupied.
Following receipt of full planning consent for a new residential led, mixed use development scheme on the currently vacant Lyon House and Equitable House sites in the heart of Harrow town centre, the Company has received Greater London Authority approval. It has also made significant progress on the Section 106 agreement with Harrow Borough Council for the proposed public realm.
The development, between St John's and Lyon Roads, will provide a total of 287 residential units, of which 49 will be affordable housing. The scheme will offer a range of accommodation including maisonettes and apartments across seven separate blocks of varying heights. The Company has already concluded a development agreement with Metropolitan Housing Trust for the affordable housing element of the scheme.
The Company intends to secure a joint venture partner to carry out the development of the scheme. The development is anticipated to commence in early 2013, subject to agreement on terms and the completion of the Section 106 agreement.
Whilst overall conditions remain difficult, there have been signs of improved consumer confidence in the second quarter of the calendar year, possibly driven by the Queen's Diamond Jubilee celebrations and the upcoming Olympics. There is a risk however, that this could be overshadowed by the impact of the continuing European sovereign debt crisis.
Although the number of retailer insolvencies appears to have stabilised recently, certain retailers remain under pressure. Some comfort can be taken from the fact that, apart from Game and Clinton Cards, the profile of retailers entering administration has mainly been the smaller local and regional operators.
The portfolio maintained a healthy occupancy rate of 95.4% (94.8% as at 29 February 2012). Overall footfall for the period to 31 May 2012 was largely unchanged at (0.1)% year on year.
The European portfolio has maintained near full occupancy and is providing consistent inflation-linked rental income returns. The majority of the Group's exposure is to German discount retail assets let to predominantly multi-national discount retailers and office assets let to government-backed organisations.
The Company has completed the previously announced acquisition in Waldkraiburg and anticipates the imminent completion of the Kaiserslautern acquisition. Both investments are for a 50% interest in the assets as part of a joint venture with a major pension fund. The aggregate purchase price of €16.0 million (£12.6 million) reflects a yield on equity in excess of 10%. Both assets are newly constructed and fully let to predominantly multi-national discount retailers on leases of between 10 and 15 years linked to 75% of German CPI.
The Hotel portfolio continues to trade well and, with the peak season and the Olympics approaching, underlying performance is expected to exceed revenue budgets for the next quarter. London's Organising Committee of the Olympic and Paralympic Games (LOCOG) has taken occupancy of 222 rooms across the Company's hotel portfolio throughout the period of the Olympic and Paralympic Games.
Underlying occupancies for the three months ending 31 May 2012 were marginally down on the same period last year. However, this has been offset by a 9% increase in the average room rate. All hotels are performing in line with their peers.
Cromwell Group ("Cromwell")
The Company's strategic 23.13% shareholding in Cromwell continues to produce consistent distributions supported by the high quality investment portfolio. A distribution of AUD 1.75 cents per security was received for the March 2012 quarter at a fixed exchange rate of AUD1.4897:GBP1.00. The June 2012 distribution, announced as AUD 1.75 cents per security, is anticipated to be received on or around 19 August 2012. The receipt of this distribution has been fixed at an exchange rate of AUD1.5032:GBP1.00. Distribution guidance for the 2012 financial year has been confirmed by Cromwell at AUD 7.0 cents per security. Cromwell continues to refine its portfolio to focus on those assets considered to have the highest risk-weighted return.
Significant progress has been made on the sale and restructuring of the VBG portfolio. A further announcement will be issued in due course.
The VBG assets comprise four individual office properties let to a German government-backed social insurance body in Berlin, Dresden, Cologne and Stuttgart. The leases have unexpired terms of between 7.8 and 12.6 years and are 100% index-linked to the German CPI.
The shares in the companies which held a 96% shareholding in the Justice Centre in Halle, Germany were sold for a consideration of €1.0 million. This has resulted in the property, with a value of €36.3 million and debt amounting to €37.1 million, having been removed from the Company's' balance sheet together with the loans to minority shareholders. The transaction reflects an 8.4% uplift on the value of the investment.
In May 2012 the Company reached agreement with Aviva Commercial Finance Limited to restructure the Delamere Place Crewe facility. The outstanding balance of £17.5 million was cancelled in return for an £11.0 million cash settlement from the Company.
Delta and Gamma
The Company is in discussions with the servicer of the Delta and Gamma facilities to restructure the facilities when they mature in October 2012. Negotiations are on-going.
As previously announced, the Company intends to undertake a capital raising of up to £100 million after the current financial year end in order to provide capital to strengthen the balance sheet, including restructuring certain debt facilities, and to take advantage of investment opportunities in the current market.
The Company is well advanced with the preparation of the capital raising documentation and expects to post the Prospectus in September 2012 which will set out details of the capital raising to Shareholders.
The Company anticipates that the capital raising will be in the form of a firm placement and open offer. Redefine Properties International Limited, the Company's largest shareholder, will take up its full entitlement in the open offer.
On 24 May 2012 the interim dividend of 2.10 pence per share was paid to all shareholders on the register as at 11 May 2012. The Company fully expects to meet its previous forecast of a total dividend for the current financial year of 4.4 pence per share.
Lower valuations are anticipated in the near term as rental and capital growth remains susceptible to fragile economic conditions and the availability of capital remains limited. These conditions are however, providing attractive opportunities for well capitalised investors.
The progress achieved in this last period places the Company in a significantly stronger position from which to raise new capital. Over £47.5 million of legacy facilities have been, or are in the process of being, restructured or repaid, significantly reducing both leverage and near term refinancing requirements. The remainder of the financial year will be focused on the restructuring of the Delta and Gamma facilities and progressing the proposed capital raising.
Redefine International Property Management Limited
Michael Watters, Stephen Oakenfull
Tel: +44 (0) 20 7811 0100
Public Relations Adviser
Stephanie Highett, Dido Laurimore, Olivia Goodall
Tel: +44 (0) 20 7831 3113