Redefine Properties, one of South Africa's largest property companies, with a market cap of Rand 21.1bn, has listed Redefine International, its offshore property company, on the Johannesburg Stock Exchange.
The move follows a private placement that raised £84m to fund the £106.3m purchase of a portfolio of five London hotels from Splendid Hotel Group. Redefine said the listing would allow it to take advantage of stronger property markets away from its domestic market.
Redefine Properties now holds its 61% interest in the UK-based group Ciref (now also known as Redefine International) through the new listing Redefine International, its wholly-owned subsidiary.
Redefine Properties' CEO Marc Wainer said: "Redefine International will be a property loan stock company with its shares linked to debentures to create linked units. Redefine International's sole asset will be a controlling shareholding in Ciref."
Both the new listing and Redefine Properties are Property Loan Stock companies, which must, like Reits, distribute a high proportion of their income to their unit holders. They are also tax transparent.
The former Ciref is the AIM-listed property investment and development company established in 2005 and based in the Channel Islands. It has a market cap of close to £222m.
It also has interests in two listed funds, Wichford in the UK and Cromwell in Australia, which brings its total portfolio to 97 properties, focusing on retail and other commercial assets. The group sees a total gross annual rental income of £39.8m, with its properties valued at £533m for the purposes of the listing. The Splendid deal prompted the creation of Redefine International Hotels within the group.
Prior to the listing, Redefine Properties said the move would provide South African residents and institutions "an exciting opportunity to utilise rands to invest in an international portfolio of properties at a projected forward yield of over 7.5%, which provides a perfect rand hedge".
The listing would, it said, also provide expansion funds and increased awareness of Redefine's international operations.
Speaking to the local press in South Africa, Redefine Properties CEO Marc Wainer said: "We think opportunities offshore, particularly in Australia, are better than here. Redefine International will have a dividend yield of 8%, which compares with 8.5% in SA. We have just funded Qantas's Sydney head office on a 10-year lease on an 8.4% yield. Meanwhile the cost of borrowing will be 6%. That gives us a 10% cash-on-cash return.
"The other attraction is the Rand hedge. We think this is an attractive time to hedge against a rand that has gone to R12-R12.50 not so long ago."
The company says it will look to grow its portfolio through appropriate acquisitions and/or joint venture initiatives as and when opportunities arise.
Redefine Properties, which has a portfolio of 403 properties, has said that it does not want the foreign component of its assets to exceed between 10% and 12%.
The Splendid deal marks a new interest in the hotel sector – similar to that seen amongst Reits in the US – moving away from its portfolio dominated by shopping centres and similar mainstream commercial properties.
With all five hotels under the Holiday Inn and Holiday Inn Express brands, it seems likely that, with Helder Pereira, former MD of Southern Sun as CEO of the hotels subsidiary, the group will keep its focus on IHG brands. Pereira, who was appointed in July, has experience of managing over 30 Holiday Inn hotels and was also involved with the IAHI (IHG Owners' Association).
At the time of the Splendid deal he confirmed that the group was looking at other opportunities in London and Europe. Pereira has a 10% stake in the hotel manager of the Splendid portfolio, RIN Hotels, with the other 90% held by RIN Fund Managers, the appointed managers of Redefine International.
Looking forward, Redefine International CEO Mike Watters said he is keen to build the hotel component and has hinted that, in five years or so, it could be listed as a separate entity.