Aviva takes a hit in Redefine shopping malls restructuring

Insurer writes off chunk of Redefine’s debt on two secondary centres

Aviva Commercial Finance is taking a big writedown on loans it made on several secondary shopping centres, as part of a complex restructuring with client Redefine International. The assets involved are West Orchards in Coventry, Grand Arcade in Wigan and Weston Favell in Northampton.

Aviva has agreed a discounted pay-off with Redefine for West Orchards, whereby the quoted property company will pay the current £37m market value in cash to take 100% unencumbered ownership of the 210,000 sq ft, secondary mall.

Aviva lent £55.6m on the scheme in 2007 to Modus, and Redefine (then Ciref ) acquired 50% after Aviva put Modus into administration in 2009. Redefine’s 50% joint-venture partner, Sandgate Properties, did not participate and has written off its stake. In Wigan, Aviva originally lent £143m against Grand Arcade, developed by Modus Group.

Redefine took ownership via a company voluntary arrangement in 2010 after joint-venture partner Modus’s 2009 collapse. Aviva has agreed to write off around £70m of the debt, reducing the loan to £73m, in return for £7m cash and a 50% share of future net income and capital growth.

In the third part of the deal, Aviva will sell Weston Favell to Redefine for £84m. Aviva put the 307,763 sq ft scheme into receivership in January; it was bought for £122m, reflecting a 4.75% initial yield, in 2006 by clients of Mutual Finance.

A 157,000 sq ft Tesco Extra store with a 14.3-year unexpired lease term anchors Weston Favell and generates £6.4m per year, reflecting a net initial yield on Redefine’s strike price of 7.2%. Aviva has continued to support Redefine through the long period of declining asset values and the demise of joint-venture partner Modus.

As part of this latest restructuring, the lender is providing a new, 25-year, £50m loan, fixed at 5.7%, against Weston Favell. This will be cross-collateralised with facilities it provided for secondary Redefine shopping malls Birchwood in Warrington and  Byron Place, Seaham, County Durham.

Redefine chief executive Mike Watters said: “We get some debt written off, put capital in and get a new asset, while Aviva gets debt restructured and a new loan. “In 2006-07 these assets were overvalued but we think they are now totally undervalued.”

Redefine has spent £127.5m of equity it raised a year ago, after buying three German shopping centres (see September issue) and making the £82m equity investment in these three deals. Watters said: “Converting to a REIT on 2 December is now our priority; next year we’ll take a long, hard look at the market.”