UK firm’s three German mall buys help Redefine portfolio

Deal boosts quality of assets for UK investor with a focus on Germany

Redefine International has bought three German shopping centres to help achieve its goal of improving the quality of its portfolio and becoming a REIT.

The UK quoted property firm invests in the UK, Germany and Switzerland, and is trying to improve its portfolio after a 2011 corporate takeover of heavily indebted UK secondary office company Wichford led to two years of restructurings and writedowns.

“We have been looking to continue our diversified income model but upgrade the size and quality of assets, and these centres are very good quality,” said Redefine chief operating officer Stephen Oakenfull.

A syndicate of Irish investors, some of whom wanted to liquidate, sold the malls, in Berlin, Hamburg and Ingolstadt, in an off-market deal. The assets were part of a larger German portfolio managed for the investors by CMC Capital.

Redefine paid €47.1m for the equity and took on €141.4m of cheap stapled debt. HSH Nordbank had lent €72m against Schloss-Strassen in Berlin and €56m against Bahnhof Altona in Hamburg, while Hypothekenbank lent €13.4m on City Arkaden in Ingolstadt.

The loans mature between 2016 and 2020 and have a 3.12% weighted average interest cost. The relatively high and attractively priced leverage boosts Redefine’s cash-on-cash yield to 12%, based on a 5.5% initial yield, Oakenfull said, adding that Redefine turned down the opportunity to buy the other geared CMC assets.

Redefine intends to sell some smaller German retail assets it owns “into a rising market”. The company’s largest shareholder, South African Redefine Properties International, backed a £127.5m open offer and placing in October 2012 to pay down debt (see panel) and fund acquisitions.

Oakenfull said about £65m of that equity was earmarked for the imminent refinancing and purchase of a £90m UK mall, in a deal that will see Aviva Commercial Finance restructure the debt that funds part of the company’s UK retail portfolio. See Special report, Opportunities in Germany, pp15-17, 18-19, 20, 21 & 22-23

Wichford’s legacy is heavy losses

Redefine used some of last year’s equity issue to restructure the £115m ‘Delta’ loan – one of two securitised loans secured on former Wichford UK secondary offices – which matured last October. Windermere XI CMBS holders took the negative net asset value writedown on Delta.

But Redefine did not agree a restructuring of the £199m Gamma loan in Windermere VIII. After the special servicer appointed a receiver, 34 assets were bought this month by CLS Holdings for £118.6m. A further four are valued at £12.7m.

CLS bought the ‘Neo’ portfolio after selling most of its corporate bond portfolio. Some 75% of the rental income comes from government tenants, among them HM Revenue & Customs, the Immigration Service and the Department for Work & Pensions, and 20% from Trillium
– an underbidder for Neo.

The majority of leases have break clauses in less than five years’ time. The net initial yield on £15.1m of income was 12.23%. Wichford paid £270m for the 38 assets in 2005; a B loan of around £65m was wiped out.