On 28 October 2011, Redefine-linked unit holders will be meeting to approve the unbundling of a substantial portfolio of smaller properties from Redefine to Arrowhead. Subject to approval by Redefine unit holders, Arrowhead Properties Limited, led by former ApexHi CEO Gerald Leissner, will be listed on the Johannesburg Stock Exchange (JSE).
Redefine CEO, Marc Wainer, says the unbundling to Arrowhead is an important step in implementing Redefine’s repositioning strategy. The portfolio comprises 98 properties, almost 25% of the number of properties held by Redefine, but which account for only 7% of the income. “These properties are predominantly smaller, high-yielding properties which no longer fit Redefine’s profile but there is most definitely a place in the listed sector for a high-yielding property fund and we believe that Gerald Leissner with his extensive experience at ApexHi is ideally positioned to grow Arrowhead and extract value for Redefine unit holders,” says Wainer.
Wainer notes that various options with regards to the disposal of the properties were explored. But, given the difficulty of private buyers obtaining bank finance and other complexities relating to the sale of individual properties, it was found that the interests of Redefine unit holders would be best served by taking the route of selling the portfolio to Arrowhead and unbundling the units received to unit holders. Furthermore, unit holders will have the option of being exposed to high yielding assets.
Gerald Leissner, Arrowhead’s CEO, comments, “Arrowhead will offer investors access to a highly income generative and diversified portfolio through two risk-adjusted, linked unit classes with quarterly distributions.”
Arrowhead, like ApexHi, will have an ‘A’ and ‘B’ unit structure and Redefine unit holders will have the option of either retaining both the A and B units, selling the A’s or B’s, or selling all of their shares should they choose to do so.
“ Notwithstanding a small dilution in Redefine itself, unit holders holding both Redefine and Arrowhead will be in substantially the same position in terms of total income that they would have been had the property not been sold. We believe the combined value of the Redefine share price after the unbundling, together with the share price of the Arrowhead A and B, will be greater than the Redefine share price on a standalone basis. We are of the view that Redefine unit holders who retain the Arrowhead units unbundled to them have the prospect of enhancing the total return on their holdings,” notes Wainer.
Commenting on new growth opportunities for Redefine, Wainer said definitive agreements had been concluded for the acquisition by Redefine of seven high quality office and industrial investment properties from the Zenprop Group for an aggregate purchase consideration of R979,4 million.
The acquisition is awaiting Competition Commission approval.
The Zenprop acquisition will be bolstered by another acquisition of R430 million. Wainer says that the group has concluded agreements for a portfolio of six industrial properties that fit Redefine’s current strategy and criteria. This transaction is still subject to pre-emptive rights, sub divisions and Competition Commission approval.
An analyst suggests that this acquisition, combined with recent and planned disposals, should reduce the number of properties under management and improve portfolio quality, but comes at the cost of significant initial dilution.
“The recent acquisitions, including the acquisition of the Discovery Life building in Sandton which was acquired for R510 million, together with the proposed unbundling of Arrowhead Properties Limited and the earlier disposal of a portfolio to Dipula Income Fund Limited, represent significant progress in the implementation of our strategy,” concludes Wainer.
