By implementing the delisting and acquiring control of EPP, Redefine will be able to procure the implementation by EPP of a reorganisation which is aimed at bolstering EPP’s balance sheet and significantly reduce the extent of its gearing to restore EPP to a dividend paying position. 

The EPP Board has confirmed that it intends (subject to EPP’s independent expert financial advisor confirming its preliminary opinion that Redefine’s offer is fair) to unanimously recommend that the proposed delisting and Redefine offer as being in the best interests of EPP and its shareholders and that EPP shareholders approve of all required resolutions to effect the proposed transaction. 

If approved, the transaction will see EPP delist from the JSE and Luxembourg Stock Exchanges and operate as a subsidiary of Redefine Properties.  

“The reorganisation will resolve EPP’s liquidity issues and eliminate the potential need for EPP to undertake an equity capital raise, which given the current economic climate be value destructive to existing EPP shareholders. Redefine will also become the sole listed point of entry into EPP, differentiating Redefine’s investment proposition, thereby potentially improving the liquidity of Redefine shares,” adds Konig.  

Redefine holds 45.4% of EPP with a R6.5 billion carrying value. The proposal places Redefine in a good position to benefit as retail demand improves in Poland. It will also drive diversification, with the Polish-centred offshore component of its overall portfolio likely to increase to 30%.  

EPP’s high level of gearing (c.55.6%) and liquidity challenges including significant loan maturities in 2022 and 2023 has meant that EPP has not been able to pay dividends since mid-2019. Besides impacting Redefine’s distributable income, the loss of dividend income from EPP has also impacted negatively on Redefine’s interest cover ratio and corresponding loan covenant headroom. 

“The EPP transaction is a compelling opportunity for us to stabilise and simplify our international investment in a portfolio of assets we know well and which are well-located in key metropolitan areas of Poland,” says Andrew Konig, CEO, Redefine.  

“Given challenging market conditions some on the back of ever evolving Covid-19 situation, EPP has not been able to deliver on its asset disposal strategy required to bolster its balance sheet and to manage liquidity requirements. The transaction will strengthen EPP’s balance sheet and gives us the mandate to pursue opportunities throughout EPP’s portfolio.” 

Without intervention, the prospect of EPP resuming regular dividend payments in the short to medium term are slim. This creates high potential for a longer-term dividend drought which has a material adverse impact on Redefine and is not aligned to Redefine’s REIT ‘income fund’ investment proposition. 

According to Redefine, the acquisition of a controlling stake in EPP furthers its strategy to simplify its investment proposition and actively manage risks and opportunities by exiting minority investments or gaining strategic control of assets where it already has a major stake.  

The Redefine offer will be made to all other EPP shareholders (other than to the IGroup) at a swap ratio of 2.70 Redefine shares for each EPP share held.  

Should shareholders of EPP approve the transaction, Redefine will (assuming 100% acceptance of the Redefine offer) issue up to 1 135 037 043 new Redefine shares. Redefine shareholders will also need to approve a shareholder resolution giving authority to Redefine to issue these new shares.  

The deal is subject to satisfaction of various conditions precedent, including the execution of transaction agreements and those agreements becoming unconditional, securing all required regulatory approvals  and the approval of by a majority of EPP shareholders (other than Redefine and I Group), of the EPP delisting.