Redefining EPP

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Redefining EPP

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Published Date: 2021-11-30 | Source: INCE|Community | Author: The Finance Ghost

Redefining EPP

Local property fund Redefine is making a share-for-share offer that would see EPP delist from the JSE and that pinnacle of capital raising glory, the Luxembourg Stock Exchange.

EPP is a Dutch-based real estate company that is the largest owner of retail real estate in Poland, measured by gross lettable area. There are 29 retail properties and six office complexes included in the portfolio. All asset and property management functions are housed within EPP.

Redefine already holds a 45.4% stake in EPP and is tired of not receiving dividends because EPP has far too much debt. The gearing sits at 55.6% and there are significant loan maturities in 2022 and 2023, so dividends won't be forthcoming. Of total bank borrowings of around EUR1.44 billion, EUR879 million matures by the end of 2022 and EUR369 million matures during 2023.

To make it worse, EPP has not been able to deliver on its asset disposal strategy. This means that the company hasn't been able to make meaningful progress in repairing the balance sheet.

The opportunity from Redefine's perspective is to mop up the rest of EPP and then enable EPP to execute a couple of joint venture deals with I Group, which currently holds shares in EPP alongside Redefine and which will not be disposing of its EPP shares to Redefine as part of this deal. This should decrease EPP's loan to value ratio to around 35% after certain property disposal initiatives.

The swap ratio for the deal is 2.7 Redefine shares for each EPP share. Redefine closed at R5 (up 4.2% on the day) and EPP closed 2.7% higher at R12.32. There is a 60 cents per share dividend embedded in the Redefine price, so the "clean price" is R4.40 per share.

The ratio implies that Redefine would pay R11.88 for the rest of EPP, which has a net asset value (NAV) per share of EUR1.02 (R18.65). It's a significant deal for Redefine, which would need to increase its number of shares in issue by around 21%.

EPP shareholders who don't want to accept the offer would be able to continue owning shares in EPP directly in an unlisted environment. This is generally not a wise decision for most investors as there is no guarantee of ever realising that value.

Deloitte & Touche was appointed as independent expert and has opined that Redefine's offer is fair. The EPP board has thus recommended the proposed delisting and offer by Redefine.





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