SA’s Redefine Properties acquires bulk property assets for $352m

Redefine Properties Executive Chairman, Marc Wainer said yesterday Leaf Capital’s portfolio was desirable given its long leases with strong tenants.

Redefine Properties, SA's second largest Real Estate Investment Trust (REIT), on Wednesday added Leaf Capital portfolio of commercial properties for $352 million to its shopping basket, substantially enhancing its office portfolio in the Western Cape.

In what could be interpreted as a vote of confidence in South African premium offices, the $352m deal equated to an initial income yield of 8%.

Redefine has struggled to find sizable acquisition targets over the past year, often competing with rival Growthpoint Properties, SA's largest Real Estate Investment Trust (REIT) and having to focus its attention on offshore deals.

Marc Wainer, Executive Chairman of Redefine Properties comments: "Acquiring this trophy portfolio is a strategic triumph for Redefine. It is underpinned by high-quality income streams from its large, excellently located, premium grade office precinct assets.

"The transaction includes a number of significant properties such as Black River Park and the Wembly Square Development. These assets change the face of our Western Cape portfolio, which will now include the top five percent of quality office blocks in Cape Town."

In Gauteng, the acquired assets include Bryanston properties Silver Stream Business Park, Silver Point Office Park, Crawford House and Hampton Park. It also comprises Clearwater Office Park in Stubens Valley and Centurion Gate in Centurion.

Leaf Capital is an unlisted company with nine substantial property assets in Gauteng and the Western Cape. The properties are well-located in major metropoles and benefit from strong lease covenants and quality tenants, such as Amazon, Medscheme, Kumba Iron Ore, Dimension Data, and the Green Building Council of SA.

Redefine will pay the purchase consideration through assumed third party debt of approximately $163 million, 80% of the balance will be settled through a placement of shares and 20% funded from existing cash resources.

Investec Asset Management’s sector head for property, Peter Clark, said the deal would benefit Redefine in the short term. However, the acquired portfolio would require active management, which would test the group.

"The portfolio includes some good quality office properties; however, we remain concerned on the muted demand and increasing supply in the broader office market," Mr Clark said. "Office assets need to be actively managed for them to retain relevance over time.

"Financially the transaction should be accretive for Redefine over the short term due to their low cost of funding, however, the real test will be how they can continue to extract top quartile returns from the assets on an ongoing basis."