Johannesburg – Property loan stock Redefine Income Fund (Redefine), which seems determined to boost its portfolio with prime shopping centres, announced on Wednesday it may acquire retail-focused Hyprop Investments in full.
Redefine said in a Stock Exchange News Service announcement it had reached a deal with Coronation Fund Managers to increase its stake in Hyprop from 33.3% to 45.2% – by proposing to buy 19.6 million Hyprop units at 5 000c per unit – at a total cost of about R984m.
The deal will trigger a mandatory offer by Redefine to all Hyprop unitholders, also at 5 000c per unit.
“The acquisition represents an opportunity for Redefine to meaningfully increase its holding in Hyprop,” the group said.”Together with the mandatory offer
Hyprop’s portfolio includes coveted centres like Hyde Park and Rosebank Mall in Johannesburg, and Canal Walk in Cape Town.
Old Mutual property analyst Evan Robins said Redefine will benefit from the transaction. “Big regional centres are regarded as the first prize for any property company,” he said.
Avior Research’s Naeem Tilly, however, was not so keen on the deal. “The total image is much more average if you mix the two [property funds],” he said.
According to Tilly, the transaction will increase the defensiveness of Redefine’s portfolio and boost the price of its units. Still, the dilution Redefine will suffer to its income yield means the net benefit will be small.
In the Sens announcement, Redefine said it expects the acquisition to be “slightly enhancing [in terms of income growth]…but may be marginally dilutionary”.
Hyprop has a lower forward yield – the percentage of unit price investors are likely to receive based on historic results – than Redefine.
Redefine’s forward yield after the merger is expected to be 7.2%, and the actual cost of borrowing will be between 9% and 9.5%. “Basically they’ll be generating a yield lower than their borrowings and will suffer a dilution to their income,” said Tilly.