Real estate investment trust Hyprop, through a “liquidity event” of real estate investor Hystead – a company held 60% by Hyprop and 40% by PDI Investment – is set to acquire five dominant retail centres in the Balkan region of Eastern Europe following the dissolving of agreements between Hyprop and PDI.
The liquidity event releases Hyprop from the disparate guarantees provided by it relating to Hystead’s bank funding and terminates the arrangements contemplated in the indemnity agreement between Hyprop and PDI.
As a result, Hyprop stands to acquire – for R3.32-billion (€193-million) – Hystead’s four Balkan properties – Skopje City Mall in North Macedonia, City Center One East in Croatia, City Center One West in Croatia and The Mall of Sofia in Bulgaria.
The transaction will be undertaken by acquiring 100% of the shares in, and shareholder claims against Balkan Retail and SCM Retail Dooel Skopje. The acquisition value will comprise the estimated purchase consideration of €173-million and settlement of the excluded claim of €20-million, subject to customary net asset value adjustments.
Hyprop says the transaction will also enhance the capital structure of Balkan Retail and SCM Retail Dooel Skopje, as well as Hyprop’s borrowings and gearing profile across its rand, euro and dollar funded portfolios.
The proceeds from the transaction will be used by Hystead to reduce its equity debt, thereby reducing the guarantees provided by Hyprop on Hystead’s equity debt, and the related currency risk as a result of rand-denominated assets being used to secure euro-denominated borrowings.
The transaction will enable Hyprop to increase its effective interest in the group’s Eastern Europe (EE) portfolio from €390-million (being 60% of the value of the group’s EE portfolio prior to the transaction) to €575-million (being 100% of the value of the Hystead acquisition properties). This will be done in line with Hyprop’s strategy to diversify its portfolio from the underperforming South African economy.
In addition, Hyprop will retain its existing effective interest of €45-million in Delta City Podgorica (being 60% of the value of Delta City Podgorica) until this asset is sold by Hystead.
It will also serve to align Hyprop’s economic interest in the Hystead acquisition properties and its risk exposure, as it is currently exposed to 78% of Hystead’s equity debt and receives 71% of the dividends declared by Hystead (60% through its shareholding and 11% as a guarantee fee from PDI on dividends declared by Hystead).
Following the transaction, Hyprop’s economic benefit in the Hystead acquisition properties will increase by 29%, to 100%; while its exposure to the related equity debt will increase by 22%, to 100%.
Furthermore, with the transaction, consolidation of the Hystead acquisition properties in Hyprop’s financial statements will occur, providing greater disclosure and transparency on the financial performance of the Hystead acquisition properties and Hyprop.