JSE-listed real estate investment trust Redefine Properties has submitted a nonbinding proposal to Poland-based real estate investment company EPP, which, if approved, will result in EPP becoming an unlisted subsidiary of Redefine.

Redefine currently holds 45.4% of EPP, with a R6.5-billion carrying value, thereby putting Redefine in a “good position” to benefit as retail demand increases further in Poland, Redefine says in a statement on November 8.

The transaction will also drive diversification, with the Poland-centred offshore component of its overall portfolio likely to increase to 30%.

In terms of the proposal, Redefine will make an offer to EPP shareholders to swap their EPP shares for Redefine shares at an independently-verified fair swap ratio, thereby translating into the transaction being effectively cash-less.

“As a consequence of disposal activity at EPP-level, [Redefine] will be generating significant liquidity,” says Redefine CEO Andrew Konig.

“The rationale . . . effectively revolves around the restoration of our investment on EPP into a productive one. EPP has not paid a dividend for the past 24 months, so we want to enter into this transaction on the basis of restoring much-needed liquidity to EPP to assist them with significant debt maturities, which is impeding their ability to declare dividends,” he adds.

“What we are looking at is restoring the dividend so that shareholders once again will get their share of EPP’s distribution that is due to them, but also very importantly it will improve Redefine’s credit metrics, which are playing out in our interest cover ratio at this point in time,” says Konig.

With the transcation, Redefine is also hopeful of lowering EPP’s loan-to-value ratio.

“[Redefine] wants to gain control over EPP so that we can control its universe from a risk-management point of view, as well as from an opportunity point of view, going forward,” he says.

There are other “side benefits” that go with the transaction as well, says Konig, which include providing a single entry point from an investment perspective into EPP through Redefine. This would be in contrast to having to go through EPP or through Redefine.

Redefine intends to wrap the transaction up by February 2022. “However we need to obtain JSE clearance to hold a delisting shareholders meeting for EPP, which will fall into their closed period during January. A dispensation has been requested, and the JSE is considering that dispensation,” he says.

However, Konig adds that Redefine wants to expedite the process.