JSE-listed real estate investment trust Redefine Properties has reached what the company deems a mutually beneficial and alternative arrangement with Rand Merchant Bank (RMB) Investments and Advisory related to the conclusion of the sale of the Mall of the South.

The 73 111 m² regional shopping centre, in Aspen Hills, will be acquired by a limited liability special purpose vehicle (SPV) for R1.76-billion in cash.

RMB will hold an 80% equity interest in the SPV, and Redefine the balance.

The deal will be funded through a loan agreement with RMB and the transaction is expected to close on November 1.

Construction of the mall began in 2012 and, at the time, the property was considered to be an attractive asset to complement Redefine’s retail property portfolio.

To secure participation in the development, Redefine had entered into a structured financing transaction with property investment and development company Zenprop and RMB, which would allow or require Redefine to buy the mall upon occurrence of certain events.

The 2013 structured financing transaction included a put option agreement in terms of which Zenprop could require RMB to buy the enterprise known as Mall of the South as a going concern in certain circumstances.

A second put option agreement would then require Redefine to buy the enterprise from RMB in certain circumstances, including the exercise of the Zenprop put option.

The put option gave the holder the right, but not the obligation, to sell an underlying security or asset within a specified time frame.

Zenprop had indicated its intention to exercise its put option in relation to RMB, which, in turn, communicated its election to exercise the put option in relation to Redefine.

Redefine CEO Andrew Konig explains that, given that circumstances had changed dramatically and were unforeseen at the time of entering the put agreements, all the parties had agreed to engage constructively to restructure the put arrangements.

The restructure now allows additional time for the mall to recalibrate after the Covid-19 impact on the retail real estate environment, while providing Redefine with the opportunity to either acquire or dispose of the mall over a three-year period.

Konig says the structured arrangement will not have an adverse impact on the company’s loan-to-value ratio.

He adds that property fundamentals will be challenged for the rest of the year and beyond, owing to unprecedented and evolving market conditions.