Redefine wants a bigger chunk of International Hotel Properties

Income-focussed UK real estate investment trust Redefine International submitted a proposal to International Hotel Properties Limited (IHL) to increase its shareholding to 50% from a the current 17.24%, it confirmed on Wednesday.

The FTSE 250 company said it intended to increase its current shareholding in the Luxembourg and Johannesburg-listed firm by acquiring 18343.166 IHL shares from minority shareholders, by way of a scheme of arrangement.

Consideration for the IHL shares would be made though the issue of 2.5 Redefine shares for every IHL share held, for which an additional 45,857,915 new Redefine shares would be allotted, the board confirmed.

Following completion, hotels would comprise around 19% of the company’s gross assets, up from 16% as at the end of February, with “material savings” expected to be generated through the integration of the hotel assets into the company’s existing hotel portfolio and REIT status.

“This is an opportunistic acquisition which increases the Company's ownership in a high-quality and high yielding hotel portfolio to 50% and increases our exposure to the strong UK hotel market, whilst increasing our exposure to RPI-linked leases,” said Redefine CEO Mike Watters.

The IHL portfolio comprises nine good quality UK hotels valued at £104.35m, which Redefine said complemented its standing hotels portfolio.

Four of the hotels, comprising 27.7% of the portfolio, are let on long term leases to Travelodge with an effective average unexpired lease term of over 20 years.

The Travelodge portfolio reflected a net initial yield of 5.3%, and benefitted from five yearly RPI escalations providing attractive rental growth prospects in a higher inflationary environment, Redefine reported.

The remaining five hotels, valued at £75.4m, would be managed by the company's associate RedefineBDL Hotel Group.

Four of the hotels are franchised to Holiday Inn Express and one to Hampton by Hilton.

Redefine said the five hotels to be managed by RedefineBDL had a “strong” trading record, and provided exposure to the Hampton by Hilton at Gatwick Airport which is integrally linked to the airport terminal building and the Holiday Inn Express, Edinburgh which had reportedly shown strong growth since acquisition.

The five franchised hotels are anticipated to deliver an effective net initial yield of over 7.5%, and the portfolio was currently financed at 50.0% loan to value at an all-in cost of debt of 3.32%.