Custodian Plc To Acquire 51% In UPDC.
OMOTAYO ARAOYE
Custodian Investment Plc has ventured into the real estate sector following the agreement to acquire 51 percent equity in UACN Property Development Company (UPDC).
Under the deal agreement, Custodian will have the controlling shares of the popular real estate company and cement the partnership that will see the two companies achieving their respective objectives in the sector that is currently experiencing lull owing to the cash crunch in the economy.
In this arrangement, Custodian Investment is bringing fresh funds while UPDC is bringing the experience which has marked out the UACN subsidiary in the sector.
UACN that is just building back to profit this year after two preceding years of big losses will look forward to this transaction as the conglomerate closed the first quarter trading with after-tax profit jumping a clear 87 percent to N1.9 billion. The upturn reflects changes in the position of discontinued operations from a loss last year to a profit.
UACN recorded a net loss of over N9 billion at the end of 2019 exclusively from a loss of N14.6 billion from discontinued operations in three subsidiaries, including UACN Property Development Company Plc. This turned a profit of over N5 billion from continuing operations into a net loss at the end of the year.
A shift from a loss of N969 million from discontinued operations in the first quarter of last year to a profit of N717 in the first quarter ended March 2020 is one of the significant developments that have improved the company’s earnings prospects this year. The last two years ended with huge losses from discontinued operations adding up to over N28 billion.
Upon completion of the sale, UPDC will cease to be a subsidiary of UAC and will operate as a stand-alone entity, separate from UAC, marking a significant milestone aligned with UAC’s strategy to focus on its core businesses.
Under the deal. Custodian Investment is paying N9.46 billion for 51 percent of UPDC ordinary shares held by UAC and which the two have agreed will be sold in two tranches.
The first tranche will be a sale of 9.46 billion shares, representing 5.10 percent of the issued share capital of UPDC, on the execution of binding transaction agreements while the second tranche will involve a sale of 8.51 billion shares, representing 45.90 percent of the issued share capital of UPDC upon receipt of requisite approvals.
The two are currently seeking regulatory approvals from the Nigerian Stock Exchange (NSE) and the Federal Competition and Consumer Protection Commission for the deal to be consummated.
Group Managing Director of Custodian Investment Plc, Wole Oshin, said, “We at Custodian are excited about the possibilities arising from this partnership with UAC which provides multiple levers for value creation. The rationale for the Transaction is that Custodian and UAC share the view that their ambitions for capturing the opportunity in the real estate industry will be better achieved working in partnership”.
UPDC is one of Nigeria’s leading real estate development companies, having completed several landmark residential and commercial developments over the past twenty years.
This Transaction will provide Custodian with a platform to capture arising real estate opportunities according to Oshin who stated that, ‘It also immediately provides recurring cash flow visibility and attractive yields as a result of its direct exposure to Nigeria’s leading real estate investment trust (“UPDC REIT”) with a track record of profitability and annual dividend distribution which offers a good complement for our product portfolio”.
‘We are confident that the recent recapitalisation of UPDC, significant reduction in finance costs, and recently reconstituted leadership have repositioned the company to operate sustainably and capture growth opportunities aimed at increasing stakeholder value going forward.”
Group Managing Director of UAC, Folasope Aiyesimoju, said: “The transaction is a significant step in achieving our objectives for UPDC”.
In 2018, the Board and management of UAC embarked on a strategic review to evaluate the performance of the company and its subsidiaries. The objective was to achieve sustainable positive financial performance from our existing operations and enable management focus on businesses that align with our strategy”.
“In reviewing UPDC, the Board weighed the long-term opportunities in the Nigerian real estate sector against the fundamental differences between the cash flow profile and capital needs of UPDC and those of the other entities in UAC’s portfolio”.
Following its review, the Board concluded that it would be in the best interest of UAC to exit its interest in the real estate sector, allowing UPDC to operate as a standalone legal entity, free to source appropriately structured capital and to unlock value for its shareholders.
In September 2019, the Boards of Directors of UAC and UPDC jointly announced three significant strategic initiatives aimed at strengthening UPDC and positioning the company to operate as a standalone entity.
This included a rights issue to recapitalise the business, plans for UAC to transfer UAC’s equity interest in UPDC pro-rata to UAC’s shareholders (“UPDC Unbundling”), and plans for UPDC to unbundle the UPDC REIT to its shareholders (“UPDC REIT Unbundling”).
The N16 billion UPDC rights issue was successfully completed in April 2020, proceeds of which were used to reduce borrowing costs and significantly improve UPDC’s capital position.
In the process of progressing the unbundling initiatives, UAC received a credible offer from Custodian. The terms of the offer compelled the Board to re-evaluate the planned approach to deconsolidate UPDC and influenced the Board’s decision to proceed with the sale of a portion of UAC’s interest in UPDC to Custodian, effectively putting an end to the UPDC unbundling.
We are delighted about the positive impact that a strong anchor shareholder like Custodian will have on UPDC and are focused on ensuring a smooth transition.”
Custodian company stated that “Although UPDC has faced certain challenges in recent times, an investment in the company is expected to provide the following opportunities;
“Attractive valuations relative to replacement cost and market values: UPDC and UPDC REIT trade at attractive valuations relative to the market values of their underlying assets”.
“Recurring cash flows visibility: The UPDC REIT is highly cashed generative with recurring income streams. It has distributed an average of N1.4 billion p.a. over the last five years. Rental income from UPDC REIT is underpinned by leases with first-tier tenants. This presents a good match for Custodian’s business”.
“UPDC has N10 billion of assets for sale which the management team will focus on realising to provide shareholders with liquidity.d. Leveraging more than two decades of UPDC’s strong track record as a leading developer to drive its core property development business.e. A profitable and scalable facilities management business”.
The recent rights issue to recapitalise the company has stabilised UPDC thus creating a foundation for growth.
UAC’s continued ownership of a minority interest in UPDC will facilitate a smooth transition. “Having Custodian as a strong anchor shareholder in UPDC strengthens UPDC strategically”.
Shareholders are advised to exercise caution when dealing in the securities of Custodian, UAC, and UPDC until requisite approvals are obtained. Further updates will be communicated accordingly.
Custodian Investment through its subsidiaries provides various financial services products in Nigeria while UAC of Nigeria PLC is a holding company with subsidiary and associate companies operating in the Animal Feeds and Other Edibles, Paints, Packaged Food, and Beverages, Quick Service Restaurants, Logistics and Real Estate segments.
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