On Monday the 3rd of August, UAC of Nigeria PLC (UAC) announced that a binding agreement with Custodian Investment PLC (Custodian) was signed for the purchase of a 51% equity interest in UACN Property Development Company PLC (UPDC).
This transaction is a major change and a new era for UPDC, which operated first as a Department, then as a Division of UAC until 1997 when the business was incorporated as a public limited liability company and listed on the Nigerian Stock Exchange. It will also give Custodian direct exposure to UPDC REIT, who are keen on recurring cash flow visibility and attractive yields.
Custodian is an investment company with significant holdings in Custodian and Allied Insurance Limited, Custodian Life Assurance Limited, Custodian Trustees and Crusader Sterling Pensions Limited. At the end of 2019, the company reported an investment portfolio of ₦9.6bn including land, residential and commercial properties in Lagos and Abuja, one of which is a 7,000m2 parcel on Alfred Rewane Way in Ikoyi, Lagos.
Custodian’s interests in the insurance and pension industry make this acquisition an interesting one because they require long term assets that can match their long term liabilities. The Custodian team believe that the business and its properties have attractive valuations relative to replacement cost and market values; and that the recurring cash flows visibility from the REIT (average of ₦1.4 billion p.a. over the last five years) present a good match for Custodian’s business. This is the 2nd major real estate transaction to occur since the sale of RMB Westport’s assets to Growthpoint Investec earlier this year.
According to UAC of Nigeria, this agreement marks the beginning of a partnership between Custodian and UAC that will achieve both companies’ respective objectives in the real estate industry. It also marks a significant milestone aligned with UAC’s strategy to focus on its core businesses, part of which commenced just under a year ago when major restructuring plans were announced.
The filing sent to the stock exchange today points to the following as deal highlights:
- Sale of 9,465,584,668 UPDC ordinary shares (“Sale Shares”) held by UAC, representing 51% of UPDC’s issued share capital, to Custodian.
- Sale Shares will be sold in two tranches:
– Initial sale of 946,558,467 shares, representing 5.10% of the issued share capital of UPDC, on the execution of binding transaction agreements.
– Subsequent sale of 8,519,026,201 shares, representing 45.90% of the issued share capital of UPDC upon receipt of requisite approvals.
- Completion of the sale is subject to regulatory approvals from The Nigerian Stock Exchange and the Federal Competition and Consumer Protection Commission.
Commenting on the transaction Folasope Aiyesimoju, Group Managing Director of UAC, 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. 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.
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.”
Commenting on the partnership, Wole Oshin, Group Managing Director of Custodian Investment PLC, 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 opportunity in the real estate industry will be better achieved working in partnership.
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.”
On the 7th of May, 2020, UACN Property Development Company (UPDC) published its audited financial statements reporting a loss of ₦15.883 billion for the year ended 31st December, 2019. This is a 5.54% increase from the loss recorded in 2018 and the 4th consecutive year UPDC recorded a loss.
Download the official release on this transaction here.