Custodian Investment announced on Monday to acquire a 51% stake in UPDC, a real estate company owned by UACN. This is confirmed in a press release posted on the website of the Nigerian Stock Exchange.
UACN announced plans to spin off its investment in UPDC in 2019 after multiple years of losses and value accretion threatening to undermine the going concern status of the parent. Last June, UPDC announced it has raised N16 billion from the right issue as it prepared for its unbundling.
In separate press releases between Custodian and UACN, the duo agreed to a sale of 51% or 9, 465, 584, 668 ordinary shares of UPDC in a transaction that will occur in two phases.
Deal Details
- An initial sale of 5.1% of UPDC will be sold to Custodian Investment
- The second sale of 45.9% of UPDC will then be sold to Custodian Investment
- The companies did not reveal timelines for the consummation of the deal
- Due to this deal, UACN will stop its unbundling plans for UPDC
- The deal is subject to regulatory approvals.
- The purchase consideration was yet to be disclosed, however, UPDC has a market capitalization of N15 billion while Custodian has a Market Capitalization of N30 billion as at press time.
What they are saying
The CEO of Custodian, Wole Oshin and his counterpart in UACN, Folasope Aiyesimoju also commented on the transaction providing reasons for consummating the deal.
- According to Wole Oshin of Custodian Investment, “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.”
- Custodian also believes the transaction “will provide Custodian with a platform to capture arising real estate opportunities. 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 compliment for our product portfolio.”
- According to Folasope Aiyesimoju, Group Managing Director of UAC, “UAC received a credible offer from Custodian. The terms of the offer compelled the Board to re-evaluate the planned approach to de-consolidate 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.”
What they stand to gain from this deal
The two companies also revealed what they stand to gain from this transaction. According to Custodian, it decided to acquire for the following reasons;
- The company claims it is attracted to the ‘recurring cashflow visibility from UPDC REIT citing the huge cash flow it hopes to enjoy from rental income
- “The UPDC REIT is highly cash 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 our business.”
- Custodian also mentions the N10 billion in assets for sale on the books of UPDC which it will focus on “realising”.
- For UAC, while it will no longer be pursuing its deconsolidation strategy for UPDC, it will still retain part ownership of the company but will cease to have it as a subsidiary of UAC operating as a standalone.
- UPDC will now be a subsidiary of Custodian Investment.
UPDC’s Challenges
- UPDC reported a loss after tax of N15.8 billion in 2019 and has accumulated over N33 billion in losses since 2016.
- However, its REIT business has faired better reporting a pre-tax profit of N816.5 million in the first half of 2020. It has consistently declared dividends.
- UPDC collected about N956 million in cash distribution from UPDC Reit in 2019 alone.
- UPDC has undergone several restructuring since Themis Capital acquired majority ownership in UACN in 2018. However, it was unable to stop the hemorrhaging of losses.
