Max Property Group, the closed-ended real estate investment company established in May 2009 to exploit the cyclical weakness in the UK property market, has proposed to shareholders the wholesale disposal of its property business to a company controlled by Blackstone Real Estate Partners Europe IV, Marina Topco (Jersey) Limited.
The proposed transaction comprises the sale of MPG Opco, a wholly-owned subsidiary of the Max Property Group – chaired by Aubrey Adams and externally managed by Prestbury Investments, itself owned and managed by a team led by Nick Leslau and Mike Brown.
The property deal values the group, before exit costs, at £447.7m, inclusive of an approved return to shareholders of £33m, equivalent to an enterprise value for the group of more than £650m, Max Property Group outlined a statement this morning.
The £447.7m valuation reflects a 22% increase over the net assets, as reported in the group’s 31 March 2014 annual report, and represents a 112% uplift in headline net asset value before incentive provisions over the five and a quarter years since Max was established. For a full outline of Max Property Group’s portfolio acquired by Blackstone, please see at the end of this article.
Should the sale be approved by shareholders and the return of cash concluded, affiliates of the management team and Och-Ziff, original cornerstone investors in the company, will receive £31.2m and £9.1m, respectively.
In its outlined rationale this morning, Max Property explained in a statement: “Having received an approach from Blackstone offering a cash price at a level that the board believes represents an attractive return for investors, the board has given careful consideration to the net returns for shareholders, weighing up the offer in the context of the level and timing of the cash return and risks inherent in delivering a piecemeal disposal of the group over approximately the next two years.
“The board has concluded that the interests of all shareholders are best served with an earlier disposal in a single and fast transaction with low execution risk where nearly all of the net cash proceeds can be returned to Shareholders as soon as possible following completion of the sale.
“The board is, therefore, unanimously recommending that shareholders approve the Sale by voting in favour of the resolutions to be put to the Extraordinary General Meeting on 11 August 2014.”
Aubrey Adams, chairman of Max Property Group, said in a statement: “Max has performed extremely strongly since its listing in 2009, achieving its key objectives of acquiring a substantial portfolio of assets at a time of market distress and managing them intensively to generate market leading returns.
“As Max was established with a limited life strategy, the board has always been mindful of its duty to identify the best possible route to crystallise the Company’s success in a way that would secure the optimal exit for Shareholders. Management were set robust targets to achieve and will have more than met them with the outcome of this transaction.
“This approach from Blackstone, one of the world’s largest and best funded property investors, delivers that opportunity at a price which fully recognises Max’s current and future value and – through the structure and timing of the Sale and related proposals – offers our Shareholders a clean exit with no market or execution risk.”
Ken Caplan, head of European real estate at Blackstone, added: “We are excited to be entering into this transaction with Max as it reflects our continued confidence in the strengthening UK markets. These properties are great additions to our London office portfolio as well as our growing UK industrial and logistics platform.”
Max was established in 2009 at a time of turbulence and distress in property, finance and investment markets.
At the time of listing, the board anticipated that delivery of the group’s strategy would take some seven and a half years, allowing time to build a portfolio, work the assets acquired to enhance value and ultimately for shareholders to benefit from an anticipated upwards trajectory in property values following the expected recovery after the market crash of 2008.
The company’s investment period came to an end in May this year.
Max Property Group stated in its rationale: “The majority of the asset management initiatives have been completed and the portfolio has been substantially de-risked, with major refurbishment programmes at or near completion and void rates now significantly lower than at purchase.
“In light of this, coupled with the strength of capital currently flowing into the market, the question for the Board has not been “Will the property portfolios be sold?”, but “When will they be sold?”, together with careful consideration of the most efficient and appropriate manner in which to make these disposals in order to maximise the net cash returns to shareholders.
“It is also the Board’s view that the prospects of achieving higher prices for the Group’s investments over its remaining life, whether as a result of the market potentially continuing its rapid rise and/or through the results of further intensive asset management, are outweighed by the downside risks for Shareholders from the execution risk and market risk arising from a phased disposal programme over approximately the next two years.
“In the opinion of the board, the potential increase in returns that might be achieved through a phased disposal programme provides inadequate compensation for the risks in doing so.
“With this in mind, the board believes that Blackstone is one of only a few substantial property investors with access to very significant financial resources and the management capability to immediately absorb some complex multiple asset management situations in a large and diverse group of assets.
“The attractiveness of the pricing, the reliability and speed of execution able to be delivered by Blackstone and the relatively low property disposal costs payable in a sale of the entire business in a single transaction have all been taken into account by the directors in arriving at their conclusion to unanimously recommend this transaction to shareholders.”
Prestbury will have no further involvement with the portfolio following completion of the sale and a short transitional period allowing for the handover of the companies sold to Blackstone.
The net cash return to shareholders following completion of the proposals, net of all exit costs and inclusive of the £33m cash distribution payable on 23 July 2014, is expected to be 184.2 pence per share, representing an annual compound growth rate on net funds invested of 13.2% per annum and a 23% premium to the average share price for the 12 months to 21 July 2014.
Following the sale, the business of the group will be substantially complete and the board proposes to oversee a liquidation process during which the majority of the net cash proceeds of the Sale will be distributed to shareholders at the earliest opportunity.
This is currently expected to amount to a distribution of 168.7 pence per share on 21 August 2014.
Max Property Group’s portfolio consists of added value opportunities in London with a high yielding predominantly industrial portfolio spread throughout the UK, with small lot sizes and a broad spread of tenants.
The portfolio comprises:
- The Industrious portfolio is comprised of 69 multi-let industrial properties over six million sq ft bought out of receivership in October 2009 for £244.0m. Around 95% of the initial vacant space upon acquisition has since been let or sold. the portfolio has a weighted average unexpired lease term of 3.3 years and a £21.0m rent roll. Following £98m worth of disposals, the remaining portfolio was valued at £208.9m, at the of March 2014.
- St Katharine Docks was acquired in a 60% joint venture in August 2011 for £164.5m. The investment comprises 445,000 sq ft of offices, predominantly in International House, Commodity Quay (under refurbishment) and Devon House, with 70,000 sq ft of waterside restaurants, bars and shops and the 10 acre, 160 berth marina. The weighted average unexpired lease term is 5.2 years and the annual rent roll is £11.5m.
- A freehold island site of just under one acre with frontages to High Holborn and Bedford Row, which was acquired in November 2012 for £47.7m. On acquisition, nine buildings provided nearly 150,000 sq ft of unrefurbished space with High Holborn House, at 87,000 sq ft, representing over half the value of the estate.
- 29 freehold London pubs with a total floor area of 150,000 sq ft, situated in high value residential areas of London, were acquired in January 2011 for £44.4m (£300 psf capital value). The pubs are located in Marylebone, Notting Hill, Chelsea, Clerkenwell, Spitalfields, Southwark, Camden, Highgate, Islington, Barnes, Sheen, Chiswick, Battersea, Clapham, Balham, Tooting and Fulham. The pubs are let to Enterprise Inns Plc on 35 year full repairing and insuring leases commencing in January 2011.
- A none-strong portfolio of predominantly late 1980s offices, purchased in February 2010 for £39.0m from a property fund seeking liquidity to meet redemptions.
- Four freehold private hospitals in Blackburn, Liverpool, Ayr and Stirling were acquired in a joint venture with Lloyds Banking Group in May 2010. Max invested a nominal sum in the joint venture to acquire a 45% interest and Lloyds injected the assets with associated debt funding. A joint venture between Texas Pacific Group and Goldman Sachs now owns the former Lloyds interests. The joint venture paid £31.6m for the portfolio, which was fully debt financed on a non- recourse basis by Lloyds. Each hospital is let on full repairing and insuring terms to BMI Healthcare Limited, guaranteed by General Healthcare Group Limited, for a term of 25 years from May 2010 with a tenant option to renew for a further ten years, with annual, upwards only uncapped RPI-linked rent reviews throughout the term. The rent is now £2.6m per annum.
- The Nightclubs portfolio was acquired in October 2010 for £9.8m. At the time of acquisition, three of the 14 clubs were vacant and the initial yield on acquisition was 14.9%. Three properties were sold between 2010 and 2012 and the net income from acquisition to the balance sheet date, including those sale proceeds, was £5.3m which represents 53% of the original purchase price. Nine of the nightclubs were let to Atmosphere Bars and Clubs Limited, which went into administration in May 2013. All but one of their units, which was sublet to other occupiers, has now closed. This has led to a £2.7m (35%) writedown in the value of the portfolio to £4.9m.