QIA and Brookfield Office Partners have just returned with a final cash offer for Songbird Estates of £2.6bn, or £3.50 per ordinary share, reflecting an almost 19% increase on the original offer just under a month ago.
This final offer is still below the revised valuation of £3.81 per ordinary share on a pro forma NAV basis as disclosed by Songbird on 28 November, which valued the company at £2.8bn, but is a 15.1% premium to the Songbird’s revised value on a triple net NAV basis.
A triple net NAV measure adjusts a copanies value for hidden reserves and hidden losses in immovable assets and financial liabilities.
QIA and Brookfield said they believe that updated pro forma-adjusted NNNAV is a more relevant metric for Songbird as it captures certain adjustments specific to Songbird including an above-market cost of debt and deferred contingent liabilities.
In a just published Stock Exchange statement, QIA and Brookfield stated that the offer provides “an attractive opportunity for Songbird Shareholders to realise, in cash at a premium, their investment in a highly illiquid stock which has not paid a dividend over the past five years”.
QIA and Brookfield stated its revised offer reflects a 41.6% premium to the six-month volume weighted average price of £2.47 per Songbird Share as of close of business on 5 November 2014, being the day immediately before the approach from QIA and Brookfield was made public.
QIA and Brookfield said they believe “the Songbird Final Offer Price to be full and fair, based on their view of the fundamental value of Songbird’s existing assets” and “wish to avoid a protracted debate on value and so minimize the uncertainty for the management of Canary Wharf Group”.
Canary Wharf Group has close to £1.6 billion of long-dated debt which is securitised against a significant portion of its office investment portfolio, has an average cost of 6.2 per cent. as at 30 June 2014, matures in 2033 and 2037, and cannot be refinanced without incurring significant breakage costs, the statement added.
A QIA spokesperson said: “With this offer, we are seeking to simplify the ownership and governance structure of Songbird, and ultimately also Canary Wharf Group. The final offer price represents a significant premium to Songbird’s fundamental value and to the pre-approach share price even following a significant increase in the reported valuation and the share price of Songbird over the last 12 months.
“The Songbird offer provides what we believe is a highly attractive opportunity for shareholders to exit an illiquid investment.”
Ric Clark, CEO of Brookfield, said: “As long-term investors in Canary Wharf, we are pleased to be in a position to make this compelling offer to the shareholders of Songbird. It provides shareholders with the opportunity to realise the very significant increase in value that Songbird has experienced over the last year. The offer is being made as Canary Wharf embarks on an ambitious development programme that will alter its risk profile.”
Should the Songbird Offer be successful and declared unconditional in all respects, Bidco (or a subsidiary of Bidco) – an entity jointly controlled by QIA and Brookfield – will announce a firm intention to make an offer for all Canary Wharf Group shares not held by Songbird.
The Songbird offer and, if applicable, the Canary Wharf Group offer will be financed by way of equity contributions by QIA and Brookfield in Bidco, where QIA and Brookfield will each contribute 50% of the total equity contribution required, the statement added.
In a separate announcement released today, QIA has acquired an approximate 9% interest in Brookfield Property, a subsidiary of Brookfield Property Partners, through the purchase of $1.8bn in exchangeable preferred equity securities.
Under the terms of the deal, QIA has option to convert three separate tranches of $600m preferred equity units at a price of $25.70 per unit with an average dividend yield of 6.5% and maturities of seven, 10 and 12 years.
Ric Clark, CEO of Brookfield Property Group stated: “The placement of $1.8bn of equity is a great endorsement of our global premier asset strategy. We are on the path to building the world’s leading portfolio of best-in-class property assets. This capital will enable us to launch BPY to the next phase.”
A QIA spokesperson said: “We are making this strategic investment in Brookfield Property Partners as part of our investment plan to diversify globally in the real estate sector. This transaction takes our existing institutional relationship with Brookfield Asset Management to the next level, establishing a global platform for us to continue our collaboration with Brookfield.”