Vukile Property Fund has announced its intention to acquire a controlling shareholding in a company which will own a portfolio of four shopping centres in Spain in a transformative and accretive deal that will boost its offshore exposure to above 40%.
The shareholding will be acquired from Unibail-Rodamco-Westfield for 460 million Euros.
Lee Morze, Vukile’s lead investment partner in Spain, has created a separate investment property company (PropCo) to acquire the portfolio. Post the acquisition of the property portfolio by the PropCo (controlled by Morze and the introduction of senior debt into the PropCo), Vukile will effect its equity investment into the PropCo with the acquisition expected to conclude by the end of July this year.
“Vukile has clearly stated its intention to grow its investment in Spain. We are thrilled to secure this sizeable transaction that is consistent and fully aligned with our strategy. This is an excellent quality portfolio, one of the best we have seen in the market so far. At a yield of 5.9% it is attractive and accretive to Vukile representing a cash-on-cash yield of 8.1% in its first year” commented Laurence Rapp, CEO of Vukile Property Fund.
The portfolio of four leading centres is being acquired from Unibail-Rodamco-Westfield and the transaction is part of the 3 billion Euro disposals to be made by Unibail-Rodamco-Westfield during the next several years as part of its previously announced European asset rotation programme.
Two of these centres will become Vukile’s biggest individual property assets in Spain, being the 43.423 square meters El Faro in Badajoz and the 33 220 square meters Vallsur in Valladolid.
Castelllana, Vukile’s 98% subsidiary, is scheduled to list on the Alternative Equity Market of the Spanish Stock Exchange on the 25th of July 2018, which the listing process precluded it from being party to a deal. Once Castellana is able to transact post its listing, Vukile will introduce the opportunity to Castellana’s board to enable it to acquire 100% of the PropCo and the portfolio at the same price as the initial transaction. This will be done via a share swap making the special purpose vehicle holding the four assets a 100%-held subsidiary of Castellana.
The acquisition will be funded by a combination of 257 million Euros in debt, provided by European banks to the PropCo, 80 million Euros equity investment by a Morze-controlled vehicle, a 35 million Euro investment by Capricorn Capital and a 123 million Euro equity investment by Vukile.
Vukile has secured pre-emptive and other rights in respect of shares held by Morze and Capricorn in PropCo/Castellana (whose shareholding will be subject to agreed lock-in arrangements). The acquisition by Vukile of further equity from Morze and/or Capricorn would be effected at a pre agreed price and terms that would be accretive to Vukile.
For Vukile, the deal fast-tracks its Spanish strategy. It first entered the Spanish retail property market a year ago, in July 2017.
“Vukile’s offshore exposure is now 47% of assets, of which 43% are in Spain and 4% in the UK. This acquisition underscores the credibility that Castellana and Vukile have already established in the Spanish market, the strong dealflow they are attracting and the high-calibre of their management,” says Rapp.
For Castellana, if approved, the transaction would significantly strengthen an already strong portfolio, diversifying its tenant and category mix even further. It would increase Castellana’s portfolio from 390 million Euros to circa 870 million Euros (with an average asset value from 27 million Euros to 48 million Euros), reduce its portfolio vacancy from 3.3% to 2.7%, grow its lettable area from 197,000 square meters to 318,000 square meters, increase its exposure to fashion retail from 16% to 26% of rental, and decrease its rental exposure to electronics retailers from 13% to 6%. The acquisition would also take Castellana much closer to its goal of a Spanish main board stock exchange listing.
The conclusion of the transaction remains subject to Vukile raising equity in the market at pricing and terms acceptable to Vukile.