Six years after its London listing, strategic land developer Urban&Civic is preparing to leave the public markets. A £506m take-private bid from Wellcome Trust, one of the world’s largest charities, has been recommended by the board, the latest example of an upturn in mergers and acquisitions across the real estate industry.
For chief executive Nigel Hugill, who set up Urban&Civic with Robin Butler in 2009, the time is right for a new chapter for the company, both from a capital markets perspective and that of the business itself.
“This is patient, institutional capital, going behind a business model that is well established, generates very long returns, but requires supportive capital to help nurture the front end of our projects,” Hugill says.
“We have never shied away from the fact that our projects are long-dated and that the duration of them, once established, is really considerable. The returns that they generate for the owners of the equity are good. But there’s a fair amount of work involved in getting to that first spot.”
Prior to the announcement of Wellcome Trust’s recommended offer, Urban&Civic’s share price had fallen by 44% from an all-time high of 375p back in mid-February. Wellcome Trust’s offer of 345p per share is a premium of 63.5% to the closing price of 211p yesterday and compares to EPRA net asset value per share of 343.2p as of 30 September.
With so many companies trading at a discount to NAV, the listed real estate market has been rife with takeover talk and transactions for weeks, most recently with a £630m private equity bid from Lone Star for retirement home developer McCarthy & Stone.
But Hugill is adamant that Urban&Civic’s proposed take-private is its own story, given the company’s requirement for long-term capital to back its projects.
“The nature of public markets is that their direction of travel is typically right, but they tend to overswing,” Hugill says. “Our situation is exceptional in the sense that, for us, the market discount is much more around the fact that the income streams and assets that we create are long-dated.
“So if your preoccupation is shorter-term returns, which the market’s tends to be, then at times of anxiety those [values] are going to get discounted. That’s why, from a shareholder and board perspective, if somebody offers more than asset value in those circumstances, that’s clearly a persuasive offer.”
The companies already work together on a joint venture developing the Manydown scheme in Basingstoke, Hampshire, a 794-acre site currently in the planning stage and which will comprise some 3,520 new homes as well as schools, shops and a 250-acre country park.
“They fundamentally share the same values that we do in terms of how you create long-term value through front-end investment,” Hugill says of the team at Wellcome Trust. “We are about building schools and planting trees and all those elements first. There’s a capital commitment in that which is pretty tough for the housebuilders when they are on a different route of trying to build and sell quickly, paying out big dividends to shareholders.”
He adds: “What I am passionate about and what Wellcome have got a very strong record in is identifying what you might call alternative investments – early-stage, new asset classes. Strategic land will be like student accommodation in terms of the creation of a new asset class and Wellcome putting £500m into that today is a lockstep change on that route.”
Wellcome Trust’s announcement of the offer makes clear that the buyer has no plans to change the Urban&Civic team – and Hugill, for his part, makes clear that he is going nowhere. Helping smaller housebuilders to work on its projects has disrupted the residential sector, he says, and he has every intention of being around to continue disrupting for years to come.
“We’re a bit like those off-piste skiers who have to tramp the first route through the trees before they can then ski down in the afternoon,” he says. “We have been tramping in our snowshoes pretty much on our own. But I’m expecting that there’ll be more people coming in and skiing behind us.”
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