The terms for the creation of Shaftesbury Capital have not received a warm welcome from some of its investors.
Shaftesbury and Capco confirmed terms yesterday for their merger into Shaftesbury Capital, with a £5bn portfolio stretching from Covent Garden to Carnaby Street.
The new central London REIT will see Shaftesbury shareholders hold 53% of the issued share capital, and Capco’s own 47%.
But Alex Savvides, senior fund manager of JO Hambro’s JOHCM UK Dynamic Fund, said the terms of the merger looked “extremely unappealing to Shaftesbury shareholders”. Shares owned and advised by the fund account for 1.15% of Shaftesbury.
Royal London Asset Management, which owns 3% of Shaftesbury, was also quick to voice its opposition to the deal.
Mike Fox, head of sustainable investments at RLAM, said: “The terms announced today are unattractive and fail to reflect the inherent value of the Shaftesbury estate. It is unclear why it is in the interests of Shaftesbury shareholders to accept them.”
Shaftesbury Capital will have an estimated EPRA NTA of approximately £3.8bn, and EPRA NTA per share of approximately 207p, based on 31 March 2022 figures.
But the REITs pointed out there was significant potential to increase revenue, as annualised gross income currently stands at £165.5m while estimated rental value is approximately £218m.
The combined group is also expected to have around £500m of available liquidity immediately following completion.
Savvides said: “The stated synergies look low and expensive to achieve, immediately nullifying their impact. What is more, the costs of the proposed transaction and the debt dis-synergies are likely to materially further erode any proposed cost synergies. One might also question the cultural fit between the two wider companies.”
In his view, Shaftesbury is a better proposition on its own. He said: “The Shaftesbury estate, curated over many years, is arguably significantly more valuable as a standalone entity rather than as part of this proposed larger group. In order to gain access to and full ownership of this estate Capco or any other suitor should be paying a premium – not, as in this case, effectively attempting to secure the assets at a discount.”
He added: “The Shaftesbury estate has a superior mix of tenancies spread more evenly across leisure, retail, offices and residential and the balance sheet is currently more secure. These characteristics are diluted and made worse through the proposed combination.”
He dismissed plans to make up for this using the share allocation. “The assumption [that this] would be offset by a re-rating of the Capco shares being offered in exchange is, in our view, naive at best.”
In conclusion Savvides said: “There looks to be little to recommend for Shaftesbury shareholders in the proposal as laid at today.”
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