Starlight Bidco, a Starwood Capital bidding vehicle, has reached agreement on a recommended £673.5 million cash offer for Balanced Commercial Property Trust, the listed UK real estate investor.
In a stock market announcement, the parties said the agreed takeover terms represented an 8.7% discount to BCPT's last reported net asset value per share of 105.1 pence per share as at 30 June 2024.
The acquisition values the entire issued and to be issued share capital of BCPT at approximately £673.5 million on a fully diluted basis, with the cash consideration financed entirely by equity to be invested by Starwood Funds.
Starwood said it believes that BCPT has a "high-quality, attractive and diversified real estate portfolio".
In June, Balanced Commercial Property Trust, which is managed by Columbia Threadneedle, said it had received interest from a number of credible parties while it was also considering a managed wind-down.
As of the first quarter of this year, the trust, which was launched in 2005, had a portfolio valued at £1.01 billion with assets located across the country and in a mix of sectors including retail, industrial and offices.
The largest asset, valued in excess of £200 million, is the St Christopher’s Place Estate in London's West End followed by the Sears Retail Rark in Solihull, valued at between £50 million and £70 million.
Like many other property companies and real estate investment trust, the trust has been hit by a wide discount of its share price to net asset value in recent years, but this has narrowed in recent months.
The BCPT board said today it began the strategic review earlier this year after facing "significant challenges with a difficult economic and property market backdrop in a higher interest rate environment". BCPT's shares had traded at an average discount to net asset value of 36.3% in the 12 months prior.
Starwood said: "Given BCPT's scale and constrained access to capital, Starwood believes that the full potential of the business is best achieved as a private company under the control of Starwood as this will enable BCPT to realise maximum value from its portfolio."
As part of its review, BCPT received interest from a number of "credible third parties, with 12 interested parties having then submitted indicative proposals following a period of initial due diligence". It shortlisted some for diligence meetings with the investment manager, as well as additional due diligence materials on BCPT and its portfolio. These were invited to submit revised proposals.
Its board said that "following extensive negotiation between the parties over the period of the formal sale process", Starlight Bidco has put forward a proposal that the BCPT board intends to recommend unanimously.
The BCPT directors have been advised by Barclays and Dickson Minto Advisers. They intend to recommend unanimously that scheme shareholders vote in favour at a court meeting and BCPT shareholders vote in favour of the BCPT resolution at a general meeting.
In addition to the irrevocable undertakings received from the BCPT directors, Bidco has received irrevocable undertakings from Aviva and AVI to vote in favour of the scheme at the court meeting and general meeting.
In total, an aggregate 181,210,125 BCPT shares, representing approximately 25.83% of BCPT's issued ordinary share capital, has committed to backing the bid.
The bidding vehicle is a newly incorporated Guernsey company limited by shares formed on behalf of Starwood Funds for the acquisition.
Starwood Capital Group is a private investment firm with a core focus on global real estate, energy infrastructure and oil and gas. Since its inception in 1991, Starwood Capital Group has raised over $75 billion of equity capital, and currently has more than $115 billion of assets under management.
Paul Marcuse, chairman of BCPT, said in a statement: “Following careful consideration, and having taken independent third-party advice, we believe that the proposed transaction with Starwood offers a successful outcome for our shareholders, offering a full cash exit at a significant premium to BCPT's undisturbed share price.
"We, the BCPT Board, therefore intend to recommend unanimously that BCPT Shareholders support the acquisition at the court meeting and the general meeting, details of which will follow in due course.”
Matthew Parrott, managing director of Starwood said: “We are pleased to announce the scquisition of Balanced Commercial Property Trust Limited and to provide BCPT's shareholders with a significant premium to the undisturbed share price. This acquisition by controlled affiliates of the Starwood Capital Group will increase our exposure to logistics and other high-conviction sectors and we look forward to supporting BCPT through our access to capital, scale, and operational expertise.”
Investment manager Columbia Threadneedle has expressed its disappointment about the proposed transaction. In a statement it said: “Columbia Threadneedle has been the investment adviser to BCPT since March 2005, delivering long term outperformance for shareholders. The property total return from the portfolio, since inception, is 6.1% annualised, outperforming the MSCI UK Quarterly Property Index, which returned 5.02%.
“We have continually repositioned the portfolio through market cycles towards high quality assets which we believe represent excellent value creation opportunities. In our view the current portfolio is well positioned to take advantage of an improving market environment, with lower interest rates, pricing stability and improving sentiment. This value, along with the reduction in the discount over the past year from over 40% to under 20%, is recognised in the offer that has been received by the BCPT Board.
“We are disappointed by the Board’s decision to recommend the offer, as we believe there remains considerable upside to the portfolio of assets, particularly at this point in the market cycle, which we would like all long-term shareholders to benefit from.”