Custodian GMD Reacts To Acquisition Of UPDC As It Fulfills UAC's Capital Need

The Group Managing Director of Custodian Investment Plc, Wole Oshin, and the Group Managing Director of UAC, Folasope Aiyesimoju, have both reacted to the acquisition of majority stake in UAC's real estate firm, UPDC, by Custodian. AllNews had reported the deal between both companies, which will make UPDC a standalone company.

Custodian is expected to acquire majority shares of 51% in UPDC, making UAC a minority in the property firm. Although the deal is yet to be approved by relevant regulatory bodies, it is expected to benefit UAC and Custodian in several ways. While speaking on the acquisition, Oshin said it will create value for Custodian and enable the company capture opportunity in the real estate.

In a statement seen by AllNews, Oshin said, "We at Custodian are excited about the possibilities arising from this partnership with UAC which  provides  multiple  levers  for  value  creation. The  rationale  for  the Transaction  is  that Custodian and UAC share the view that their ambitions for capturing opportunity in the real estate industry will be better achieved working in partnership.

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"UPDC is one of Nigeria’s leading real estate development companies, having completed several landmark residential and commercial developments over the past twenty years. This Transaction will provide Custodian with a platform to capture arising real estate opportunities. It also immediately provides recurring cash flow visibility and attractive yields as a result of its direct exposure to Nigeria’s leading real estate investment trust (UPDC) with a track record of profitability and annual dividend distribution which offers a good compliment for our product portfolio.

"We are confident that the recent recapitalisation of UPDC, significant reduction in finance costs, and recently reconstituted leadershiphave repositioned the company to operate sustainably and capture growth opportunitiesaimed at increasing stakeholder valuegoing forward.” Oshin concluded.

UAC Chose Capital Needs Over Long-Term Opportunity

According to Aiyesimoju, the acquisition by Custodian enables UAC achieve its 2019 objectives for UPDC, as the company has been planning to redirect its focus to its core business, and reduce its interest in real estate.

The company weighed the options of a long-term opportunity in the real estate sector against its capital need, then decided to go with the latter by agreeing to sell its majority stake in UPDC rather than holding on for long-term, AllNews gathered from the statement obtained.

"TheTransactionis a significant step in achieving our objectives for UPDC.In 2018, the Board and management of UAC embarked on a strategic review to evaluate the  performance of  the company and its subsidiaries.

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"The objective was to achieve sustainable positive financial performance from our existing operations and enable management focus on businesses that align with our strategy. In reviewing UPDC, the Board weighed  the long-term opportunities in the Nigerian real estate sector against the fundamental differences between the cash flow profile and capital needs of UPDC and those of the other entities in UAC’s portfolio. Following its review, the Board concluded that it would be in the best interest of UAC to exit its interest in the real estate sector, allowing UPDC to operate as a standalone  legal entity, free to source appropriately structured capital and to unlock value for its shareholders.

"In September 2019, the Boards of Directors of UAC and UPDC jointly announced three significant strategic initiatives aimed at strengthening UPDC and positioning the company to operate as a standalone entity. This included a rights issue to recapitalise the business, plans for UAC to transfer UAC’s equity interest in UPDC pro-rata to UAC’s shareholders (“UPDC  Unbundling”), and plans for UPDC to unbundle the UPDC REIT to its shareholders (“UPDC REIT Unbundling”). The ₦16billion UPDC rights issue was successfully completed in April  2020, proceeds of which were used to reduce borrowing costs and significantly improve UPDC’s capital position.

"In the process of progressing the unbundling initiatives,UAC received a credible offer from Custodian. The terms of the  offer compelled the Board to re-evaluate the planned approach to deconsolidate UPDC and influenced the Board’s decision to proceed with the sale of a portion of UAC’s interest in UPDC to Custodian, effectively putting an end to the UPDC Unbundling. We are delighted about the positive impact that a strong anchor shareholder like Custodian will have on UPDC and are focused on ensuring a smooth transition."