uac of nigeria plc & uacn property development company plc … updc … · • uac’s exposure...
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UAC of Nigeria Plc &UACN Property Development Company PlcJoint Transaction Announcement
September 2019
This presentation contains forward-looking statements which reflect management's expectations regarding
UAC of Nigeria Plc’s (“UAC”) and UACN Property Development Company Plc’s (“UPDC”) future growth, results
of operations, performance, business prospects, operating markets and opportunities. Wherever possible, words
such as "anticipate", "believe", "expects", "intend" "estimate", "project", "target", "risks", "goals" and similar terms
and phrases have been used to identify forward-looking statements. These statements reflect management's
current beliefs and are based on information currently available to management. Certain material factors or
assumptions have been applied in drawing the conclusions contained in forward-looking statements. These
factors or assumptions are subject to inherent risks and uncertainties surrounding future expectations generally.
UAC and UPDC caution readers that a number of factors could cause actual results, performance or
achievements to differ materially from the results discussed or implied in forward-looking statements. These
factors should be considered carefully and undue reliance should not be placed on forward-looking
statements. For additional information with respect to UAC’s and UPDC’s financial performance, reference
should be made to both companies’ periodic filings with the Nigerian Securities and Exchange Commission and
The Nigerian Stock Exchange. UAC and UPDC both disclaim any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise.
2Disclaimer
Introduction 4
UPDC Financial Overview 6
UPDC REIT Overview 12
Strategic Initiatives 16
Repositioning UPDC 20
Conclusion 25
Contents 3
Introduction
Introduction 5
• UAC of Nigeria PLC (“UAC” or “Holdco”) is a holding company that owns businesses with some of Nigeria’s
strongest brands and widest distribution
• UAC’s businesses are largely consumer facing and positioned to benefit from Nigeria’s demographics
• Large, young and growing population
• Urbanization
• UAC holds a 64.2% shareholding in UACN Property Development Company PLC (“UPDC” or the “Company”),
a listed real estate company
• UPDC initially operated as a division of UAC and was carved out to operate as a standalone entity in 1997
• Over the years, UPDC grew to become a leader in the Nigerian real estate space; however, the Company
has struggled of late with high levels of leverage
• The Boards of Directors and Management teams at UAC and UPDC are pursuing a set of strategic initiatives
aimed at recapitalising UPDC and positioning UAC and UPDC for future growth
UPDC Financial Overview
UPDC Financial Overview
Note: (1) Liabilities at JV company level not included
Total Assets (in ₦ mn)
Total Liabilities (in ₦ mn) (1)
UPDC’s Revenue to Loss Before Tax Bridge – H1 2019 (in ₦ mn)
Commentary
• Since 2016, UPDC has generated losses on account of its heavy debt burden
• Over the years, UPDC sold assets to meet obligations; however, given the quantum of debt, external injection of capital is required to materially reduce leverage
• UPDC historically relied on commercial paper (CPs) issuance to meet its obligations, with total CPs outstanding increasing from ₦10.4bn in 2014 to ₦14.3bn by 2018
• In 2018, UPDC took mark-to-market adjustments on its portfolio and recorded losses on asset sales, which led to ₦8.9bn in non-cash
expenses
7
68,088 71,961 70,904
64,578
46,467 44,832
Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Jun-19
Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Jun-19
25,987 25,825 28,339 21,921 20,754 19,684
6,048 10,561
8,540
9,019 7,658 8,382
Interest bearing liabiltiies Non-interest bearing liabilities
UPDC Asset Mix (H1 2019)
Note: (1) Investment Properties and Assets Under Construction have assets worth ₦634mn and ₦ 811mn respectively with title and litigation challenges
8
• Comprises residential, commercial, retail
and land properties
• UPDC derives rental income from its
investment properties
Investment Properties (1) – 6%
UPDC REIT
46%
Assets Under
Construction
16%
Receivables
11%
Other
Assets
2%
UPDC Hotels
19%
Investment
Properties
6%
• UPDC Hotels is a subsidiary of UPDC.
• Owns the 471 room Golden Tulip Hotel in
Festac
UPDC Hotels Limited – 19%
• Other assets include property, plant &
equipment, intangibles and cash
Other Assets – 2%
• 60% represent advances to JVs which are
backed by real assets
• Other receivables primarily relate to asset
sales, rent and service charge
Receivables – 11%
• Includes residential, commercial, office and
mixed-use properties being developed for sale
Assets Under Construction (AUC) (1) – 16%
• The REIT is comprised of 7 properties, cash
and government securities
• UPDC carries its interest in the UPDC REIT
based on share of NAV
• The REIT's income comprises rental income
from the property assets and interest earned
from short term investments in money market
instruments and other real estate-related
assets
UPDC REIT – 46%1
2
3
4
5
6
As at 30 June 2019, UPDC had c.₦45bn in total assets. UPDC’s major assets are investment in UPDC REIT, UPDC Hotels Limited, Assets Under
Construction (AUC) and Investment Properties
UPDC’s loan obligations totalled c.₦21bn as at July 2019
Note: (1) Guarantee of US$2mn converted at ₦ 362.32:$1 as at 23 August 2019 (2) UAC’s shareholder loan to UPDC is at an initial rate of 5%, escalating to 15% after 180 days (3) Weighted average
9
Facility Interest Rate Tenor Dec 2018 (N mn) June 2019 (N mn) July 2019 (N mn)
Intra-group Working Capital c.15.5% n.a. 2,195 524 212
12-month Bridge Loan from UAC 5%/15% (2) 12 months - 7,652 15,843
Liquidity Support Facility NIBOR+5.00% 12 months 6,120 7,245 -
Commercial Paper 14.98% (w.ave)(3) 4 – 6 months 8,174 - -
Bonds 16.00% 3 - 5 years 4,264 4,264 4,355
SUB TOTAL 20,754 19,684 20,319
UPDC’s Guarantee of Festival Mall Loans (1) 725 725 725
TOTAL 21,479 20,410 21,044
• As at July 2019, third-party exposure is limited to the corporate bond (21% of direct obligations, down from 90% as at Dec-18)
• Aside these debt obligations, joint venture companies also have amounts outstanding to banks and trade creditors (of which only the Festival Mall debt is
partially guaranteed by UPDC)
Commentary
UAC’s Exposure to UPDC Obligations
Notes:(1) Loans from related parties (2) Maximum guarantee on commercial paper (CP) program was ₦ 11 bn(3) Bank facility from FBNQuest and Coronation Merchant Bank
• UAC’s exposure to UPDC was ₦10.8bn as at Dec 2018, with a further ₦4.5bn in potential exposure
• UAC provided a ₦15.8bn, Secured 12-month bridge loan to UPDC to redeem its short-term debt obligations and manage escalation of Group exposure
• Net proceeds from the rights issue are expected to be utilised to reduce UPDC’s interest bearing obligations to only the corporate bond
10
₦ mn, unless otherwise stated 31 Dec 2018 30 Jun 2019 31 Jul 2019
Direct loans 1,432 7,652 15,843
Group company loans (1) 774 524 212
Direct Exposure 2,205 8,176 16,035
Corporate bond guarantee 2,132 2,132 2,132
Drawn commercial paper guarantee 6,475 - -
Contingent Exposure 8,607 2,132 2,132
Total (Direct + Contingent) 10,812 10,310 18,167
Undrawn commercial paper guarantee (2) 4,525 - -
Total Potential Exposure 15,337 10,310 18,167
Liquidity Support Facility (outstanding)(3) 6,120 7,245 -
Mark to Market effect of UPDC REIT at current listed values
Notes: (1) As at 5 September 2019
11
Non-cash mark-to-
market adjustment(1)
of the carrying value
of UPDC REIT
UPDC H1 2019 NAV Bridge – Total Assets to Adj. NAV (in N mn)
UPDC REIT Overview
UPDC REIT Financial Overview
Source: S&P Capital IQ, Company Financial StatementsNotes: (1) Includes gain on fair value adjustments
Total Assets (in ₦ mn)
Net Asset Value (in ₦ mn)
UPDC REIT Profit After Tax (in ₦ mn)(1)
Commentary
• UPDC REIT is a close-ended property fund with underlying assets comprising a diversified portfolio of commercial and residential real estate assets
• The REIT is invested in seven (7) major investment properties located in Lagos, Abuja and Aba
• In 2018, the properties earned gross rental income of ₦1.3bn. The REIT also earned interest income of ₦837mn from cash and short-terminvestments. Reported PAT was c.₦2.6bn (after fair value gains)
• UPDC REIT paid aggregate dividends of ₦1.3bn in 2018, a c.10% yield
at 5 September 2019
13
30,927 32,974 31,991 31,448 32,584
34,708
Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Jun-19
30,032 31,047 30,852 31,239 31,726 33,498
Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Jun-19
2,990
1,512
2,208
2,645
Dec-15 Dec-16 Dec-17 Dec-18
Unpacking UPDC REIT Market Value 14
Market Capitalisation Bridge (in N mn)
Commercial
Property
45%
Residential
Property
38%
Other
Property
1%
Liquid
Assets
15%
Other Assets
0.4%
UPDC REIT Asset Mix (H1 2019)
Note:1 – Federal Government of Nigeria
15
Commercial Property – 45%1
Residential Property – 38%2
• Holdings in FGN1 treasury bills bills and
Investment-grade commercial papers
issued by Nigerian corporates
Liquid Assets – 15%5
• Furniture and fittings; and other property
related assets
Other Assets – 0.4%6
As at 30 June 2019, UPDC had c.₦35bn in total assets
PropertyCarrying Value
(₦ bn)2018
Rental Yield
VMP 2 9.8 10.9%
Abuja Complex 1.6 5.4%
1-2 Factory Road 0.8 5.3%
Kingsway Building 3.4 5.7%
PropertyCarrying Value
(₦ bn)2018
Rental Yield
VMP 1 9.1 2.0%
Abebe Court 4.1 4.2%
Other Property – 1%3
• Student accommodation (hostels) with carrying value of ₦0.4 bn
Strategic Initiatives
UPDC Initiatives (1/2) 17
N
1 The ₦15.96bn Rights Issue to repay short-term debt
UPDC
UACUPDC Public
Shareholders
64% 36%
• UPDC requires equity to improve its capital structure
• Focus is on reducing debt to levels serviceable from
recurring cash flows
• Expected to raise ₦15.96bn from the Rights Issue, where
net proceeds will be used to paydown the 12-month
bridge loan
• Only outstanding debt at UPDC will be the c.₦4.3bn
corporate bond
• Successfully completing the Rights Issue will materially
improve UPDC’s capital position
UPDC issues shares to its shareholders
UPDC issues shares to its shareholders
UPDC Initiatives (2/2) 18
Notes: (1) As a result of the UAC Unbundling, UAC shareholders will also directly hold UPDC REIT units. Ultimate shareholding and unitholding in UPDC and UPDC REIT respectively will be determined post the Rights Issue
2 UPDC will unbundle its interest in UPDC REIT to its shareholders
UPDC
UACUPDC Public
Shareholders
64%
38%
Key benefits
• Increase in free float and potentially improve liquidity in the REIT units
• Release of value to shareholders
• UPDC REIT is profitable and has market capitalisation of
₦13.1bn, NAV of ₦33.5bn and paid ₦1.3bn in dividends in 2018
• Also has a consistent track record of dividend payments,
which UPDC shareholders will now benefit directly
UPDC REIT
UPDC REIT
Public Shareholders
62%
UPDC REIT
UPDC Public
Shareholders
UPDC REIT
Public Shareholders
UAC
ShareholdersUAC
Shareholders
100%
Pre-Unbundling Post-Unbundling
36%
38%62%1
UAC Initiatives 19
Notes: (1) As a result of the UAC Unbundling, UAC shareholders will also directly hold UPDC REIT units. Ultimate shareholding and unitholding in UPDC and UPDC REIT respectively will be determined post the Rights Issue
UPDC
UAC
64%
The UAC Unbundling aims to streamline UAC’s corporate structure and ensure focus on its core
sectors. Envisaged benefits of the unbundling include
• Deconsolidation of a business (i.e. UPDC) that has a different cashflow profile and capital needs
from the rest of UAC’s portfolio
• Increased management focus on the rest of UAC’s portfolio
• In addition to owning shares in UAC, UAC Shareholders will also own shares in UPDC and units in
the REIT, providing shareholders with investing flexibility
• By virtue of their ownership of UPDC REIT units, each shareholder of UAC will have a direct
exposure to the REIT which has paid dividends in every year since its establishment
• Positions UPDC to thrive as a standalone entity targeting appropriately structured capital and
pursuing growth initiatives
UPDC REIT
UAC
Shareholders
100%
Pre-Unbundling Post-Unbundling1
62%
UAC
Shareholders
UPDCUAC UPDC REIT
100% 64%1 39%1
Repositioning UPDC
UPDC Update 21
• We have made progress in our efforts to position UPDC for growth, post recapitalization
• Strengthened management teams at UPDC and UPDC Hotels Limited (our Hospitality Asset)
• Reduced operating cost
• Improve cash management
• Efforts are ongoing to further strengthen UPDC’s governance and management
• UPDC’s strategic priorities are anchored on:
1. Repositioning the portfolio: continue to harvest capital from low yielding projects (c. ₦4bn year-to-date).
Liquidity will be utilised to redeem the corporate bond and invest for growth
2. Improve Hotel Performance: historical stance has been to sell the hotel with limited focus on interim
ongoing performance. Focus is on getting the hotel to profitability
3. Invest in yielding assets: currently exploring developments with initial cash on cash yield of >10%. UPDC
will focus on assets with guaranteed offtake/attractive initial yields
Recent additions to the UPDC management team 22
Mrs. Deborah Nicol-OmeruahChief Commercial Officer
Mrs. Folakemi Fadahunsi Finance Director
Mr. Kevin TeeroovengadumSenior Advisor
Joined February 2019Joined March 2019
• 19 years of experience across consumer
markets, telecommunications and the
public sector
• Prior roles include Senior Manager,
Advisory at PwC Nigeria and Enterprise
Control & Compliance Manager for
Honeywell Group
• MBA (Finance), Manchester Business
School; Fellow of the Institute of Chartered
Accountants of Nigeria
• 17 years experience working in the wealth
management and property finance space
• Prior roles at Broll Property Group,
Landmark Africa, Stanbic IBTC Bank, Lloyds
and HSBC Bank
• Certified Mortgage and Financial Adviser
(CeFA, CeMAP) and BArch Architecture,
University of Nottingham
• Deal making experience in various sectors
in Africa for the last 19 years
• Co-Founder of ProptechAfrica
• Prior roles include Director at Actis focusing
on Africa Real Estate, Founder CEO of
AttAfrica
• Chairman of the Board of Radisson Blu
Azuri Resort & Spa and Radisson Blu Poste
La Fayette Resort & Spa
Joined April 2019
Revamped management team at UPDC Hotels 23
Mrs. Ada AniaguChief Financial Officer
Mr. Roderick PeckGeneral Manager
Mrs. Ijeoma UgamahSales & Marketing Manager
Joined September 2019 Joined August 2019Joined April 2019
• Extensive experience working in the
hospitality industry across 3 continents
• Prior roles include GM, RLI Kendeja Resort
& Villas, Liiberia; GM Corinthia Hotels, Syria,
Egypt and Gambia; Rex hotels, Kenya;
and Corus hotel, UK
• BA Hotel and Catering Studies,
Bournemouth University
• Seasoned finance professional
• Prior roles include Head of Finance,
Transcorp Hotels and Senior Audit
Associate, PwC Nigeria
• Member of the Association of Chartered
Certified Accountants (ACCA) with a B.A
degree in English & Literary Studies from
the University Nigeria
• Experienced sales and marketing
communications manager
• Prior roles include Group Sales & Marketing
Manager at Curzon & Jones; National
HORECA manager at Diageo and Sales
Manager at Intercontinental Hotel Lagos
• M.Sc. Marketing Communications and
Public Relations from the University of
Chester
Strategic focus of UPDC Hotels Limited 24
• UPDC’s historical stance was to sell the hotel with limited focus on short-term
ongoing performance. Our strategic focus is now to return the hotel to
profitability
• The critical pieces to the future performance of the hotel are
• addressing energy costs (c.40% of revenue)
• improving occupancy
• Energy costs have been a major drag on performance. Adopting energy
efficiency initiatives will lead to improvements in profitability
• Initiatives to drive occupancy include
• Increased marketing efforts with a focus on the conferencing segment
and corporates in its immediate proximity
• Exploring alternative access to the hotel via waterways
Strategic plansOverview
• UPDC Hotels Limited, a subsidiary of UPDC Plc (95%
stake), owns the Festac 77 Hotels, also known as
Golden Tulip Hotels, a 471 room hotel with 9
conference rooms and a banquet hall
Conclusion
Conclusion 26
• UAC has explored options to address the variance between UPDC’s profitability and cash flow profile relative to other entities within the
group
• UPDC has struggled of recent with high levels of leverage resulting in losses since 2016
• Investors in the UPDC REIT have had limited liquidity; UPDC REIT dividends that could have flowed to UPDC shareholders have been
absorbed by UPDC
• The recently announced strategic initiatives are aimed at resolving the challenges identified above and position UAC, UPDC, and UPDC
REIT to maximize stakeholder value
• We believe that the initiatives will
• Simplify UAC Group structure and increase management focus on the consumer facing portfolio
• Recapitalise UPDC, positioning the company for growth, with flexibility to target appropriate structured and tenured capital
• Provide liquidity in the UPDC REIT and allow for dividends to flow directly to UPDC shareholders
• The outlook for UPDC is a business with significantly improved capital structure that is positioned for growth
• Critically we have and continue to take steps to strengthen management and governance at UPDC and UPDC Hotels