12th Feb 2008 07:01
Balfour Beatty PLC12 February 2008 12 February 2008 BALFOUR BEATTY AGREES TO ACQUIRE GMH'S MILITARY PPP ACCOMMODATION BUSINESS IN THE US FOR $350 MILLION CASH Continuing expansion of US presence with high-quality concession portfolio and support service skills K E Y P O I N T S - Creates, together with Balfour Beatty Construction LLC (formerly Centex Construction), a proven, comprehensive, in-house offering, integrating construction, support services and financing, to the US military and other US markets - Secures a reliable, long-term profit and cash flow from a high-quality portfolio of PPP concessions in the US - Adds an experienced and successful management team to develop our presence in the growing US PPP market - Takes Balfour Beatty's portfolio of PPP concessions and other infrastructure investments to 42, including preferred bidder positions - Adds a strong support services capability to our US business mix - Immediately earnings enhancing(1) "The acquisition of GMH's military accommodation business is central toimplementing our US strategy of building a high-quality, domestic US businesssimilar to our very successful UK model. It adds a major, high-quality PPPbusiness to our US group in one of our key target market sectors. GMH will be anexcellent springboard into other emerging PPP and support service sectors in theUS market, will immediately enhance earnings* and generate significant value forour shareholders." Ian Tyler, Chief Executive, Balfour Beatty * * * * * * * * * BALFOUR BEATTY AGREES TO ACQUIRE GMH'S MILITARY PPP ACCOMMODATION BUSINESS IN THE US FOR $350 MILLION CASH Continuing expansion of US presence with high-quality concession portfolio and support service skills Acquisition of GMH Balfour Beatty, the international engineering, construction, investment andservices group, announces today that it has agreed to acquire the military PPPaccommodation business of GMH Communities Trust, the US real estate investmenttrust, for a cash consideration of $350 million. GMH is a leader in the militaryaccommodation PPP concession market, having secured 15 concessions at 42 bases.Its concessions are executed in partnership with Balfour Beatty ConstructionLLC, acquired by Balfour Beatty plc in March 2007. Commenting on the acquisition today, Balfour Beatty plc Chief Executive, IanTyler, said: "The acquisition of GMH's military accommodation business is central toimplementing our US strategy of building a high-quality, domestic US businesssimilar to our very successful UK model. It adds a major, high-quality PPPbusiness to our US group in one of our key target market sectors. GMH will be anexcellent springboard into other emerging PPP and support service sectors in theUS market, will immediately enhance earnings* and generate significant value forour shareholders. "The military accommodation market is firmly established and is based on strong,long-term relationships between service providers and the US military. ThroughBalfour Beatty Construction LLC, we have a strong long-term relationship withGMH and its senior management team, who share our philosophy of long-termpartnership with the customer. We attach great importance to the skills andexperience of GMH's management team, who will play a key role in the furtherdevelopment of the business." The transaction is conditional upon certain US military division, funder andregulatory consents. It will be funded from Balfour Beatty's existing cashresources. GMH GMH Military Housing, a leader in its market, is responsible for thedevelopment, renovation, financing, operation and management of militaryaccommodation projects for the US Department of the Army, US Department of theNavy and US Department of the Air Force. To date, it has been awarded 15military accommodation projects (three of which are at preferred bidder stage)and provides development and property management services for these projects. Itis based in Philadelphia and employs approximately 800 people, 750 of whom arein on-base support service roles. GMH's 15 concessions cover 42 bases across the US and approximately 30,000family housing units, including 15 Army bases, 19 Naval bases and 8 Air Forcebases. Balfour Beatty Construction LLC, acquired in March 2007, is the principalsupplier to GMH's Military Housing Division, taking responsibility for theconstruction of new housing stock. As a result, GMH is already a well-known andwell-respected partner to Balfour Beatty. Bruce Robinson, the President of GMH Military Housing, and its three ExecutiveVice-Presidents in charge of Project and Portfolio Management, Finance andAccounting and Business Development and Renovations will all join Balfour Beattyas part of the transaction. Mr Robinson, who joined GMH in 1986, has beencentral to the development of the military accommodation business. The ExecutiveVice-Presidents, Denise Hubley, Richard Taylor and Christopher Williams, have anaverage of over 15 years' service with the company. The Military Accommodation Market The US Government's Military Personnel Housing Initiative (MPHI) was introducedin 1996 to improve the quality of married status accommodation to assist in theretention and motivation of US military personnel. Under MPHI, the Department ofDefense awards projects to private sector companies to develop, construct,renovate, update and maintain family accommodation on US military bases over a50-year term. Projects are owned jointly by the military and the private sector serviceprovider, which makes an equity contribution of between 1%-5% of the project'scapital value, the balance being provided by project financing, which isnon-recourse. Income is received in the form of equity returns and development,management, renovation and asset management fees. The structure of eachconcession anticipates additional building construction and fee generationduring the 50-year concession period. At least 14 military family accommodation projects, involving over 14,000 newunits, have yet to be awarded. Initial trials, in which GMH is a participant, have taken place to extend theMPHI model to Unaccompanied Military Personnel Housing, a market which isexpected to become comparable in size to the established programme for militaryfamilies and to be rolled out over the next decade. Performance In 2006, GMH's military accommodation business had gross assets of $102 millionand profits from operations of $26.8 million, a 15% increase on 2005. In itsmost recent quarterly earnings announcement, GMH Communities Trust reported thatits military accommodation business had profits from operations of $24.4 millionfor the first nine months of 2007. 2008 and 2009 are expected to yieldsignificant further earnings growth as new concessions come on stream. Thecompany's concessions, typically, provide double-digit yields on the equityinvested and its facilities management activities provide a reliable, long-termsupport service fee stream. GMH Military Housing has a successful record of profitable growth over recentyears. The business is well-placed to secure a number of the remaining 14projects still to be let under the married status military accommodationprogramme. The business is also expected to be a key participant in the emergingmarket for single status accommodation, for which it has secured two of theseven single-status pilot projects currently under way. The US PPP Market In addition to the PPP military accommodation market, other PPP markets in theUS, most notably for hospitals and schools accommodation, are growing and anincreasing number of states are exploring the potential of PPP procurement forthe extension of their road and rail transport systems. Taken together with thebusiness being acquired, Balfour Beatty's established strengths in professionaland technical services, building, civil and rail engineering offer the sameintegration of delivery, management and financing which has been a key factor ofour growing success in the UK market. Balfour Beatty in the US Following the completion of the GMH acquisition, Balfour Beatty's US businesswill comprise leading market positions in Public Private Partnerships,professional and technical service provision to the major building market,building construction in selected state markets and the California and Texascivil engineering markets. It is also a nationwide rail contractor, serving themass transit, Class 1 and private service markets and a high-quality supportservice provider. ENDS * Statements as to earnings per share enhancement do not constitute a profitforecast and should not be interpreted to mean that Balfour Beatty's earningsper share will necessarily exceed or match those of any prior year. Enquiries to: Tim SharpTel: 020 7216 6884www.balfourbeatty.com * * * * * * * * * THERE WILL BE A BRIEFING FOR ANALYSTS TODAY AT 11.30 AM AT ABN AMRO, 250BISHOPSGATE, LONDON, EC2. There will be a live webcast of this presentation on www.balfourbeatty.com andthe slides presented will be available on the website from 11.30 am. * * * * * * * * * High resolution photographs are available to the media free of charge atwww.newscast.co.uk (tel +44 (0)20 7608 1000). * * * * * * * * * Citigroup Global Markets Limited acted as exclusive financial adviser to BalfourBeatty in connection with the transaction. Allen and Overy were US legaladvisers. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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