26th Mar 2007 07:01
Public Service Properties Inv Ltd26 March 2007 26 March 2007 PUBLIC SERVICE PROPERTIES INVESTMENTS COMPLETES £75 MILLION PLACING ADMISSION TO AIM AND FIRST DAY OF DEALINGS MARKET CAPITALISATION ON ADMISSION OF £100 MILLION AT THE PLACING PRICE IntroductionPublic Service Properties Investments Limited ('PSPI', 'the Group' or 'theCompany') is a British Virgin Islands company specialising in real estateinvestment and financing with an existing investment portfolio in the UK, US andSwitzerland valued at £149 million as at 30 June 2006. The Group invests inproperties where underlying cash flows are primarily generated directly orindirectly, from, or are supported by, state agencies. The Company todayannounces the placing of 50 million Ordinary Shares at a price of 150p per shareto raise £30.5 million of new money net of expenses for the Company and toprovide approximately £41 million to PSPI's current owner, USI Group Holdings AG('USI Holdings') - a Swiss company listed on the Swiss SWX Exchange. PSPI's shares begin trading on AIM today, under the symbol PSPI. At the placingprice, the Company has an initial market capitalisation of £100 million.Evolution Securities Limited is acting as Nominated Adviser and Broker to theCompany. Current PortfolioThe Group's portfolio has been substantially built up over the last five yearsand comprises a core element of 36 care homes (with 1,549 registered beds) and aspecial learning needs school and resource centre in the UK, together with twonon-core elements - a residential care home in Switzerland and 140 post officesin the US. At 30 June 2006, the UK portfolio was valued at £118 million (79% ofthe value of the total portfolio at that date), the Swiss care home at £13million (9% of the total portfolio) and the US post offices at £18 million (12%of the total portfolio). Investment StrategyIt is the intention of the asset manager, RP&C International Inc. ("the AssetManager"), to expand the Group's investment activities into Germany. Via acooperation agreement with IMMAC, a leading manager of German social real estateinvestments, the Group is in advanced discussions to acquire a portfolio ofresidential care homes valued at approximately €120 million. It is the AssetManager's intention also to expand the Company's UK portfolio, principallythrough the extension of its existing properties and the selective provision ofmezzanine loans. This UK strategy reflects the Group's view that opportunitiesto acquire assets in the UK at attractive yields are becoming more limited dueto recent price inflation. The £30.5 million of new equity should enable the Company to acquire up to anadditional £150 million of property. This would result in the Group's propertyportfolio increasing to a gross value of approximately £300 million, using theJune 2006 valuation of current properties. It is envisaged that the placingproceeds will be invested within nine months following Admission, primarily inGermany. Pending investment, the net proceeds will be placed on deposit. The Group's investment policy is to make disciplined investments, which offerpredictability and sustainability of cash flow, preservation of investmentcapital and potential capital appreciation. Key StrengthsThe Directors believe that the key strengths of the Group are the following: • it has established a sizeable portfolio of properties from which cash flows are primarily generated directly or indirectly from, or supported by, state agencies; • the combination of indexed rents, long term fixed rate financing and long leases provide a rising yield as well as opportunities for capital appreciation; • the Company expects to pursue a progressive dividend policy with an initial dividend yield on the Placing Price of 4 per cent. per annum, rising to 6 per cent per annum, once the proceeds of the Placing of the new shares have been fully invested; • the majority of the Group's assets are leased to an experienced and established care home operator which is amongst the largest operators in the UK by the number of beds; • the Group benefits from a tax efficient structure and an experienced Asset Manager with access to deal flow; • the Asset Manager has entered into arrangements with IMMAC, a highlyregarded sponsor of social real estate investment programmes in Germany, whichhas already provided, and should in the future provide, opportunities to acquirenursing and residential care home portfolios on an attractive basis; • IMMAC is in advanced discussions with third parties regarding a portfolio of 12 German healthcare properties with an aggregate investment value of approximately €120 million over which it has exclusive rights. It is also in discussions regarding two other significant prospective portfolios. Many of these properties are expected to meet the Group's investment criteria; • Elliott International, L.P. has subscribed for 10 million shares in the Placing, and has also been granted certain rights for property co-investment alongside the Group pursuant to a Co-investment Agreement. Summary Financial InformationThe following summary of financial information relating to the Company for thethree years and six months ended 30 June 2006 has been extracted from thefinancial information on the Group set out in the Admission document. Six Months Year Ended Year Ended Year Ended Ended 31 December 31 December 31 December 30 June 2003 2004 2005 2006 £000 £000 £000 £000 Revenue 5,349 9,499 11,436 5,801Fair Value Gains and 3,786 10,064 13,830 6,850Negative GoodwillOperating Profit 6,846 17,481 23,820 11,680Profit before Tax 3,394 10,730 16,368 8,264Profit after Tax 891 9,403 10,524 6,054Gross Assets 80,309 139,863 172,790 179,990Net Assets 18,953 34,323 52,418 59,626 Current Trading and ProspectsSince 30 June 2006, the date to which the last audited accounts for the Groupwere prepared, the Group has made no material additional property purchases orsales and has continued to trade in line with expectations. Subject to market conditions, the Directors believe that the Group should becomesubstantially invested within the nine months following Admission. The Placing statistics are shown below: Placing Price 150 penceNumber of New Shares being placed 22,666,667Number of Existing Shares being placed 27,333,333Market capitalisation of the Company on Admission at the Placing £100 millionPriceEstimated total proceeds of the Placing of the New Shares £34 millionEstimated expenses of the Placing £3.5 millionEstimated net proceeds of the Placing receivable by the Company £30.5 millionPlacing Shares and New Shares as a percentage of the EnlargedIssued Share Capital immediately following Admission 74.8% Ticker PSPIISIN VGG729641024 Reasons for and Details of the Placing and Use of ProceedsThe Placing comprised 27,333,333 Existing Shares being sold by USI Holdings and22,666,667 New Shares being issued by the Company to raise approximately £30.5million for the Company, net of expenses. The Company was an indirect wholly owned subsidiary of USI Holdings. USIHoldings and the Directors believe that there is a good opportunity to developthe Company into a substantial property investment company, but that its growthis inhibited by being a subsidiary of another company whose principalshareholder is an individual. Accordingly, it has been decided that the Companyshould be floated as an independent company on AIM. In order to achieve thisobjective, it was agreed that USI Holdings would significantly reduce itsinterest in the Company to the current level of approximately 25.2 per cent. On Admission, the Company has 66,808,738 Ordinary Shares in issue and a marketcapitalisation of approximately £100 million at the Placing Price. The PlacingShares were placed by Evolution Securities with institutional and otherinvestors pursuant to the Placing Agreement. The New Shares representapproximately 33.9 per cent. of the Enlarged Issued Share Capital following thePlacing and rank pari passu in all respects with the Existing Shares onAdmission. Commenting on the Placing and Admission, Ralph Beney, finance director of theAsset Manager, RP&C International, said "The new funds raised will allow us toextend PSPI's portfolio by acquiring properties, primarily in the German carehomes market where there has been an appreciable positive shift from home-based/outpatient care to institutionalised nursing care and where cash flows aresupported by state agencies." "We expect to have the majority of funds invested within nine months and lookforward to delivering shareholder value going forward." Enquiries:Ralph Beney Tim Worlledge Richard SunderlandDr Doraiswamy Srinivas Jeremy Ellis Rachel DrysdaleDavid Quint Chris Clarke Simon Hudson RP&C International Evolution Securities Tavistock Limited Communications Tel: 020 7766 7000 Tel: 020 7071 4300 Tel: 020 7920 3150 Further Information Investment Policy and Strategy The Group's investment policy is to make investments, which offer predictabilityand sustainability of cash flow, preservation of investment capital andpotential capital appreciation. The Group has followed, and intends to continue to follow, a disciplinedapproach to its acquisitions. Properties acquired by the Group are leased on along term basis to tenants whose underlying cash flows are primarily generateddirectly or indirectly from, or supported by, state agencies. Typically, targeted properties will have: a profitable track record; highoccupancy levels, with historic dips having been quickly filled; where aproperty has recently joined the market (because it is a new build or has beenre-registered for use as a care home) the demand for beds should be strong; agood local reputation and an attractive purchase price. Acquisitions are funded with a mixture of equity and debt, subject to the seniordebt to acquisition cost ratio generally being no more than 80 per cent. TheGroup currently hedges most of its interest rate exposure and, subject to costs,it is the intention of the Group to continue to do so. In addition to direct investments in real estate, the Group may acquire holdingsin real estate companies and/or other real estate investment vehicles. The Groupmay also acquire indirect interests in real estate, for example, building anddevelopment rights. However, the Group will not participate in such building anddevelopment projects unless they represent attractive opportunities and fallwithin the investment criteria referred to in this document. The Group may alsoon a selective basis provide mezzanine finance to third parties to fund all orpart of their purchase of real estate which meets the Group's investmentcriteria, for example, specialist care homes in the UK. Following Admission, the Group intends to focus on acquisitions in Germany andthe UK. The Directors believe that both of these markets offer attractivereturns for the Group for the reasons outlined below. In the longer term, theGroup may also consider opportunities in other asset classes and countries whichmeet its investment criteria. GermanyExpansion into Germany represents the main near-term investment focus for theGroup. A co-operation agreement between the Asset Manager and the Germanproperty investment fund manager IMMAC Institutional Client Services GmbH is akey element in the Group's ability to source appropriate investmentopportunities. Since 1996, IMMAC has arranged a number of acquisitions whichwould fall in the Group's target investment criteria, with equity provided byGerman retail investors. Profunda Vermogen, the principal shareholder of IMMAC,owns an affiliated company that currently operates care homes in Germany with anapproximate combined capacity of 600 beds. This company serves as a back-upoperator for nursing homes from IMMAC's portfolio in the event that any of itsprimary operators were to experience difficulties. IMMAC has demonstrated its access to investment opportunities to RP&C and iskeen to work with the Group on acquisitions with leading operators of care homesin Germany. The Group intends to target those care homes that qualify forfunding from the German state if residents cannot keep up payments. The Group isseeking to acquire assets which will be leased to one or more operators for aninitial term of 20 years with an initial rental yield of approximately 8 percent. and indexed rent reviews. IMMAC is in advanced discussions regarding a portfolio of 12 German healthcareproperties with an aggregate investment value of approximately €120 million overwhich it has exclusive rights. It is also in discussions regarding two othersignificant prospective portfolios. These properties are situated throughoutGermany and, if purchased, are likely to be leased for terms of approximately 20years at a rental yield of approximately 8 per cent. per annum. UK The Group intends to continue to seek expansion opportunities in the UK.However, these opportunities are currently limited due to the recent priceinflation experienced in the UK market. It is therefore the Group's currentintention to consider increasing its exposure in the UK healthcare market byproviding mezzanine loans on a selective basis. In addition, the Group is in theprocess of extending a number of its existing properties which, subject toplanning permission, should increase bed capacity in its existing portfolio by10- 15 per cent. Planning permission is currently in place or being sought atten properties. Market Background GermanyDemographic trends and the aging population have led to an increase in recorded,age-related functional limitations and psychological problems. As a result,there has been a shift from home-based/out-patient care to institutionalisednursing care over the past twenty years. It is forecast by IMMAC that by 2050the number of persons in need of nursing care will rise from 2 million in 1999to approximately 4.7 million. The German Government enacted laws in 1996 which have been amended on numerousoccasions and set forth requirements for properties which meet certain criteriato qualify for "grants-in-aid", as "care institutions", i.e. residents mayqualify for payments under the German social security scheme and social securitycarriers may enter into care agreements with such institutions to provide carethrough them. If properties qualify for such grants, approved levels of fees arereimbursed up to 100 per cent. by state funding agencies in the event thatpatients are unable to pay for the services they receive. Properties whichqualify for such grants-in-aid include psychiatric facilities, homes for thedisabled, hospice style facilities and hospital style permanent nursing carefacilities. It is the Company's intention only to invest in investment entitieswhich own properties which qualify for the grants provided by the GermanGovernment. UKThe UK care home industry generated annual revenues of approximately £11.7billion as of April 2005 and has experienced annual growth of approximately 6.4per cent. since 1998. Since 1993, long-term care has been provided in the UK by local governmentauthorities under a block grant programme with the national government. Pursuantto that programme, the national government sets a block grant for each localauthority, which the local authority then utilises (together with other sources)to establish a budget for community care. As of April 2005, there were approximately 476,200 available beds in the UKcovering all categories of residents representing a reduction of approximately100,000 beds over the previous nine years. Despite significant consolidation over the past few years, care home operatorsin the UK have remained fragmented. By 2005, the largest 10 care home providersaccounted for just 84,500 beds. As at August 2005, four companies with thelargest portfolios of beds for the elderly and physically disabled owned orleased some 63,200 registered care home beds, which accounted for 18.7 per cent.of the UK private (for-profit) capacity, an increase of over 5 per cent. fromthe previous year, showing that the consolidation trend is continuing. Ownership History and Current Structure A summary of the key dates in the development of the USI Group is set out below: 1988 The USI Group acquired 146 properties leased to the US Postal Service("USPS"). 1997 The USI Group negotiated a master lease for 140 of the properties leased tothe USPS for aterm of 10 years. 1999 The master lease with the USPS was extended for a further 13 years to 2022. 2001 The USI Group acquired its first 11 care homes in the UK with 534registered beds which wereleased to European Care for 35 years. 2002 The USI Group acquired one care home in the UK with 96 registered bedswhich it leased to European Care for 35 years. 2003 The USI Group acquired three care homes in the UK with 94 registered beds,which it leased to European Care for 35 years. The USI Group also acquired onecare home in Zurich with 55 registered beds, which was leased to topCareManagement AG for 20 years. 2004 The USI Group acquired 13 care homes in the UK with 567 registered beds, anoffice building servicing nine of those additional care homes and a school andresource centre for children with learning difficulties. The Group also acquireda business providing domiciliary care to clients in their own homes. All ofthese assets were leased or licensed to European Care for 35 years. 2004/5 The USI Group raised additional cash through the issue of Shares andconverted minority shareholdings and some mezzanine debt into equity prior toeffecting a reverse merger into USI Holdings. 2005 The USI Group acquired eight care homes in the UK with 262 registered bedswhich were leased to European Care for an initial term of 7 years with multipleoptions to lease the homes for 35 years which European Care has committed toexercise. The Company is currently wholly owned by USIGH Limited, which is owned by USIHoldings. Prior to its acquisition by USI Holdings, the Company was owned by Dr.and Mrs. V. Lanfranconi (89.98 per cent.) and the Asset Manager (10.02 percent.). Dr. and Mrs Lanfranconi and the Asset Manager currently own indirectly,in aggregate, 59.83 per cent. of USI Holdings. The Company, which is registered in BVI, owns its properties through variouswholly owned sub-holding companies registered, in respect of the care homes, inBVI or Guernsey and, in respect of the US assets, in the USA. Management The DirectorsThe Board is responsible for the general policies and management of the Companyand has a broad range of financial and property experience and expertise. TheBoard establishes the strategic, accounting, organisational and financialpolicies to be followed by the Company, approves the financial statements,approves investments, acquisitions and divestitures and appoints and monitorsthe Asset Manager. The current Directors are all non-executive directors. The Board comprises: Patrick Oliver Hall (aged 57), ChairmanPatrick is a Fellow of The Royal Institution of Chartered Surveyors, havingqualified as a chartered surveyor in 1971. During his career he was a seniormanager at N M Rothschild Asset Management Ltd, a partner/director at MasonPhilips, Chartered Surveyors and joint managing director of Great PortlandEstates PLC. He resigned in 2000 from Great Portland Estates to pursue otherinterests and non-executive roles. He is currently a non-executive director ofChelsea Building Society and BPF Commercial Limited. Richard Hugh Barnes (aged 44)Richard is a Member of the Royal Institution of Chartered Surveyors and holds aBSc in Estate Management and an MSc in Property Management & Development. Duringhis career he was an associate partner at Bernard Thorpe (now DTZ Debenham TieLeung) and later held numerous directorships within the Mourant Group. Richardis now principal of BDP Barnes Daniels and Partners, chartered surveyors andproperty consultants specialising in Channel Island commercial property agency,valuation, consultancy, investment and development. He is also an independentexpert and arbitrator in Jersey and Guernsey third party disputes, is Chairmanof Invesco UK Property Income Trust, and is a director of various AIM listedcompanies and a number of Jersey property unit trusts. Christopher Henry Lovell (aged 54)Christopher Lovell qualified as a solicitor of the Supreme Court of England andWales in 1979. He was a partner at Theodore Goddard until 1993 when he set uphis own legal firm. In 2000 he became a partner in Channel House TrusteesLimited which was acquired by Capita Group plc in 2005. He is currently adirector of Capita Fiduciary Group Limited and its associated companies and sitson the board of Canlife Jersey Property Unit Trust and a number of other fundsincluding, Dawnay Day Treveria plc, EMAC Illyrium Land Fund Limited and LibertyInternational Opportunities Fund Limited. Susan Rose McCabe (previously Hanby, nee Williams) (aged 53)Susan is director of TEAM Asset Management and she also sits on the board ofInvesco Property Income Trust Limited, an investment trust listed on both theLondon and Channel Islands stock exchanges. Educated at The Queen's Universityof Belfast, Susan is a Fellow of the Securities & Investment Institute and iscurrently working towards the IODs Chartered Directorship. She has over 20 yearsexperience in stockbroking and investment management. She has just completed hersecond year of office as President of the Securities & Investment Institute(Jersey branch) and she has been a member of the Private Asset Managers (PAM)judging panel for the past 5 years. Jonas Ulrik Rydell (formerly Nilsson) (aged 34) Jonas holds a MSc in Economics and Business Administration. He has been asecurities analyst with Elliott Advisers since 2004 and was previously aninvestment banker with Credit Suisse First Boston and a private equityprofessional with Procuritas Partners. He is currently a non-executive directorof Avnel Gold Mining Ltd. Further non-executive Directors, including a non-executive Director to benominated by DBH GlobalHoldings Ltd, may be appointed in due course. The Group itself has no employees and did not have any employees during the sixmonths ended 30 June 2006 and the financial years ending 31 December 2005, 2004and 2003. The Board will also receive the benefit of strategic advice from the Rt. HonLord Freeman who will act as a specialadviser to the Board. Lord Freeman is a life peer and Privy Counsellor. He waselected to the House of Commons between 1983 and 1987 and served as a Ministerin the Departments of Defence, Health and Transport and ultimately CabinetMinister as Chancellor of the Duchy of Lancaster. He is chairman or a directorof a number of companies including Thales SA, Thales Holdings UK Plc, CambridgeEnterprise Limited and Global Energy Development Plc. He was formerly a partnerin PricewaterhouseCoopers. Lord Freeman acts as a consultant to the AssetManager. He draws no compensation from the Company for his advice to the Board. Asset ManagerRP&C, an investment advisory group with its primary office in London, wasappointed as financial adviser to the Group in 2001, and the Group's exclusiveasset manager, adviser and administrator under an asset management agreementbetween the Company and RP&C in 2003. Upon implementation of the Company's reverse merger with USI Holdings in June2005, RP&C entered into a new agreement with USI Holdings. With effect fromAdmission, that agreement will cease to apply to the assets of the Group,although it will remain in effect in relation to USI Holdings, and the AssetManagement Agreement will come into effect in relation to the Company and itsGroup. RP&C International Limited, a wholly owned subsidiary of RP&C, which isregulated by the Financial Services Authority, will assist RP&C to provide itsservices under the Asset Management Agreement. The principal shareholders of RP&C include Nationwide Mutual Insurance Company,one of the largest property-casualty insurance companies in the United States(20.6 per cent.), BOCP Holdings Corporation, a member of the JP Morgan Chase &Co group (20.6 per cent.) and RP&C's management (34 per cent.). The officers of RP&C include: David P. Quint (aged 56) who is a co-founder and Chief Executive Officer of RP&C. Prior to founding RP&C in 1992, Mr. Quint served as managing director ofBelden & Blake Corporation's United Kingdom subsidiary and as an attorney withArter & Hadden. Mr Quint is a graduate of the University of Notre Dame where hereceived a degree in Modern Languages and a Juris Doctorate. Dr. Doraiswamy Srinivas (aged 55) is a director and Chief Operating Officer ofRP&C. Dr. Srinivas has advised the Group since 1989 and has been a director ofvarious USI Holdings subsidiaries for more than 10 years. Dr. Srinivas is also anon-executive director of IMMAC. Dr Srinivas previously served as managingdirector, Corporate Finance at SBCI Swiss Bank Corporation Investment Bank inNew York where he was responsible for private placements and structured financein North America. He subsequently held similar positions at Leu Securities andGuinness Mahon Capital Markets (now Investec) in London. Dr Srinivas attendedthe University of St. Gallen, Switzerland and Colombia University. Ralph M. Beney (aged 45) is the finance director of RP&C. He was previously adirector of Guinness Mahon Capital Markets in London where he was responsiblefor fund advisory relationships and structured finance, as well as formanagement accounting for the capital markets division. Prior to joiningGuinness Mahon in 1993, Mr Beney spent seven years as the chief financialofficer of various Bank Leu subsidiaries. He is a chartered accountant and amember of the Securities Institute. Richard J. Borg (aged 40) is the general counsel of RP&C. He was previously asolicitor at Norton Rose in London where he was a member of the corporatefinance department specialising in investment funds. Mr Borg read law at OxfordUniversity. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
PSPI.L