2nd Apr 2007 07:01
Berkeley Group Holdings (The) PLC02 April 2007 FOR IMMEDIATE RELEASE 2 APRIL 2007 THE BERKELEY GROUP HOLDINGS PLC PROPOSED INVESTMENT OF UP TO £175 MILLION IN THREE JOINT VENTURE COMPANIES WITH SAAD INVESTMENTS COMPANY LIMITED Introduction and Summary The Berkeley Group Holdings plc (the "Company") announces that its wholly ownedsubsidiary, The Berkeley Group plc, has entered into three agreementsconditional on approval by its shareholders (the "JV Shareholders' Agreements")to establish three further private joint venture companies (the "JV Companies")with Saad Investments Company Limited ("Saad"), including an investment of up to£175 million (the "Proposed Transaction"). Saad and Berkeley have previously entered into joint ventures in the 1990'sincluding Saad Berkeley Investment Properties Limited and Berkeley EastoakInvestments Limited, both property investment companies, and Saad BerkeleyLimited, a residential developer which is operational today. The JV Companieswill be of a similar nature to these joint ventures. The first of the JVCompanies will operate as a land fund (the "Land Fund") to acquire newdevelopment opportunities adding value through securing enhanced planningconsents, prior to disposal to either third parties or the second of the JVCompanies. This second company will operate as a development company (the"Development Company") - primarily developing the land purchased by the LandFund, once planning permission is obtained. The third company will operate as aproperty investment company (the "Property Investment Company"). Funding of the JV Companies will be through a combination of shareholderinvestment and non-recourse bank funding with a target equity to debt ratio of30:70. Berkeley's investment in the JV Companies, in the form of both sharecapital and shareholder loans, will not exceed £175 million in aggregate.Initially, Berkeley is committed to providing loan facilities of £92 million inaggregate. Investment is expected to occur over a 10 year period as appropriateacquisition and investment opportunities are identified by the three JVCompanies and the respective boards request the funds from their shareholders. In addition to being a partner in an existing joint venture, Saad is currently a29.1 per cent. shareholder in the Company and therefore under the Listing Rulesis considered a related party by virtue of being a "substantial shareholder".The Proposed Transaction is therefore a related party transaction under Chapter11 of the Listing Rules and as such requires shareholder approval. Due to thesize of the Proposed Transaction and the fact that the exit provisions in the JVShareholders' Agreements mean that in certain circumstances Berkeley may beforced to sell its stake in a JV Company without obtaining further Shareholderapproval at that time, the Proposed Transaction is required to be conditional onthe approval of Shareholders. Further details will be published shortly in a circular to be sent toShareholders which will include a Notice of the Extraordinary General Meeting atwhich the ordinary resolution that is required to approve the ProposedTransaction will be tabled. Background to and Reasons for the Proposed Transaction Berkeley's core business is as a residential led mixed-use urban regenerator andhome builder, which acquires land for the subsequent development and sale ofcompleted homes. In addition, it develops and sells commercial property,primarily as part of its mixed-use urban regeneration sites. In its land acquisition investment appraisal, Berkeley takes account of a numberof factors in determining whether or not each opportunity is in line with theGroup's strategy. The level of financial investment and return are key elementsof this appraisal, but must be balanced with, amongst other factors, the lengthof time it will take to obtain a suitable planning consent. This ensures themost appropriate use of the Group's balance sheet and allocation of shareholderfunds, in the context of the Group's overall strategy. The Land Fund will invest in development opportunities which cannot beaccommodated within the Company's usual acquisition criteria. These mightinclude land options, freehold land or land currently with commercial use with ahigh capital requirement and/or relatively long planning lead time. Suchopportunities can, however, offer attractive returns and are, in the view ofBerkeley, ideally suited to joint ventures, which can utilise financial leverageto reflect the capital intensive nature and risk profile of the sites, whilstlimiting the Group's exposure. The Land Fund will therefore be complementary toBerkeley's core business, acquiring sites that Berkeley normally would not. Oncesuitable planning permission is obtained by the Land Fund, the sites will besold for development, either to third parties or to the Development Company. The Property Investment Company will acquire commercial property asopportunities are identified by its board of directors with a view to achievingreturns primarily through capital growth. Berkeley has previously conducted suchactivities through Saad Berkeley Investment Properties Limited and BerkeleyEastoak Investments Limited, both joint ventures with Saad, and the PropertyInvestment Company is a continuation of this. Commercial property investment iscommonly undertaken through joint ventures or special purpose vehicles thatutilise financial leverage to maximise shareholder returns and for Berkeley thisalso reflects the fact that such investment is of an opportunistic nature. As a joint venture partner, the Directors believe Saad combines the necessaryfinancial strength, insight, long term outlook and willingness to take on thecommercial, planning and development risk inherent in the JV Companies. Saad iswell known to the Company in terms of outlook and operating methodology and theGroup has a good working relationship with Saad from our existing jointventures. Finally, as a long term and substantial shareholder, Saad's interestsare clearly aligned with the success of the Proposed Transaction and theinterests of other shareholders. If Berkeley invests the maximum £175 million of equity in the JV Companies, itbelieves that, together with Saad's investment and external bank debt, a fund ofapproximately £1 billion would be available to take advantage of landopportunities as they present themselves, be they for development or investment. In addition to Berkeley's equity share of any profits from its role as ashareholder in the JV Companies, Berkeley Commercial Developments Limited, awholly owned subsidiary of the Company, will be appointed by each of the JVCompanies to perform certain property management and advisory services on theirbehalf in return for which it will receive fees at commercial rates. FurthermoreBerkeley is entitled to success fees should the returns to each shareholder inthe JV Companies exceed pre-determined levels. Whilst the overall strategy of the JV Companies will be land acquisition with aview to either longer term development or property investment, the proposedperiod for actually making acquisitions is 10 years from the first acquisitionof land made by the joint venture, after which no further properties will beacquired from third parties. Information on Saad Saad is an international investment company which, in addition to its equityinvestment in the Company, has previously entered into residential andcommercial property investment in the United Kingdom through joint venturecompanies with Berkeley. Financial Effects of the Proposed Transaction Berkeley's investment in the JV Companies will be capped at £175 million, withinitial loan facilities of £92 million being provided, and will be madeavailable from the Group's existing financial resources. In its results for thesix months ended 31st October 2006, Berkeley had net cash of £322 million. Inaddition, Berkeley has undrawn bank facilities of £375 million as referred to inits annual report for the year ended 30th April 2006. On 7th November 2006,Berkeley acquired the 50 per cent. of St James Group Limited that it did notalready own for £99.5 million (including transaction expenses) and on 8thJanuary 2007 the Company redeemed its 2006 B shares for £242 million. The investment in the JV Companies is expected to occur broadly evenly over the10 year proposed acquisition period for the JV Companies. This investment isaccommodated within Berkeley's long term business plan and, as such, should notimpact on the Company's ability to meet the 2008 and 2010 B share payments toshareholders. The JV Companies have yet to be incorporated and there are no assets identifiedfor immediate acquisition, consequently there will be no immediate financialimpact on Berkeley. However, whilst returns will be achieved only over themedium to long term, the Proposed Transaction is expected to be earningsenhancing over that time. In accordance with Berkeley's existing accounting policies, the JV Companieswill be accounted for under the equity method of accounting in accordance withIAS 31. Current Trading and Future Prospects Since the announcement of its interim results, Berkeley has continued toexperience trading at favourable levels and your Board has confidence in thefinancial and trading prospects of the Group for the current financial year. Description of the JV Companies The Proposed Transaction will involve the establishment of three separateprivate companies, two of which will be incorporated in the Isle of Man and theother in the UK. Following the initial subscription by Saad and Berkeley onincorporation, which will be for a nominal amount the JV Companies will befinanced by a mixture of bank funding and shareholder loans with a target equityto debt ratio of 30:70. The terms of both parties' investment and thearrangements governing each of the JV Companies are set out in the JVShareholders' Agreements, further details of which will be set out in thecircular to be sent to Shareholders in due course. Commenting on the new joint venture, A W Pidgley, the Group Managing Director ofBerkeley, said: "We are delighted to be forming these new joint ventures which will continue toput Berkeley at the forefront of the renaissance of our cities and in a positionto take forward additional opportunities which would be outside our usualacquisition criteria. I look forward to creating with Saad a land bank ofapproximately 10,000 plots and a substantial commercial portfolio over the next10 years which creates value for all our shareholders." Christopher Hart, General Manager of Saad Financial Services, which advises Saadon its holding in Berkeley described the joint ventures as an ideal partnershipto create sustainable value. Commenting, he said: "Saad has been an investor in Berkeley for two decades, and we have a highregard for the ability of its management to find land and develop itsuccessfully, both for the benefit of its investors and the communities itregenerates. So, in looking to increase our long term investment in the UK landsector our analysis showed we could not have found a better partner, and aredelighted to be moving forward in this way". END For further information please contact: The Berkeley Group Holdings plc Cardew GroupA W Pidgley Tim RobertsonR C Perrins Sofia RehmanT: 01932 868555 T: 0207 930 0777 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Berkeley Group