Vukile Property fund’s 88% held Madrid-listed subsidiary, Castellana Properties Socimi, has acquired a 21.7% shareholding in its market peer Lar España Real Estate Socimi, for around €100 mln.
Both Socimis are specialist retail property investors with what Vukile describes as 'high-quality, low-risk geographically complementary portfolios of shopping centres and retail parks', which will give Castellana exposure to the entire Spanish peninsula.
Said Laurence Rapp, CEO of Vukile Property Fund: 'Castellana’s strong cash flow position combined with the right opportunity to invest in Lar España shares, presented us with an exciting prospect to recycle capital into a compelling investment, with more attractive yields than other opportunities in the direct property market.'
Lar España has exhibited similar performance to that of Castellana. In October and November 2021, Castellana’s footfalls were 99 and 98% of pre-pandemic 2019 levels, its portfolio occupancy has been consistent at around 97%, and its collections over 95%.
Vukile said that like Castellana, Lar España’s portfolio of 14 assets spanning over 550,000 m2 of gross lettable retail area (GLA), has 'bounced back strongly' to pre-pandemic trading levels. Similarly, Lar España has a high occupancy rate of 95%, with most of its tenants being large international and national tenants.
Added Rapp: 'We strongly believe Lar España is an undervalued stock that is due to re-rate. This makes it a very attractive investment opportunity indeed, and one that we understand well, given the many similarities between Castellana and Lar España.
'The investment recognises the impressive performance of Lar España’s management and portfolio. As retail property specialists with a proven track record in the Spanish market, the Castellana team respect what Lar España has achieved.
'We appreciate the management experience it takes to perform at the level reflected in the latest reported Lar España results. We also have every confidence in Lar España’s direction, which makes us comfortable to take a minority stake in the business.'
After a recent debt restructure using corporate bonds, all of Lar España's assets are unencumbered and the firm has an LTV of around 41%.
Vukile suggested that Lar's current discount to tangible net asset value (NAV) of around 48% 'does not reflect the retail recovery experienced on the ground, as evidenced from actual trading by both Lar España and Castellana'.
Castellana will fund the purchase of 18,157,459 Lar España shares (at a purchase price of €5.35 per share) with a combination of €15 mln of available cash and a shareholder loan from Vukile of €75 mln, which will be converted to equity, thereby improving Castellana’s balance sheet metrics.
Vukile, in turn, will fund its investment through the recycling of capital, including proceeds from its recent placement of Fairvest shares and the sale of its Namibian assets and other non-core properties in its South African portfolio.
'We are pleased to support our Spanish subsidiary in accessing this opportune investment with an excellent return profile, which will create value for our stakeholders. With this transaction, Vukile is reinforcing our deep commitment to Castellana, Spain and specialist retail real estate investment,' concluded Rapp.
