On 26 May, Minerva issued a statement that made a little bit of history. For the first time since the onset of the financial crisis, a UK public property company said it was minded to recommend a takeover by private equity buyers – namely a joint venture between AREA Property Partners and Delancey Real Estate Management.
According to real estate investment bankers, if Minerva were taken over by the pair – for an estimated £200 million (€228 million; $324 million) in equity and the assumption of its £800 million debt pile – it would constitute the first UK real estate privatisation since The Carlyle Group took over factory outlet developer Freeport in 2007.
At least two factors have conspired against such privatisations since the Carlyle deal. “The availability or otherwise of financing as banks became cautious in the downturn is one factor, and linked to that is the uncertainty about valuations,” said Derek Shakespeare, a managing director at Barclays Capital’s real estate investment banking group.
Shakespeare explained: “As capital values fell, reduction in public company net asset values lagged behind, so buyers knew values were lower than published, but not by how much. As such, they weren’t prepared to risk overpaying for assets.”
That is probably one half of the story. The other half is that private equity real estate firms had enough problems with their own portfolios, let alone spending time and equity contemplating new deals.
For its part, Minerva has been in play before. In 2009, The Observer reported that The Blackstone Group, Fortress, AREA Property Partners and Europa Capital had put the company in their sights. Perhaps partly explaining why the company received bids this year, analysts in 2009 noted that Minerva had completed a £750 million refinancing, which was due to expire this year.
Minerva is a small-cap property company, but the key to the interest, according to JPMorgan analyst Harm Meijer, is that it owns a spread of prime London property. “It has quality property in London and a mix of residential, offices and retail,” he said. “If you can combine that with some market knowledge, experience or a local management team that has access to tenants, it can go quite quickly in terms of valuation.”
Meijer added: “Some of the parties bidding are locally based and positive on prime assets, which are hard to get a hold of. This is a way of doing that.”
In terms of its £1.1 billion in assets, Minerva has a mixture of income-producing investments and developments in various stages. That includes a collection of properties in Croydon, south London, where a huge retail shopping development has failed to move along in 10 years. Minerva’s other assets include The Wallbrook, a 450,000-square-foot office and retail project in London’s financial district that was completed in February 2010 but remains unlet. Letting activity in London is still quiet, but the vacancy rate, which is declining, remains lower than the long-term London average and prime rents, steady at £55 per square foot, are expected to grow with the continued decline in available prime office space.
The outlook for the London residential market remains similarly positive. Minerva said in relation to its residential project, Lancaster Gate, that prime sales values show no sign of softening, demonstrating that London retains its global status and appeal. That would not have escaped the bidders’ notice either.