Struggling Bahrain bank Arcapita, which filed for Chapter 11 bankruptcy protection earlier this year, has become an unlikely hero in Europe – for launching an initial public offering of a property company.
Arcapita’s story is a long and windy one. During the last decade, it became a significant force in global alternative asset classes as it went about snapping up assets and whole companies in private equity, real estate, infrastructure and venture capital via Shariah-compliant funds.
In Europe, Arcapita was particularly notable for building up a sizeable portfolio of industrial and logistics assets valued around €1.4 billion in May 2008. Around that time, it took over Pinnacle Real Estate, a Central and Eastern European logistics developer with around 230,000 square metres of leased warehousing space and a development pipeline of nearly 1.5 million square metres. It paid Merrill Lynch, which owned the company through its Global Principal Investment group, a reportedly €230 million. Since those heady days, Arcapita has fallen on hard times, filing for bankruptcy protection in March.
Last month, however, Arcapita became the centre of a positive story as PointPark Properties (P3), the pan-European logistics group that emerged from its acquisition of Pinnacle Real Estate, announced an IPO on the London Stock Exchange. The Financial Times called the IPO part of a “controlled winding down” of parts of Arcapita’s global property and industrial investments. Nevertheless, the IPO has been feted as good news by the property press and mainstream financial newspapers.
P3 has admitted that the £250 million (€307 million; $400 million) it is seeking to raise on the capital markets is partly to pay down debt, but also to finance growth opportunities. It said the IPO would provide the firm with capital to acquire the €760 million of property assets it manages on behalf of Arcapita and hopefully emerge stronger as a result. Arcapita will retain a 15 percent stake in the newly public company for a period of 12 months.
The IPO was not a sudden plan. Indeed, P3 said it had been considering a float for two years. This is substantiated by documents filed in the US Bankruptcy Court, which were submitted because Arcapita required authorisation to go ahead with the floatation as part of the Chapter 11 bankruptcy proceedings.
In documents submitted to the Bankruptcy Court, it is stated that Arcapita decided back in 2010 that an IPO of “EuroLog” was the best way maximise the value of the 46 warehouses in seven European countries, as well as six undeveloped parcels of land and a group of real estate management companies with 69 employees. It was deemed better than trying to sell parcels piecemeal in the private market.
Work began towards an IPO in February 2011, and a date was set of September 2011. However, the “turmoil” in European equity markets effectively closed the capital markets window, so the floatation was deemed ill advised, the court papers stated.
After a lull, Arcapita began to look at the IPO again early in 2012 for a summer launch. In early autumn, firm finally decided there was a window of opportunity, with shares in European property companies having risen around 20 percent since the beginning of the year.
The court documents stated that the assets are encumbered by substantial debt with looming maturity debts. “The debtors and their advisors have carefully considered a variety of options for addressing these upcoming repayment obligations, including the refinancing the debt and selling EuroLog assets via private sales…By combining the EuroLog assets, which are currently held by several separate funds, into a single investment opportunity, the debtor can capitalise on the increased value of a portfolio that is both larger and more diversified – and therefore more attractive to prospective investors,” said the court documents.
Said one senior European GP: “If it goes well, my view is that it is very good news because it will be the first IPO in real estate for a long time.” On the other hand, it is an example of a sponsor company using an IPO to help deleverage a private portfolio and repay debtors. P3 declined to comment while marketing of shares in the company was underway.
Arcapita’s industrial evolution
October 2012: PointPark Properties announces IPO
2009: Pinnacle is renamed PointPark Properties
May 2008: Arcapita buys Pinnacle from Merrill Lynch
April 2008: Arcapita buys a portfolio of assets and land to be managed by Pinnacle
2007: Merrill Lynch buys a controlling stake in Pinnacle
May 2004: Crescent Euro I expands to Spain and the Netherland
August 2003: Crescent Euro I expands to France and Italy
December 2002: Arcapita establishes Crescent Euro I to invest in industrial assets in Germany
2001: Pinnacle Real Estate is formed