Orchos Licence Agreement
27 Oktober 2009 - 2:30PM
UK Regulatory
TIDMARTO
Arteon PLC / Index: AIM / Epic: ARTO
27 October 2009
Arteon PLC (`Arteon' or `the Company')
Orchos Licence Agreement
Highlights
* The Orchos licence agreement is a major milestone in the Company's
implementation of its Investing Policy, as it prepares to become, via
subsidiaries, asset manager to a new breed of property funds and vehicles.
* By deploying the Orchos platform on behalf of newly formed funds which
invest in individual property assets to be held in Asset Transparent
Vehicles (`ATVs'), the Directors believe that Arteon will have a unique
proposition as an asset manager.
* Arteon intends to generate initial revenues by providing asset management
and related services to funds using the platform. No licence fees are
payable by Arteon under the Licence Agreement until revenues from these
activities exceed GBP2 million per annum.
* Talks are underway with qualified investors interested in establishing an
initial independent showcase fund using the platform in which Arteon's main
role is likely to be as asset manager rather than investor.
Arteon PLC, the AIM traded real estate investment and services company,
announces that on 27 October 2009 it signed an agreement (`the Agreement' or
`the Transaction') with Real Estate Innovations Holdings Ltd (`REIH') to
licence `Orchos', a proprietary technology platform. The Directors believe this
platform should assist the Company in establishing and operating a new breed of
transparent, efficient and cost effective real estate investment vehicles. The
Agreement is perpetual, but may be terminated upon six months' notice by the
Company after a minimum term of seven years. The key terms and fees payable
under the Agreement are set out below.
Background
Orchos has been in development since early 2007 and will offer Arteon a
flexible framework with which to service property funds and their underlying
assets. The platform is designed to hold investment properties individually in
specialised ATVs and employs a specialised and fully integrated reporting
mechanism to deliver greater transparency for investors than has been possible
to date. Arteon investment managers could potentially increase intra-fund
liquidity, and, at the ATV level, qualified investors and institutions can
optimise portfolios, targeting income and growth at a granular level - for
example a city, postcode, sector, street or individual asset. This potential to
offer "exposure on demand" is a key feature of the Orchos platform which could
be used to aid rapid diversification or to hedge existing positions.
The Property Investment Market
The Directors believe that inconsistency in valuation between collective
property investments and their underlying private assets class has been a
factor inhibiting indirect property investments in the past, particularly near
market turning points. The Orchos platform addresses these `parallel asset
market' issues directly by holding and reporting participations at the level of
an individual property, and therefore narrows the gap between securitised
investments and the underlying cash market while offering enhanced transparency
at all stages.
Recent developments in property derivatives are evidence of continuing demand
for innovation, and highlight the need for portfolio optimisation and risk
management. Transparency and liquidity are major issues for both property and
financial markets, particularly in the wake of a crisis precipitated by a
dysfunctional secondary marketplace (sub-prime mortgages). The Directors
believe that successful implementation of the Orchos platform could open
significant opportunities for the Company, providing a distinct competitive
advantage as an asset manager and service provider for a new range of
transparent specialist funds and vehicles - whether private and exchange
traded.
Revenue Model and Showcase Fund
The Company intends to generate revenues by providing (through specialised
subsidiaries) asset management and related services to newly formed real estate
funds, in respect of which it anticipates it will charge annual fees of
approximately 0.6 per cent. of gross assets under management (`Relevant
Revenues') in addition to any acquisition or take-on fees.
The Company and its major shareholders are in discussions with a number of
suitable qualified investors who have indicated willingness in principle to
support an initial, independent, showcase fund using the platform. The fund is
likely to take the form of an offshore Exempt International Fund limited to
sophisticated and qualified investors. It is anticipated that although such a
fund would generate asset management and acquisition fees for Arteon in the
near term, the size of the fund and the resulting revenues would not be such
that payment of a licence fee to REIH would be due in the current year. It is
envisaged that further funds could be established in due course, with the
possibility of one or more (including potentially the showcase fund) seeking
admission to trading on AIM in their own right.
Arteon Non-executive Chairman Peter Hagerty said, "Our aim is to transform the
playing field with regard to property investment. The Agreement is an important
milestone for us - giving us exclusive access to a unique and innovative
platform the benefits of which are self-evident in the current global
environment. Through Orchos, qualified investors will be able to gain exposure
to individual investment properties with minimal cost and delay, and Arteon, as
a future asset manager, should be able to deliver a new level of transparency -
with investors able to visualise risk and returns for underlying assets as they
arise."
The key terms of the Agreement are set out below:
* The Company has been granted worldwide exclusivity subject to achieving
Euro 300 million of assets under management or in the pipelines of relevant
funds by March 2011;
* Depending on Relevant Revenues the Company is to pay a licence fee of
between 9.5 per cent. and 12.5 per cent;
* First GBP2 million of Relevant Revenue in any year free of licence fee,
further details are set out in the table below;
* The Company has agreed to appoint Real Estate Innovation Ltd (`REI') (a UK
subsidiary of REIH) as preferred developer for a term of five years subject
to a minimum development charge of GBP24,000 per annum, which represents the
full extent of the annual financial commitment (excluding any licence fees)
taken on by Arteon under the Agreement;
* REIH has provided a one-off cash credit of GBP50,000 for the benefit of
Arteon under the preferred developer agreement to defray the costs of
implementing the first fund(s) on the platform; and
* The Company can deduct 50 per cent. of the cost of improvements and
extensions to the platform made under the preferred developer agreement,
together with certain other defined costs, from any licence fee payable by
the Company in a given year.
Indicative Licence Fee Levels
Estimated Gross Assets under Arteon's Relevant Indicative Licence Fee
management Revenue* payable to REIH
GBP170 million GBP2,000,000 GBPnil
GBP580 million GBP5,000,000 GBP375,000
GBP1,250 million GBP10,000,000 GBP920,000
GBP2,000 million GBP15,000,000 GBP1,365,000
* assumes Arteon's Asset Manager charges a fee of 0.6 per cent of Gross Assets
under management and a 0.6 per cent one off fee at time the fund assets come
under management on a fully invested basis. Excludes the effect of certain
costs (including some development costs) which can be added to the threshold by
Arteon under the agreement.
Related Party Transaction
REIH is a substantial shareholder in the Company, wholly owned by a trust of
which Peter Hagerty, a director of the Company, and his immediate family are
potential beneficiaries. The Transaction is a related party for the purposes of
the AIM Rules.
David Macfarlane (being the only director independent of the Transaction)
considers, having consulted with the Company's Nominated Adviser, Astaire
Securities, that the terms of the Transaction with REIH are fair and reasonable
insofar as shareholders are concerned.
** ENDS **
For further information visit www.arteonplc.com or contact:
Peter Hagerty Arteon PLC Tel: +44 (0)20 7148 7700
David Macfarlane Arteon PLC Tel: +44 (0)20 7148 7700
Aaron Smyth Astaire Securities PLC Tel: +44 (0)20 7448 4400
Isabel Crossley St Brides Media & Finance Tel: +44 (0)20 7236 1177
Ltd
Paul Youens St Brides Media & Finance Tel: +44 (0)20 7236 1177
Ltd
END
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