TIDMSQB
RNS Number : 0060K
Squarestone Brasil Limited
12 April 2010
12 April 2010
NOT FOR PUBLICATION, DISTRIBUTION OR RELEASE IN OR INTO THE UNITED STATES OF
AMERICA, CANADA, JAPAN OR AUSTRALIA
SQUARESTONE BRASIL LIMITED
("Squarestone Brasil" or "the Company")
FIRST DAY OF DEALINGS ON AIM
Squarestone Brasil Limited (AIM: SQB.L, SQBW.L), the Anglo-Brazilian real estate
development and investment company, is pleased to announce the commencement
today of trading in its ordinary shares of no par value each ("Ordinary Shares")
and warrants (issued on the basis of two warrants for every three ordinary
shares) ("Warrants") on the AIM Market of the London Stock Exchange.
Squarestone Brasil was formed to pursue the Brazilian shopping mall development
business currently operated by the Sao Paulo-based Squarestone Brasil
Administracaoe Participacao S.A. ("SB ManCo") and its London-based affiliate
Squarestone Property Invesment Management Limited ("SPIM"). The Company is
focused on the acquisition, development and delivery of high quality shopping
mall destinations in the strong and growing retail market of Brazil, with an
initial concentration on Greater Sao Paulo, with the objective of delivering
superior returns to shareholders.
The Directors intend to address what they perceive to be a gap in the market, by
combining an international approach to shopping mall design, development and
management with the local culture, tastes and fashions of Brazil in order to
deliver the optimal tailored retailing experience for Brazilian consumers.
The Squarestone Brasil Group consists of:
· a 50 per cent. interest in a mall development project, Golden Square
Mall, due to be completed in mid-2011. Golden Square Mall comprises
approximately 31,000 sq m net leasable area ("NLA"), and the 100 per cent.
interest has been currently valued by Jones Lang LaSalle Brasil at R$134.6
million (equating to approximately GBP49.9 million) which equates to a gross
value for the Company's 50 per cent. interest of R$67.3 million (equating to
approximately GBP24.9 million). The 50 per cent. interest has been acquired by
the Company for an aggregate net consideration of approximately GBP17.5 million
which is equivalent to the capital and accrued interest invested by the vendors
to date and which also reflects the above 50 per cent. valuation share, after
deducting outstanding committed but undrawn funding liabilities. Of this
consideration approximately GBP6.3 million consists of cash with the balance
being the issue on Admission of 11,240,000 Ordinary Shares (with Warrants
attached on a two for three basis) to the SB2 Investors;
· a pipeline of attractive potential shopping mall development
opportunities which have been identified by SB ManCo and are currently in
various stages of negotiation; and
· a letter of intent from BTG Pactual, a leading independent Brazilian
investment bank, wealth manager and asset manager, to potentially partner with
the Company in the funding of its current and future projects at an asset level.
The Directors further believe that the strategy to be pursued by the Company is
underpinned by current favourable macro-economic, demographic, consumer and real
estate factors in Brazil.
Placing details
+-----------------------------------------------------+------------+
| Placing Price | 100 pence |
+-----------------------------------------------------+------------+
| Number of Placing Shares | 28,260,960 |
+-----------------------------------------------------+------------+
| Number of Placing Warrants (granted on a two for | 18,840,644 |
| three basis) | |
+-----------------------------------------------------+------------+
| Number of Ordinary Shares being issued to SB2 | 11,240,000 |
| Investors (the vendors of the 50% interest in | |
| Golden Square Shopping Mall) | |
+-----------------------------------------------------+------------+
| Total number of Ordinary Shares in issue on | 39,500,960 |
| Admission | |
+-----------------------------------------------------+------------+
| Total number of Warrants in issue on Admission | 26,333,982 |
+-----------------------------------------------------+------------+
| Market capitalisation of the Company on Admission | GBP39.5 |
| at the Placing Price | million |
+-----------------------------------------------------+------------+
Expected Timetable
+----------------------------------------------------+---------+
| Completion of Golden Square Acquisition and SB | 30 |
| ManCo Acquisition by | April |
| | 2010 |
+----------------------------------------------------+---------+
| Share certificates and Warrant Certificates (where | 10 May |
| relevant) dispatched by | 2010 |
+----------------------------------------------------+---------+
Liberum Capital acts as the nominated adviser, financial adviser and broker to
Squarestone Brasil.
James Morse, Chief Executive, commented:
"We are pleased with Squarestone Brasil's fundraising and admission to AIM. This
marks the start of the next chapter in the Squarestone story as we successfully
grow and develop this new platform by continuing to exploit the compelling
economic, demographic, consumer and real estate dynamics in Brazil for the
benefits of our shareholders.
The established management team looks forward to expanding on the business
through the potential offered by the flagship development Golden Square and the
pipeline of attractive potential shopping mall development opportunities. The
possible financing source from BTG Pactual would, if secured, also significantly
enhance the Company's ability to maximise the potential offered by Golden Square
Mall and the prospective pipeline.
We look forward to driving the business forward and reporting on further
developments in due course."
For further information contact:
+----------------------------+------------------------------------+
| Squarestone Brasil | Tel: +44 (0)20 7074 1800 |
+----------------------------+------------------------------------+
| James Morse, Chief | |
| Executive | |
| Robert Sloss, Executive | |
| Director | |
| Tim Barlow, Executive | |
| Director | |
+----------------------------+------------------------------------+
| | |
+----------------------------+------------------------------------+
| Liberum Capital (Financial | Tel : +44 (0)20 3100 2000 |
| Adviser) | |
+----------------------------+------------------------------------+
| Chris Bowman | |
| Ellen Francis | |
+----------------------------+------------------------------------+
| | |
+----------------------------+------------------------------------+
| Kreab Gavin Anderson (PR | Tel: +44 (0)20 7074 1800 |
| Adviser) | |
+----------------------------+------------------------------------+
| James Benjamin | Email: |
| Natalie Biasin | squarestone@kreabgavinanderson.com |
+----------------------------+------------------------------------+
Website: www.squarestone.com.br
Capitalised terms in this announcement have the meaning given to them in the
Company's admission document, a copy of which is available at the registered
office of the Company's Nomad, financial adviser and broker, Liberum Capital
Limited, at CityPoint, 10th Floor, One Ropemaker Street, London EC2Y 9HT or on
the Company's website.
Strategy
Squarestone Brasil will expand upon the business strategy developed and
implemented by SB ManCo and SPIM to date, namely the acquisition, development,
management of, and investment in, Brazilian shopping mall assets. The Company's
key strategic objectives are:
· Geographical focus on Southern Brazil
· Where funds permit, acquire outright or controlling interests
· Act as development manager with potential joint venture partners
· Develop a portfolio of area dominant shopping malls
· Deliver two different "products" to market: "B" and "C" Class malls
· Introduce quality and innovation
· Deploy international ideas and expertise
· Maximise shareholder returns
Management
The Company will benefit from:
· a highly experienced Board, comprising the three co-founders of SB ManCo,
James Morse, Robert Sloss and Tim Barlow (together the "Executive Directors"),
who have a track record of anticipating and exploiting opportunities in the real
estate sector, and three Non-executive Directors who together provide extensive
real estate, finance and public company experience;
· an established Sao Paulo-based business (to be acquired pursuant to the
acquisition of SB ManCo conditional on Admission), led by James Morse, who has a
total of 15 years experience in the real estate sector in the UK and latterly
Brazil, together with additional senior management based in London; and
· three retail sector and shopping mall experts as consultants to the
Company, being Michael Poynor (who will work closely with the Company in both
London and Brazil), Neil Varnham and Claudio Politi (who will work alongside
James Morse in Brazil), who have respectively 40 years experience in the
international retail sector working for and advising numerous retailers, 33
years of shopping mall development and management experience at 23 Henderson
Global Investors and approximately 25 years experience in the design,
development and leasing of shopping malls in Brazil.
Alignment of interests
The Directors (together with the interests of related family vehicles) and
Claudio Politi will, following completion of the acquisition of Golden Square
Mall and SB ManCo (together the "Conditional Acquisitions") and the allotment of
the Reinvestment Shares (these are Ordinary Shares subscribed by the Executive
Directors and Claudio Politi for reinvesting their proceeds from the sale of SB
ManCo and Golden Square Mall respectively and which will be allotted shortly
after Admission.1,175,000 Ordinary Shares with Warrants attached will be issued
after Admission), have approximately GBP7.5 million invested in the Company
equating to in aggregate approximately 18.4 per cent. of the Enlarged Share
Capital of the Company.
The interests of the Executive Directors and future executive directors and
current/future senior employees (the "Management Team") will be aligned with the
interests of the Company and its Shareholders through new management
incentivisation arrangements, which are designed to reward the Management Team
in the event of the superior performance of the Company's real estate assets. 50
per cent. of any incentivisation payments will be received in Ordinary Shares,
which will then be subject to lock-in arrangements over a three year period,
thus further aligning the interests of the Management Team with those of the
Shareholders.
Under the terms of the Limited Partnership Agreement, SLP LP (a pooled vehicle
from which the Management Team will receive their incentivisation payments) is
entitled to receive an aggregate carried interest payment from Management
Incentive L.P. for any financial year (commencing on 31 December 2011)
equivalent to 25 per cent. of the excess of the Net Asset Value as at 31
December in any year (the "Relevant Calculation Date") over the High Water Mark.
The "High Water Mark" shall be the higher of: (i) the Placing Shares and
Reinvestment Shares multiplied by the Placing Price, as increased by an annually
compounding hurdle rate of 15 per cent. calculated from the date of Admission to
the Relevant Calculation Date; or (ii) the Net Asset Value on the last date in
relation to which a carried interest payment was made as increased by an
annually compounding hurdle rate of 15 per cent. calculated from such date to
the Relevant Calculation Date.
The Opportunity
The Directors believe that, building on the business developed by the Executive
Directors to date, there is an opportunity to generate superior returns to
Shareholders through the development and accumulation of a portfolio of quality
shopping mall developments in Brazil (subject to securing sufficient funding).
The Company will initially focus on Southern Brazil, particularly Greater Sao
Paulo. The Directors intend to address what they perceive to be a gap in the
market, by combining an international approach to shopping mall design,
development and management with the local culture, tastes and fashions of Brazil
in order to deliver the optimal tailored retailing experience for Brazilian
consumers.
The Directors believe that the Brazilian shopping mall sector represents an
attractive growth investment opportunity and that the existing business
developed by SB ManCo and SPIM, and to be pursued by the Company following
Admission, will provide a sound platform from which to exploit this opportunity.
Use of proceeds
The Directors intend to deploy the proceeds of the Placing as follows:
· approximately GBP6.3 million to satisfy the cash component of the Golden
Square Acquisition, and then a further estimated GBP20 million to subsequently
fund the Company's ongoing capital commitment, amounting to 50 per cent. of any
capital required to complete the development;
· to facilitate the Company's involvement in two of the potential projects
detailed in the Prospective Pipeline (namely Bandeirantes and Carapicuiba).
Given that the Proceeds of the Placing will be insufficient to enable the
Company to pursue the Prospective Pipeline opportunities with majority equity
ownership it is anticipated that, pending the potential raising of further
equity funds, the Company may use some of the proceeds of the Placing to
initially secure minority equity stakes in such projects in conjunction with
third party joint venture partners.
Dividends and Exit Strategy
As a developer, the Company does not intend to pay regular dividends, however,
following a refinancing or securitisation of individual assets, the Company
would seek to return proceeds to Shareholders in a tax efficient manner, which
could include by way of dividends, share buy-backs or tender offers.
The Company believes that, once completed, individual assets will be attractive
acquisition targets for other Brazilian mall operators or institutional or
private investors. The Company also believes that, subject to securing
additional funding and if the Company was then able to assemble a completed
portfolio of malls, it would potentially be a take-over target for a larger
local trade buyer.
The Placing
The Placing comprises a limited offer by the Company of 28,260,960 million
Placing Shares (with Warrants granted on a two for three basis) to raise gross
proceeds of approximately GBP28,260,960 million (net proceeds of approximately
GBP26.2 million).
Key Real Estate Drivers
The Directors believe the following factors reinforce the Company's strategy:
· The Directors believe that the Brazilian shopping mall sector currently
lacks a supply of B and C class malls which have been developed and are operated
to international standards. The Directors believe that existing Brazilian
shopping malls are generally dated in terms of design and operations and
therefore a clear opportunity exists to redefine the local retail experience
based on international standards.
· Brazil's shopping mall sector is arguably under-supplied with a
relatively low retail provision (47 sq m GLA per 1,000 inhabitants) when
compared to North America (US 606 sq m GLA per 1,000 inhabitants), Western
Europe (Spain 249 sq m GLA per 1,000 inhabitants) and also Mexico (100 sq m GLA
per 1,000 inhabitants).
· The Brazilian mall sector is highly fragmented with the top five listed
mall operators having a combined market share of approximately 15 per cent.
(based on GLA). Whilst it is a competitive sector, the Directors nevertheless
believe the Company can provide a distinctive product to the market and in so
doing achieve a competitive advantage over its local peers.
· Shopping malls in Brazil are, and are expected to continue to be, a focal
point of everyday life, as they provide a climate controlled and secure shopping
destination, and also, due to the popularity of food courts, are an important
eating and meeting place.
· Locally listed Brazilian mall operators, including BR Malls, Multiplan,
Iguatemi and General Shopping, are trading at significant premiums to their
underlying net asset value. This demonstrates the market's confidence in the
growth prospects for the sector.
Key Macroeconomic, Demographic, Cultural and Social Drivers
The Directors believe that the investment case for shopping mall real estate
development is also readily supported by a number of non-real estate related
factors in Brazil:
· Brazil is established as a politically and economically stable democracy
and is a natural resources and commodities superpower, with a positive trade
balance, no foreign debt and low levels of consumer debt.
· Brazil has a large internal economy, and, at US$1.6 trillion as of 2008,
was the largest economy in South America and the eighth largest in the world.
· Brazil has a large, growing and highly urbanised population with more
than 80 per cent. of its approximately 193 million people living in cities in
2008.
· Positive political and economic initiatives to tackle social inequality
have considerably increased the purchasing power of the all-important,
entry-level consumer category, the C Class income group. This category in Brazil
is growing rapidly and comprises 52 per cent. of the population as of 2008 (up
from 43 per cent. in 2002), a measure which compares favourably, for example,
with the other BRIC countries.
· The Brazilian savings/GNI ratio is just 29 per cent. and the household
consumption/GDP ratio is 61 per cent. These measures provide a favourable
comparison between Brazil and other countries, notably the other BRIC countries.
· Retail sales in Brazil have been growing by around 5 per cent. per annum,
underpinned by rising consumer confidence on the back of stable interest rates,
reduced unemployment and rising credit.
· GDP forecasts for Brazil imply continued consumer spending, with growth
of approximately 5 per cent. per annum forecast for the foreseeable future and
an estimated 567 per cent. growth in income per capita from a level of US$7,500
in 2007 to US$50,000 in 2050.
-ends-
This information is provided by RNS
The company news service from the London Stock Exchange
END
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