Norwegian Property ASA is in the process of implementing Norway's largest ever property acquisition by making a voluntary offer for all the shares in Norgani Hotels ASA (Norgani). If this offer is accepted, properties worth almost NOK 10 billion (c. €1.17bn) will change hands.
The acquisition will make Norwegian Property the largest listed property company in the Nordic region. It has reached this position only a little over a year since its creation in the summer of 2006.
Shareholders representing 60.3% of the Norgani shares have already accepted the offer. After the acquisition, Norgani would continue as an independent unit in Norwegian Property. "Our ambition is to contribute to industrialising and professionalising the property sector," says Petter Jansen, president and CEO of Norwegian Property. "We want to position ourselves as the point of entry to the Nordic property market. Acquiring Norgani will be an important first step in a consolidation of the industry, and will strengthen the basis for further growth in Norway and the Nordic region."
Properties for NOK 31 billion
A possible acquisition will expand Norwegian Property's portfolio to 133 properties with a combined value of almost NOK 31 billion, including the company's existing 59 holdings worth some NOK 21 billion. The remaining 74 properties, valued at roughly NOK 10 billion, represent Norgani's portfolio.
Uniting these resources will mean that the combined company is well positioned for further growth and value creation. "After this acquisition, we'll have a size which yields substantial synergies and economies of scale, and this investment will help to make our return on equity even more competitive", says Mr Jansen.
The total combined property portfolio would be just over 1.4 million m², including 762 000 m² in Norwegian Property's existing portfolio. With 670 000 m² in property holdings, Norgani's leases are long-term and have an average remaining term of around eight years. If the acquisition goes through, Norwegian Property will have an estimated annual gross rental income for 2008 of just over NOK 1.8 billion.
"We want to develop the company into a Nordic leader," says Mr Jansen. "We then need more strings to our bow. We're well positioned for office properties and, with the market trends we see, we think the time is now ripe to take a position in hotel properties. By so doing, we achieve a more diversified portfolio of properties which could reduce our vulnerability to cyclical changes in the business climate.
"Analysts also believe that hotel properties will now experience some of the same growth we've seen in the value of office properties," Mr Jansen continues. "That's one of the reasons why we think that this acquisition is well timed. Norwegian office properties will remain as our main focus, but we could have roughly 30 per cent of our investment in consumer-related growth segments."
The acquisition will be funded through committed frameworks from Norwegian Property's main banks - SEB and Nordea - as well as from equity and cash holdings. The offer is conditional on acceptance by shareholders representing at least 90% of the Norgani shares, and on necessary approvals by government agencies. In addition, the offer is conditional on the general meeting of Norwegian Property giving its consent to the proposed rights issue.
Norgani will remain an independent unit in Norwegian Property under the leadership of its president, Eva Eriksson. She will also join the corporate executive team in Norwegian Property. "Norgani's portfolio consists almost exclusively of three- and four star hotels, which have historically been the least vulnerable to economic fluctuations," notes Mr Jansen. "The company is very solid through its combination of an able organisation with some of the Nordic region's most solid and respected hotel chains as its tenants."
Source: Norwegian Properties