BAA has announced the creation of a 50:50 property joint venture with Morley Fund Management (Morley). BAA will inject certain commercial property assets into the joint venture, the Airport Property Partnership (APP), which the transaction values at £801m and will receive gross cash proceeds of £575m.
These proceeds will be used to develop BAA´s airport interests in the UK and overseas. This announcement follows BAA´s statement on 13 January 2005.
Mike Clasper, Chief Executive of BAA said, 'Property is a core part of BAA´s business. This transaction will enable us to take advantage of a wider range of future aviation related property opportunities, drawing on the skills and resources brought by our new partner, Morley Fund Management. At the same time, we are crystallising value for our shareholders when the commercial property market is buoyant. We are also unlocking £575m in cash which will give BAA greater flexibility to develop its well established business strategy.'
The assets in the joint venture are primarily cargo warehouses and offices at BAA´s airports. As at 31 March 2004, the assets had a net book value of £628m, of which the vast majority were carried at market value at that date, and the profit before tax directly attributable to these assets for the year ended March 2004 was £37m. The gross cash proceeds received by BAA of £575m on completion represents £225m from the sale of equity and £350m from the raising of non-recourse indebtedness in the joint venture.
BAA Lynton Management Limited (Lynton), a wholly owned subsidiary of BAA, will provide asset management and development services to APP. Our partner, Morley, will be the fund manager.
Rationale and benefits
- The transaction is an extension to BAA´s property strategy as it will allow growth based on selective acquisitions, disposals and development of property at UK airports without the requirement for further capital investment from BAA.
- Morley will provide complementary fund management, financial, and strategic skills to those already contained within Lynton, ensuring that performance is optimised from the assets within the joint venture.
- Lynton, which is contracted to be asset manager to the joint venture (for which it will be entitled to management, development and performance enhanced fees), will remain a wholly owned subsidiary of BAA. This will ensure that BAA is able to continue to draw upon Lynton´s property asset management and development expertise.
- The cash proceeds of £575m will give BAA greater flexibility to take advantage of opportunities to develop its airport business in line with current strategy.
- The transaction enables BAA to realise proceeds from its property assets following a period when the value of these assets has risen substantially.
Source: BAA
