DJ Urban Exposure plc: Proposed disposals and cancellation from AIM
Urban Exposure plc (UEX)
Urban Exposure plc: Proposed disposals and cancellation from AIM
10-March-2020 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
10 March 2020
THIS ANNOUNCEMENT INCLUDES INSIDE INFORMATION AS DEFINED UNDER THE MARKET
ABUSE REGULATION (EU) NO. 596/2014
Urban Exposure Plc
Proposed disposals, cancellation from AIM and members' voluntary liquidation
Urban Exposure Plc ("Urban Exposure" or the "Company" and, together with its
subsidiaries, the "Group") announces the proposed disposal of Urban Exposure
Lendco Limited ("Lendco") to Honeycomb Holdings Limited ("HHL") and Urban
Exposure Amco Limited ("Amco") to the Founders (together, the
"Transactions").
The Company also announces, conditional on completion of the Transactions,
the proposed cancellation of the admission of its ordinary shares to trading
on AIM (the "Cancellation") and the change of name of the Company to
"Residential Property Finance Realisation Plc".
Following the completion of the Transactions, the proposed Cancellation and
the change of name, it is proposed that the Company is placed into a solvent
member's voluntary liquidation (the "Liquidation" and, together with the
Transactions, the change of name and the Cancellation, the "Proposals").
Based on certain assumptions set out in full later in this announcement,
pursuant to the Proposals, each holder of the Company's ordinary shares
(each, a "Shareholder") is expected to receive an initial distribution in
the Liquidation equal to approximately 72 pence per share and a final
distribution anticipated to be around 1 penny per share, making a total
distribution of approximately 73 pence per share.
Lendco owns the Group's loan portfolio and its interest in the Group's joint
venture with KKR & Co. (the "KKR Joint Venture").
Amco provides asset management services in respect of the Group's loan
portfolio and is the employer of the Group's employees.
It is a condition of the Lendco Disposal that Amco continues to provide
asset management services to Lendco following Lendco's sale to HHL and
Amco's sale to the Founders on the terms of a new asset service agreement
agreed between Lendco and Amco (the "Service Agreement").
Each of Randeesh Sandhu, Daljit Sandhu, Ravi Takhar and Victor Librae (the
"Founders") is a member of the Group's executive team and is an existing
director of Amco. Randeesh Sandhu and Ravi Takhar are also executive
directors of the Company.
HHL is a limited company registered in England and Wales. HHL is a member of
the Pollen Street Capital Group, a global, independent alternative asset
investment management company focused on the financial and business services
sector, with significant experience in specialty finance. It was established
in 2013 and has GBP2.6 billion gross assets under management across private
equity and credit strategies. It is expected that, following completion of
the Transactions, HHL will transfer the beneficial and/or economic interests
in Lendco's loan portfolio and/or its interest in the KKR Joint Venture to
one or more investment vehicles managed by or entities connected with the
Pollen Street Capital Group.
Shareholder approval requirements and inter-conditionality of the Proposals
Completion of the Transactions, the Cancellation and the Company's proposed
change of name are conditional on approval by Shareholders. A circular (the
"Circular") containing a notice convening a general meeting for these
purposes to be held at 12.00 p.m. on 30 March 2020 (the "First General
Meeting") will be posted to Shareholders shortly.
As well as being conditional on completion of the Transactions, the
Cancellation and the change of name, the Liquidation is also conditional on
Shareholder approval. A second notice convening a general meeting for this
purpose to be held at 12.00 p.m. on 28 April 2020 (the "Second General
Meeting") will also be included in the Circular.
Completion of each of the Lendco Disposal and the Amco Disposal is
conditional on Shareholders approving the other and the Cancellation is
conditional on completion of each of the Lendco Disposal and the Amco
Disposal.
In the event that the Lendco Disposal, the Amco Disposal, the Cancellation
and the change of name do not take place (including if they are not approved
by Shareholders), the Second General Meeting will be indefinitely adjourned
by the Company. Accordingly, the Liquidation and any subsequent distribution
to Shareholders are effectively conditional on the passing of the
resolutions being proposed at the First General Meeting.
Recommendation
William McKee CBE, Andrew Baddeley, Nigel Greenaway and Sam Dobbyn (the
"Independent Directors") consider that the Proposals are in the best
interests of Shareholders as a whole, and unanimously recommend that
Shareholders vote in favour of the Resolutions.
Each member of the Company's board of directors (the "Board") intends to
vote in favour of each of the Resolutions in respect of their respective
direct and indirect shareholdings in the Company which, in aggregate, amount
to 4,718,220 shares representing 2.98 per cent. of the issued share capital
of the Company (other than shares held in treasury) on an undiluted basis.
Related Party Transaction
As Randeesh Sandhu and Ravi Takhar are directors of the Company and the Amco
Disposal exceeds 5 per cent. in one or more of the class tests set out in
Schedule 3 to the AIM Rules, the Amco Disposal constitutes a related party
transaction for the purposes of AIM Rule 13. Having consulted with the
Company's Nominated Adviser, Liberum Capital Limited, the Independent
Directors consider that the terms of the Amco Disposal are fair and
reasonable insofar as Shareholders are concerned.
Background to and reasons for the Proposals
The Company was incorporated and its shares were admitted to trading on AIM
in May 2018 ("Admission") with the intention of leveraging both its own
newly formed balance sheet and third-party capital to provide funding for UK
real estate development loans originated and managed by the Company's
management.
Since its formation, the Company has maintained a consistently strong
pipeline of opportunities both in terms of lending opportunities on UK
residential real estate developments and capital raising opportunities for
its asset management strategy.
This has included making available facilities in excess of GBP1 billion in
aggregate to real estate developers, in part funded by the Company's own
resources and in part through co-funding agreements with leading financial
institutions, including the KKR Joint Venture and funding lines from UBS AG
and Aviva Investors. The Company believes that these achievements are a
clear acknowledgement of its operational expertise in an under-served
market.
Since launch, the Company has made significant investment in its personnel
in order to deliver increased deal capacity, enhance execution capability
and to meet the governance and reporting requirements of an AIM-traded
company. Although this investment has materially improved the Company's
operating performance, the resulting increased cost base has held back
near-term profitability. Further, the market in which the Company operates -
including the large size of deals, the unpredictability of timing for
closing loans, the profile of revenue generation from lending and asset
management activity and the accounting treatment of this revenue - together
mean that it is not always possible to predict the Company's and its group's
anticipated volume of business and, therefore, profitability for specific
financial periods. The Board believes that these factors, together with the
Company's increased cost base, resulted in an underperformance compared with
expectations set at the time of Admission. These challenges have been
further exacerbated by a volatile political climate in the UK, with sector
specific uncertainty arising both from Brexit and the run-up to the UK
general election in December 2019, and negative sentiment towards small-cap
investment due to market events.
In light of these challenges to performance, the shares traded at a
significant discount to the Company's prevailing net asset value throughout
2019. Following requests from certain Shareholders, the Board has conducted,
alongside the Company's financial adviser, a full review of the Company's
operations and undertook a thorough appraisal of a range of options,
including, amongst other things, a full formal sale process, a break up and,
latterly, a disposal of its loan book and management vehicle.
The Transactions
Following a period of due diligence and negotiation, HHL proposes to acquire
Lendco on the terms of the Lendco SPA for a total purchase price of GBP113.8
million, which is equal to the par value of Lendco's loan portfolio as at 18
February 2020 (including its interest in the KKR Joint Venture) discounted
by GBP2.7 million, plus Lendco's net cash at that date (assuming repayment of
outstanding intercompany indebtedness). The GBP2.7 million discount to the par
value of the loan portfolio reflects the anticipated amount of asset
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management fees that Lendco will pay in respect of the management of the
loan portfolio going forward.
Each of the Company and Amco has provided customary warranties and
undertakings to HHL under the Lendco SPA, although (save in respect of a VAT
indemnity given by the Company to HHL) the liability of the Company to HHL
under the Lendco SPA will terminate on the date that is 15 business days
following completion of the Lendco Disposal. In addition, HHL may terminate
the Lendco SPA between exchange and completion if there is a material
adverse change in the financial condition of Lendco or if there is a
material breach of the Lendco SPA.
Further details of the Lendco SPA are set out in the appendix to this
announcement. Shareholder approval of the Lendco Disposal is required
because it is a fundamental change of the Company's business for the
purposes of Rule 15 of the AIM Rules.
Simultaneously with the Lendco Disposal, the Founders propose to acquire
Amco from the Company because HHL requires Amco to continue to provide
management services to Lendco following the Lendco Disposal. The Independent
Directors have undertaken a detailed review of the valuation of Amco and,
including on the basis of advice received, have determined that Amco has a
negative value as a standalone business. Accordingly, the Company has agreed
to sell Amco to the Founders for a total cash consideration of GBP1,599,999,
on the basis that on completion of the sale, Amco will have net working
capital available to it of GBP7.1 million. In addition, the Group will
transfer to Amco certain assets currently owned by the Group, including
certain legacy receivables, office equipment, intellectual property rights
and business records related to Amco's business, for a consideration of GBP1.
Amco's future costs in excess of the net working capital available to it at
completion of the Amco Disposal will be funded from its own income and the
Founders' own resources. The Independent Directors believe that these
arrangements have the benefit to the Company of providing sufficient
certainty to HHL that Amco will be able to continue to provide services to
Lendco going forward, thereby facilitating the Lendco Disposal, while
terminating the Company's obligations to continue to finance Amco's costs.
Further details of the Amco SPA are set out in the appendix to this
announcement. Shareholder approval of the Amco Disposal is required because
it is a substantial property transaction for the purposes of section 190 of
the Companies Act.
On completion of the Transactions, Amco and Lendco will also enter into the
Service Agreement, further details of which are also set out in the appendix
to this announcement.
The consent of each of KKR & Co., and UBS AG, as lender to the KKR Joint
Venture has been obtained to the Transactions, subject to certain agreed
changes to the documents constituting the KKR Joint Venture arrangements
being implemented by the Company, HHL and KKR & Co.
The Cancellation
As the Company will no longer have any continuing operations following the
completion of the Transactions, the Directors propose to seek cancellation
of the shares from trading on AIM and, thereafter, to seek Shareholder
approval to wind up the Company.
It is proposed that the Cancellation takes place on 27 April 2020 following
completion of the Transactions but before the Second General Meeting at
which the Liquidation will be proposed so that the Company is no longer
listed at the time that the Liquidation commences.
Accordingly, Shareholders should be aware that in the event that the
resolutions proposed at the First General Meeting are passed and the
Transactions complete, they will no longer be able to trade shares on AIM
with effect from 27 April 2020, which is in advance of the Second General
Meeting.
Under the AIM Rules, cancellation requires the expiration of a period of not
less than 20 clear business days from the date on which notice of the
intended cancellation is given to the London Stock Exchange. The Company has
notified the London Stock Exchange of the proposed cancellation. Subject to
the passing of the Cancellation Resolution, it is expected that trading in
the shares on AIM will cease at the close of business on 24 April 2020, with
Cancellation expected to take effect at 7:00 a.m. on 27 April 2020.
If the Cancellation Resolution is not approved by Shareholders, following
completion of the Transactions, the Company would become an AIM Rule 15 cash
shell and, as such, would be required to make an acquisition or acquisitions
which constitute a reverse takeover under AIM Rule 14 on or before the date
falling six months from completion of the Transactions, or be re-admitted to
trading on AIM as an investing company under the AIM Rules, failing which,
the shares would be suspended from trading on AIM pursuant to AIM Rule 40.
Admission to trading on AIM would be cancelled six months from the date of
suspension should the suspension not have been lifted by that time. As a
cash shell, the Company would have no operating cash flow and would be
dependent on the net proceeds of the Transactions for its working capital
requirements.
Assuming the Cancellation Resolution is approved and Cancellation takes
effect, there will be no formal market mechanism enabling Shareholders to
trade their shares on AIM or any other recognised market or trading
facility, which is likely to affect the liquidity and marketability of the
shares. In addition, Shareholders will no longer be afforded the protections
given by the AIM Rules, such as the requirement to be notified of certain
events and the requirement that the Company seek shareholder approval for
certain corporate actions, where applicable, including substantial
transactions, financing transactions, reverse takeovers, related party
transactions and fundamental changes in the Company's business, including
certain acquisitions and disposals. The Company will also cease to have an
independent nominated adviser and broker.
The Liquidation
Assuming that the Transactions complete and the Cancellation is effective,
the Company intends that Geoffrey Paul Rowley and David Frederick Shambrook,
both of FRP Advisory LLP should be appointed as the joint liquidators of the
Company and the other remaining members of the Group. The appointment of the
Liquidators is proposed to take place shortly after the liability of the
Company to HHL under the warranties contained in the Lendco SPA terminates,
being the date that is 15 business days following completion of the Lendco
Disposal.
Following their appointment, the Liquidators will take control of the
Company, take custody of all of the Company's assets, invite creditors to
submit particulars of debt and consider and settle each liability of the
Company.
The Liquidators have indicated to the Company that, subject to the
circumstances of the Company at the time, they expect around one week
following their appointment as joint liquidators to make an interim
distribution to Shareholders (the "Interim Distribution") in respect of
substantially all of the net proceeds of the Transactions, equal to
approximately 72 pence per Share, on the basis of the following assumptions:
(a) the number of shares in issue is 158,494,130;
(b) the total proceeds received by the Company from the Transactions are
GBP115.4 million, there are no adjustments to the purchase price payable under
the Lendco SPA, and no claims are brought against the Company under the
Lendco SPA;
(c) the Transaction expenses and other liabilities of the Company in the
period prior to the Interim Dividend are equal, in aggregate, to not more
than GBP7.4 million;
(d) the Group has aggregate cash balances of GBP7.4 million immediately
following completion of the Transactions; and
(e) the Liquidators hold back for contingent liabilities of the Company
(including under the VAT indemnity contained in the Lendco SPA) an amount
equal to GBP1.2 million.
The Interim Distribution is expected to represent a discount of
approximately 12.9 per cent. to the Company's unaudited net tangible asset
value per Share of 82.7 pence per Share on 31 December 2019 which reflects,
amongst other things, a write down in the value of certain legacy loan
receivables acquired by the Company at the time of Admission from UE Holdco
(Jersey) Limited (and to be acquired by the Founders under the Amco SPA) of
approximately GBP2.3 million since the Company's last published unaudited
tangible net asset value as at 30 June 2019.
In addition to the discount to the par value of Lendco's loan portfolio at
which Lendco is to be acquired under the Lendco Disposal, the per Share
discount to the Company's 31 December 2019 unaudited net tangible asset
value per Share which the Interim Distribution is expected to represent is
principally attributable to the impact of:
a) the interim dividend of 1.67 pence per Share paid on 18 October 2019,
the costs and expenses of the Transaction and the other liabilities of the
Company of approximately GBP7.4 million (equal to approximately 4.7 pence
per share); and
b) the amount of the net working capital contribution to be made to Amco
under the Amco SPA of GBP7.1 million (equal to approximately 3.5 pence per
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