By AYOOLA OLAOLUWA
When investment giant, Custodian Investment PLC, announced its acquisition of ailing UACN Property Development Company (UPDC) in August 2000, there were cheers from real estate experts and triumphal statements by executives of UPDC that the deal would lead the struggling property company out of the doldrums of insolvency.
According to top brass at Custodian, the transaction will among other benefits, provide Custodian with a platform to capture the real estate market; provides recurring cash flow visibility and attractive yields as a result of its direct exposure to UPDC Real Estate Investment Trust, Nigeria’s leading real estate investment trust.
“The UPDC REIT is highly cash generative with recurring income streams. It has distributed an average of N1.4 billion p.a. over the last five years.
“Rental income from UPDC REIT is underpinned by leases with first-tier tenants. This presents a good match for our business”, declared Wole Oshin, the CEO of Custodian.
He also mentioned the N10 billion in assets for sale on the books of UPDC which he said his firm will focus on realising.
Details of the deal seen by BH include the purchase of 51% or 9, 465, 584, 668 ordinary shares of UPDC’s issued share capital from UACN by Custodian Investment PLC in a transaction that occured in two phases.
The initial sale of 5.1% to Custodian Investment was done in August 2020, while the second sale of 45.9% of UPDC shares to Custodian was completed in June 2021.
A lot of players in the property industry had described the acquisition as a brilliant move and were worried that their own companies would be left behind.
At the time, Custodian could do no wrong, and UPDC was at the head of the pack as the ‘dominant’ player.
However, barely two years after the deal from ‘heaven’ was closed, the bubble seems to have burst and the acquisition turning sour. While the seller, UACN, is the apparent winner in the deal, Custodian is worse off than before.
According to checks by BH, between December 2015 and June 2019, UPDC lost over N33 billion in shareholders’ funds. In 2018 alone, it recorded a loss after tax of N15.8 billion. The company was also wallowing in N11.4 billion external interest-bearing loans and another N15.1 billion in trade and tax payables before the sale.
“It was a good riddance to a bad rubbish that was boring a big hole in the UACN Group’s finances”, declared a former director of the firm who did not want his identity disclosed.
On the other hand, the deal has dragged Custodian into the reds. While projected income seems to have evaporated, UPDC’s market value is dropping each day. For instance, from August 2020 when the deal was brokered, to May 24, 2021, just 9 months interval, UPDC’s market value had dropped from N15 billion to N14.10 billion with shareholders losing about N900 million during the period.
According to the company’s 2021 Full Year Interim Results obtained by BH, UPDC’s revenue crashed from N1.6 billion in 2020 to N824.2 million in 2021 Likewise, the firm recorded a loss of N2 billion, compared to the N605million loss it reported in 2020, while it expenses nearly doubled its revenues.
“It was a big risk they (Custodian) took and it seems to have backfired. They were willing to pay more for a company than anybody else in the world thought it was worth. You’ve got to do your homework well,” said Tolu Majekodunmi, the senior partner at Tolu Majekodunmi and Co, a real estate firm in Lagos.
Some concerned shareholders of the company who spoke with our correspondent on the condition of anonymity blamed the company’s management backed by its major shareholders for leading the company into a trap with their eyes wide open.
“We saw the red flag and we warned them. But they would not listen. They were sold a dummy by the UACN management who gave them a rosy picture in order to offload the strugling firm on us.
“But some of us saw through the lies but we were out voted and sidelined during the deal. For instance, a firm we engaged to do due diligence for us pointed out that the UPDC management had spent billions of naira on properties which have no market values.
“We were warned that yields from rents on the properties would be too low to deliver the much expected value for shareholders.
“Also, we were warned that the company had sold off its profit-making hospitality business leaving its loss-making property sales and development for the new owners.
“A case in hand is the selling of Golden Tulip Hotel and many other money spinning properties”, the source confided.
Another source confided in our correspondent that the new investor has been finding it difficult to find tenants and buyers for some of the properties it inherited from UPDC.
One of the properties in question is the Festival Hotel, Conference Centre & Spa located at Amuwo Odofin, FESTAC, Lagos. Valued at over N8 billion, the new owners of the hotel which has been in the market since 2017 have been unable to secure a buyer for it.
Unlike the Golden Tulip which easily exchanged hands, the Festival Hotel, Conference Centre & Spa is still in the market owing to several reasons. One of the clogs, BH learnt, is the bad roads leading to the hotel.
“The bad roads in the surrounding environs have made it difficult to consummate a sale”, a source disclosed.
The company, it was learnt, is losing about N200million monthly from the non-operational hotel. The new owners, sources claimed, were assured of a rental yield of about 8%-10%. However, non of the properties had yielded more than 5%, almost 50% short of the assured proceeds from rentals.
These developments, it was learnt, cost the acting Managing Director/CEO of UPDC, Deborah Nicol-Omeruah, her job.
Nicol-Omeruah, it was gathered, resigned from her position on October 21,2021, barely 10 months after her appointment on January 5, 2021.
An accomplished real estate expert with over 20 years of experience in property development, property finance and acquisitions as well as mortgages, the former CEO could not fulfil her mandate of turning around the dwindling fortunes of the firm, prompting her unceremonious exit from office.
Some of the aggrieved shareholders of Custodian who spoke on the development, lamented that they had not gained anything from the acquisition, questioning management’s resolve to hold on to the loss-making real estate business.
“I once owned Custodian for some years but decided to pull out shortly after it took a major stake in UPDC. The big question is ‘what was Custodian buying and at what price?’
“Personally, I don’t think it was a good buy. Custodian is likely better off cutting its loses by finding an exit”, said a former shareholder, Timothy Ayelade.
Another shareholder who spoke on the development, Stanley Irabor, lamented the current state of situation at UPDC.
“I am far from impressed with the current management of UACN PLC which was her parent company. They seem more of theorists than practical and hands on.
“Structuring and restructuring a struggling company is not enough, they have to be ready to get their feet on the ground and get their hands dirty to turn around the company suffering from long years of decay, poor corporate culture and dwindling market share.
“I hope this will not affect its responsibilities to it’s insurance businesses, ecpecially the ongoing recapitalisation of insurance companies”, Irabor noted.
It would be recalled that before the slump, UPDC had been the leader in property acquisition, development, sales and management of quality and affordable residential, commercial, and retail properties in Nigeria for over 20 years.
