PNB, EPF to acquire Battersea Phase 2

KUALA LUMPUR: Permodalan Nasional Bhd (PNB) and the Employees Provident Fund (EPF) will jointly acquire the commercial properties in the second phase of the Battersea Power Station (BPS) development (phase two commercial property) for a base price of 1.58 billion pound (RM8.35 billion) from Battersea Phase 2 Holding Company Limited (BP2HCL).

This concludes the negotiations for the planned purchase of the phase two commercial property, which began in January this year.

Under the terms of the agreement, PNB-Kwasa International 2 Limited, a special purpose vehicle (SPV) formed to undertake the acquisition, has conditionally agreed to acquire the phase two commercial property from BP2HCL, a wholly owned subsidiary of Battersea Project Holding Company Limited (BPHCL). BPHCL is owned by a consortium of shareholders namely S P Setia Bhd (40%), Sime Darby Property Bhd (40%) and EPF (20%). PNB has a 65% stake in the SPV, while the remaining 35% is held by the EPF.

The phase two commercial property is part of the restoration of the iconic power station building itself and is expected to reach completion at the end of 2020, opening to the public in 2021. The commercial area purchased comprises, among others, 540,000 square feet of premier grade A offices, 420,000 square feet of retail, food & beverage and leisure as well as various event spaces.

500,000 square feet of the office space has been leased to Apple for its new London campus, providing a strong base for the creation of new and thriving communities around the development. With its world-famous chimneys that will feature a lift experience, dubbed to be an attraction similar to the London Eye, the BPS project is anticipated to attract 40 million annual visits on completion.

London-based Battersea Power Station Development Company (BPSDC) will continue to manage the project, whilst subsidiaries of BPSDC Battersea Power Station Asset Management Limited and Battersea Power Station Estate Management Limited will be appointed as the asset manager and property manager after practical completion of the power station building for an initial term of 10 years.

The 42-acre BPS site is being developed over seven phases since 2012, managed by BPSDC on behalf of the shareholders. It had successfully completed and delivered 867 residential units in the first phase over the past two years (2017-2018).

PNB president & group chief executive Datuk Abdul Rahman Ahmad said the due diligence undertaken to evaluate this acquisition, which had involved multiple advisers and technical experts, has finally been completed and it is satisfied that the proposed acquisition fits the investment strategy of both institutions.

“The acquisition enables PNB to consolidate our strategic ownership in this iconic and prime, central London development, which is expected to deliver a sustainable income stream and potential capital appreciation in the future. The proposed investment has also been carefully structured to ensure the proposed transaction meets the stringent investment criteria of PNB.”

Under the terms of the acquisition, PNB-Kwasa International 2 Limited is given a minimum guaranteed yield by BPS throughout the construction period and up to five years post-completion with a price adjustment mechanism to account for any difference in actual rental income compared to forecast. This will ensure downside protection for PNB and EPF whilst enabling the seller to earn-out upside in the development should the actual rental income perform better than expected.

EPF deputy CEO (investment) Datuk Mohamad Nasir Ab Latif said the EPF is committed to seeing through the completion of the Battersea project.

“As an integrated development backed by strong tenants, we are confident in the potential of the phase two commercial property to yield sustainable and long term rental income for the EPF. We also anticipate the development to benefit from the extension of the London Underground Northern Line, which will provide greater accessibility to rejuvenate the area into a vibrant business and lifestyle epicentre.”

The proposed transaction is subject to a number of condition precedents such as financing and other relevant approvals and is targeted to be completed in the first quarter of 2019.

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