Private Equity Takes Out Its First Listed Company Since The Pandemic

Starwood Capital has agreed a deal to take London-listed RDI REIT private, the first such UK deal for a private equity firm since the beginning of the pandemic last year. Here are the numbers that give an insight into why Starwood is buying and RDI is selling.

£1.17B: The gross asset value of RDI’s portfolio. Of that, £492M is in UK offices and industrial, including serviced offices, £310M is in UK hotels, £210M is in UK retail and £94M is in German retail. 

£615M: The amount of debt the company has, about a 50% loan-to-value ratio, higher than is typical for listed companies and higher than the company itself liked — management stated it wanted to reduce this to 30% to 40% by selling noncore assets.

0: The amount of retail it wants to own. It has been selling retail parks and shopping centres at below book value, and a portfolio of its UK centres went into receivership in May.

95p: That’s how much Starwood paid per share when it took a 29.5% stake in RDI last June, paying £106M. Since then the shares have flatlined, standing at 91p before the deal was announced, and Starwood is completing its takeover at 121p a share. 

35%: That is the average discount to the value of the company’s assets at which RDI’s shares have traded for the past three years. That is why RDI is selling, because it has been unable to narrow that discount to its net asset value. Starwood’s offer is a 33% premium to the price of the shares before its takeover was announced, but …

19%: … it is still a 19% discount to the net value of RDI’s assets. Starwood will make money if it can sell those assets for close to their book value in the direct real estate market. In its bid document, Starwood was unsurprisingly cagey about its strategy. It said it would retain RDI’s management and look at the portfolio to see which assets or portfolios should be sold and which are worth investing more money in. 

£468M: The total price Starwood will pay for RDI. 

99%: That is the occupancy rate within RDI’s portfolio. But within that high number there is a mixed bag of performance, partly as a result of the coronavirus. The company collected 88% of the rent it was owed at the end of December. But there was a broad spread. Travelodge paid 100% of the rent it was owed, and 90%-plus was collected from its offices and industrial assets. But only 54% of its retailers paid their rent, and earnings before interest, taxes, depreciation and amortization from the £160M UK portfolio of hotels it manages itself fell off a cliff due to the pandemic. In general, private equity firms like buying mixed-bag portfolios like RDI’s, especially from listed companies, because investors tar all the assets with the same brush as shaky sectors like retail or hotels. The upside comes from taking the time to pick through the portfolio and trying to get the best value for every asset, rather than taking an average.