LISTED real estate agency McGrath has received a major confidence boost with Chinese-backed developer Aqualand acquiring a strategic 15% stake in the company.
Aqualand and its sister company AL Capital are the Australian subsidiaries of Shenglong Group – a Fujian province based conglomerate with $20 billion of assets across Asia Pacific, America and Europe.
AL Capital is the core development business and Aqualand has built a portfolio of 18 sites across Sydney with a gross development value of $5 billion.
AL Capital will invest $10.7 million (before costs) in McGrath via the placement of 25,189,880 shares at $0.425 per share, in two tranches, with the second tranche of 11,568,042 shares subject to ordinary shareholder approval.
News of the investment sent McGrath’s share price soaring, jumping 22.06% or 7.5 cents to close at 41.5 cents yesterday.
Under the first tranche, which has now completed, Aqualand has acquired an initial stake of 8.7%. The second tranche is a further interest of 6.3%.
The placement represents a 25.0% premium to the last closing price and a 16.9% premium to the 60 day VWAP.
The investment means Aqualand is entitled to appoint a director to the board.
Both companies have also entered into a strategic relationship to explore opportunities to work together on prestige project marketing opportunities.
Furthermore, Aqualand has agreed to grant McGrath the first right to discuss, for a limited window, to be appointed as an agent for new Aqualand projects expected to come to market in future years or provide property management services in respect of leased apartments within new projects. The agreement has an initial term of five years and can be renewed for two further terms of three years each.
However the agreement is on the proviso that founder John McGrath remains with the agency.
Aqualand will terminate the agreement on a change of control of McGrath or if founder John McGrath ceases to have a substantial holding in the agency and ceases to be actively involved in the management. Following the placement, McGrath will have a 22.1% interest in the agency.
McGrath said the investment provides the agency the opportunity to continue to grow its project marketing business.
McGrath CEO Geoff Lucas said the Australian real estate market is becoming more sophisticated and relationships and channels are more important than ever before.
“Working closely with a major shareholder like Aqualand, which owns some of the best residential development sites in the country, represents a great opportunity to grow our business in project marketing.
“The capital raised in the placement will also allow us to take advantage of any strategic acquisition opportunities that arise over the next couple of years. McGrath is currently in a stabilisation and turnaround program and this transaction and relationship underpin our momentum to return to being Australia’s preeminent residential property brand.” Lucas said.
AL Capital CEO Wayne Mo, who will be appointed to the McGrath board, said the Chinese giant sees potential in the agency.
“We have observed McGrath for some time and have developed a positive view of the overall business operation and the capability of the McGrath leadership team. We believe McGrath has good potential for future growth and that this growth will only be enhanced by our new strategic relationship.” Mo said.
Meanwhile McGrath has provided an earning guidance, it expects the underlying EBITDA to be approximately $5 million and, following approximately $4 million of one-off cash costs. The reported EBITDA is forecast to be approximately $1 million for the year ended 30 June 2018.
Australian Property Journal