Hili Properties IPO: a diversified real estate offering

Earlier this week, Hili Properties has announced the issue of 185,185,185 shares, each having an issue price of €0.27 per share. If subscribed in full, the net proceeds arising from the offer shall amount within the region of €49m, after deducting all related fees.

As an introduction, Hili Properties owns and manages strategic commercial real estate for lease purposes in several European countries, including Estonia, Latvia, Lithuania, Malta and Romania. Its portfolio comprises dedicated business blocks and office space, grocery-anchored shopping centres, healthcare facilities, and property housing McDonald’s restaurants in key commercial districts. The current portfolio value exceeds €115 million.

More specifically, the offered ordinary shares will hold the same rights as those attached to the group’s current issued share capital. In this respect, the new ordinary shares will carry the right to participate in the Issuer’s profits in the form of dividends and/or capital distribution. Moreover, the ordinary shareholders shall also have the right to attend, participate and vote in shareholders’ meeting.

Importantly, the price of €0.27 per new ordinary share offer proposed to the general public, is offered at a 7% discount from net asset value (NAV) of the group. In addition, Hili Properties has also reserved the right to offer the first 18,518,518 New Ordinary Shares to Hili Ventures Group employees at a discount of 10% or €0.027, from the offered price of €0.27.

Notably, the proceeds arising from this proposed equity offering are specifically earmarked to finance new property acquisitions in 2022 and 2023, in Poland and Lithuania. Additionally, the acquisitions are expected to be fully funded through a mix of readily-available own funds, including the raised proceeds through the offer, financing from bank facilities and the parent company.

In terms of the proposed property acquisition in Poland, Hili Properties is currently into exclusive and advanced discussions for the acquisition of a strategically positioned commercial property in Warsaw that hosts an international Do-it-Yourself (DIY) retail operator. This property has been selected as the first property investment of the Group in Poland, to support its expansion strategy to more European countries that present stable economic growth, in addition to attractive expansionary potential.

Moreover, following an international tender process, Hili Properties has been selected and is currently in advanced discussions for the acquisition of a newly built industrial property in Lithuania. While being positioned in a strategic location, this property has an excellent access to key cargo routes. Importantly, the group already has a strong international tenant in place vis-à-vis this property, with a 20-year lease agreement and a 100% occupancy rate.

Undoubtedly, the robust financial performances achieved by the group during the pandemic, are reflective of the Issuer’s large property portfolio which includes sought-after and multi-tenanted properties such as shopping centres, supermarkets, dedicated business blocks, a healthcare facility and properties housing restaurants across a number of geographical regions.

To this extent, in view of the fact that most of the group’s tenants are of a sticky nature, which as witnessed throughout the pandemic continued generating a steady stream of rental income for Hili Properties, the group’s current occupancy level is 99% with a weighted average unexpired lease term (WAULT) of 8.8 years.

Looking at the proposed equity offering, in addition to the fact that the group experienced resiliencies despite the unprecedent shock, merit should be given to management’s capacity which over the years has managed to identify and lock strategic property acquisitions across a number of jurisdictions with a strong tenant base. The latter is also reflective to the ongoing strategy of geographical and sectorial diversification through the envisaged acquisition in Poland, an attractive economy with premium rental yields.

When considering the strategic geographical and sectorial positioning of the group’s portfolio, the proposed offering provides investors with an attractive investment in a company which holds namely a book of properties in growing economies, other than solely in Malta. Other important considerations investors should take note of is the group’s relatively stable business model through diversification, the offered discount to NAV and the proposed attractive dividend yield on issue price. We believe that this offering offers an option to investors in a stable property management company with the capacity of unlocking further value to shareholders over the long term.

This article was issued by Andrew Fenech, Research Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.