Simonds Farsons Cisk plc’s annual presentation for financial analysts last Friday was lengthier than usual since it not only included the customary in-depth information on the performance of the past financial year but also two presentations on plans for its sizeable property interests.
The development of the large parcel of land in Mrieħel and the spin-off of the non-core properties into a separate publicly-traded vehicle had first been mentioned by Farsons in 2008.
After several years while the company gradually relocated all manufacturing facilities and administration offices to the back end of the Mrieħel site and carefully studied the best use of this sizeable tract of land, a company announcement was issued last Friday informing the market that two applications had been submitted to the Malta Environment and Planning Authority (Mepa) in connection with the development of the Farsons Business Park.
Chairman Louis Farrugia gave a brief overview of the park and property spin-off while British architect Ian Ritchie, who is entrusted with the project with the support of Maltese engineers and other consultants, delivered a detailed presentation showing the transformation of the site.
The old brewhouse – which will be retained by Simonds Farsons Cisk plc and will therefore not be spun-off into the property holding company – will be restored and converted into a visitor centre including a beer academy, retail and catering facilities, and the construction on the roof of a Cisk Sky Bar. The Farsons Business Park will comprise seven office blocks limited to five storeys each. Prof. Ritchie provided detailed images of how these would be constructed behind the historic facade and the courtyards that will separate each building. A multistorey car park will also be constructed, connected to each of the seven buildings and the old brewhouse.
Works on the business park are expected to commence towards the middle of next year in a phased manner. By March 2018, Farsons aims to complete the conversion of the old brewhouse and the first office block. Three other office blocks will be constructed by October 2018, followed by the car park and overlying offices in January 2019. The last phase incorporating the final three office blocks should be completed by January 2020.
On completion, it will comprise over 18,000 square metres of office space, more than 1,200 sq.m. of food and beverage facilities and a car park of over 700 spaces.
The upcoming development does not include the area currently housing the Farsonsdirect.com retail premises and the other large tract of land also along the main road. This could possibly take place at a later stage once the Farsons Business Park is completed and fully operational.
During the meeting, Mr Farrugia provided initial details on the planned spin-off of the property assets into a separate public company which will also be quoted on the Malta Stock Exchange. The aim is to hive off properties that are not directly related to the core food and beverage business. These comprise the Mrieħel facade, Trident House in Marsa (currently occupied by fully-owned subsidiary Quintano Foods Ltd), the properties housing the franchised food businesses (namely Pizza Hut, Burger King and KFL) as well as some other properties currently leased out to third parties.
Works on the business park are expected to commence towards the middle of next year in a phased manner
The segregation of the Farsons Group into two distinct, publicly-traded companies will also enable individual shareholders to decide whether to remain invested in both sectors or whether to focus specifically on one. Mr Farrugia also mentioned the possibility of attracting new strategic partners and shareholders to the property side of the business – either as an investor in the new property development company or in a particular development. This could be necessary if Trident House and the adjacent parcel of land were to be developed into a high-rise commercial development, as had been indicated many years ago before the decision was taken to utilise the property for Quintano Foods.
The chairman indicated that the spin-off would take place via a dividend to the shareholders of Simonds Farsons Cisk plc at the time of the corporate action. The dividend will not be in cash but in specie, i.e. a distribution of shares in the property company equivalent to the same shareholding level as that previously held via Simonds Farsons Cisk plc.
The spin-off will take place during the first six months of 2017 and the overriding objective of the restructuring exercise is to maximise shareholder value and ensure the best use of the large property portfolio.
The total investment of the Farsons Business Park is estimated at €42 million and Mr Farrugia explained the various options being considered: a rights issue as well as debt funding via a bond issue or otherwise via bank borrowings.
In reply to questions from the floor, he also announced that discussions were currently under way with the three dominant shareholders (Farrugia Investments Ltd, MSM Investments Ltd and Scicluna Estates Ltd, who together hold just under 80 per cent of the issued share capital of Simonds Farsons Cisk plc) on the rights issue and he expects a positive attitude towards additional investment by these family-owned companies.
The company announcement issued also indicated that the Farsons’ board of directors is additionally looking at funding options for the traditional food and beverage business. The major investment in this area is the new €27 million beer packaging, due to be completed in April 2016. During the meeting, the chairman also mentioned an investment in additional office space overlying the current administration centre while in his statement to shareholders in the annual report, Mr Farrugia referred to the fact that the company’s management was considering other investments in the operations and distribution areas to ensure that the company can achieve its vision of truly becoming a regional player within the food and beverage sector.
One of these is the extension of the logistics centre to create additional storage following the increase in production capabilities, with the ultimate objective of generating up to 30 per cent of overall revenue from exports.
The confirmation of Farsons’ intention to hive off the property assets is an important milestone not only for the group, but also for the local financial market. Although this may not necessarily imply a new fundraising exercise at the outset for all investors – new shares will only be allotted to shareholders of Farsons – by this newly-quoted company, every effort needs to be made by market participants, the Malta Stock Exchange, the MFSA and also government officials to increase the number of listed securities to ensure a wider choice for idle investors’ funds. These options must not only focus on the bond market but also the equity market, as a large number of retail investors are now also inclined to consider investing in shares.
The hiving off of the Farsons property company is still two years away and could be preceded by a similar exercise by Go plc as they intimated in the press recently.
Failure to create new equity and bond investments could result in ‘bubbles’ forming in these asset classes as well as in the property market. Another scenario would be capital flight – with investors seeking overseas investments as an alternative to investing in their own country.
Edward Rizzo is a director at Rizzo, Farrugia & Co (Stockbrokers) Ltd.
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