Castellana Properties Socimi S A : acquires 21.7% of Lar España Real Estate

• Following an impressive performance in 2021 and having recovered operationally to pre-pandemic levels, Castellana Properties resumes its investment programme with the acquisition of a 21.7% stake in Lar España Real Estate

• Castellana Properties becomes the largest shareholder in Lar España Real Estate, a leading Spanish REIT owning high quality retail assets with a GAV in excess of €1.4bn

• Closed at a c. 48% discount to Lar España's EPRA NTA, the transaction represents an attractive financial investment, combining a high dividend yield with long-term capital appreciation potential

• The acquisition is consistent with Castellana Properties´ aspiration to become the leading permanent capital platform in the Spanish retail real estate industry. Both companies are strategically aligned, with a common focus on retail real estate excellence and with highly complementary portfolios

Castellana Properties has reached an agreement to acquire 21.7% of Lar España Real Estate, from LVS II LUX XII S.À.R.L.. The transaction has a solid financial underpin, driven by the strong operating recovery in Lar España Real Estate during the pandemic. The company has recently concluded significant activity in the debt capital markets and demonstrated strong earnings potential with a healthy balance sheet.

The acquisition of the stake, at a c.48% discount to the Net Tangible Asset Value, represents a very attractive financial investment, combining a high dividend yield with long-term capital appreciation potential. The acquisition is consistent with Castellana Properties' mission to invest in undervalued assets in the Spanish retail real estate market and represents a very compelling opportunity, when compared to clearing prices for similar assets in the direct private property market.

The transaction exhibits a strong strategic rationale, since Castellana Properties will be the largest shareholder in a company sharing the same strategic focus and owning a large, high-quality and complementary portfolio.

Castellana Properties has exhibited amongst the best performance in the market in the retail property sector and has achieved a remarkable recovery post the pandemic (in October and November 2021, versus the same period in 2019, where 99% and 98% of visits were recovered respectively, with sales exceeding pre-pandemic levels with increments of +7% and +5.4%. The portfolio's occupancy ratio has consistently remained above 97%.). These ratios are above the industry benchmarks, demonstrating the resilience of the company's portfolio. This is also in part due to its focus on active asset management of its shopping centres and retail parks, as well as the strong performance and retail expertise of the management team. On the back of the agreements reached with tenants during covid-19, collection ratios have consistently been above 95%.

With the acquisition of a 21.7% stake in Lar España Real Estate, Castellana Properties resumes its investment programme from a position of strength, with the clear objective of becoming the leading permanent capital platform in the Spanish retail real estate industry.

The transaction will be funded with a combination of Castellana Properties' existing cash resources and a €75m injection of capital, fully committed by its major shareholder, Vukile Property Fund. In addition to evidencing a strong level of shareholder support, the funding structure will further strengthen Castellana Properties' balance sheet and substantially enhance credit metrics.

Both Castellana Properties and Vukile are excited about the prospects for the acquisition and the long-term potential of Lar España Real Estate's assets.

"This is a financial investment and Castellana Properties will not request any seat on the board of Lar España. As a retail focused permanent capital vehicle and not an investment fund, we believe this transaction is positive for Castellana and brings stability to the Lar España shareholder base" say Laurence Rapp, Chairman of Castellana Properties.

"In a market context where it is difficult to acquire retail assets at attractive prices, becoming the largest shareholder in Lar España at a c. 48% discount to Net tangible Asset Value, represents a very compelling investment proposition. I would like to reiterate that our entry into Lar España is friendly, and that we are looking forward to working with the Board and management of Lar España to help grow shareholder value for both companies. I would also like to take this opportunity to thank the entire Castellana Properties team for their hard work and Vukile for their extraordinary support" said Alfonso Brunet, CEO of Castellana Properties.

Strong results with a robust, value-added business model

Castellana Properties presented its half-year results last November (its fiscal year runs from April to March), in which it obtained a recurring EBITDA of €23 M between April and September, as well as a net profit of €16.9 M. In addition, gross rental income (GRI) surpassed pre-pandemic levels, with an increase of 5.7%.

The company currently has 16 assets in Spain with 350,271 sqm of gross lettable area and a gross asset value of close to €1bn. In addition, portfolio valuations have recovered by 1.6% following the latest annual figures published.