The Qube Holdings Ltd (ASX: QUB) share price is rising on the sale of property assets worth $1.67 billion.
Qube’s asset sale
On 25 February 2021 Qube announced that it had entered into a non-binding commercial term sheet with LOGOS Property Group for the sale of 100% of Qube’s interest in the warehousing and property components of the Moorebank Logistics Park project (MLP Property Assets).
The company said that it has now entered into binding transaction documentation with the LOGOS Consortium.
The transaction completion is expected in the fourth quarter of the 2021 calendar year and is subject to several conditions such as regulatory approval.
Qube will retain ownership of the intermodal rail terminals and will retain upside potential through exposure to long-term growth in container volume with its terminal and logistical activities.
Qube said that receipt of around $1.36 billion in gross pre-tax proceeds on completion from the deal can be used to reduce debt, pursue growth opportunities and for capital management initiatives.
Management said that the sale allows Qube to avoid the need to deploy substantial capital to develop future warehousing which allows funds to be deployed into higher returning logistics opportunities.
The company said that after completion of the sale it intends to review its capital structure and the use of after-tax proceeds.
Management comments
Qube’s Managing Director Paul Digney said: “We are delighted to announce Qube’s entry into a binding sale agreement with the LOGOS consortium… We believe that the transaction with the LOGOS consortium allows Qube to realise a strong value for the MLP Property Assets, de-risks delivering the leasing and development of future warehouses and significantly reduces Qube’s ongoing capital expenditure requirements.
“Further, the transaction positions Qube strongly to focus on growing its core logistics business, while retaining exposure to long-term growth in container volumes at MLP through terminal and logistics activities.”
Impairments
At 30 June 2021, Qube will have invested approximately $305 million on the IMEX Terminal and expects to spend a further $80 million to complete the automation. Qube currently expects to recognise a “material” impairment on the carrying value of the IMEX as part of its FY21 result.
Based on Qube’s preliminary analysis, the impairment is expected to be in the range of $150 million to $215 million (pre-tax).
Qube said that it has recently undertaken a revised forecast of the expected short to medium term volumes through the IMEX Terminal. The forecast volumes reflect a slower ramp up in volumes, with catchment volumes in particular being lower than originally expected.
As a result, the high fixed costs associated with the automation are not expected to be recovered in the short term, leading to negative earnings and operating cashflow until volumes reach the scale required to generate positive cashflow.
Summary thoughts on Qube and the share price
Qube isn’t a company that I follow closely so I assume management are happy with this sale and will put the proceeds to good use. The share price rose after the announcement so it looks like investors are moderately pleased with news.
