On September 4, 2020, CEE Legal Matters reported that Herbert Smith Freehills and Reff & Associates had advised NEPI Rockcastle on the sale of six companies owning four Class A office projects in Romania. CEEIHM talked to Robert Ionita, General Counsel of NEPI, to learn more.
CEEIHM: To start, tell us about NEPI Rockcastle and the highlights of its operations in Romania.
Robert: NEPI Rockcastle is the premier owner and operator of shopping centers in Central and Eastern Europe, with a presence in nine countries and an investment portfolio of almost EUR 6 billion. The group’s operations are managed by a highly-skilled internal management team that combines asset management, development, investment, leasing, and financial expertise.
As regards NEPI Rockcastle’s operations in Romania, with a total of 25 regional malls and community centers, the group is the largest owner of retail space in Romania. Despite the negative context and challenges caused by the COVID-19 pandemic, in July NEPI Rockcastle successfully opened the Shopping City Targu Mures with a total investment of EUR 70 million. The shopping center has 40,000 square meters of leasable area, 113 retail spaces for local and international brands, a 3000 square meter outdoor roof garden, and a 550-seat new-concept food garden provided by premium gourmet brands. Also, this summer NEPI Rockcastle completed the extension and refurbishment of Shopping City Buzau.
CEEIHM: How did this deal come about? Was NEPI looking to sell off these companies/assets or did AFI initiate the deal?
Robert: The disposal of the Romanian office portfolio was executed in consideration of NEPI Rockcastle’s investment strategy, which is focused on the core dominant retail properties. In order to implement this strategic investment decision, in 2019 the group initiated an open tender process for the sale of its Romanian office portfolio, which resulted in AFI being selected as the buyer.
CEEIHM: What do you believe it was that made these targets particularly appealing to the buyer?
Robert: Our strategy to dispose of our office portfolio matched AFI’s intention to expand its investments in the office sector. The size of the portfolio – consisting of four class A office buildings in Bucharest and Timisoara, Romania, with a total leasable area of 118,500 square meters – was another aspect relevant for attracting investor interest in this deal.
Additionally, NEPI Rockcastle’s reputation was a guarantee for the quality of the portfolio and our ability to close the deal efficiently and within the agreed-upon legal, financial, and commercial parameters.
CEEIHM: In its story about the sale, CEE Legal Matters reported that "the deal follows a similar agreement that was announced at the end of last year, but that deal did not close as anticipated. This second attempt, which closed in August, was more successful." What was different this time around?
Robert: The initial deal was agreed-upon and signed in December 2019 following the execution, in July 2019, of a non-binding letter of intent setting up the main terms of the deal and granting AFI Europe exclusivity with regard to conducting its due diligence exercise. Subsequent negotiations were held throughout the fourth quarter of 2019. In accordance with the terms of the deal signed in December 2019, the closing was scheduled to take place at the end of March 2020. Regrettably, the closing did not take place as scheduled, which led to NEPI Rockcastle claiming, in arbitration, the contractual guarantee provided by the purchaser regarding the closing procedures. Fortunately, a couple of months later, the parties returned to the negotiation table and managed to execute the deal that had first been agreed-upon back in December 2019.
I believe that what made the difference between March 2020 the (initial scheduled closing date) and August 2020 (when the deal was executed) was a clearer understanding and improved predictability in terms of the impact of COVID-19 on the economy in general and on the real estate sector in particular.
CEEIHM: As in the previous attempt, you relied on Herbert Smith Freehills and Reff & Associates for legal advice on the deal. What was each of the firms' mandate and why did you select them specifically as your legal advisors for this?
Robert: The deal was governed by English law, while the target assets were located in Romania. This led to having two legal teams, each assisting on different aspects of the transaction. This deal was our first transaction with Herbert Smith Freehills, which we selected through a competitive selection process. With Reff & Associates we have a long-standing relationship and they have assisted us several times in the past in relation to a number of transactions executed in Romania, including the disposal of NEPI Rockcastle’s stake in an office project developed in Cluj, Romania, in partnership with local businessman Ovidiu Sandor. Naturally, we maintained the same teams appointed in 2019 for the closing of the deal in August 2020.
Originally reported by CEE In-House Matters.