16 Mar 2010 15:30
16 March 2010
Hansteen Holdings PLC
("Hansteen" or the "Company")
HANSTEEN TO ACQUIRE GERMAN INDUSTRIAL PROPERTY PORTFOLIO FOR €330 MILLION
Hansteen Holdings (LSE:HSTN), the investor in UK and continental European real estate has entered into a conditional agreement to acquire or procure the acquisition of an 861,010 sq m German industrial property portfolio from HBI S.à r.l. and HBI Delta Sub S.à r.l. for an effective acquisition cost of approximately €330 million, financed by using approximately €70 million from Hansteen's existing cash resources and the balance of approximately €260 million in debt.
·; The Portfolio:
o 34 freehold properties across Germany
o Approx 861,010 sq m of leasable area on 205 hectares
o Let to occupiers for industrial, workspace and office use
o Net annual rent receivable of €30.3 million per annum, equating to an initial yield of 9.2 per cent.
o Current vacancy of 24.4 per cent., with an ERV of up to €7.7 million
o Capital value of built space €384 per sq m compared to an insurance rebuild cost of €798 per sq m
o Originally acquired for approximately €439 million and at peak, valued at €454 million
o Highly compatible with Hansteen's existing German portfolio and intensive management approach
·; Funding
o c.€260 million five year facility arranged by UniCredit on beneficial terms and with no recourse to the Hansteen Group
o c.€70 million from Hansteen's existing cash resources
·; Transaction subject to shareholder approval at a General Meeting expected to be held on 1 April 2010
Ian Watson, Joint Chief Executive of Hansteen commented: "We know this portfolio well; it was acquired during the time we were assembling our German portfolio and the two are highly compatible. Our management approach will provide an opportunity to create significant added value, particularly by improving occupancy levels."
Morgan Jones, Joint Chief Executive of Hansteen added: "This portfolio has recently suffered significant capital constraints. We believe that a new asset management strategy could add further value. These opportunities, coupled with a new five year loan on very beneficial terms make this transaction particularly attractive to us."
ENQUIRIES:
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KBC Peel Hunt Ltd, which is regulated by the FSA, is acting as Sponsor and Broker for the Company in relation to the Proposed Acquisition and is not acting for any other person and will not be responsible to any other person for providing the protections afforded to clients of KBC Peel Hunt or for providing advice in relation to the Proposed Acquisition or any other arrangements referred to herein.
OVERVIEW
Hansteen announces that it has entered into a conditional agreement to acquire or procure the acquisition of a German industrial property portfolio from HBI S.à r.l. and HBI Delta Sub S.à r.l for an effective acquisition cost of approximately €330 million. The Portfolio to be acquired comprises 34 freehold industrial properties, which were acquired in the period from 2005 to 2007 by the Sellers. The acquisitions of the properties within the Portfolio are partially funded by a €260 million bank facility arranged by UniCredit, which is secured against the assets of the Target Group. The remaining consideration of approximately €70 million (including the Swap Break Costs of up to €30 million) will be funded from Hansteen's existing cash resources. For some time, HBI Holding S.à r.l. has been in breach of the covenants in its existing bank facility. UniCredit has agreed to arrange ongoing financing to the Target Group, if the Portfolio is purchased by Hansteen, on terms which the Directors believe to be beneficial. The Directors consider the assets in the Portfolio to be highly compatible with Hansteen's existing German portfolio and intensive management approach. The Proposed Acquisition provides an opportunity for Hansteen to purchase a large, high yielding industrial property portfolio in which the Directors believe significant added value opportunities exist, particularly through improvements in occupancy levels.
In view of the size of the Proposed Acquisition, which constitutes a Class I transaction under the Listing Rules, the Proposed Acquisition is conditional on Shareholder approval at a General Meeting, notice of which will be included in the Circular to be sent to shareholders in due course. Copies of the Circular, when published, will also be made available on the Company's website www.hansteen.co.uk. The General Meeting is expected to be held on 1 April 2010.
DESCRIPTION OF THE PORTFOLIO
The Portfolio comprises 34 freehold properties in Germany let or partially let to occupiers for industrial, workshop and office use. The properties were valued at an aggregate of €330.2 million as at 25 February 2010.
The key characteristics of the Portfolio, as at 25 February 2010 (the effective date of the Valuation Report), are as follows:
·; approximately 861,010 sq m of leasable area on 205 hectares of land;
·; the capital value per sq m of leasable area is €384 per sq m, compared to an insurance rebuild cost of €798 per sq m;
·; net annual rent receivable of €30.3 million;
·; an initial yield of 9.2 per cent. from passing rents; and
·; current vacancy of 24.4 per cent. with an estimated rental value of up to €7.7 million.
Each property in the Portfolio is held in a separate special purpose vehicle. As a result, the Proposed Acquisition will be structured as an acquisition of the entire issued share capitals of HBI Holding S.à r.l. and HBI Delta GP S.à r.l. from HBI and the six per cent. limited partnership interests in Hero One from HBI Delta (which together hold all of the special purpose vehicles).
BACKGROUND TO THE PROPOSED ACQUISITION
Hansteen's stated objective is to achieve consistent high returns for its Shareholders by identifying properties which represent value opportunities and managing them vigorously to realise the value identified.
In July 2009, Hansteen raised £200.8 million in new equity to pursue opportunistic property acquisitions resulting from the economic downturn. At that time, Hansteen's expectation was that the bulk of this capital would be invested in UK based investment property opportunities. Since raising this new equity, in the Director's view, the number of value opportunities that have become available at attractive prices in the UK has been very limited although the Directors believe that better value opportunities are likely to emerge in the UK in due course. In the meantime, Hansteen was invited by UniCredit and GPT Halverton (now Internos Investors) to investigate the potential acquisition of the Portfolio and the restructuring of the Target Group's existing debt.
As Shareholders will be aware, Hansteen has a substantial portfolio of industrial and office property in Germany, which has been acquired since 2006; this has performed positively, notwithstanding the property downturn. In Hansteen's experience the limited supply of new industrial property in Germany, low rents and capital values and lack of focused industrial property competitors means that there are good opportunities to create value through the acquisition of additional industrial properties in Germany. Hansteen's current German portfolio was valued at 30 June 2009 at €227 million with a rent roll of €20.1 million, representing an initial yield of 8.9 per cent. That valuation remains above the total acquisition cost of the portfolio including all capital expenditure. Furthermore, the properties in Germany sold to date have been sold at prices above original cost. Net occupancy of Hansteen's portfolio in Germany during 2009 was broadly unchanged for the year at approximately 84 per cent.
REASONS FOR AND BENEFITS OF THE PROPOSED ACQUISITION
Hansteen is familiar with the Portfolio, which was acquired during the same period that Hansteen was acquiring its own German portfolio. The Directors believe that the assets in the Portfolio are highly compatible, in the Directors' opinion, with Hansteen's existing German portfolio. Hansteen's active management approach should also provide an opportunity to create significant added value, particularly through improvements in the occupancy levels. UniCredit has arranged a new five year loan to the Target Group on terms that the Directors consider to be very beneficial, making this opportunity particularly attractive in the Directors' opinion.
In the Directors' view, the Portfolio has recently suffered significant capital constraints. The Directors understand that there has been a large turnover both of senior staff within the asset management company as it sought to return to profitability and of the firms engaged as property managers to the Portfolio. Hansteen will therefore provide a stable platform which the Directors believe will allow more successful management of the Portfolio.
The Portfolio was originally acquired for a total acquisition cost of approximately €439 million and at its peak was valued at €454 million in November 2007. As asset values fell, the Target Group breached its loan to value covenants, in respect of the Portfolio, and UniCredit subsequently implemented a "cash trapping" procedure which further constrained the management of the Portfolio. During the 12 month financial period ending 31 December 2009, the estimated gross profits generated by the Portfolio, as extracted from unaudited historic HBI management information, amounted to €29.7m, which have continued to decline as the asset management of the Portfolio has deteriorated.
Furthermore, the asset management strategy in relation to the Portfolio appears not to have actively considered sales or change of use, both of which, in the Directors' opinion, could selectively add value. With Hansteen's focus on active management and its access to capital, in the Directors' view, the Portfolio has the potential to achieve occupancy rates at least as good as Hansteen's existing portfolio in Germany at this stage in the market cycle. The Directors believe that both the Portfolio and Hansteen's existing portfolio in Germany are well placed to improve occupancy in the event economic conditions improve. In addition, the acquisition of the Portfolio into Hansteen's existing German portfolio should present, in the Directors' view, an opportunity to exploit economies of scale in respect of the management of all of the German assets in the Enlarged Group.
TERMS OF THE PROPOSED ACQUISITION
Hansteen has entered into a conditional agreement with the Sellers to acquire or procure the acquisition of the entire issued share capitals of HBI Holding S.à r.l. and HBI Delta GP S.à r.l. from HBI and the six per cent. limited partnership interests in Hero One S.à r.l. & Co KG from HBI Delta (which are not already owned by HBI Holding S.à r.l.), for an aggregate cash consideration of €4, and on the basis that Hansteen renegotiates the terms of the Target Group's existing bank loan with UniCredit in the sum of €300 million. Together HBI Holding S.à r.l., HBI Delta GP S.à r.l. and Hero One S.à r.l. & Co KG own the Portfolio. The Hansteen Group will directly acquire 100 per cent. of the shares in HBI Delta GP S.à r.l., the 6 per cent. interest in Hero One and 94.9 per cent. of the shares in HBI Holding S.à r.l. and Hansteen will procure that a third party will acquire the remaining 5.1 per cent. interest in HBI Holding S.à r.l.. Pursuant to this structure Hansteen will have an effective economic interest of 99.74 per cent. in the Target Group and a third party will have an effective economic interest of 0.26 per cent. in the Target Group.
On Completion, Hansteen has agreed to restructure the Target Group's existing bank loan with UniCredit such that the Target Group's existing loan of €300 million will be amended and restated. The amended and restated credit agreement will have a term of five years with UniCredit with a reduced facility amount of €260 million. The New Credit Agreement will continue to be between UniCredit and the Target Group and will be non-recourse to the existing assets of Hansteen. Interest on any loan drawn under the New Credit Agreement shall accrue at a rate equal to mandatory costs and EURIBOR plus a margin of 1.10 per cent. per annum.
Hansteen will also procure that the Target Group will pay the Swap Break Costs to the lenders. The Target Group will enter into new hedging arrangements in respect of the New Credit Agreement with UniCredit and the other lenders under the New Credit Agreement. The fixed rate under such new hedging arrangements is expected to be lower than the rate fixed under the existing swap arrangements in relation to the Existing Credit Agreement, which have a fixed rate of 4.565 per cent. As at 8 March 2010, the estimated Swap Break Costs were approximately €32.67 million. The actual Swap Break Costs will be determined on the date of Completion and Hansteen has agreed to contribute a maximum of €30 million to the Target Group for the purposes of paying the Swap Break Costs.
To the extent that the actual Swap Break Costs are less than €30 million, the difference will be retained within the Target Group as working capital. To the extent that the actual Swap Break Costs are more than €30 million (such amount being the "Excess"), the rate of the new hedging to be entered into in respect of the New Credit Agreement will be set at a rate which ensures that the new hedging arrangements will have a value to the hedging counterparties of an amount equal to the Excess.
Hansteen will finance the costs of the Proposed Acquisition (including the payment of the Swap Break Costs) by using €70 million from its existing available cash reserves with the balance of €260 million continuing to be made available under the New Credit Agreement, resulting in an effective acquisition cost of approximately €330 million.
FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION
The Proposed Acquisition is an acquisition by a "property company" of "property" for the purposes of Listing Rule 13.5.1. As such, Hansteen is not required to include three years of financial information on the Portfolio in the Circular as set out in Listing Rule 13.5.
However, pursuant to the requirements of Listing Rule 13.4.4, the Directors have commissioned an external property valuation prepared by King Sturge on the Portfolio and this valuation together with the Directors' experience of owning and managing similar properties in Germany over the last four years has comprised the basis of the Directors' financial assessment of the Proposed Acquisition.
As set out in the Valuation Report in the Circular, as at 25 February 2010, the value of the gross assets in the Portfolio is €330.2 million and the annual rent attributable to such assets is €30.3 million together with an estimated rental value on the vacant space of €7.7 million per annum.
Based on the estimated difference between anticipated finance costs and the relatively high yield of the Portfolio, and taking into account the irrecoverable costs relating to the high level of vacancies in the Portfolio, the Directors anticipate that the Proposed Transaction will be earnings enhancing.
Upon Completion, Hansteen's fixed assets will increase by approximately €330 million, cash balances will reduce by approximately €70 million and the Group's long-term liabilities will increase by approximately €260 million.
Currently Hansteen is unhedged in its exposure to fluctuations in the Euro. Hansteen's net exposure to Euro denominated assets will increase as a result of the €70 million commitment Hansteen is making in respect of the Acquisition. The Directors will continue to review this exposure and Hansteen's hedging strategy on an ongoing basis.
CURRENT TRADING AND PROSPECTS OF THE ENLARGED GROUP
Since 31 December 2009, Hansteen has traded in line with the Directors' expectations. The Board views the prospects of the Group and the Enlarged Group for the current financial year with confidence.
RISK FACTORS
Shareholders should consider fully and carefully the risk factors associated with the Proposed Acquisition, the Enlarged Group and the industry in which the Group and the Target Group operate and your attention is drawn to the risk factors set out in the Circular.
GENERAL MEETING
In view of the size of the Proposed Acquisition, Shareholders' approval is required in order for Hansteen to proceed with the Proposed Acquisition. Notice of the General Meeting will be set out at the end of the Circular, to be published in due course. The General Meeting is expected to be held on 1 April 2010.
FURTHER INFORMATION
Shareholders are advised to read all the information contained in the Circular before deciding what action to take in respect of the General Meeting.
FINANCIAL ADVICE
The Directors have received financial advice from KBC Peel Hunt in relation to the Proposed Acquisition. In providing their advice to the Directors, KBC Peel Hunt has taken into account the Directors' commercial assessment of the Proposed Acquisition.
RECOMMENDATION TO THE SHAREHOLDERS
The Board considers the Proposed Acquisition to be in the best interests of Shareholders as a whole. Accordingly, the Board unanimously recommends Shareholders to vote in favour of the Resolution, as each individual Director intends to do in respect of his beneficial holdings. In aggregate, the Directors' beneficial holdings amounted to 9,250,000 Ordinary Shares as at 15 March 2010 (the latest practicable date prior to the publication of the Circular), representing approximately 2.04 per cent. of the Company's entire issued ordinary share capital (excluding treasury shares).
DEFINITIONS
The following definitions apply in this announcement unless the context requires otherwise:
| "Acquisition Agreement" | the conditional share acquisition agreement dated 16 March 2010 between HBI, Hansteen, HBI Holding S.à r.l., HBI Delta GP S.à r.l. and HBI Delta relating to the Proposed Acquisition and described in Part III of the Circular; |
| "Board" or "Directors" | the board of directors of the Company, whose names appear on page 6 of the Circular; |
| "Circular" | the circular to be sent to Shareholders relating to the Proposed Acquisition convening the General Meeting |
| "Commitment Letter" | the commitment letter dated 16 March 2010 addressed to Hansteen from UniCredit, pursuant to which UniCredit is legally committed, subject to the satisfaction of certain conditions precedent, to continue to make the restated €260,000,000 facility available to the Target Group pursuant to the terms of the New Credit Agreement and as more fully described in Part III of the Circular; |
| "Company" or "Hansteen" | Hansteen Holdings PLC a public limited company incorporated in England and Wales; |
| "Completion" | completion of the Proposed Acquisition in accordance with the terms of the Acquisition Agreement; |
| "Enlarged Group" | the Hansteen Group as enlarged following the Proposed Acquisition; |
| "EUR" or "€" | the current lawful single currency of the member states of the European Union participating in the Euro; |
| "Existing Credit Agreement" | credit agreement dated 7 December 2007 between, amongst others, UniCredit and the Target Group; |
| "Financial Services Authority" or "FSA" | the Financial Services Authority of the United Kingdom; |
| "FSMA" | the United Kingdom Financial Services and Markets Act 2000, as amended; |
| "General Meeting" | the general meeting of the Company expected to be held on 1 April 2010, notice of which will be set out at the end of the Circular; |
| "Hansteen Group" or "Group" | the Company and each of its subsidiaries, prior to the Proposed Acquisition; |
| "HBI" | HBI S.à r.l.; |
| "HBI Delta" | HBI Delta Sub S.à r.l.; |
| "Hero One" | Hero One S.à r.l. & Co KG; |
| "KBC Peel Hunt" | KBC Peel Hunt Ltd, sponsor and stockbroker to the Company; |
| "King Sturge" | King Sturge LLP, an independent property valuation expert; |
| "Listing Rules" | the Listing Rules published by the Financial Services Authority in accordance with 73A(2) of FSMA; |
| "London Stock Exchange" or "LSE" | London Stock Exchange PLC; |
| "New Credit Agreement" | the Existing Credit Agreement as amended and restated pursuant to the terms of a supplemental agreement between, amongst others, UniCredit and the Target Group entered into on Completion as appended to the Commitment Letter and as more fully described in Part III of the Circular; |
| "Official List" | the official list maintained by the Financial Services Authority for the purposes of Part VI of FSMA; |
| "Ordinary Shares" | ordinary shares in the capital of the Company which have a nominal value of 10p each; |
| "Portfolio" | the portfolio of properties to be acquired pursuant to the terms of the Acquisition Agreement, as more particularly described in both paragraph 2 of Part I of the Circular and the Valuation Report; |
| "Proposed Acquisition" | the proposed acquisition by Hansteen or, as applicable, a nominee or nominees of Hansteen of the Target Group pursuant to the Acquisition Agreement; |
| "Resolution" | the resolution to be proposed at the General Meeting; |
| "Sellers" | together HBI and HBI Delta; |
| "Shareholders" | holders of Ordinary Shares in the Company; |
| "Sterling" or "£" | the current lawful currency of the United Kingdom; |
| "Swap Break Costs" | the costs payable by the Target Group to UniCredit in consideration of the early termination of the existing hedging arrangements entered into in connection with the Existing Credit Agreement; |
| "Target Group" | (a) HBI Holding S.à r.l. and its subsidiaries; (b) HBI Delta GP S.à r.l. and (c) Hero One; |
| "UK" or "United Kingdom" | the United Kingdom of Great Britain and Northern Ireland; |
| "UKLA" or "UK Listing Authority" | the FSA acting in its capacity as the competent authority for the purposes of FSMA; |
| "UniCredit" | UniCredit Bank AG, London Branch (formerly Bayerische Hypo- und Vereinsbank AG); and |
| "Valuation Report" | the valuation report prepared by King Sturge dated 16 March 2010. |