24 Dec 2018 07:00
STENPROP LIMITED
(Registered in Guernsey)
(Registration number 64865)
LSE share code: STP JSE share code: STP
ISIN: GG00BFWMR296
("Stenprop" or the "Company")
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION
ACQUISITION OF A MULTI-LET INDUSTRIAL PORTFOLIO FOR £72.2 MILLION
24 December 2018
1. Introduction
Shareholders are advised that Stenprop has acquired a portfolio of multi-let industrial ("MLI") properties (the "Portfolio") for a gross purchase consideration of £72.2 million (the "Acquisition"), including acquisition costs of £4.3 million.
The Portfolio is made up of 22 separate properties across the UK with a gross lettable area ("GLA") of approximately 1.16 million square feet (107,749 sq m) and a diversified base of approximately 281 tenancies. The current passing annual rent is £4.89 million and the forecast annual rental income for the year ending 31 March 2020 is £4.56 million. Further details of the Portfolio are set out in paragraph 4 below.
Paul Arenson, CEO of Stenprop, said: "The acquisition of the Portfolio is a big step forward in delivering our strategy of becoming the leading MLI business in the UK. The Acquisition is earnings enhancing from inception and increases the MLI component of our portfolio to more than 34%. The purchase has been funded partly from the sale proceeds of our Swiss and Aldi portfolios and partly from the short-term use of our Investec Revolving Credit Facility. We have other sales of non-MLI properties in the pipeline. Once these sales are completed, overall debt will reduce to approximately 44% LTV and the MLI component will represent more than 41% of our portfolio. We are on track to meet our timetable for the two-year strategic plan communicated to investors which envisaged being at 65% MLI by 31 March 2020 with 40% overall leverage".
2. Rationale
Stenprop has previously announced its strategic vision to become the leading MLI business in the UK. This strategy entails selling all its non-MLI properties over time and utilising the sale proceeds to acquire UK MLI properties which fit its acquisition criteria. A further material component of this strategy is to build a market leading MLI management platform using technology to improve efficiencies.
The Acquisition assists Stenprop to meet these objectives. It materially increases the MLI component of Stenprop's portfolio and its coverage across the UK, and the Portfolio will benefit from Stenprop's technology-focused approach.
Julian Carey, Executive Property Director, added: "The Portfolio comprises 22 purpose-built MLI estates with an average unit size of 3,500 sq ft located in densely-populated urban areas where demand for flexible industrial accommodation continues to grow. The size of the individual units is comparable with our existing portfolio and is representative of the segment of the market where we feel there is the greatest potential for our serviced industrial concept. Furthermore, the average rent of £4.48/sq ft is around 20% lower than that on our existing MLI portfolio, providing room for rental growth to be captured through asset management. The Portfolio also boosts our representation in the key regional industrial markets around Manchester, Birmingham and Liverpool, and the investment we have made into our technology over the last year will enable us to quickly and efficiently absorb the assets onto our Industrials.co.uk platform".
3. Funding of the Acquisition
Stenprop acquired the 18 freehold and 4 long-leasehold interests in the 22 properties from Hansteen Holdings PLC (the "Seller") for a purchase price, excluding acquisition costs, of £67.9 million (the "Purchase Price").
Simultaneous exchange and completion of the transaction took place on 21 December 2018. The Purchase Price was paid in cash, using existing cash resources and a drawdown of £35.0 million under the Investec Revolving Credit Facility ("Investec RCF"). Stenprop intends to repay the Investec RCF using the proceeds from the disposal of assets held for sale and a bank loan of approximately £27.2 million to be secured against the Portfolio and which the Company expects to draw in late January 2019.
4. Property specific information
All properties in the Portfolio fall within the MLI sector.
| Property name | Geographic location | GLA(sq.ft) | Weighted average rental per square foot(£/sq.ft) |
1 | Horsham, Star Road Industrial Estate, Partridge Green | South East | 66,160 | 6.46 |
2 | Burton upon Trent, Albion Gateway, Battista Road | Midlands | 27,967 | 6.20 |
3 | Burntwood, Chasewater Heaths Business Pk, Cobbett Road | Midlands | 40,246 | 5.46 |
4 | Stoke on Trent, Queensway Industrial Estate, Longbridge Road | Midlands | 64,571 | 4.17 |
5 | Birmingham, Tyburn Trading Estate, Ashfold Farm Road | Midlands | 51,297 | 5.31 |
6 | Loughborough, Windmill Road Industrial Estate, Windmill Road | Midlands | 29,322 | 5.09 |
7 | Holywell - Greenfield A-M, Greenfield Business Pk (A-M), Bagillt Road | Wales | 128,400 | 3.04 |
8 | Rhyl, Tir Llwyd Industrial Estate, St. Asaph Avenue | Wales | 68,042 | 4.91 |
9 | Rochdale, Phoenix Close Ind Est, Heywood | Yorkshire | 42,183 | 5.90 |
10 | Sheffield, Holbrook Enterprise Park, Enterprise Way | Yorkshire | 53,062 | 5.01 |
11 | Darlington - Cleveland, Cleveland Trading Estate, Cleveland St | North East | 29,764 | 4.12 |
12 | Ellesmere Port - Venture Point, Stanney Mill Road | North West | 45,158 | 5.60 |
13 | Huyton, Chapel Brook Trade Park, 13 Wilson Road | North West | 84,762 | 3.78 |
14 | Liverpool, Brasenose Road | North West | 85,132 | 3.18 |
15 | Middleton - Hanson Park, Hanson Park, Hanson Close | North West | 10,099 | 6.14 |
16 | Middleton - Jubilee Park, Jubilee Park, Hanson Road | North West | 15,300 | 4.04 |
17 | Middleton - Townley Pk, Townley Park, Hanson Street | North West | 32,608 | 4.89 |
18 | Liverpool, Larch Lea Industrial Estate, Castor Street | North West | 46,382 | 3.80 |
19 | Liverpool, Link at Huyton Business Pk, Ellis Ashton Street | North West | 86,971 | 3.74 |
20 | Prestwich, Mountheath Trading Est, Ardent Way | North West | 36,596 | 7.61 |
21 | Preston, Old Mill Industrial Estate, School Lane, Bamber Bridge | North West | 102,779 | 3.60 |
22 | Darwen, Watery Lane | North West | 13,004 | 4.22 |
Total |
| 1,159,805 | 4.48 | |
The Purchase Price payable for the Portfolio is considered to be its fair market value, as determined by the directors of the Company. The directors of the Company are not independent and are not registered as professional valuers or as professional associate valuers in terms of the Property Valuers Profession Act, No.47 of 2000.
5. Financial information
Set out below is the forecast financial information of the Portfolio (the "Forecast") for the three months and nine days ending 31 March 2019 and the 12 months ending 31 March 2020 (together, the "Forecast Period").
The Forecast, including the assumptions on which it is based and the financial information from which it has been prepared, is the responsibility of the directors of the Company. The Forecast has not been reviewed or reported on by independent reporting accountants.
The Forecast presented in the table below has been prepared in accordance with the Company's accounting policies, which are in compliance with International Financial Reporting Standards.
£ | Forecast from 21 December 2018 to 31 March 2019 | Forecast for the 12 months ending 31 March 2020 |
|
|
|
Rental income (note 1) | 1,224,618 | 4,564,115 |
Property operating expenses | (84,025) | (450,257) |
Net rental income | 1,140,593 | 4,113,857 |
Administrative expenses | (42,862) | (176,817) |
Net operating income | 1,097,732 | 3,937,040 |
Financing costs | (149,240) | (911,720) |
Profit before tax | 948,492 | 3,025,321 |
Taxation | - | - |
Profit after tax | 948,492 | 3,025,321 |
Earnings available for distribution | 948,492 | 3,025,321 |
Note 1 - Rental Income
% | Forecast from 21 December 2018 to 31 March 2019 | Forecast for the 12 months ending 31 March 2020 |
|
|
|
Contracted | 89 | 83 |
Uncontracted | 11 | 17 |
Total | 100 | 100 |
The Forecast incorporates the following material assumptions in respect of revenue and expenses:
1. The Forecast is based on information derived from the lease contracts provided by the Seller, which have been the subject of a legal due diligence, as well as Stenprop's own view, in consultation with its advisors, of the expected income and expenditure associated with the Portfolio.
2. Leases expiring during the Forecast Period are assumed to be re-let at current market rates after a 6.4-month void period on average, unless management believes the lessee has the intention to renew their lease.
3. An average 3.5-month rent-free period has been assumed on all new leases included in the Forecast.
4. Property operating expenses have been forecast on a property by property basis, and are based on service charge budgets, operating expenditure budgets, and forecast vacancy rates and thus landlord void costs for the respective units. A bad debt provision of 1.00% of rental income is included in the Forecast. This provision has been made to account for the estimated impact of irrecoverable rent arrears and tenant forfeiture.
5. Senior debt of £27.2 million with a five-year term secured over the Portfolio has been assumed from 31 January 2019, based on a margin of 2.00% over 3-month LIBOR, hedged using a 5-year interest-rate swap at an assumed rate of 1.40%, giving an all-in cost of debt of 3.40%. Upfront finance costs (including associated professional fees) have been assumed at 2.00% of the senior debt and are amortised over the term of the senior debt. Finance costs do not include the short-term cost of utilising the Investec RCF which has a financing cost of 1-month LIBOR + 7.00%.
6. No fair value adjustment is recognised.
7. The Forecast assumes no unforeseen economic factors will affect the lessees' ability to meet their commitments under existing lease agreements.
6. Categorisation of the Acquisition
The Acquisition is classified as a category 2 transaction in terms of the JSE Listings Requirements. Accordingly, it is not subject to approval by shareholders.
For further information:
Stenprop Limited +44(0)20 3918 6600
Paul Arenson
Patsy Watson
Julian Carey
Numis Securities Limited (Financial Adviser) +44(0)20 7260 1000
Hugh Jonathan
Vicki Paine
Tavistock (PR Adviser) +44(0)20 7920 3150
James Whitmore
James Verstringhe
Kirsty Allan
Instinctif Partners (SA Investor Relations and PR Adviser) +27 (0)11 447 3030
Keagile Makgoba
Java Capital Trustees and Sponsors Proprietary Limited +27 (0)11 722 3050
(JSE Sponsor)
About Stenprop:
Stenprop is a Guernsey-registered UK REIT. The objective of the Company is to deliver sustainable growing income to its investors. Stenprop's investment policy is to invest in a diversified portfolio of UK multi-let industrial (MLI) properties with the strategic goal of becoming the leading MLI business in the UK. For further information, go to www.stenprop.com.
MAR
The information contained within this announcement is considered by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No.596/2014. Upon the publication of this announcement via a Regulatory Information Service, this inside information will be considered to be in the public domain.
FORWARD LOOKING STATEMENTS
This announcement contains certain 'forward-looking' statements. Such statements reflect current views on, among other things, our markets, activities, projections, objectives and prospects. Such 'forward-looking' statements can sometimes, but not always, be identified by their reference to a date or point in the future or the use of 'forward-looking' terminology, including terms such as 'believes', 'estimates', 'anticipates', 'expects', 'forecasts', 'intends', 'due', 'plans', 'projects', 'goal', 'outlook', 'schedule', 'target', 'aim', 'may', 'likely to', 'will', 'would', 'could', 'should' or similar expressions or in each case their negative or other variations or comparable terminology. By their nature, forward-looking statements involve inherent risks, assumptions and uncertainties because they relate to future events and depend on circumstances which may or may not occur and may be beyond our ability to control or predict. Forward-looking statements should be regarded with caution as actual results may differ materially from those expressed in or implied by such statements.
Important factors that could cause actual results, performance or achievements of Stenprop to differ materially from any outcomes or results expressed or implied by such forward-looking statements include, among other things: (a) general business and political, social and economic conditions globally, (b) the consequences of the referendum on Britain leaving the EU, (c) industry and market trends (including demand in the property market and property price volatility), (d) competition, (e) the behaviour of other market participants, (f) changes in government and other regulation, including in relation to the environment, health and safety and taxation (in particular, in respect of Stenprop's status as a Real Estate Investment Trust), (g) inflation and consumer confidence, (h) labour relations and work stoppages, (i) natural disasters and adverse weather conditions, (j) terrorism and acts of war, (k) Stenprop's overall business strategy, risk appetite and investment choices in its portfolio management, (l) legal or other proceedings against or affecting Stenprop, (m) reliable and secure IT infrastructure, (n) changes in occupier demand and tenant default, (o) changes in financial and equity markets including interest and exchange rate fluctuations, (p) changes in accounting practices and the interpretation of accounting standards and (q) the availability and cost of finance. Forward-looking statements in this announcement, or the Stenprop website or made subsequently, which are attributable to Stenprop or persons acting on its behalf should therefore be construed in light of all such factors.
Any forward-looking statements made by or on behalf of Stenprop speak only as of the date they are made. Such forward-looking statements are expressly qualified in their entirety by the factors referred to above and no representation, assurance, guarantee or warranty is given in relation to them (whether by Stenprop or any of its associates, directors, officers, employees or advisers), including as to their completeness, accuracy or the basis on which they were prepared.
Other than in accordance with our legal and regulatory obligations (including under the JSE Listing Requirements, UK Financial Conduct Authority's Listing Rules and Disclosure Rules, Transparency Rules, and the Market Abuse Regulation), Stenprop does not intend or undertake to update or revise forward-looking statements to reflect any changes in Stenprop's expectations with regard thereto or any changes in information, events, conditions or circumstances on which any such statement is based. This document shall not, under any circumstances, create any implication that there has been no change in the business or affairs of Stenprop since the date of this document or that the information contained herein is correct as at any time subsequent to this date.