TIDMRGL TIDMCIC TIDMCICZ
RNS Number : 6676X
Regional REIT Limited
23 February 2017
23 February 2017
Regional REIT Limited
Conditional Acquisition of c. GBP129m of Property Assets from
The Conygar Investment Company PLC
Significant deal to expand UK regional footprint and expand
asset management opportunities
Regional REIT Limited (LSE: RGL) ("Regional REIT", "the Group"
or "the Company"), the UK regional office and industrial property
focused REIT, today announces that it has reached an agreement with
The Conygar Investment Company PLC ("Conygar") (LSE: CIC) to
acquire UK regional office, industrial and retail & retail
distribution investment properties owned by Conygar (the "Conygar
Property Portfolio" or the "Portfolio"), valued at c. GBP129m.
Regional REIT will acquire the properties by way of purchasing the
Special Purpose Vehicles ("SPVs") that own the individual assets.
Pursuant to the terms of the proposed acquisition Regional REIT
will issue ordinary shares at its EPRA Net Asset Value (30 June
2016), adjusted as agreed between the parties, to acquire the
Conygar Property Portfolio at the net asset value of the SPVs,
again adjusted as agreed between the parties.
The consideration will be satisfied as to GBP28.0m by the issue
of approximately 26.3m Regional REIT ordinary shares to Conygar
(subject to adjustment) and the assumption of two existing secured
banking facilities (totalling GBP69.5m). The balance of the
consideration will be satisfied by Regional Commercial Midco
Limited, a wholly owned subsidiary of Regional REIT, acquiring
Conygar ZDP PLC ("Conygar ZDP") (LSE: CICZ), a wholly-owned
subsidiary of Conygar, and assuming Conygar's obligations to fund
the liabilities of Conygar ZDP (subject to certain agreed
adjustments), being approximately GBP35.7m in relation to zero
dividend preference shares ("ZDPs") issued by Conygar ZDP as at the
expected date of completion on 24 March 2017. The total
consideration for the proposed acquisition, which includes shared
transaction savings and certain balance sheet adjustments agreed
between the parties, is subject to a potential net assets
adjustment following completion.
The proposed acquisition is conditional upon the approval of
Conygar's ordinary shareholders and, separately, of the holders of
the ZDPs. In addition, the completion of the proposed acquisition
requires the approval of the change of control by the two banks
currently providing secured debt facilities to Conygar.
Transaction Highlights
-- The Conygar Property Portfolio to be acquired comprises 31
mixed-use property assets amounting to 1,280,980 sq. ft. with a
gross investment value of c. GBP129m (as at 30 September 2016). The
Portfolio consists of 153 units and 115 tenants.
-- By value, offices represent some 60% of the Portfolio and 12%
is industrial. In addition, retail & retail warehousing
represents 21% and leisure is 7%. The largest single asset is c.
11% of the gross asset value of the Portfolio being acquired.
-- The Portfolio is geographically spread across the regions of
England & Wales outside of the M25 motorway, with Scotland
amounting to c. 20% (by value). There is a minimal overlap of
tenants with the existing lettings of Regional REIT.
-- The net initial yield of the Portfolio is 7.0%, assuming standard purchaser's costs of 6.8%.
-- Occupancy (as at 30 September 2016) amounted to 82.9% (by rental value) of the Portfolio.
-- The weighted average unexpired lease term to expiry is 5.8
years; WAULT to first break is 3.8 years.
-- The Portfolio comprises institutional investment quality
assets and Regional REIT has identified numerous active asset
management opportunities across the Portfolio, offering increased
occupancy, reduced void costs and higher rental income.
-- The proposed acquisition is expected to complete on 24 March 2017.
Strategic Rationale for the Proposed Acquisition
-- Consistent with Regional REIT's strategy for the
opportunistic purchase of commercial property investment assets,
complementary to the existing asset base of the Group and aligns
well with the expertise and experience of the Asset Manager, London
& Scottish Investments Limited.
-- Regional location, geographically diverse throughout the UK.
-- Benefits of portfolio scale and coverage, for recycling
capital and flexibility of the asset base and for diversifying
risk.
-- Extensive active asset management opportunities, whilst requiring only limited investment.
-- Retail properties of high quality, with opportunities to
manage for income and growth and potential sale.
-- Additional debt facilities with a low interest margin, to
mature in 2021; broadens the banking relationships of the
Group.
Financing Summary
-- The independent gross investment valuation of the Conygar
Property Portfolio to be acquired amounts to c. GBP129m (as at 30
September 2016).
-- The net asset value on completion, taking into account the
Conygar ZDP liabilities (as at the expected date of completion of
the proposed acquisition) and certain agreed adjustments, amounts
to approximately GBP28m.
-- Regional REIT will issue approximately 26.3m ordinary shares
(subject to adjustment) in satisfaction of GBP28.0m of the
consideration. The shares will be issued at the Group's EPRA NAV
per share as at 30 June 2016 (108.012pps) adjusted, as agreed
between the parties, to an issue price of 106.347 pence per share.
These shares represent 9.6% of the existing Regional REIT share
base, of 274.22m shares, and 8.8% of the enlarged share base.
-- The Regional REIT shares will be issued on completion of the
proposed acquisition on 24 March 2017. These shares will qualify
for the first-quarter 2017 dividend of Regional REIT, expected to
be declared on 25 May 2017.
-- The ordinary shares issued to Conygar will be subject to a
lock-in of 6-months for the first one-third, 12-months for the
second third and 18-months for final third, commencing on the date
of completion of the acquisition.
-- The Group will assume two secured bank debt facilities
totaling GBP69.5m, bearing a blended interest margin of c. 2%, and
maturing in 2021.
-- The Group will also acquire Conygar ZDP, a wholly owned
subsidiary of Conygar, and assume Conygar's obligations to fund the
financial obligations of the ZDPs which principally relate to the
zero dividend preference shares. The outstanding liability on the
preference shares at the expected completion date of the proposed
acquisition will be c. GBP35.7m, and an agreed value on maturity,
as at 9 January 2019, of GBP39.9m.
-- On completion of the proposed acquisition the Group estimates
(based on its own Consolidated Balance Sheet as at 30 June 2016)
that it would have a net LTV-ratio of c. 47%.
-- Following completion of the proposed acquisition, there will
be an adjustment for the difference between the estimated net asset
value of the SPVs and the net asset value of the SPVs at
completion.
Stephen Inglis, Group Property Director and Chief Investment
Officer of London & Scottish Investments, the Asset Manager of
Regional REIT, commenting on the proposed transaction, said: "This
is a quality investment portfolio secured 'off market', offering
substantial asset management opportunities and income growth
potential. The transaction is expected to be earnings accretive to
Regional REIT, with significant upside potential as we implement
our property management projects for each asset and increase
occupancy".
"The deal is complementary to the existing asset base of
Regional REIT and aligns well with expertise and experience of the
Asset Manager. There are the benefits of portfolio scale and
coverage, for recycling capital and flexibility of the asset base
and for diversifying risk. The spread of properties and tenants
further underpins the strength of the Group's income base."
"I look forward to welcoming and working with Conygar as a
Shareholder."
This announcement contains inside information which is disclosed
in accordance with the Market Abuse Regulation that came into
effect on 3 July 2016.
Enquiries:
Regional REIT Limited
Press enquiries through Headland PR
Toscafund Asset Management LLP Tel: +44 (0) 20 7845 6100
Investment Manager to the Group
James S Johnson, Investor Relations, Regional REIT Limited
London & Scottish Investments Limited Tel: +44 (0) 141 248 4155
Asset Manager to the Group
Stephen Inglis
Peel Hunt LLP Tel: +44 (0) 20 7418 8900
Corporate Broker to Regional REIT Limited
Capel Irwin
Headland PR Consultancy LLP Tel: +44 (0) 20 7367 5222
Financial PR
Francesca Tuckett
About Regional REIT
Regional REIT Limited (LSE: RGL) is a London Stock Exchange Main
Market traded specialist real estate investment trust focused on
office and industrial property interests in the principal regional
locations of the United Kingdom outside of the M25 motorway.
Regional REIT is managed by London & Scottish Investments,
the Asset Manager, and Toscafund Asset Management, the Investment
Manager, and was formed by the combination of two existing funds
previously created by the Managers as a differentiated play on the
expected recovery in UK regional property, to deliver an attractive
total return to Shareholders and with a strong focus on income.
The Group's investment portfolio, as at 30 June 2016, was spread
across 128 regional properties, 974 units and 719 tenants. As at 30
June 2016, the investment portfolio had a value of GBP501.3m and a
net initial yield of 7.1%. The weighted average unexpired lease
term to first break was approximately 3.6 years.
The Company's shares were admitted to the Official List of the
UK's Financial Conduct Authority and to trading on the London Stock
Exchange on 6 November 2015. For more information, please visit the
Group's website at www.regionalreit.com.
Cautionary Statement
This document has been prepared solely to provide additional
information to Shareholders to assess the Group's performance in
relation to its operations and growth potential. The document
should not be relied upon by any other party or for any other
reason. Any forward looking statements made in this document are
done so by the Directors in good faith based on the information
available to them up to the time of their approval of this
document. However, such statements should be treated with caution
due to the inherent uncertainties, including both economic and
business risk factors, underlying any such forward-looking
information.
Other Information
The release, publication, transmission or distribution of this
announcement in, into or from jurisdictions other than the United
Kingdom may be restricted by law and therefore persons in such
jurisdictions into which this announcement is released, published,
transmitted or distributed should inform themselves about and
observe such restrictions. In particular (but without limitation)
this announcement is not for release, publication or distribution,
directly or indirectly, to US persons, or into the United States,
or into or from Canada or any other jurisdiction in which the same
would be unlawful. Any failure to comply with the restrictions may
constitute a violation of the securities laws of any such
jurisdiction.
Additional Information
Further Information on the Conygar Property Portfolio Being
Acquired
The Conygar Property Portfolio potentially being acquired
comprises 31 mixed-use property assets:
a) 16 offices, with a mix of multi-lets and single-lets;
b) 4 industrial sites, comprising a mix of multi-lets and single lets;
c) 7 retail properties, with a mix of high street parades, high
street standalone and a shopping centre, and 3 retail warehouses,
comprising two parks and one standalone warehouse; and,
d) 1 leisure asset, a mixed retail and leisure facility.
There have been no material changes to the Portfolio since 30
September 2016.
Management of the Enlarged Portfolio
Regional REIT will incorporate the SPVs that own the individual
assets that the Vendors are selling into the Group's own existing
corporate structure. Regional REIT will maintain its existing
external management arrangements.
The Asset Manager manages the Group's existing property
portfolio in-house. The main activity that is outsourced is to
letting agents to find tenancies. The Asset Manager's principal
office is in Glasgow, and it has additional offices in Leeds,
Manchester and London. The Asset Manager believes that it has
sufficient in-house capacity and experience to manage the
incremental Portfolio within its existing business model.
Similarly, the additional requirements on the Investment Manager
are manageable within existing resourcing.
Financial Effects of the Proposal on the Enlarged Regional
REIT
The Board's expectation is for the transaction to be earnings
accretive, with additional accretion in later years based on active
management progressively improving occupancy but with no assumption
of any increase in rental rates.
The contracted rent roll of the Conygar Property Portfolio
amounted to GBP9.7m per annum as at 30 September 2016.
The pro forma net LTV of the Group on the combined portfolio,
incorporating the bank loans to SPVs and the current ZDP liability
as debt, would increase to approximately 47%, based on the Group's
Consolidated Balance Sheet as at 30 June 2016.
Expected Timetable for the Transaction
Announcement of the transaction 23 February 2017
Transaction expected to complete 24 March 2017
Other Key Announcement Dates for Regional REIT
2016 Preliminary Results Announcement 23 March 2017
Q4 2016 Dividend Paid 13 April 2017
Q1 2017 Trading Update, AGM Statement and Dividend Announcement 25 May 2017
Note: all future dates are provisional and subject to
change.
Appendix 1 - List of The Conygar Investment Company Property
Assets to be Acquired
Floor
Area
(sq.
Town Address Use ft.) Main Tenants
============== =========================== =========== ================= =====================
Ceva Logistics
Ltd, Alstom
Ashby Ashby-de-la-Zouch, UK Ltd, Hill
Park Ashby Park, Office 90,898 rom Ltd
============== =========================== =========== ================= =====================
Compass House, 11
Riverside Drive,
Dundee Dundee Office 30,342 Care Inspectorate
============== =========================== =========== ================= =====================
Brennan House, Farnborough
Farnborough Aerospace Office 29,707 -
============== =========================== =========== ================= =====================
Integration House,
Ancells Business Gleeson Homes
Fleet Park Office 11,679 Ltd
============== =========================== =========== ================= =====================
Reed Specialist
Recruitment
Charles House, 61/69 Ltd, Ingeus
Northampton Derngate, Northampton Office 28,677 UK Ltd
============== =========================== =========== ================= =====================
Commslogic
Ltd, The Lofic
Waterfront Business Group Holdings
Fleet Park, Fleet Road Office 30,342 Ltd
============== =========================== =========== ================= =====================
Lincolnshire
County Council
Witham Park House, Lincs FM Group
Lincoln Waterside South Lincoln Office 63,021 Ltd
============== =========================== =========== ================= =====================
Konica Minolta
1 Garbett Road, Kirkton Business Solutions
Livingston Campus, Livingston Office 5,032 (UK) Ltd
============== =========================== =========== ================= =====================
3 Baird Road, Kirkton Diagnostic
Livingston Campus, Livingston Office 13,752 Sonar Ltd
============== =========================== =========== ================= =====================
6 Flemming Road &
Site, Kirkton Campus,
Livingston Livingston Office 10,108 Viju Ltd
============== =========================== =========== ================= =====================
Advantage, Castle
Reading Street, Reading Office 24,915 Acquia, Atex
============== =========================== =========== ================= =====================
Pagoda Park, Westmead Alacatel-Lucent
Swindon Drive, Swindon Office 41,112 Telecom
============== =========================== =========== ================= =====================
Birchwood Park, Kelvin Hewlett Packard
Warrington Close, Warrington Office 50,549 Ltd
============== =========================== =========== ================= =====================
The Links, Kelvin Dassault Systems
Warrington Close, Warrington Office 26,194 Ltd
============== =========================== =========== ================= =====================
Quantum Care
Welwyn Units 1/6 Silver Ltd, E2E Service
Garden Offices Court, Welwyn Ltd, Sidel
City Garden City Office 29,757 (UK) Ltd
============== =========================== =========== ================= =====================
Kirkhill Industrial Frontica Business
Aberdeen Estate, Aberdeen Office 58,826 Solutions Ltd
============== =========================== =========== ================= =====================
3 Watt Place, Hamilton
International Technology Edinburgh
Blantyre Park Industrial 33,338 Napier University
============== =========================== =========== ================= =====================
Stratford
Swan Centre, Avenue Tyres Ltd,
Farm Industrial Estate, Plantool Ltd,
Stratford Birmingham Road, Hatton Electrical
Upon Avon Stratford Upon Avon Industrial 33,965 Wholesale
============== =========================== =========== ================= =====================
3, 16/18 Freebournes Amtek Investments
Witham Road, Witham Industrial 145,902 UK 2 Ltd
============== =========================== =========== ================= =====================
Conwy County
Borough Council,
Colwyn Mochdre Commerce Mochdre Biomass
Bay Park, Colwyn Bay Industrial 173,450 Ltd
============== =========================== =========== ================= =====================
The Works
Store Ltd,
156 & 158/160 High Caspian Food
Ayr Street, Ayr Retail 8,601 Retailers Ltd
============== =========================== =========== ================= =====================
52/56 Newmarket Street, Thomas Rogerson
Ayr Ayr Retail 10,717 & Sons
============== =========================== =========== ================= =====================
Wilkinson
Hardware Stores
Milton The Brunel Centre, Ltd, Poundland
Keynes Bletchley Retail 96,723 Ltd
============== =========================== =========== ================= =====================
Poundland
York House, 96/102a Ltd, Seafast
Felixstowe Hamilton Road Retail 17,934 Logistics Plc
============== =========================== =========== ================= =====================
Wilkinson
Hardware Stores
Shrewsbury Arms Shopping Ltd, K & V
Rugeley Mall, Rugeley Retail 9,633 Lowndes
============== =========================== =========== ================= =====================
Wilkinson
Wilkinson, 1 Cotham Hardware Stores
St Helens Street, St Helens Retail 41,619 Ltd
============== =========================== =========== ================= =====================
Network House, School XLR8 Ltd,
Wolverhampton Street, Wolverhampton Retail 20,171 JCCA
============== =========================== =========== ================= =====================
Competition
Line, Boing
Trident Retail Park, Retail Zone, Birmingham
Birmingham Birmingham Warehouse 29,502 Triumph Ltd
============== =========================== =========== ================= =====================
31 Foleshill Road, Retail
Coventry Coventry Warehouse 14,888 Halfords Ltd
============== =========================== =========== ================= =====================
Travis Perkins
(properties)
Retail Ltd, Tile Choice
Kettering Linnell Way, Kettering Warehouse 18,329 Ltd
============== =========================== =========== ================= =====================
Odeon Multiplex
Kingscourt Leisure Ltd, Coveburn
Dundee Complex, Dundee Leisure 81,297 Ltd
-------------- --------------------------- ----------- ----------------- ---------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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