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

ACQTJMLTMBJTMIR

(END) Dow Jones Newswires

February 23, 2017 06:00 ET (11:00 GMT)

Conygar Investment (LSE:CIC)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Conygar Investment Charts.
Conygar Investment (LSE:CIC)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Conygar Investment Charts.