04 November 2004
November 4 2004
#600 million acquisition of Industrious by Brixton
Brixton plc ("Brixton") announces that it has exchanged contracts to acquire
various entities from subsidiaries of Industrious Holdings (Jersey) Limited,
which includes a portfolio of 163 properties worth #675 million,
("Industrious"), (the "Acquisition"). Brixton will also be assuming a debenture
which has been marked to market at #60 million together with working capital
liabilities of #15 million. The net asset value of Industrious is #250 million,
subject to completion date adjustments.
In view of its size, the Acquisition is conditional upon shareholder approval.
Summary and Highlights
* Brixton has established a unique industrial management business
model and this is being exported to other more secondary markets, as has
already been done with Equiton and also at Trafford Park.
* The Acquisition will consolidate Brixton's presence in the Manchester area and
establish it in the Birmingham conurbation, with these offices being a
springboard for further activity in these locations.
* Brixton will become the largest industrial landlord in the UK,
potentially raising the investor profile, particularly in Europe and the US.
* Industrious includes 163 properties (with 2,262 units) covering
11.6 million square feet of almost entirely industrial stock, all in the UK.
* The property portfolio (based on the #675 million figure) shows
a net initial yield of 6.9%, an equivalent yield of 7.5% and a reversionary
yield of 7.6%. The transaction is expected to be earnings enhancing from
completion with potential for cost synergies.
* Rationalisation of the structure of the Industrious operation will further
* The Acquisition will be financed from existing cash resources and through a
new facility entered into with HSBC.
* Brixton's gearing will rise to 131% as a result of the Acquisition and before
Tim Wheeler, Brixton's Chief Executive, commented:
"This is a major strategic move and gives Brixton a one-off opportunity to
acquire a sizeable portfolio extending our sphere of influence and will
demonstrate that the B-Serv management skills can drive further rental value
Roger Carey, Chairman of Industrious, added:
"Our sales process has generated a highly satisfactory outcome for MSREF and
management. We are also pleased to conclude a transaction with Brixton as we
have such complementary businesses in terms of assets and management
Tim Wheeler, Chief Executive Brixton 020 7399 4526
Steven Owen, Deputy Chief Executive Brixton 020 7399 4532
Simon Holberton / Rupert Young Brunswick Group 020 7404 5959
Roger Carey, Chairman Industrious 01926 455723
Jonathan Lane, Managing Director Morgan Stanley 020 7425 4611
Information on Industrious
Industrious owns and operates predominantly industrial property assets.
Industrious is based in Jersey with its UK asset management business carried on
from Leamington Spa and 5 other regional offices. The company was previously
known as Saville Gordon, and was de-listed in 2002 following its acquisition by
Chambercroft Ltd, an acquisition vehicle backed by Morgan Stanley Real Estate
Funds ("MSREF") and management. Following a restructuring in 2003 the majority
of the properties were transferred into a Jersey-controlled business,
Industrious Holdings (Jersey) Limited, managed under contract in the UK by
Industrious Asset Management Ltd.
Industrious holds 163 multi-tenanted industrial assets with 2,262 units covering
approximately 11.6 million square feet. The portfolio is 83% freehold and 17%
leasehold, and is generally let to small and medium sized enterprises ("SMEs")
for industrial and warehouse uses, typically in small lot sizes.
The properties have been valued for Brixton by CBRE and King Sturge and the
portfolio has a passing rent roll of approximately #47 million per annum. The
current vacancy level is 11% by area. The portfolio, based on the #675 million
figure, shows a net initial yield of 6.9%, an equivalent yield of 7.5% and a
reversionary yield of 7.6% and compares with Equiton's respective yield profile
(based on June 2004 numbers) of 6.3%, 7.1% and 7.2% and the Brixton group's (at
June 2004) of 5.9%, 6.8% and 7%. Rental growth of only 1.7% p.a from Industrious
over 5 years is needed to achieve an ungeared return to beat Brixton's pre-tax
WACC hurdle based on a conservative set of valuation assumptions.
The Industrious portfolio is distributed across England and Wales: 45% in the
South (including 1% in Wales); 37% in the Midlands; 18% in the North. No single
tenant accounts for more than 3% of the passing rental income.
The overall weighted average remaining lease length is over 6 years (assuming
break options are not exercised) and just under 5 years assuming a worst case
scenario that all breaks are exercised. The "Flexilet" leases which account for
8% of the portfolio by area are usually 6 year terms with a 15% rental uplift
after 3 years. These typically allow 3 month breaks after the first year and
include a payment for repairs, service charge, insurance and dilapidations as
well as a premium payment for the flexibility offered.
Net borrowings of Industrious principally comprise three facilities: two medium
term loans and a debenture. The medium term loans, the outstanding amount of
which is #330 million, will be repaid on completion but the debenture (#51.8
million 7.625% 2023) will be assumed by Brixton.
As part of acquiring Industrious, the business of the Industrious operating
company will be owned by Brixton. Industrious employs just over 80 people.
Information on Brixton
Brixton and its joint venture partners currently own 76 industrial estates with
a combined floor area of approximately 17.6 million square feet. The portfolio
is 90% industrial with over 90% of this space being in the South East. The
wholly owned industrial estates tend to be large, with average lot sizes in
excess of #30 million.
Brixton runs and is a 30% owner of the Equiton fund which comprises 42 sub-#20m
South East industrial properties totalling 2.9 million sq ft and worth
approximately #300 million.
The strategy has been to concentrate on areas of strategic strength in the UK
where Brixton has identified the potential to develop dominant local positions
and to utilise its leading edge management expertise through its B-Serv
subsidiary. To date the geographical focus has been on London and the South
East, with particular strengths in the Heathrow and Park Royal areas. The
acquisition earlier this year of 2.7 million square feet of space at Trafford
Park in Manchester added to its holdings in that area and provided strategic
expansion and opportunities to enhance value using Brixton's proven skill base.
As at 30 June 2004, Brixton's portfolio, as valued by CBRE and King Sturge, was
worth #1,723 million compared with #1,558 million at the end of 2003.
A chart comparing Brixton and Industrious prior to the Acquisition is shown
(as at 30 June 2004) (as at 3 November 2004)
Value of portfolio #1,723 million (1) #675 million (2)
Size of portfolio (3) 17.6 million sq ft 11.4 million sq ft
Number of estates/properties 80 163
Number of units 1,244 2,262
Average passing rent (3) #6.73 per sq ft #4.40 per sq ft (4)
Average ERV (3) #7.43 per sq ft #4.50 per sq ft (4)
Vacancy (by area) (3) 9.1% 10.4%
Number of employees 60 82
Number of operational offices 3 6
(1) Includes #171m offices
(2) Includes #13m non industrial and stamp duty benefit
(3) Industrial only
(4) Excluding Flexilet premium (applies to 8% of portfolio)
Reasons for the Acquisition
Brixton's portfolio has traditionally had a concentrated geographic focus, which
has recently been broadened by the acquisition of Trafford Park. The success of
the Company's intensive management approach has encouraged the Company to
believe that it can be exported to other areas. The acquisition of Industrious
reinforces Brixton's presence in the North and establishes it in the Midlands
giving it critical mass in both locations.
Both Brixton's B-Serv and Industrious have developed customer orientated
approaches to occupancy provision. Brixton believes that this pro-active
management approach can be applied to more secondary locations and stock where
growth is more likely to be achieved through enhancing the rental income.
The enlarged industrial portfolio will total over 29 million square feet,
establishing Brixton as the largest industrial landlord in the UK. However, it
is intended that approximately 50 properties totalling 4.6 million sq ft of the
Industrious portfolio will be disposed of in due course as they have been
identified as not fitting into the Company's strategy.
The Acquisition provides "currency" (ie stock) for the post-REIT decision
environment whether this is to involve institutions in new third party funds or
an on-shore tax transparent structure.
This expansion will not, however, interfere with or reduce Brixton's desire to
continue to be the dominant landlord in Heathrow and West London where it sees
growth prospects to be greatest. Indeed the Acquisition includes a further #230
million of South East industrials to be retained.
Terms of the Acquisition
Brixton has agreed, subject to shareholder approval, to acquire Industrious from
subsidiaries of Industrious Holdings (Jersey) Limited which includes properties
worth #675 million. The net assets of Industrious at completion will be #250
million, subject to completion date adjustments. The purchase consideration will
be satisfied by existing cash resources of Brixton and a new bank facility which
has been arranged with HSBC. As a result of the Acquisition, Brixton's gearing
will rise from 61% to 131%. It is expected that this level will be reduced in
the near term from sales from within Brixton - notably the office portfolio -
and from the Industrious portfolio. It is envisaged that gearing will return to
a range of 85 - 90% in consequence of this.
The Industrious portfolio is to continue to be run through various Jersey
property unit trusts and Jersey limited partnerships allowing beneficial tax
treatment pending any further post REIT re-structuring.
Current Trading and Prospects
Since 30 June 2004, Brixton has traded in line with the Board's expectations.
The Board continues to view the immediate future of Brixton with confidence.
Extraordinary General Meeting
An Extraordinary General Meeting ("EGM") will be convened to consider and, if
thought fit, approve completion of the Acquisition as soon as practicable. A
circular and notice of the EGM, along with proxy forms for voting, will be sent
to shareholders in due course.
This information is provided by RNS
The company news service from the London Stock Exchange