Stenprop Limited Acquisition of multi-let industrial portfolio (3585L)

TIDMSTP

RNS Number : 3585L

Stenprop Limited

24 December 2018

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 GBP72.2 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 GBP72.2 million (the "Acquisition"), including acquisition costs of GBP4.3 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 GBP4.89 million and the forecast annual rental income for the year ending 31 March 2020 is GBP4.56 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 GBP4.48/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 GBP67.9 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 GBP35.0 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 GBP27.2 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.

 
                                                                             Weighted 
                                                                              average 
                                                                           rental per 
                                                Geographic         GLA    square foot 
      Property name                              location      (sq.ft)    (GBP/sq.ft) 
---  ----------------------------------------  -----------  ----------  ------------- 
      Horsham, Star Road Industrial Estate, 
 1     Partridge Green                          South East      66,160           6.46 
      Burton upon Trent, Albion Gateway, 
 2     Battista Road                            Midlands        27,967           6.20 
      Burntwood, Chasewater Heaths Business 
 3     Pk, Cobbett Road                         Midlands        40,246           5.46 
      Stoke on Trent, Queensway Industrial 
 4     Estate, Longbridge Road                  Midlands        64,571           4.17 
      Birmingham, Tyburn Trading Estate, 
 5     Ashfold Farm Road                        Midlands        51,297           5.31 
      Loughborough, Windmill Road Industrial 
 6     Estate, Windmill Road                    Midlands        29,322           5.09 
      Holywell - Greenfield A-M, Greenfield 
 7     Business Pk (A-M), Bagillt Road          Wales          128,400           3.04 
      Rhyl, Tir Llwyd Industrial Estate, 
 8     St. Asaph Avenue                         Wales           68,042           4.91 
      Rochdale, Phoenix Close Ind Est, 
 9     Heywood                                  Yorkshire       42,183           5.90 
      Sheffield, Holbrook Enterprise Park, 
 10    Enterprise Way                           Yorkshire       53,062           5.01 
      Darlington - Cleveland, Cleveland 
 11    Trading Estate, Cleveland St             North East      29,764           4.12 
      Ellesmere Port - Venture Point, Stanney 
 12    Mill Road                                North West      45,158           5.60 
      Huyton, Chapel Brook Trade Park, 
 13    13 Wilson Road                           North West      84,762           3.78 
 14   Liverpool, Brasenose Road                 North West      85,132           3.18 
      Middleton - Hanson Park, Hanson Park, 
 15    Hanson Close                             North West      10,099           6.14 
      Middleton - Jubilee Park, Jubilee 
 16    Park, Hanson Road                        North West      15,300           4.04 
      Middleton - Townley Pk, Townley Park, 
 17    Hanson Street                            North West      32,608           4.89 
      Liverpool, Larch Lea Industrial Estate, 
 18    Castor Street                            North West      46,382           3.80 
      Liverpool, Link at Huyton Business 
 19    Pk, Ellis Ashton Street                  North West      86,971           3.74 
      Prestwich, Mountheath Trading Est, 
 20    Ardent Way                               North West      36,596           7.61 
      Preston, Old Mill Industrial Estate, 
 21    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     Forecast for 
                                          21 December    the 12 months 
                                           2018 to 31        ending 31 
 GBP                                       March 2019       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       Forecast for 
                       21 December      the 12 months 
                  2018 to 31 March    ending 31 March 
 %                            2019               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 GBP27.2 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

[phone]

Paul Arenson

Patsy Watson

Julian Carey

Numis Securities Limited (Financial Adviser) [phone]

Hugh Jonathan

Vicki Paine

Tavistock (PR Adviser)

[phone]

James Whitmore

James Verstringhe

Kirsty Allan

Instinctif Partners (SA Investor Relations and PR Adviser) [phone]

Keagile Makgoba

Java Capital Trustees and Sponsors Proprietary Limited [phone]

(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.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

END

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December 24, 2018 02:00 ET (07:00 GMT)