Disposal of Investment Property Portfolio

RNS Number : 6680X

Conygar Investment Company PLC(The)

23 February 2017

 

For immediate release

23 February 2017

THE CONYGAR INVESTMENT COMPANY PLC

Proposed Disposal of the Investment Property Portfolio

The Conygar Investment Company PLC ("Conygar" or the "Company"), the property investment and development group, announces that it has entered into a conditional sale agreement for the disposal of its Investment Property Portfolio to Regional Commercial Midco Limited (a wholly owned subsidiary of Regional REIT Limited) (the "Purchaser") for a consideration which attributes a value of £129.8m to the Investment Property Portfolio and represents a modest premium to its valuation of £129.51m as at 30 September 2016 (the "Disposal").

The consideration will be satisfied by the issue of 26,326,644 ordinary shares in Regional REIT at a price of 106.347 pence per share and the assumption by the Purchaser of both the bank debt of the Investment Property Portfolio and Conygar's obligation to fund the repayment of the ZDPs in January 2019 issued by Conygar ZDP plc ("ZDP Co"). The Consideration Shares will represent approximately 8.8% of the enlarged issued share capital of Regional REIT. The consideration will be adjusted following Completion to reflect the net asset value of the SPVs, which own the Investment Property Portfolio, on the Completion Date. The Consideration Shares will provide income which will substantially cover Conygar's ongoing overheads.

The Disposal constitutes a fundamental change of business for the purposes of the AIM Rules.  Accordingly, Completion is conditional on, inter alia, the approval of Shareholders at a general meeting of the Company, notice of which will be posted to Shareholders shortly. The Disposal is also conditional upon ZDP Shareholders sanctioning the transfer of the ZDP Co Ordinary Shares to the Purchaser and the assumption by the Purchaser (whose obligations will be guaranteed by Regional REIT) of the obligations currently owed by the Company to ZDP Co under the terms of the Loan Agreement and the Contribution Agreement.  Notice convening a separate class meeting of the ZDP Shareholders seeking the ZDP Class Consent will also be sent by ZDP Co to the ZDP Shareholders shortly.

Further details of the Disposal, including additional conditions to which it is subject, are set out in the Appendix to this announcement. 

Robert Ware, Chief Executive of Conygar, commented:

"We are pleased to be divesting the Investment Property Portfolio, having added a great deal of value to the portfolio since it was acquired during the years following the financial crisis.  We believe that the team's time will be best spent focusing on maximising the latent value of the development pipeline over the coming years.

We would like to thank the Regional REIT team for their professionalism and hard work throughout the period to date and we look forward to working with them to the completion of this transaction and in the future, as a significant shareholder."

Enquiries:

The Conygar Investment Company PLC

Robert Ware: 020 7258 8670

Ross McCaskill: 020 7258 8670

Liberum Capital Limited (Nominated Adviser, Financial Adviser and Broker)

Richard Bootle/Steve Pearce/Henry Freeman: 020 3100 2222

Temple Bar Advisory (Public Relations)

Alex Child-Villiers: 07795 425580

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation.

Appendix

Background to and reasons for the Disposal

Conygar was originally admitted to trading on AIM on 23 October 2003.  Since that time, the Company's stated strategy has been, and will continue to be following completion of the Disposal, to invest in property assets and companies where it can add value by utilising its property management, development and transaction structuring skills and realise capital growth and create value for Shareholders.

Since its admission to trading on AIM, the Company's management has consistently sought to acquire or dispose of assets within its property portfolio, often on an opportunistic basis, where the Board considers to do so would generate returns for Shareholders.  Whilst the Board considers that holding the Investment Property Portfolio to provide a stable flow of cash remains a credible strategy, the Board believes that the Disposal represents a significantly compelling opportunity for the following reasons:

·    the Disposal is being completed at a modest premium to the most recent valuation of the Investment Property Portfolio, which the Board believes is an acceptable valuation when considered in light of the current political and economic uncertainty;

·    as the SPV's that hold the Investment Property Portfolio are being sold with their existing loan facilities in place and the Purchaser is assuming the Company's obligations to fund the ZDP Capital Entitlement, this will result in the Company being debt free following Completion of the Disposal; and

·    the proceeds recognised from the Disposal can be utilised to accelerate the progress of the Company's existing development asset portfolio and also enable the Company to seek new investment opportunities.

Summary of the terms of the Disposal and the Sale Agreement

The Sale Agreement provides that, subject to the passing of the resolution to be proposed at a general meeting of Conygar, the obtaining of the ZDP Class Consent and the consent of the banks, who have provided finance to the SPV's, the Purchaser has agreed to purchase from the Vendors the entire issued share capital of the SPV's for a consideration of £28.0m (representing the aggregate net asset values of the SPV's as at 31 December 2016) to be satisfied by the issue, credited as fully paid, of the Consideration Shares and the assumption of the debt obligations mentioned above.

The consideration is subject to adjustment by reference to completion accounts to be prepared as at the Completion Date.  To the extent that the net assets have decreased, Conygar is obliged to pay any shortfall in cash and to the extent that the net assets have increased, Regional REIT is obliged to issue further Consideration Shares (at an issue price of 106.347p per Consideration Share) or pay the amount of the increase in cash at its election. The Consideration Shares will rank pari passu with all Regional REIT shares currently in issue, save that they will be subject to the lock-in arrangements described below and the Consideration Shares will not be entitled to the dividend of 2.40 pence per Regional REIT share declared by Regional REIT today for the period from 1 October 2016 to 31 December 2016.

Under the terms of the Sale Agreement, the Purchaser will, upon Completion, acquire all the ZDP Co Ordinary Shares and will also (by way of novation) assume the obligations owed by the Company to ZDP Co, pursuant to the terms of the Loan Agreement and the Contribution Agreement.  Regional REIT is a party to the novation agreements to, inter alia, guarantee the performance of the Purchaser's obligations thereunder. In conjunction with the transfer of the obligations of ZDP Co, the final ZDP Capital Entitlement of 130.7 pence per ZDP Share payable in January 2019 will be increased to 132.9 pence per ZDP Share, which will require ZDP Shareholders to approve an amendment to the articles of ZDP Co.  ZDP Co will also change its name to Regional REIT ZDP PLC.

Under the terms of the Sale Agreement, the Company has agreed a lock-in arrangement in respect of the Consideration Shares.  Specifically, the Company will not be permitted to dispose (directly or indirectly) of the legal or beneficial ownership of:

·    one-third of the Consideration Shares until the date falling 6 months after Completion;

·    one-third of the Consideration Shares until the date falling 12 months after Completion; and

·    one-third of the Consideration Shares until the date falling 18 months after Completion

(in each case a "Lock-in Period").

The Company has also agreed that for a period of 12 months following expiry of the relevant Lock-in Period, it will only dispose of Consideration Shares through Regional REIT's brokers.

The lock-in arrangements are subject to standard "carve-outs", including the ability of Conygar to accept a takeover offer or tender offer and to dispose of Consideration Shares pursuant to a court order, or to fund any liabilities or obligations arising under the terms of the Sale Agreement. The Consideration Shares will be held by the Company, subject to the Lock-in Periods described above and may look to dispose of them in the future as attractive liquidity opportunities arise. Cash raised from the sale of Consideration Shares will be used to execute the Company's stated investment strategy.

Completion is, subject to satisfaction or (where appropriate) waiver of the conditions set out in the Sale Agreement, due to occur on 24 March 2017 or such later date as the parties to the Sale Agreement shall agree, being not later than 14 April 2017. 

Information on the Investment Property Portfolio

The Disposal of the Investment Property Portfolio excludes the development site held by the Company at Ashby-de-la-Zouch. The Investment Property Portfolio (including the Ashby-de-la-Zouch development site) was valued at £130.7 million (as at 30 September 2016) and had a contracted annual rent roll of £9.7 million for the financial year ended 30 September 2016.  As at 30 September 2016, the overall vacancy rate in the Investment Property Portfolio was 17.1 per cent. which, whilst an increase from 14.1 per cent. as at 30 September 2015, reflected significant refurbishment at the Company's assets at Farnborough and the Links, Warrington.  If one excludes these assets and the Company's asset at Mochdre, the vacancy rate was 6.9 per cent.  The unexpired lease length rose from 4.8 years to 5.8 years as at 30 September 2016, which reflected a number of new leases and renewals at Mochdre Commerce Park, Kelvin Close, Warrington, Watt Place, Hamilton and Kingscourt Leisure Centre, Dundee.

Information on Regional REIT

Regional REIT is a United Kingdom based real estate investment trust whose shares were admitted to the premium segment of the Official List and to trading on the main market of the London Stock Exchange on 6 November 2015.  Regional REIT is managed by London & Scottish Investments Limited, as asset manager, and Toscafund Asset Management LLP, as investment manager, and was formed from the combination of the existing property funds previously created by Toscafund Asset Management LLP and London & Scottish Investments Limited.

Regional REIT pursues its investment objective by investing in, actively managing and disposing of regional property assets.  Regional REIT seeks to offer investors a differentiated play on the recovery prospects of UK regional property.  It aims to deliver an attractive total return to its shareholders, targeting (10 - 15 per cent per annum) with a strong focus on income and good capital growth prospects.

Regional REIT's current commercial property portfolio is wholly in the UK and comprises, predominantly, quality office and industrial units located in the regional centres of the UK outside the M25 motorway. 

On 20 September 2016, Regional REIT announced its half-year report for the six month period ended 30 June 2016 which set out:

·    Gross value of property assets of £501.3m, a net initial yield of 7.1 per cent. and an EPRA NAV of 108.0p per share;

·    Operating profit (before gains / losses on property assets and other investments) of £13.436m and profit before tax of £5.947m, with declared dividends of 3.5p per share for the half-year;

·    A diversified portfolio of 128 properties, 974 units and 719 tenants, with the portfolio split between offices (62.5 per cent. by value) and industrial sites (29.1 per cent.) across the UK; and

·    The weighted average unexpired lease term to first break was approximately 3.6 years.

Regional REIT has today declared a Q4 dividend of 2.40 pence per share, which equated to aggregate dividends paid of 7.65 pence per share paid for the 12 month period ended 31 December 2016.

Further information on Regional REIT can be found on its website at www.regionalreit.com.

The Company's operations following the Disposal

Following the Disposal, the Company will continue to operate as an AIM quoted property investment and development group dealing primarily in UK property.  The existing management of the Company will be retained to focus on its existing strategy to invest in property assets and companies to add significant value using its property management, development and transaction structuring skills.

The Board believes that the Company's development projects will provide further Shareholder value in the medium term and as such, following Completion, the Company will continue to progress its development projects and anticipates commencing construction work at a number of sites during 2017, in addition to ongoing works at several of its existing development sites.  The Company has also identified a pipeline of attractive investment and development projects throughout the UK which, provided it can agree attractive terms, it anticipates acquiring and maximising returns over the medium term.

Following Completion, the Company will continue to consider buying back Ordinary Shares where the Board deems it appropriate to do so and if surplus cash is available.  Accordingly, the Company renewed its buy back authority at its recent Annual General Meeting to provide effective capital management and potential cash returns to Shareholders. 

Definitions

In this announcement the following terms shall, where the context so requires, have the following meanings

"AIM"	the AIM Market operated by the London Stock Exchange;
"Board"	the Board of directors of the Company;
"Completion"	the completion of the sale and purchase of the SPV's which hold the Investment Property Portfolio pursuant to the terms of the Sale Agreement;
"Completion Date"	the date upon which Completion occurs, currently anticipated to be 24 March 2017;
"Consideration Shares"	26,326,644 ordinary shares of nil par value in Regional REIT;
"Contribution Agreement"	the contribution agreement dated 7 January 2014 and entered into between the Company and ZDP Co;
"Disposal"	the proposed sale of the SPV's to the Purchaser on and subject to the terms of the Sale Agreement;
"Investment Property Portfolio" or "Portfolio"	the portfolio of 32 investment properties held by the SPV's proposed to be sold to the Purchaser pursuant to the terms of the Sale Agreement;
"Loan Agreement"	the loan agreement dated 7 January 2014 and entered into between the Company and ZDP Co;
"Purchaser"	Regional Commercial Midco Limited, a wholly owned subsidiary of Regional REIT;
"Regional REIT"	Regional REIT Limited;
"Sale Agreement"	the conditional sale and purchase agreement entered into today between the Company, the Purchaser, Regional REIT and the Vendors setting out the terms of the Disposal;
"Shareholder"	a holder of Conygar ordinary shares of £0.05 each in the capital of the Company;
"SPV's"	the special purposes vehicles which hold the Investment Property Portfolio being Conygar Hanover Street Limited, Conygar Strand Limited, Conygar Dundee Limited, Conygar Stafford Limited, Conygar St Helens Limited, TAPP Property Limited, TOPP Property Limited, TOPP Bletchley Limited, Lamont Property Acquisition (Jersey) I Limited, Lamont Property Acquisition (Jersey) II Limited and Lamont Property Acquisition (Jersey) IV Limited;
"UK"	the United Kingdom of Great Britain and Northern Ireland;
"Vendors"	Conygar Holdings Limited, Conygar Properties Limited, The Advantage Property Income Trust Limited and TOPP Holdings Limited;
"ZDP Capital Entitlement"	the accrued capital entitlement of a ZDP Share on 9 January 2019;
"ZDP Class Consent"	the consent of ZDP Shareholders, given as a class, to the transfer of the ZDP Co Ordinary Shares by the Company to the Purchaser and the assumption by the Purchaser (in place of the Company) of the Company's obligations to ZDP Co under the terms of the Loan Agreement and the Contribution Agreement;
"ZDP Co"	Conygar ZDP PLC (to be renamed Regional REIT ZDP PLC);
"ZDP Co Ordinary Shares"	the 50,000 ordinary shares £0.01 each in the capital of ZDP Co, comprising the entire issued ordinary share capital of ZDP Co;
"ZDP Share"	zero dividend preference shares of £0.01 each issued by ZDP Co;
"ZDP Shareholder"	a holder of ZDP Shares; and
"£"	the legal currency of the UK.

 

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