Proposed £50 million placing to fund acquisitions

RNS Number : 0983I

Pacific Industrial & Log REIT PLC

19 March 2018

 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT ARE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM ANY JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF LOCAL APPLICABLE SECURITIES LAWS OR REGULATIONS.

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT ITSELF CONSTITUTE AN OFFER FOR SALE OR SUBSCRIPTION OF ANY SECURITIES IN THE COMPANY. THIS ANNOUNCEMENT HAS BEEN ISSUED BY AND IS THE SOLE RESPONSIBILITY OF THE COMPANY.

THE INFORMATION COMMUNICATED IN THIS ANNOUNCEMENT IS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF REGULATION 596/2014.

Pacific Industrial & Logistics REIT plc

("Pacific Industrial & Logistics", the "Company" or the "Group")

Proposed £50 million placing to fund UK urban logistics acquisitions

Opportunity to add high-quality assets to the Company's portfolio

Change of name to Urban Logistics REIT plc

Pacific Industrial & Logistics, (AIM: PILR) announces a proposed placing of new ordinary shares ("Ordinary Shares") to raise gross proceeds of £50 million, (the "Placing") to fund the acquisition of a pipeline of UK urban logistics assets with a gross acquisition cost of £73.6 million (the "Acquisition"). 

Highlights

The Placing and Acquisition support the Company's strategy to build a specialist portfolio of high-quality, last mile and regional (sub-£10 million) single-let urban logistics assets in the UK. Tenant demand in the Company's chosen sub-sector remains strong as occupiers address the challenges of e-commerce, modern logistics and evolving infrastructure demands.

§ Placing is being undertaken to acquire two portfolios and a single asset totalling 16 urban logistics properties, in line with the Company's investment policy

§ Target assets can be acquired within six months of the capital being raised

§ Aggregate gross acquisition consideration of £73.6 million (including estimated finance costs of £0.5 million), representing a blended Net Initial Yield of 6.6%. Anticipated gearing level of 40% following the Placing and Acquisition consistent with the Company's existing policy

§ Target pipeline capital value of £69 per sq.ft., substantially below the cost of replacement

§ Significant reversionary potential across the portfolio with average rents of £4.87 per sq.ft. and a weighted average unexpired lease term of 6.5 years

§ Based on the capital raising proceeding and completion of the acquisitions, the Company is targeting a dividend yield and total returns, once fully invested and on a full year basis, in line with investment policy guidance in excess of 6% and 10% - 15% respectively.

§ Wide-ranging asset management opportunities across the portfolio, enabling enhanced value creation

§ Club financing deal expected with Santander as lead agent (c.£76 million term facility)

Nigel Rich, Non-Executive Chairman, commented:

"The proposed Placing and Acquisition presents another opportunity to add high-quality UK urban logistics assets to our existing portfolio. With the scale we now have in the Company and through our active asset management programme, there is significant upward momentum in our rent roll and capital value.

"Urban logistics continue to outperform the wider real estate sector and the Manager has a strong pipeline of investment opportunities, all of which demonstrate strong fundamentals. Our investment policy continues to focus on the smaller single-let properties which businesses need to meet the challenges of modern commercial and logistics patterns.

"We also intend to change the Company's name to "Urban Logistics REIT plc", with the ticker symbol SHED. The Board believes this change reflects the Company's focus and is consistent with its investment and growth strategy."

Current trading

Further to the Company's trading update on 26 February 2018, the Board reiterates its expectation that year-end earnings and portfolio valuation to 31 March 2018 will be in line with market expectations. The Company also expects to pay total dividends of not less than 6.0p per Ordinary Share in respect of the financial year to 31 March 2018.

Change of name

The Company intends to bring the change of name into effect contemporaneously with the Admission of new Ordinary Shares.

The change of name will not affect any Shareholders' rights. New issues of Ordinary Share certificates will be in the Company's new name and existing Ordinary Share certificates will remain valid.

Background to and reasons for the Placing 

The Company was formed for the purposes of investing in single-let last mile and regional logistics properties in the UK with an average lot size of under £10 million, located in established logistics zones, and display, inter alia, the potential for rental growth and other asset management opportunities. The Company aims to achieve a target minimum 6.0% dividend yield and total returns between 10% and 15% per annum.

The Group has raised a total of c.£75 million of equity capital since its IPO, deploying the net proceeds, together with debt finance, in acquisitions worth in excess of £125 million at an all-in average interest cost of 3.3% and 7.4% average Net Initial Yield. The Company's portfolio features:

§ Valuation increase of 7.5%, (six months to September 2017) and a 12.3% increase over purchase price since IPO

§ Weighted average unexpired lease term of 5.2 years

§ Average capital value of £71 per sq.ft. against more than £130 per sq.ft. estimated replacement cost

Since its IPO and subsequent fundraisings, the Company's highly-experienced Board and Management Team have implemented their strategy, completing acquisitions of 28 assets that meet the Company's investment criteria. The Management Team has established a significant pipeline of potential transactions and new capital is required to acquire identified asset opportunities. The Directors believe that the Placing will have the following additional benefits for Shareholders, enabling it to: 

§ Continue diversifying its income and asset base by increasing the number of tenants and properties within the portfolio upon the capital being deployed

§ Gain additional momentum, positioning it as an attractive and preferred counterparty for vendors 

§ Increase its economies of scale and, since the Group's current operational capabilities can manage a substantially larger portfolio, reduce its total expense ratio, in turn contributing to the Company's dividend-paying capacity

§ Diversify the Shareholder base by increasing the number of Ordinary Shares in issue, thereby providing the potential for additional liquidity

The Company's position in a compelling market environment

Supply of, and demand for, urban logistics assets combined with the nature of investments create what the Directors believe to be a compelling opportunity. The Directors believe the Company is the only closed-ended quoted or listed company in the UK solely focused on urban logistics.

Supply of urban logistics assets remains constrained:

§ Asset availability across the UK is over a third lower than the peak post-recession in 2009 (119 million sq.ft.)

§ Development remains limited as occupiers shift to purpose-built properties; land availability remains constrained; and planning permissions are not supporting supply growth to meet demand

§ Asset supply is focussed on second hand properties with new and early marketed space contracting (CBRE Logistics Report H1 2017)

Changing economic dynamics drive growing demand:

§ For every £1 billion of new online retail sales, an additional 1.125 million sq.ft. of new distribution space is required. Based on current online retail growth forecasts, this translates to an annual average incremental demand of c.4.5 million sq.ft. (JPMorgan, June 2017)

§ Online retail accounted for more than a third of all lettings during H1 2017 (more acquisitive than traditional retail)

§ Retailers and e-fulfilment supply chain businesses are investing in new distribution capability as parcel deliveries increase 18% year-on-year, an average 46 per household; and demand for reverse logistics rises to handle the 27% of all online sales that are returned (JPMorgan, June 2017)

§ A wide range of facilities are underpinning the sector's transformation - notably multi-floor XXL warehouses and urban logistics sites located in regions that are traditionally regarded as secondary (CBRE UK H2 2016 Logistics)

Compelling market opportunities exist:

§ Targeting acquisition of quality income-producing assets at 30% to 70% of replacement cost

§ Acquisitions present attractive income, capital growth and total return prospects. Investments can be made in the region of 6.0% to 7.5% Net Initial Yields, at affordable rents of £4.50 to £5.50 per sq.ft. on an overall LTV in line with the Company's 35-40% target range

§ The Company's focus on smaller lot sizes of less than £10 million and under 250,000 sq.ft. avoids competition with institutional investors for acquisitions, but tenant quality can be maintained

§ Despite a structural shortage of lettable space in the subsector, it remains an active and well-traded market and the Directors expect £3 billion to £4 billion of assets to be transacted in 2018, enabling the Company to be selective in its acquisitions. 

Pipeline overview

The Company is evaluating a range of potential acquisitions that meet its investment objective and are in line with the Company's investment policy. Within the opportunities currently being considered, the Company has commenced initial due diligence and surveys on two portfolios and a single asset of well-located urban logistics assets that are available to acquire in separate off-market transactions. The aggregate gross acquisition cost of approximately £73.6 million reflects a blended Net Initial Yield of 6.6%. The Directors believe there is significant potential to grow rents and lengthen leases over the medium term. The portfolios have strong existing tenant bases, are fully occupied, have a WAULT of 6.5 years and offer attractive reversionary potential.

All information relating to the potential investments described in this Announcement are indicative, subject to detailed due diligence and may subsequently change as a result.

The acquisition of any potential investments by the Company is subject to, among other things, completion of the Placing, completion of satisfactory due diligence, successful negotiation of terms with vendors and the approval of the Directors. There can be no guarantee that any of the potential investments will be completed, but the Company intends to complete the acquisition of target assets within six months of capital being raised.

Borrowing and gearing policy

The Company will seek to use gearing to enhance returns over the long-term and, in addition, will seek to fix its borrowing rates. It is the Directors' current intention to target gearing of not more than 40% and has a club financing agreement in principle with Santander UK as lead agent.

M1 Agency Fees

At the point the Company acquires certain properties in the pipeline portfolio, it will incur, on an arm's length basis, certain commercial agency fees from M1 Agency LLP. M1 Agency LLP is a partnership in which Richard Moffitt is a designated member. The payment of fees by the Company to M1 Agency LLP will, at the time, be related party transaction for the purposes of the AIM Rules.

To the extent that the related party transactions take place, Canaccord Genuity has determined they would be fair and reasonable.

Details of the Placing

The Company is proposing to raise gross proceeds of £50 million by way of the Placing which will be conditional upon, inter alia, approval by Shareholders. 

The Ordinary Shares to be issued pursuant to the Placing will rank pari passu with the Company's existing Ordinary Share capital by reference to a record date on or after the date of Admission.

It is expected that details of the Placing including, inter alia, final size, pricing and the expected timetable of principal events will be announced on or before 29 March 2018. 

Canaccord Genuity is sole Bookrunner for the Placing, with Radnor Capital and Kinmont Advisory acting as Placing Agents.

Appendix - portfolio as at 31 December 2017

Tenant	Location	Acq. month	Acq. cost*	Net book value	Size
			£'000s	£'000s	sq.ft.
Price's Patent Candles	16 Hudson Road, Bedford	Apr 16	2,200	2,390	44,195
Jas Bowman & Sons	18 Edison Road, Bedford	Apr 16	2,675	3,325	39,306
The BSS Group	104-106 Riverside Way, Northampton	Apr 16	750	900	13,633
ACO Technologies	Caxton Road, Elm Farm Industrial Estate, Bedford	Apr 16	1,675	3,025	41,603
Blackburns Metals	Edison Road, Bedford	Apr 16	1,250	1,750	24,380
Ball and Young	Prima Foam House, Caxton Road, Bedford	Apr 16	1,100	1,650	22,535
Ideal Industries	Regent House, Bedford	Apr 16	2,850	2,300	42,392
Marshall Thermo King	Unit 11-14 Cemetry Road, Dunstable	Apr 16	600	900	9,912
Winit Corporation	Unit 73 Interlink Way, Interlink Business Park, Bardon	Apr 16	6,000	6,350	73,791
Void	Units B Postley Road, Bedford	Apr 16	1,393	1,629	21,137
Professional Fulfilment Services	Units A Postley Road, Bedford	Apr 16	1,394	1,631	21,162
Arqadia Limited	Units C-D Postley Road, Bedford	Apr 16	2,813	3,290	42,700
Void	National Distribution Centre, Park Road, Holmewood, Chesterfield	Jan 17	4,659	5,800	108,873
PUMA UK & New Day	Bruntcliffe Way, Leeds	Mar 17	6,050	6,250	63,979
HID Corporation Ltd	Plot 2000 Haverhill Business Park, Haverhill	Sep 17	4,090	4,300	37,355
Culina Logistics Ltd	Plot 5000 Haverhill Business Park, Haverhill	Sep 17	14,150	14,900	194,965
XPO Transport Solutions UK Ltd	Hope Carr Lane, Leigh	Sep 17	3,340	3,340	39,720
XPO Transport Solutions UK Ltd	Legbrannock Road, Motherwell	Sep 17	2,420	2,560	100,832
Void	Townsend Drive, Nuneaton LE10 3BZ	Sep 17	6,710	6,710	130,508
XPO Supply Chain UK Limited	Dodwells Road, Hinckley	Sep 17	3,280	3,280	62,082
XPO Transport Solutions UK Ltd	Pontefract Road, Normanton	Sep 17	6,110	6,110	94,102
J Sainsburys Plc	Unit A Belcon Industrial Estate, Hoddesdon	Sep 17	3,950	4,030	45,018
Travis Perkins (Properties) Ltd	Unit B Belcon Industrial Estate, Hoddesdon	Sep 17	1,480	1,540	10,935
Pharmacy 2U	Unit 3003 Victoria Road, Leeds LS14 2LA	Nov 17	1,337	1,337	19,130
Komori	Unit 3001 Victoria Road, Leeds LS14 2LA	Nov 17	1,558	1,558	22,290
Panther	Sandfield Close, Moulton Park, Northampton	Dec 17	3,025	3,025	42,553
DHL Supply Chain	1A Alston Road, Norwich	Dec 17	2,176	2,176	31,410
DHL Supply Chain	Aston Lane, Runcorn	Dec 17	8,083	8,083	122,478
GoCompare.com	Imperial House, Newport	Dec 17	4,644	4,644	26,672
Void	Leigh Commerce Park, Leigh	Dec 17	7,154	7,154	110,729
DHL Supply Chain	Wagonway Road, Hebburn	Dec 17	3,157	3,157	77,430
Manitowoc Crane Group	Radclive Road, Buckingham	Dec 17	6,286	6,286	29,378
			118,359	125,380	1,767,184

* excluding purchaser costs

For further information contact: 

Pacific Industrial & Logistics REIT plc Richard Moffitt	[phone]
Montfort - Financial PR and IR adviser Nick Miles Olly Scott	[phone]
Canaccord Genuity - Nominated Adviser, Joint Financial Adviser and Sole Bookrunner Corporate Broking Simon Bridges Charlie Foster Andrew Buchanan ECM Sam Lucas Ben Griffiths	[phone]

Notes to Editors

About Pacific Industrial & Logistics REIT

Pacific Industrial & Logistics REIT plc is a property investment company, quoted on the AIM market of the London Stock Exchange, (AIM: PILR).

The Company has been established to invest in UK based industrial and logistics properties with the objective of generating attractive dividends and capital returns for its Shareholders. Its investment strategy focuses on strategically located smaller single let industrial and logistics properties servicing high-quality tenants. Investment returns will be generated by an experienced management team focusing on quality stock selection and active asset management.

A number of structural and commercial factors currently support the attractive opportunity in the last mile/regional industrial and logistics real estate sub-sectors targeted by the Company, including: strong occupier demand, (driven by the growth of e-commerce and investment by retailers in their associated supply chain) and a decline in the supply of lettable space in industrial and logistics real estate across the UK (being more than one third lower than the most recent peak of 2009).

Acquisitions are targeted in the 6.0% to 7.5% Net Initial Yield bracket, (with affordable underlying rents in the region of £4.50 to £5.50 per sq ft.), on an overall LTV of 35% to 40% and a significant margin over financing costs, thus presenting attractive income, capital growth and total return opportunities.

DEFINITIONS

The following definitions apply throughout this Announcement, unless the context requires otherwise: 

Admission	the admission of new Ordinary Shares issued in connection with the Placing to trading on the AIM market of the London Stock Exchange
Board	the board of directors of the Company
Company	Pacific Industrial & Logistics REIT plc
IPO	the admission of the entire issued and to be issued Ordinary Share capital of the Company to trading on the AIM market of the London Stock Exchange, which took place on 13 April 2016
LTV	the ratio of gross debt less cash, short-term deposits and liquid investments to the aggregate value of properties and investments
Manager	Pacific Capital Partners Limited, a company registered in England and Wales with company number 02849777, the manager to the Company. The principal members of the management team are Richard Moffitt and Christopher Turner
Net Initial Yield	annualised current passing rent less non-recoverable property expenses such as empty rates, divided by the property valuation plus notional purchasers' costs
Ordinary Shares	ordinary shares of £0.01 each in the capital of the Company
Placing	the placing of new Ordinary Shares, as more particularly described in this Announcement
Shareholders	holders of Ordinary Shares
WAULT	the average lease term remaining to first break, or expiry, across the portfolio weighted by contracted rental income (including rent-frees). The calculation excludes residential leases and properties allocated as developments

IMPORTANT NOTICE

The contents of this Announcement, which have been prepared and issued by, and are the sole responsibility of the Company, have been approved by the Manager solely for the purposes of section 21(2)(b) of the Financial Services and Markets Act 2000 ("FSMA").

The information contained in this Announcement is for information purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this Announcement or its accuracy, fairness or completeness.

This Announcement is directed only at persons in the United Kingdom who: (a) are Professional Investors (within the meaning of the Alternative Investment Fund Managers Directive (2011/61/EU)) (b) have professional experience in matters relating to investments falling within article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"); (c) fall within article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc) of the Order; or (d) are persons to whom it may otherwise be lawfully communicated.

This Announcement has been issued by, and is the sole responsibility of, the Company. No undertaking, representation, warranty or other assurance, express or implied, is made or given by or on behalf of the Company or any member of the Company's group, Pacific Investments Management Limited, Canaccord Genuity Limited ("Canaccord"), Kinmont Limited ("Kinmont") or Radnor Capital Partners Ltd ("Radnor") or any of their respective directors, officers, partners, employees, agents or advisers or any other person as to the accuracy or completeness of the information or opinions contained in this Announcement and no responsibility or liability is accepted by any of them for any such information or opinions or for any errors, omissions or misstatements, negligence or otherwise in this Announcement.

Canaccord which is a member of the London Stock Exchange, is authorised and regulated in the UK by the Financial Conduct Authority ("FCA") and is acting as nominated adviser, joint financial adviser and sole bookrunner to the Company. Canaccord is not acting for, and will not be responsible to, any person other than the Company for providing the protections afforded to its customers or for advising any other person on the contents of this Announcement or on any transaction or arrangement referred to in this Announcement. Canaccord's responsibilities as the Company's nominated adviser under the AIM Rules are owed solely to the London Stock Exchange and are not owed to the Company, any Director or to any other person. No representation or warranty, express or implied, is made by Canaccord as to, and no liability is accepted by Canaccord in respect of, any of the contents of this Announcement. 

Kinmont, is authorised and regulated in the UK by the FCA and is acting as joint financial adviser to the Company. Kinmont is not acting for, and will not be responsible to, any person other than the Company for providing the protections afforded to its customers or for advising any other person on the contents of this Announcement or on any transaction or arrangement referred to in this Announcement. No representation or warranty, express or implied, is made by Kinmont as to, and no liability is accepted by Kinmont in respect of, any of the contents of this Announcement. 

Radnor, is authorised and regulated in the UK by the FCA and is acting as capital adviser and placing agent to the Company. Radnor is not acting for, and will not be responsible to, any person other than the Company for providing the protections afforded to its customers or for advising any other person on the contents of this Announcement or on any transaction or arrangement referred to in this Announcement. No representation or warranty, express or implied, is made by Radnor as to, and no liability is accepted by Radnor in respect of, any of the contents of this Announcement. 

The information in this Announcement may not be forwarded or distributed to any other person and may not be reproduced in any manner whatsoever. Any forwarding, distribution, reproduction, or disclosure of this information in whole or in part is unauthorised. Failure to comply with this directive may result in a violation of applicable securities laws and regulations of other jurisdictions.

This Announcement contains (or may contain) certain forward-looking statements with respect to certain of the Company's current expectations and projections about future events and the Company's future financial condition and performance. These statements, which sometimes use words such as "aim", "anticipate'', "believe", "may", "will", "should", "intend", "plan", "assume'', "estimate", "expect' (or the negative thereof) and words of similar meaning, reflect the Directors' current beliefs and expectations and involve known and unknown risks, uncertainties and assumptions, many of which are outside the Company's control and difficult to predict, that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement. The information contained in this Announcement speaks only as of the date of this Announcement and is subject to change without notice and the Company does not assume any responsibility or obligation to, and does not intend to, update or revise publicly or review any of the information contained to this Announcement, whether as a result of new information, future events or otherwise, except to the extent required by the UK Financial Conduct Authority, the London Stock Exchange Plc or by applicable law. 

The targeted annualised net dividend and annual total return set out in this Announcement are targets only and not profit forecasts and there can be no assurance that they will be met or that any dividend, rental growth or capital growth will be achieved.

The acquisition of any potential investments by the Company is subject, among other things, to the Company completing satisfactory due diligence, successful negotiation of terms with vendors and the approval of the Directors. There can be no guarantee that any of the potential investments described in this Announcement will be completed. All information relating to the potential investments described in this Announcement are indicative, subject to detailed due diligence and may subsequently change as a result. 

 

END

 

 

IOEEAKDNFSSPEEF