Acquisition

RNS Number : 3398A

UK Commercial Property Trust Ltd

06 October 2009

 



UK Commercial Property Trust Limited (the 'Company')

Proposed acquisition of a property portfolio and issue of consideration shares

6 October 2009

Introduction

The Board of the Company is pleased to announce proposals (the 'Proposals') to acquire a portfolio of commercial properties with an aggregate market value of £146 million and an issue of new Ordinary Shares in part consideration for the acquisition. The Company has, today, published and posted a circular (the 'Circular') and a prospectus (the 'Prospectus') to Shareholders in connection with the Proposals.  Defined terms used in this announcement are set out below.

The Proposals will involve the Group acquiring a portfolio of commercial properties from Phoenix Life Limited (which currently owns 35.95 per cent. of the Company's issued shares (excluding shares held by the Company in treasury)) for an aggregate consideration £145.98 million (being the independent valuation of the properties as at 31 August 2009), comprising cash of £35 million and the issue of 163,794,000 new Ordinary Shares at 67.76p per share, being a premium of 3.48 per cent. to the net asset value per Ordinary Share as at 31 August 2009 (adjusted to deduct dividends to which the vendor will not be entitled).

The portfolio to be acquired comprises 11 properties comprising principally of prime retail properties. Further details of the property portfolio are set out below.

Due to the size of the property portfolio to be acquired and the fact that it will be acquired from a related party of the Company, the Proposals are subject to the approval by the Shareholders (other than the Pearl Group Companies) and an Extraordinary General Meeting has been convened for this purpose.  A resolution will also be proposed at the Extraordinary General Meeting to adopt new articles of incorporation of the Company to reflect recent changes in Guernsey law (the 'New Articles').  The Extraordinary General Meeting will be held at 11.00 a.m. on 29 October 2009 at Trafalgar Court, Les Banques, St. Peter Port, Guernsey GY1 3QL.  Further details of the Proposals are set out below and in the Circular and Prospectus.

Benefits of the Proposals

The Board believes that the Proposals offer the opportunity for the Company to improve the prospects for income and capital growth in the Property Portfolio, to diversify further the Property Portfolio and to obtain the benefit of an increase in the size of the Group.  The Proposals also offer the Company the opportunity to acquire a portfolio comprising principally of prime properties at current market valuations funded by the issue of new Ordinary Shares at a premium to net asset value and the draw down of debt under the Bank Facility.  In particular, the Directors believe that, if implemented, the Proposals will:

• enhance the overall investment characteristics of the Property Portfolio;

• broaden sector weightings of the Property Portfolio by increasing the weighting to the retail sector;

• further diversify the risk in the Property Portfolio;

• reduce the void rate in the Property Portfolio;

• improve the medium term income profile of the Property Portfolio;

• introduce additional asset management opportunities; and

• reduce the total expense ratio of the Group.

Details of the Proposals

Acquisition of the New Property Portfolio

The Group has agreed with Phoenix Life Limited, a Pearl Group Company, to acquire a portfolio of 11 properties, the New Property Portfolio, for aggregate consideration of £145.98 million. The New Property Portfolio is a diversified portfolio of principally retail properties with an aggregate Market Value of £145.98 million, which is currently managed by Ignis Investment Services Limited.   The New Property Portfolio generates a current net annual rent of £12.08 million (being a running income return of 8.28 per cent. on its market value). 

If the Proposals are approved by Shareholders, the New Property Portfolio will be acquired by the Group for an aggregate consideration of £145.98 million.  The consideration for the purchase of the New Property Portfolio will be satisfied by the issue to Phoenix Life Limited of 163,794,000 new Ordinary Shares at the Issue Price of 67.76p per Share and a cash payment of £35 million.  The Issue Price of the Consideration Shares represents a premium of 3.48 per cent. to the Adjusted NAV per Share as at 31 August 2009.  Following completion of the Acquisition, the Pearl Group Companies will own approximately 72.62 per cent. of the Company's issued share capital (excluding Shares held by the Company in treasury).

The cash element of the consideration payable for the Acquisition of the New Property Portfolio and the Issue Costs (including stamp duty land tax) will be financed by making a drawdown of up to £42 million under the revolving loan facility provided to the Company by Lloyds TSB Scotland plc.  Following such amount being drawn down it is expected that the Group's borrowings will represent approximately 6.0 per cent. of its Total Assets and approximately £38 million will be left undrawn on the Facility Agreement.

The Existing Property Portfolio

The Existing Property Portfolio comprises 26 properties with an aggregate Market Value as at 31 August 2009 of £554.22 million.  The Existing Property Portfolio was valued as at 30 June 2009 at £544.99 million.  The Existing Property Portfolio generates a current net annual rent of £47.35 million (being a running income return of 8.54 per cent. on its Market Value).  

The Properties comprised in the Existing Property Portfolio have been ranked in the eleventh percentile of portfolios for covenant strength in the independent IPD IRIS. The average unexpired lease term of the occupational leases of these Properties (weighted by current gross annual rent) is approximately ten years and seven months and all of the rent review provisions in the occupational leases of the Properties are upwards only or based on turnover.  

The New Property Portfolio

The Group has agreed with Phoenix Life Limited to acquire a portfolio of properties, the New Property Portfolio, for an aggregate consideration of £145.98 million.  The New Property Portfolio comprises 11 UK commercial properties with an aggregate Market Value as at 31 August 2009 of £145.98 million. The New Property Portfolio generates a current net annual rent of £12.08 million (being a running income return of 8.28 per cent. on its Market Value).

The Properties comprised in the New Property Portfolio have been ranked in the twelfth percentile of portfolios for covenant strength in the independent IPD IRIS. The average unexpired lease term of the occupational leases of the Properties (weighted by current gross annual rent) is approximately eight years and three months and all of the rent review provisions in the occupational leases of the Properties are upwards only or based on turnover.

In the event that the Proposals are approved by Shareholders, it is expected that the New Property Portfolio will be acquired by the Group for an aggregate consideration of £145.98 million. The consideration payable for the acquisition of the New Property Portfolio will be satisfied by the issue to Phoenix Life Limited at the Issue Price of 163,794,000 new Ordinary Shares and a cash payment of £35 million.

The Combined Property Portfolio

In the event that the Proposals are approved by Shareholders and all of the New Property Portfolio is acquired, the Group will hold the Combined Property Portfolio comprising 37 properties with an aggregate Market Value of £700.2 million. The Combined Property Portfolio will generate a current net annual rent of £59.43 million (being a running income return of 8.49 per cent. on its Market Value).

The Properties comprised in the Combined Property Portfolio have been ranked in the eleventh percentile of portfolios for covenant strength in the independent IPD IRIS. The average unexpired lease term of the occupational leases of these Properties (weighted by current gross annual rent) is approximately ten years and one month, compared to the equivalent figure for an average commercial property portfolio, as represented by IPD, of nine years and four months.

Dividends

The Company intends to declare a third interim dividend in respect of the period from 1 July 2009 to 29 October 2009 (the day prior to the expected date of completion of the Acquisition), with an ex dividend date of 21 October 2009 which will be paid on 30 November 2009. As this period is slightly longer than three months it is expected that the third interim dividend will be 1.7262p per Share. It is intended that a fourth interim dividend will be paid in February 2010 in respect of the period from 30 October 2009 (the expected date of completion of the Acquisition) to 31 December 2009.  As this period is slightly less than three months it is expected that the fourth interim dividend will be 0.8988p per Share. Existing Shareholders will qualify for the third and fourth interim dividends in respect of their existing holdings of Ordinary Shares which together equal the equivalent of 1.3125p per quarter per Share. The new Ordinary Shares to be issued to Phoenix Life Limited will only qualify for the fourth interim dividend.

Net asset value, Issue Costs and total expense ratio

The net asset value of an Ordinary Share, calculated in accordance with the Company's accounting policies, as at 31 August 2009, the latest day at which it was calculated, was 66.36p per Ordinary Share. The total costs and expenses of and incidental to the Proposals, including the costs of acquiring the New Property Portfolio, are expected to be approximately £7.71 million. This amount includes stamp duty land tax on the acquisition of the New Property Portfolio of approximately £6 million. It is estimated therefore, that based on the Market Value of the New Property Portfolio, the consideration to be paid, the Issue Costs and the premium payable on the issue of the Consideration Shares, the Acquisition will result in a reduction of the net asset value per Ordinary Share of 0.40p.  By way of comparison, had the New Property Portfolio been acquired with existing cash reserves and/or bank debt (i.e. without a further issue of Shares) and subject to the typical costs of acquiring UK commercial property of 5.75 per cent. of the purchase price, the net asset value per Ordinary Share would have reduced by 1.00p.

On the assumption that the Proposals are approved by Shareholders and the Acquisition completes, it is estimated that the total expenses of the Group for the period from Admission to 31 December 2009 (excluding the Issue Costs, capital expenditure and refurbishment and irrecoverable property running costs, but including irrecoverable VAT) will reduce from 0.88 per cent. to 0.84 per cent. per annum of the Total Assets, annualised over this period.

Adoption of New Articles

On 1 July 2008, The Companies (Guernsey) Law, 2008 came into force, replacing The Companies (Guernsey) Law, 1994 and a host of supplemental legislation and regulations. The Law introduces additional flexibility to Guernsey companies as well as limits on this flexibility.  It is anticipated that the Law will be amended during the transitional period which ends in July 2011. The Directors believe that a number of changes are required to the Current Articles to comply with certain provisions of the new legislation which would be of immediate benefit to the Shareholders. A summary of the new provisions proposed to be incorporated in the New Articles is set out in the Circular.

Extraordinary General Meeting and timetable

The Proposals and the adoption of the New Articles are conditional on the approval of Shareholders. A notice is included in the Circular convening an Extraordinary General Meeting of the Company to be held at 11.00 a.m. on 29 October 2009 at Trafalgar Court, Les Banques, St. Peter Port, Guernsey GY1 3QL at which an ordinary resolution and a special resolution will be proposed.  An ordinary resolution will be proposed to approve the proposed acquisition by the Group of the New Property Portfolio and to approve the issue by the Directors of up to 163,794,000 new Ordinary Shares in connection with the Acquisition (representing 19.53 per cent. of the Company's issued share capital as at the date of this announcement (excluding shares held by the Company in treasury)).  A special resolution will be proposed to adopt the New Articles.

Pearl Group Companies, which hold in aggregate approximately 67.27 per cent. of the issued Ordinary Shares (excluding Shares held by the Company in treasury), have agreed to abstain from voting on the ordinary resolution to be proposed at the Extraordinary General Meeting and have undertaken to take all reasonable steps to ensure that their associates will not vote on such resolution at the Extraordinary General Meeting.

Subject to the conditions to the Acquisition Agreements being satisfied, it is expected that the Acquisition will complete on 30 October 2009 and that the new Ordinary Shares will be admitted to the UKLA's Official List and to trading on the London Stock Exchange's main market on 2 November 2009.

Availability of Circular and Prospectus

A copy of each of the Circular and the Prospectus has been submitted to the Financial Services Authority, and will shortly be available for inspection at the Financial Services Authority's Document Viewing Facility which is situated at:

Financial Services Authority

25 The North Colonnade
Canary Wharf

London E14 5HS

Copies of the Circular and Prospectus are also available from the offices of Dickson Minto W.S., Royal London House, 22/25 Finsbury Square, London EC2A 1DX and at the registered office of the Company.

All enquiries

Douglas Armstrong, Dickson Minto W.S.

Tel:  [phone]

Nigel Russell/Graeme Caton/Graham Reaves, G&N Collective Funds Services Limited
Tel: [phone]

Robert Boag, Ignis Investment Services Limited
Tel: [phone]

Dickson Minto W.S., which is authorised and regulated by the Financial Services Authority, is acting for the Company and for no-one else in connection with the contents of this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Dickson Minto W.S., or for affording advice in relation to the contents of this announcement or any matters referred to herein. 

Definitions

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

'Acquisition' means the acquisition of the New Property Portfolio in accordance with the terms of the Acquisition Agreements;

'Acquisition Agreements' means the conditional agreements to acquire the New Property Portfolio between the Company, UK Commercial Property Holdings Limited, the New JPUT and Phoenix Life Limited, summaries of which are set out in the Appendix to the Circular; 

'Adjusted NAV per Share' means 65.48p being the NAV per Share on 31 August 2009 including all income to that date but after the deduction of the dividend per Share accrued in respect of the period from 1 July 2009 to 31 August 2009 to which the Consideration Shares will not be entitled;

'Admission' means admission of the new Ordinary Shares to the Official List and to trading on the London Stock Exchange;

'Bank Facility' means the £80 million revolving loan facility provided to the Company by Lloyds TSB Scotland plc pursuant to the Facility Agreement;

'Board' or 'Directors' means the directors of the Company;

'Combined Property Portfolio' means the Existing Property Portfolio and the New Property Portfolio;

'Company' means UK Commercial Property Trust Limited, a company incorporated in Guernsey with registered number 45387;

'Consideration Shares' means up to 163,794,000 new Ordinary Shares to be issued to Phoenix Life Limited as part consideration for the acquisition of the New Property Portfolio;

'Current Articles' means the Company's current articles of incorporation;

'Estimated Net Annual Rent' is based on the current rental value of a property:

(i)     ignoring any special receipts or deductions arising from the property;

(ii)     excluding Value Added Tax and before taxation (including tax on profits and any allowances for interest on capital or loans);

(iii)     after making deductions for superior rents (but not for amortisation), and any disbursements including, if appropriate, expenses of managing the property and allowances to maintain it in a condition to command its rent; and

(iv)     where a property, or part of it, is let at the date of valuation, the rental value reflects the terms of the lease and, where a property, or part of it, is vacant at the date of valuation, the rental value reflects the rent the Valuer considers would be obtainable on an open market letting as at the valuation date;

'Existing Property Portfolio' means the Property Portfolio as at the date of this announcement;

'Existing Shareholders' means registered holders of Ordinary Shares prior to the Proposals becoming effective;

'Extraordinary General Meeting' means the extraordinary general meeting of the Company to be held at 11.00 a.m. on 29 October 2009 at which resolutions will be proposed to approve the Proposals and adopt the New Articles;

'Facility Agreement' means the facility agreement between, among others, Lloyds TSB Scotland plc and the Company dated 19 June 2008;

'GLP' means UKCPT Limited Partnership, a Guernsey limited partnership with registered number 709;

'GP' means UK Commercial Property GP Limited, a company incorporated in Guernsey with registered number 45385;

'Group' means the Company, the Property Subsidiary, the GLP, the GP, the JPUT, the Kew JPUT, the New JPUT and any other direct or indirect subsidiary (as that term is defined in the Law) of the Company from time to time;

'IPD IRIS' means the IPD Rental Information Service;

'Issue' means the issue of Ordinary Shares pursuant to the Acquisition;

'Issue Costs' means the costs and expenses payable in respect of the Issue and the Acquisition of the New Property Portfolio;

'Issue Price' means 67.76p per Ordinary Share (being a premium of 3.48 per cent. to the Adjusted NAV per Share as at 31 August 2009);

'JPUT' means the 176/206 High Street Kensington Unit Trust, a Jersey Property Unit Trust which holds the property at Kensington High Street, London forming part of the Existing Property Portfolio;

'Kew JPUT' means the Kew Retail Park Unit Trust which holds the property at Kew Retail Park, Richmond upon Thames, Surrey forming part of the Existing Property Portfolio;

'Law' means The Companies (Guernsey) Law, 2008;

'Market Value' means the aggregate of the market value of the Properties comprised in the Existing Property Portfolio, the New Property Portfolio and/or the Combined Property Portfolio, as the context requires as at 31 August 2009, as set out in the Valuer's reports in Part 4 of the Prospectus or the aggregate market value of part only of such portfolios, as the context requires;

'NAV'  in relation to a Share, means its net asset value on the relevant date calculated in accordance with the Company's normal accounting policies;

'New Articles' means the proposed new articles of incorporation of the Company;

'New JPUT' means the Weston-super-Mare Unit Trust, a newly established Jersey Property Unit Trust which proposes to acquire the property at Sovereign Centre, Weston-super-Mare forming part of the New Property Portfolio;

'new Ordinary Shares' means the Ordinary Shares to be issued pursuant to the Proposals;

'New Property Portfolio' means the portfolio of properties to be acquired by the Group from Phoenix Life Limited, as more fully described in Part 3 of the Prospectus;

'Ordinary Shares'  or 'Shares' means ordinary shares of 25p each in the capital of the Company;

'Pearl Group' means Pearl Group, a company incorporated in the Cayman Islands under the Companies Law (2007 Revision) of the Cayman Islands on 2 January 2008 (previously called Liberty Acquisition Holdings (International) Company);

'Pearl Group Companies' means Pearl Group and its subsidiary undertakings (each a 'Pearl

Group Company');

'Properties' means the properties comprised in the Existing Property Portfolio, the New Property Portfolio and/or the Combined Property Portfolio, or any of them as the context requires (each a 'Property');

'Property Portfolio' means the direct and indirect property assets of the Group from time to time;

'Property Subsidiary' means UK Commercial Property Holdings Limited, a company incorporated in Guernsey with registered number 45386;

'Proposals' means the proposals for the Acquisition and the Issue;

'Shareholders' means holders of the Ordinary Shares;

'Total Assets' means the aggregate value of the assets of the Group less current liabilities of the Group (which shall exclude any proportion of the principal amounts borrowed for investment or amounts borrowed for working capital treated as current liabilities and any liability of an intra-group nature); 

'Valuer' means CB Richard Ellis Limited; and

'VAT' means value added tax.

 

END

 

 

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