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ATLANTIC LEAF PROPERTIES LIMITED - Acquisition of an industrial property based in Denby, United Kingdom and business update
Acquisition of an industrial property based in Denby, United Kingdom and business update Atlantic Leaf Properties Limited (Incorporated in Jersey) (Registration Number: 128426) SEM share code: ALPL.N0000 JSE share code: ALP ISIN: MU0422N00009 www.atlanticleaf.mu ("Atlantic Leaf" or the "Company") ACQUISITION OF AN INDUSTRIAL PROPERTY BASED IN DENBY, UNITED KINGDOM AND BUSINESS UPDATE INTRODUCTION Shareholders are advised that on 23 August 2019, Atlantic Leaf, through its wholly-owned subsidiary Basswood Limited (collectively, "Atlantic Leaf"), concluded agreements and simultaneously completed the acquisition of an industrial property known as Gilbert House on Denby Hall Business Park in Denby, United Kingdom (the "Property") from Garner Holdings Limited (the "Seller") (the "Transaction"). RATIONALE FOR THE TRANSACTION The Property is a brand-new distribution warehouse and consistent with the Company's primary investment focus in industrial assets. This sector continues to benefit from increasing volumes in e- commerce and logistics business. Atlantic Leaf's industrial exposure by value is now 79%, up from 70% at the 2019 year-end. The Property was built in 2019 to specifications required by modern logistics providers. Attractive occupier features include eight loading docks, four drive-in doors, 12-metre-high eaves and two storeys of office space. It is well-located in central England with the M1 motorway nearby and its situation on Denby Business Park provides access to a large labour pool. Major occupiers in the area include Kuehne + Nagel, Arcadia Group, The Co-operative, Rolls Royce and SIG. In addition to its strong property fundamentals, the new asset offers attractive long-term income. The Lockwood Group Limited (the "Tenant") signed a 15-year lease on the Property in June 2019, subject to 5-yearly upward only rent reviews. The Tenant is an established provider of logistics and warehousing solutions in middle and northern England and has been consistently profitable, generating significant revenue growth in the last two years. SALIENT TERMS OF THE TRANSACTION The net purchase consideration (excluding transaction related costs) is GBP 8,698,800, being GBP 9,250,000 less GBP 551,200 representing the principal rent which would have been received pursuant to the leases but for the unexpired rent-free periods in the occupational lease (the "Net Purchase Consideration"). The Net Purchase Consideration and transaction related costs will be funded from a combination of existing cash reserves and by drawing down on an existing debt facility. It is intended that additional equity could be raised at an appropriate time in the future to replenish Atlantic Leaf's cash reserves used to fund this acquisition. All conditions precedent relating to the Transaction have been completed. The Seller has provided normal warranties and indemnities for a transaction of this nature, including the assignment of all construction warranties given that this is a new building. DETAILS OF THE PROPERTY Key information regarding the Property is set out below: Property location Denby, Derby United Kingdom Property valuation GBP 8,960,000 Sector Industrial Tenant The Lockwood Group Limited Rentable area 108,631ft2 (10,092m²) Rental (p.a. after expiry of rent-free periods) GBP 597,470 Rental per square metre GBP 59,20 Rental per square foot GBP 5,50 Lease term remaining (years) 14.8 Valuation net initial yield 6.35% Estimated transaction related costs GBP 642,000 Stamp duty land tax payable in the United Kingdom of approximately GBP 452,000 is the largest component of estimated transaction costs. The Net Purchase Consideration attributed to the Property is considered to be the fair market value, as determined by the board of directors of Atlantic Leaf (the "Board"). The Board is not independent and its members are not registered as professional valuers or as professional associate valuers in terms of the Property Valuers Profession Act, No 47 of 2000. FINANCIAL INFORMATION Set out below is the financial forecast of Atlantic Leaf's acquisition of the Property (the "forecast") for the period ending 28 February 2020 and the year ending 28 February 2021 (the "forecast period"). The forecast has been prepared on the basis that the effective date of the Transaction was 23 August 2019 and that it includes forecast results for the duration of 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 or the auditors of the Company. 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, and represent only the forecast income from the Transaction. Forecast for the Forecast for the period ending year ending 28-Feb-20 28-Feb-21 GBP GBP Property rental 308 750 591 637 Other operating expenses (excluding transaction costs) (25 891) (54 051) Operational net income 282 859 537 586 Financing costs (72 045) (138 056) Profit after tax 210 814 399 530 Distributable earnings 210 814 399 530 The forecast incorporates the following material assumptions in respect of revenue and expenses: 1. Property rental income has been calculated by straight lining the net rent due from the Tenant over the remaining period of the lease and takes into account the rent-free periods originally granted by the Seller. 2. Rental income comprises contracted revenue based on the existing lease agreement including stipulated increases, all of which are valid and enforceable. There is no uncontracted revenue. It is also assumed that there will be no unforeseen economic factors that will affect the lessee's ability to meet their commitments in terms of existing lease agreement. 3. Other operating expenses include expenditure which has been forecast by management on a line- by-line basis based on management's expectations. 4. Financing costs include senior debt drawn down on the date of the Transaction at an amount equal to 48% of the Property value with a cost of debt of approximately 3.21% p.a. (Libor plus a margin of 1.8% plus amortised finance costs). 5. The Property is recognised at cost being the Net Purchase Consideration plus transaction costs and it is assumed that no impairment is recognised. CATEGORISATION OF THE TRANSACTION The Transaction is classified as a category 2 transaction in terms of paragraph 9.5(a) of the Johannesburg Stock Exchange Limited ("JSE") Listings Requirements and accordingly does not require approval by Atlantic Leaf's shareholders. BUSINESS UPDATE The following information has not been reviewed or reported on by independent reporting accountants or the auditors of the Company. The Transaction is the fifth industrial property asset acquired by Atlantic Leaf in the 2020 financial year to date. In this regard shareholders are referred to the announcement released on SENS and the SEM on 24 May 2019 detailing the acquisition of an industrial property situated in Droitwich, and salient details of the three remaining properties, that were below the category 2 transaction threshold, are included below: 1. An industrial distribution warehouse in Manchester was purchased for GBP 4,33 million excluding transaction costs (being GBP 4,45 million less GBP 118,600 of unexpired rent-free top ups allowed to Atlantic Leaf by the seller) on 6 June 2019 at a valuation net initial yield of 5,9%. It is located in Trafford Park, one of Europe's largest industrial estates and the most established and recognised industrial and distribution location in the North West of England. Kerry Logistics (UK) Limited has a lease at the property with an unexpired term of 4.6 years. The tenant is a subsidiary of Kerry Logistics Network Limited, a global supplier of freight and warehousing solutions, listed in Hong Kong. 2. A multi-unit industrial distribution property in Leeds was purchased for GBP 5,8 million excluding transaction costs on 13 June 2019 at a valuation net initial yield of 7,4%. It is made up of five individual warehouse units located on the Bruntcliffe Industrial Estate, in close proximity to the M62 motorway. The estate is a strategic supply point for business in Leeds, Bradford and Wakefield. Cassellie Limited has co-terminus leases on all five units, with unexpired lease terms of 9.8 years. The tenant is a profitable and growing business-to-business trader of custom bathroom products, owned by Mobility Group Limited. 3. An industrial distribution property in Wolverhampton was purchased on 2 August 2019 for GBP 6,60 million excluding transaction costs, at a valuation net initial yield of 7,4%. It is a fulfilment and distribution centre, well situated in the West Midlands near the M6 and M54 motorways. The location is ideal for logistics operations, with valuable links to Birmingham, Manchester and the South West. It is let to Assa Abloy Limited with an unexpired lease term of 3.9 years. The tenant is a subsidiary of Assa Abloy AB, the global market leader in access and locking solutions, listed in Stockholm. The five acquisitions completed this year were financed with the proceeds from the disposal of the DFS retail portfolio on 23 April 2019 (the "Disposal") (refer to the Company's announcement released on SENS and the SEM on 23 April 2019 for further information) and by drawing down on a new 3-year revolving credit facility with Lloyds Bank Plc (the "Facility"), secured against the five properties. The Facility terms negotiated are attractive with a total interest-only facility available of GBP 22 million at a margin of 1.80% and loan-to-value ratio limit of 48%. The Facility also includes the option to extend the term by up to two years (with lender's consent). With the completion of the latest acquisition, Atlantic Leaf has fully redeployed the proceeds from the Disposal into UK industrial assets. Further details of Atlantic Leaf's property portfolio will be included in Atlantic Leaf's financial results for the 6-months ending 31 August 2019, which are anticipated to be released in mid-October 2019. Atlantic Leaf holds a primary listing on Main Board of the JSE and a secondary listing on the Official Market of the Stock Exchange of Mauritius Ltd ("SEM"). By order of the Board 26 August 2019 For further information please contact: South African Sponsor Java Capital +27 11 722 3050 Company secretary Ocorian Secretaries (Jersey) Limited +44 1534 507000 SEM authorised representative and Sponsor Perigeum Capital Ltd +230 402 0890 This notice is issued pursuant to the JSE Listings Requirements, SEM Listing Rule 15.24 and the Mauritian Securities Act 2005. The Board accepts full responsibility for the accuracy of the information contained in this announcement. Date: 26/08/2019 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.