28 May 2015
Palace Capital plc
("Palace Capital" or the "Company")
Proposed £20.7 million acquisition of O&H Northampton Limited
and conditional £20 million placing
Palace Capital, the property investment company that focuses on commercial property outside London, announces that it has entered into a conditional agreement to acquire the entire issued share capital of O&H Northampton Limited ("O&H"), the owner of Sol Central, a mixed use leisure scheme in Northampton (the "Acquisition"). The amount payable by Palace Capital in connection with the Acquisition is expected to be approximately £20.7 million.
Sol Central is a 190,000 sq ft mixed-use leisure scheme located in the town centre of Northampton. Constructed in 2002, Sol Central has two anchor tenants, a 10 screen Vue Cinema and a 151 bed Ibis Hotel.
To part finance the repayment of O&H's indebtedness and to provide additional capital to exploit further opportunities, the Company is undertaking a conditional placing of 5,555,556 new ordinary shares in the Company (the "Placing Shares") at 360 pence to raise approximately £20.0 million (before expenses) (the "Placing"). The Placing has been arranged by Arden Partners and Allenby Capital Limited. The issue price of 360 pence per Placing Share represents an approximate 3.5 per cent. discount to the closing middle market price of 373 pence (adjusted for the final dividend of 7.0 pence for which the Placing Shares will not rank) per existing ordinary share on 27 May 2015, the last business day before this announcement.
Key points
· Acquisition of Sol Central - a 13 year old, 190,000 sq.ft mixed leisure scheme in central Northampton
· The consideration reflects an independent valuation of £20.7 million and a net rental income of £1.89 million per annum
· Current tenants include an Ibis Hotel, Vue Cinemas, two gymnasiums and a two-storey car park
· Net initial yield 8.86 per cent and the Weighted Average Unexpired Lease Term is 13.7 years to expiry, 13.5 years to breaks
· Placing to raise £20 million (gross)
· The Company has also secured a five year loan of £11.385 million from Santander UK at 2.25 per cent. over Libor
The Acquisition and the Placing are conditional upon, inter alia, the passing of certain resolutions at a general meeting of the Company. Palace Capital has today posted a circular to shareholders (the "Circular"), convening the general meeting to be held at the offices of Hamlins LLP, Roxburghe House, 273-287 Regent Street, London W1B 2AD at 10:00 a.m. on 16 June 2015. Extracts from the Circular are provided below and a copy of the Circular will be available for download from the Company's website, www.palacecapital.com.
Neil Sinclair, Chief Executive of Palace Capital, said:
"Palace Capital is delighted to announce another major acquisition: Sol Central, a mixed-use leisure scheme in Northampton. Sol Central is well-located in central Northampton, with excellent transport links and a diverse range of tenants. In addition to benefitting from a number of exciting developments nearby, the Board is confident that the Company's active management should enhance the prospects for this asset, increasing income and adding capital value. The Board looks forward to unlocking the property's excellent potential to perform well under our ownership.
"The Company was also very pleased with the support we received from both our existing and new investors to help fund the transaction, raising £20 million via a placing of new shares. Alongside managing our growing portfolio, we continue to seek out further acquisition opportunities that satisfy our criteria and have the potential to produce returns that we can recommend to our shareholders."
For further information, please contact:
Palace Capital plc
Stanley Davis, Non-executive Chairman
Neil Sinclair, Chief Executive
Tel. +44 (0)20 3301 8331
Allenby Capital Limited (Nominated Adviser and Joint Broker)
Nick Naylor / James Reeve
Tel. +44 (0)20 3328 5656
Arden Partners plc (Joint Broker)
Chris Hardie / Ciaran Walsh
Tel. +44 (0)207 614 5917
Broker Profile (Financial PR)
Simon Courtenay / Harry Rippon Tel. +44 (0)20 7448 3244
The Following information has been extracted, without material amendment, from the Circular providing details of the Acquisition and Placing. The same definitions apply throughout this announcement as are applied in the Circular.
PLACING STATISTICS
Number of Existing Ordinary Shares in issue |
20,225,673 |
Number of Placing Shares to be issued pursuant to the Placing |
5,555,556 |
Ordinary Shares in issue on Admission |
25,781,229 |
Issue Price |
360 pence |
Percentage of Enlarged Share Capital represented by the Placing Shares |
21.5% |
Gross proceeds of the Placing |
£20.0 million |
Estimated net proceeds of the Placing (after deducting the costs of the Placing and the Acquisition) |
£18.7 million |
Market capitalisation of the Company at the Issue Price on Admission |
£92.8 million |
Placing Shares' ISIN |
GB00BWVG1852 |
TIDM of the Placing Shares |
PCA2.L |
INTRODUCTION
Palace Capital has entered into a conditional agreement to acquire the entire issued share capital of O&H, the owner of Sol Central, a mixed use leisure scheme in Northampton. Under the terms of the Acquisition Agreement, the consideration payable by Palace for all of the issued shares of O&H is £1. The Company will also procure the repayment of £20.7 million of the outstanding indebtedness owed by O&H to its existing bank and other creditors. There will also be an adjustment to reflect the net assets of O&H at the date of the Acquisition. The total amount payable by Palace Capital in connection with the acquisition of O&H is expected to be approximately £20.7 million.
Sol Central is a 190,000 sq ft mixed use leisure scheme located in the town centre of Northampton. Constructed in 2002, Sol Central has two anchor tenants, a 10 screen Vue Cinema and a 151 bed Ibis Hotel.
To finance the repayment of O&H's indebtedness and to provide additional capital to exploit further opportunities, the Company is today announcing a conditional placing of 5,555,556 Placing Shares at the Issue Price to raise approximately £20.0 million (before expenses). The Placing has been arranged by Arden and Allenby Capital. The issue price of 360 pence per Placing Share represents an approximate 3.5 per cent. discount to the closing middle market price of 373 pence (adjusted for the final dividend of 7.0 pence for which the Placing Shares will not rank) per Existing Ordinary Share on 27 May 2015, the last business day before the announcement of the Placing and Acquisition.
The Acquisition is conditional on, inter alia, O&H and Santander entering into the Facility Agreement. The Facility will provide O&H with £11.39 million, which will be used, along with part of the Placing proceeds, to repay O&H's outstanding indebtedness up to an aggregate amount of £20.7 million.
The Placing is conditional, inter alia, on the passing of the Resolutions by the Shareholders at the General Meeting, which has been convened for 16 June 2015, notice of which is set out at the end of the Circular. If the Resolutions are passed, the Placing Shares are expected to be allotted immediately after the General Meeting, conditional on Admission, which is expected to occur at 8.00 a.m. on 17 June 2015. Should Shareholder approval not be obtained at the General Meeting, the Acquisition and the Placing will not proceed. The Placing is not underwritten.
INFORMATION ON O&H
O&H is the owner of Sol Central. Sol Central was constructed in 2002 and is a 190,000 sq ft mixed use leisure scheme located in the town centre of Northampton, approximately 200 metres from Northampton railway station and 200 metres from the main retail shopping area of Northampton. Sol Central's current tenants include:
- Vue Entertainment Ltd, a modern 10 screen Vue Cinema, with auditorium sizes ranging from 163 to 440 seats and a total of 2,547 seats;
- Accor UK Limited, trading as a 151 room Ibis Hotel;
- Fitness 4 Less, a low-cost gym, featuring a swimming pool, gym equipment and offering fitness classes; and
- BST Amateur Sports Club Ltd, a purpose built mixed martial arts and fitness centre.
In addition, Gala Casinos Limited rents space but does not occupy it at Sol Central under a lease that has 13 years left to run. A pub operator has 21 years to run on a lease of a unit which is also vacant. At this time the pub is not currently trading. There is also a vacant unlet restaurant unit. A full schedule of current tenants is contained in the Circular.
The weighted average unexpired lease term at Sol Central is 13.7 years. Over 50 per cent. of the income generated by Sol Central is from 5A1 rated tenants2. Sol Central also has a 375 space multi-storey car park, operated by O&H, generating a net income of circa £280,000 per annum.
Sol Central has been valued, on an open market and fair value basis, by DTZ at £20.7 million. In the year ended 28 February 2015, the gross annual rental income of Sol Central was £1.99 million and the net annual rental income was £1.89 million. Based on the consideration of £20.7 million and the costs associated with the Acquisition, this income represents a net initial yield on O&H of 8.86 per cent. In the year ended 28 February 2015, the profit before tax for O&H, after deducting interest of £1.0 million, was £1.37 million (which includes an upward property revaluation of £0.7 million). The net liabilities at that date were £0.35 million including borrowings of £16.7 million and indebtedness owed to shareholders of O&H of £4.1 million.
BACKGROUND TO AND REASONS FOR THE ACQUISITION AND PLACING
.
The Company's strategy is to focus on the UK secondary property market outside London, both through its current investment portfolio and by continuing to pursue additional acquisition opportunities. The Acquisition is in line with this strategy and the Directors believe that Sol Central can benefit from active management to increase income and add capital value and that, going forward, it will provide Palace Capital with a long-term rental income from tenants with good covenants.
The Company is undertaking the Placing and entering into the Facility Agreement both to finance the repayment of O&H's existing indebtedness and to provide funding for the Company to pursue other acquisition opportunities.
CURRENT TRADING AND PROSPECTS
Current trading
Subsequent to 31 March 2015, the Company's financial year end, the Company has undertaken the following:
- Bank House, Leeds - The Company completed the acquisition of Bank House, Leeds, for £10.0 million on 1 April 2015. Bank House is situated in the heart of the traditional business district in Leeds and comprises a net floor area of 88,000 sq ft. Joint letting agents have been appointed to market the vacant space comprising of circa 8,800 sq ft;
- Hudson House, York - The Company is making steady progress on this 103,000 sq ft office building adjacent to York Railway Station. The Directors are confident that the Company is close to reaching agreement with the City of York Council regarding the mix of a major refurbishment, comprising Grade A offices and residential use, for which the Directors believe there is considerable demand in York, and the Company is due to submit a planning application shortly. The Board continues to be very positive as to the potential of this property which is in a first class location, in a vibrant and growing city.
- 124-126, Above Bar Street, Southampton - The Company's professional team is progressing with the City Council to submit an early planning application for a new building for retail/restaurant on the ground floor and residential above. Southampton City Council intends that this area of Southampton becomes the new cultural quarter.
- The Copperfields Centre, Dartford, Kent - In the Company's last interim results statement it confirmed that it had secured Permitted Development at the property for nine residential units. The Company has now submitted a revised application for fourteen residential units and a decision is expected shortly from Dartford Council.
- Unit 1, Clayton Manor, Burgess Hill - This 16,100 sq ft warehouse/office building has been empty since June 2013, fourteen months before the Company acquired PIH. It was valued on purchase at £690,000 and the valuation was updated at the year end to £1,090,000. The Company exchanged contracts in January of this year to sell the freehold for £1,250,000, subject to planning consent being granted to use the premises as a builders' merchants. This planning consent was granted on 15 May 2015 so the contract has become unconditional and the Company is due to complete in mid June 2015.
The Company's portfolio currently consists of fifty properties, with a total floor space of 1.5 million sq ft and an occupancy rate of 90.6 per cent. by lettable space.
Borrowings
The Company has modest levels of borrowing (including finance leases of £0.8 million), which totalled £37.0 million at 31 March 2015. Based on the revaluation of the Company's properties at 31 March 2015 of £102.75 million, the Board believes the Company has a very comfortable level of net gearing of 30.9 per cent. and a loan to value of 35.2 per cent..
Cash in hand of £12.3 million at 31 March 2015 was reduced by the acquisition of Bank House, Leeds, for £10.0 million plus costs after the year-end.
On 11 May 2015, the Company announced that it had secured a £4.5 million loan facility for a term of four years from Lloyds to be charged against Bank House, Leeds.
The acquisition of the Sequel Portfolio in October 2013 was part financed by a £20.0 million bank loan from the Nationwide Building Society. Since October 2013 the Company has repaid a net £0.4 million of this bank loan and the remaining balance of £19.6 million is due to be repaid in October 2016. The loan to value on the Sequel Portfolio is 30.4% and the Company is in preliminary discussions with the Nationwide Building Society to refinance the bank loan and allow part of the security contained in the Sequel Portfolio to be released.
In addition to the bank loans secured on Bank House and the Sequel portfolio, the Company currently has a bank loan of £1.2 million secured on the Hockenhull portfolio (the Company's properties in Cheshire) and £15.4 million secured on the PIH portfolio.
Prospects
The Board considers that the result of the last general election will be positive for the business community generally and the property sector in particular. The Company focuses on the UK regions and the incoming administration has made it very clear that they are keen to see growth in the areas in which the Company operates, particularly in the north of England.
The Board considers the appointment of a high calibre banker and economist to oversee the proposed Northern Powerhouse as positive, and it reaffirms the Board's decision to focus the Company's activities away from London. The Directors see greater opportunity for value enhancement in the regions.
The Board believes the outlook for Palace remains favourable and looks forward to the future with confidence.
O&H
Since 28 February 2015 (the date to which O&H's last accounts have been audited), O&H has traded in line with its management's expectations with rental income and costs in line with budget.
DETAILS OF THE ACQUISITION AGREEMENT
The Company has agreed conditionally to acquire the entire issued share capital of O&H, on the terms of the Acquisition Agreement, for a consideration of £1. The Company will also procure the repayment of £20.7 million of the outstanding bank indebtedness and other indebtedness owed by OH to other creditors, principally the Sellers. The aggregate amount payable is expected to be approximately £20.7 million.
The Acquisition is conditional upon, amongst other things, the passing of the Resolutions. If any of such conditions are not satisfied or, if applicable, waived the Acquisition will not proceed.
In accordance with the terms of the Acquisition Agreement, Palace Capital has paid a £1.035 million deposit on exchange of contracts with O&H. In the event of the Acquisition not completing the deposit will not, in certain circumstances, be repaid to the Company.
Further detail on the Acquisition Agreement is set out in the Circular.
DETAILS OF THE FACILITY
The Company has agreed with Santander that O&H will enter into the Facility Agreement prior to or on completion of the Acquisition. The Facility constitutes a term loan facility in the sum of £11.385 million and is conditional, inter alia, on completion of the Acquisition.
The Facility will be available to O&H for a five year term at an interest rate of 2.25 per cent. above Libor. The Facility will be secured by a first ranking legal charge over Sol Central and a debenture over the entire undertaking of O&H. The Facility Agreement will contain a number of normal banking covenants on the part of O&H.
Further detail on the Facility Agreement is set out in the Circular.
DETAILS OF THE PLACING
The Company has conditionally raised £20.0 million (before expenses) through a placing of 5,555,556 Placing Shares at 360 pence per share with institutional and other investors. The net proceeds of the Placing after the costs of the Acquisition and the Placing (being approximately £18.7 million) will be applied by the Company to: a) part fund the repayment of the indebtedness of O&H (the balance being funded by the Facility); and b) fund future acquisitions. The Directors believe that these additional funds will enable the Company to pursue acquisition opportunities in a timely manner which are complimentary to the Company's existing property portfolio. The Placing has not been underwritten.
The Company has entered into the Placing Agreement under which Arden and Allenby Capital, as joint brokers, have agreed to use their reasonable endeavours to procure subscribers for the Placing Shares at the Issue Price. Further terms of the Placing Agreement are set out in the Circular.
Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. Assuming the passing of the Resolutions at the General Meeting, it is expected that Admission will become effective and that dealings in the Placing Shares will commence at 8.00 a.m. on 17 June 2015.
The Placing is conditional, inter alia, upon:
a) the passing of the Resolutions;
b) the Acquisition Agreement and the Facility Agreement becoming unconditional in all respects save in respect of any interconditionality with the Placing Agreement;
c) the Placing Agreement becoming unconditional in all respects (other than Admission) and not having been terminated in accordance with its terms; and
d) Admission occurring by not later than 8.00 a.m. 17 June 2015 (or such later time and/or date as the Company, Arden and Allenby Capital may agree, not being later than 8.00 a.m. on 1 July 2015).
Accordingly if any of such conditions are not satisfied or, if applicable, waived the Placing will not proceed.
The Placing Shares will not rank for the proposed final dividend of 7.0 pence per Existing Ordinary Share, announced by the Company today. The Placing Shares will trade initially on AIM under TIDM PCA2.L, with ISIN GB00BWVG1852. Following the dividend payment date, the Placing Shares will be merged with the Existing Ordinary Shares and trade on AIM under TIDM PCA.L with ISIN GB00BF5SGF06. Following merger with the Existing Ordinary Shares, the Placing Shares will rank pari passu in all respects with the Existing Ordinary Shares and therefore will rank equally for all future dividends or other distributions declared, made or paid after the date of the Existing Ordinary Shares and Placing Shares being merged under the same TIDM and ISIN.
Reasons for not carrying out a pre-emptive issue
The Directors have considered the most appropriate method to conduct the fundraising, including consideration of carrying out a placing and open offer or a rights issue. The Directors consider that the time and costs associated with a pre-emptive offer are not in the best interests of the Company. After careful consideration, they conclude that the benefit of minimising the costs of any fundraising by way of a non pre-emptive cash placing would be in the best interests of the Shareholders.
GENERAL MEETING
The General Meeting, to be held at the offices of Hamlins LLP, Roxburghe House, 273-287 Regent Street, London W1B 2AD at 10:00 a.m. on 16 June 2015, is being called to seek Shareholders' approval to grant new authorities to enable the Directors, inter alia, to allot the Placing Shares.
TIMETABLE OF PRINCIPAL EVENTS
Announcement of the Placing and Acquisition |
28 May |
Posting of the Circular along with Forms of Proxy |
28 May |
Latest time and date for receipt of Forms of Proxy |
10.00 a.m. on 12 June |
General Meeting |
10.00 a.m. on 16 June |
Admission effective and dealings in the Placing Shares expected to commence on AIM |
8.00 a.m. on 17 June |
Date for crediting of Placing Shares in uncertificated form to CREST stock accounts |
17 June |
Date of despatch of share certificates in respect of the Placing Shares in certificated form |
by 1 July |
Record date for the Company's final dividend for the year ended 31 March 2015 |
10 July |
Payment date for the Company's final dividend for the year ended 31 March 2015 |
31 July |
Date of merging the Placing Shares into the existing trading line of Ordinary Shares |
3 August |
