The Target is a special purpose vehicle and is the owner of Broad Street Plaza, an award winning leisure development in Halifax, West Yorkshire.
The amount paid by Palace Capital reflects a freehold value of £24.18m and the acquisition is an off market transaction.
The consideration comprises: i) Palace Capital assuming the Target’s existing facility with Barclays Bank of £15.2 million (on which the Target pays a margin of 2.75% over LIBOR); and ii) £9.0 million from Palace Capital’s existing cash resources. The consideration is subject to adjustment, based on a completion balance sheet.
Broad Street Plaza was completed in 2012 and is on an island site in the heart of Halifax opposite the bus station and Town Hall. It comprises circa 113,000 sq ft and a 429 space multi-storey car park and is producing a current net income of £1,780,000 per annum, rising through fixed rent increases to £1,940,000 per annum in 2017.
There is only a small amount of vacant space and the vendors have guaranteed the rent, service charge and rates on this unit until it is let or for a maximum of two years. This represents an initial net yield of 7.25% rising to at least 7.9% in 2017 when rent reviews on a number of units also take place.
Broad Street Plaza is let to a number of major tenants including JD Wetherspoon, Pizza Express, The Restaurant Group, Nando’s, Mitchells & Butlers, Prezzo, TGI Friday’s, Pure Gym, Vue Entertainment, Apcoa Parking and Calderdale & Huddersfield NHS Foundation Trust. The Weighted Average Unexpired Lease Term (“WAULT”) is 15.07 years to break and 21.01 years to expiry.
The company is assuming the existing bank facility with Barclays Bank which runs until October 2017 and is reducing by £200,000 per quarter. The company may seek to replace this existing facility with a new longer term facility in due course.
Knight Frank acted for Palace Capital.
The company has also entered into a new £30m five year facility with National Westminster Bank of which £10 million is fixed and £20m is a revolving facility. The margin is 2.5% over LIBOR on the amounts drawn and 1.25% on any undrawn amount, which is below the margin Palace Capital were paying on its previous £14m facility with National Westminster Bank, which had a margin of 2.75% over LIBOR and was put in place in August 2014 when the company acquired Property Investment Holdings.
The increased borrowings were achieved as a result of a 4% uplift in value of the PIH portfolio, as at 29 February 2016, to £36.7m. Security for the new bank facility also includes a number of previously uncharged properties, specifically the Company’s most recent acquisitions of 46-54, High Street, Sutton for £3.95m in August 2015 and 249, Midsummer Boulevard, Milton Keynes for £7.2m last month.
Paul Elkington, Relationship Director for National Westminster Bank, said: “We’re delighted to be providing Palace Capital with this new £30m credit facility. They have a strong and well regarded management team in place that is committed to investing in regions outside London which is important for helping drive economic growth throughout the UK.”
Neil Sinclair, Chief Executive of Palace Capital, said: “Palace Capital is delighted to announce another significant acquisition of a major regional leisure scheme. Broad Street Plaza was chosen by The Variety Yorkshire Property Awards in 2012 as the Development of the Year. This is a well located leisure scheme with a superb quality of tenants on good leases with continuity of income for an average of at least fifteen years.
“As the cash element for this transaction has been met from our existing resources, this acquisition is very earnings enhancing. As I stated two weeks ago when we announced the acquisition of 249, Midsummer Boulevard, Milton Keynes we will only buy when we find value. Further to that, to have a yield of close to 8% next year with a WAULT of 15 years to the break is highly attractive in the current climate.
“In addition the new, larger bank facility we have entered into will provide additional resources at lower interest rates for further acquisitions and working capital for a number of asset management activities over the coming months. The Group continues to be conservatively geared with net debt at 38% and holds £20 million of unencumbered properties.
“We continue to seek further targets preferably off market which meet with our strict acquisition criteria.”