Grainger plc, the UK's largest quoted residential property company, has announced that it has acquired 100% of the share capital of HI Tricomm Holdings Limited, together with associated subordinated loan notes and the settlement of other balances, from Invista Castle Limited (a wholly-owned subsidiary of Invista Real Estate Investment Management Holdings plc) for a total consideration of £18.5 million (approx. 22 million). The total consideration will be payable in cash and financed out of existing company resources.
HI Tricomm indirectly owns a high quality portfolio of 317 freehold houses in five separate locations around the Bristol and Portsmouth areas. The largely detached and terraced houses form parts of larger residential estates. The houses were built between 2001 and 2003 under the terms of a Private Finance Initiative (PFI) project to provide dwellings for senior Ministry of Defence personnel.
The portfolio is let under a long-term lease arrangement with the Secretary of State for Defence until 2028. The Secretary of State for Defence has a right to hand back up to 11 units to the PFI project owner per year from the end of 2012 onwards; these can be let in the open market.
Upon expiry of the project, the Secretary of State for Defence has the option to purchase the sites (at fair market value), re-tender the project (at fair market value) or leave the sites in ownership of the owner who is then able to divest of the properties in the open market.
The portfolio currently generates a net annual rental income after property expenses of £7.8 million and will enhance Grainger's recurring profits. The net property yield is 8.4% and it is expected that the transaction will be NAV accretive for Grainger. The current vacant possession value of the underlying assets is approximately £93 million.
HI Tricomm is currently financed by a £69.1 million senior debt facility provided by Bank of America which will be rolled over with the transaction and will expire in 2028. The weighted average fully hedged interest cost is 6.4%. The current mark to market value of the associated interest rate swap of £9.5 million has been fully reflected in the price paid.
Commenting on the transaction, Andrew Cunningham, Grainger's Chief Executive said; "This significant portfolio acquisition is consistent with Grainger's strategy to acquire high quality portfolios of residential assets delivering good long-term returns.
"Furthermore, stapling the existing debt to the transaction provides Grainger with a further opportunity to diversify its sources and tenor of company financing."