Grainger and Dorrington announce the creation of a 50:50 joint venture, Walworth Investment Properties Limited, which has been formed to acquire a portfolio of South London residential property for £111 million (approx. €131.3 million). The portfolio was previously wholly-owned by Grainger plc.
The portfolio comprises 598 residential units and two commercial units, and produces gross rental income of approximately £6mln per annum, reflecting a gross yield of circa 5.3%.
The transaction crystallizes a return of 36% on Grainger’s equity investment over the two year period since it took over full ownership of the portfolio in March 2011, and will also reduce group debt, in line with its previously stated debt reduction strategy. The strong return on the transaction reflects the success of Grainger’s focused asset management programme in growing the capital value of the portfolio, and Grainger will continue this activity in partnership with Dorrington following the transaction. The creation of the joint venture will allow Grainger to participate in future valuation gains and rental income from the portfolio, while crystallizing the gains already achieved.
The joint venture has arranged a non-recourse debt facility of £60 mln (approx. €71 mln). The assets have been sold into the JV at Grainger’s carrying value of £111mln. Taking into account the debt finance, Grainger’s investment of ca.£28 mln (approx. €33.1 mln) in the joint venture, and allowing for working capital requirements, the immediate impact on Grainger’s net debt will be a reduction of ca. £83 mln (approx. 98.2 mln).
The portfolio was previously part of the Grainger Invest portfolio, originally purchased from the Church Commissioners in 2006 in a joint venture with Genesis Housing Group. Grainger took full ownership of the portfolio in March 2011.
Nick Jopling, Executive Director of Property at Grainger, said: “We know Dorrington well and consider them to be a high quality partner, with whom we share a similar long term investment view. As partners, we plan to build on our strong relationship with the residents of the Walworth Estate to ensure that we continue to improve the portfolio and maximize the opportunity from the investment. This is a unique portfolio, with strong prospects, and we look forward to working with Dorrington to deliver a good service and enhance value.”
Trevor Moross, Joint Managing Director of Dorrington, said: “This is an Estate we know well as we were under-bidders when it was originally sold in 2006. Dorrington and Grainger have a very similar approach to residential investment and management. We welcome the opportunity of working with Grainger in a joint venture on an asset which is very much our core business, building on the programme of repair and enhancement which Grainger have established.”
Source: FTI Consulting