Brixton plc (“Brixton”) has agreed three substantial separate unrelated transactions. They comprise: Trafford Park in Manchester; Premier Park, Park Royal and Greenford Park in Greenford; restructuring of the Equiton fund.
Trafford Park, Manchester
Brixton has agreed to buy an effective 100% interest in a limited partnership from Burford Beta Holdings Limited, the assets of that limited partnership comprising 2.7m sq ft in 198 units on 127 acres, for a total consideration of £101.05m.
The total income is approximately £6.5m p.a. and the yield profile, adjusting for 17 acres of sites worth c.£5m, is a net initial yield of 6.6% rising on reversion to 8.2% with an equivalent yield of 7.9%. The average unexpired lease lengths equate to 6.9 years to expiry or 5.9 years to include breaks.
Brixton needs to achieve rental growth on the investment properties of only 0.7% p.a. over 5 years to exceed its pre-tax weighted average cost of capital and create shareholder value on this transaction.
Completion is due on 30th March 2004 whereupon full ownership of the property will vest, via the partnership, with Brixton.
Whilst Brixton has established itself as the UK’s leading company specialising in the South East industrial, warehouse and business space markets in the last 6-7 years its only ownership outside this area is in Manchester at Stanley Green, near the Airport, which was acquired in 1997. Since then, Brixton has been considering expansion of its interests in Manchester.
The Company believes that its specialist skills and customer focused business model can be applied to this purchase providing it with strategic expansion on the second largest industrial estate in the UK after Park Royal where Brixton is, again, a major owner.
The holding requires intensive management, systematic physical and tenure improvement and needs to be given a stronger branded identity. Many opportunities exist for enhancement through upgrading and change of use. Brixton will utilise its proven B-Serv management model using site-based personnel to deal with customer services, contracts management, leasing and asset management, supported by the B-Serv helpdesk, local agents for lettings, rent reviews etc and, at a strategic and finance level, by the head office in London.
Brixton’s ability to revitalise older but intrinsically well-located property was also the main driver earlier this year of the 0.6m sq ft purchase at Northfields Industrial Estate in Park Royal where the Company has already demonstrated real rental growth enhancement.
Premier Park, Park Royal and Greenford Park, Greenford
Brixton has acquired the 50% interest it did not own in the Premier Greenford Limited Partnership (“the Partnership”) from Pearl Assurance plc (“Pearl”) for £76.4m, being £41.4m paid to Pearl for its share of the Partnership’s net assets and £35m paid to the Partnership’s bank for Pearl’s share of the £70m partnership loan. Brixton has also repaid its 50% share (£35m) of the loan to the bank.
Given Brixton’s recent increase in letting activity, as evidenced by the optimistic outlook stated at the Interim stage in 2003, the Company wished to expand and re-commence its development programme. This purchase enables it to control and participate in 100% of the development upside from schemes totalling 0.8m sq ft as well as assuming full ownership of the 0.9m sq ft of existing space where the vacancy rate is only 3.7%. The total income on this latter element amounts to c.£7.3m p.a. which should rise to c.£7.7m p.a. on settlement of three outstanding rent reviews.
The Company’s experience in this area makes it believe that the time is right to do this and it provides an opportunity to create some new large-scale standard industrial accommodation, which is a rarity in the West London market.
Brixton has agreed, in principle, to restructure the Equiton fund with its two existing partners, Equitable Life and the Prudential who each presently own 45.6%. Equiton has been built up since