Acquisition of Amazon distribution centre in Stoke-on-trent, England

Posted On Tuesday, 27 September 2016 09:24 Published by
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Acquisition of Amazon distribution centre in Stoke-on-trent, England .

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Shareholders are advised that Equites, through its Isle of Man based wholly-owned subsidiary, Equites International Limited (“Equites International”), has concluded an agreement with Perevil Securities Limited (“the seller”) in terms of which Equites International will be acquiring a 20 410 square meter distribution centre let to Amazon situated at Stanley Matthews Way, Trentham Lakes, Stoke on Trent ST4 8GR (“the property”) from the seller (“the transaction”).

The purchase consideration is £17 000 000 and the transaction was concluded off-market. 

RATIONALE

The transaction is consistent with Equites’ stated growth and investment strategy of:

- Diversification into the UK in order to mitigate the risks of its emerging market focus and access the advanced know-how and technology in respect of logistics facilities in the UK;

- Focus on premium “big-box” distribution centres, let to investment grade tenants on long-dated “triple net leases”, in proven logistics nodes and built to institutional specifications. In the UK, the locations of preference are the central Midlands and “last-mile” fulfilment centres near to major conurbations;

- Building a high quality logistics portfolio, consisting of properties with predictable rental growth profiles, that promotes capital growth and increasing income returns in the medium to long term. The property will therefore add to the quality, defensiveness and income predictability of Equites. 

DETAILS OF THE PROPERTY

Equites has agreed to acquire the property at an acquisition yield of c.6.14% based on the first year’s rental income of £1 043 945 and the purchase consideration excluding acquisition costs. The property has been independently valued at £17 000 000 and has a weighted average rental per square foot of £4.75. The property, originally built in 2001, recently underwent extensive renovations and an extension in order to meet the requirements of the tenant, Amazon UK Services Limited (a wholly-owned subsidiary of Amazon.com Inc.) (“tenant” or “Amazon”).

Equites views the sound fundamentals of the property as follows:

- The price of the property is its fair market value as confirmed by the independent valuation referred to below.

- The property, which meets modern logistics requirements, is located in the well-established Trentham Lakes Business Park, which affords excellent road links, and lies between the A50 and A5035. These roads provide direct access to the M1 to the East, with the M6 also being within easy reach. It is situated exactly half way between Manchester and Birmingham in the West Midlands. The property benefits from being 4 hours’ drive from 80% of the UK population and is in the highly desirable Midlands area, which benefits from the highest volume of logistics demand in the UK.

- The property is 20 410 square metres in extent on a 5.76 hectare site which translates into a low coverage of 35.5% providing the tenant with a small high quality office area, 20 dock level and 2 level access doors, an extensive 50 metre yards and clear height to eaves of 12 metres.

- Amazon, has signed a 10 year lease which commenced on 19 July 2016 and forms part of the American electronic commerce and cloud computing company with headquarters in Seattle, Washington. It is the largest Internet-based retailer in the world by total sales. This UK subsidiary has a D&B credit score of 5A1 with a Failure Score of 100 out of 100, representing a “high” level covenant strength.

- The Amazon lease is subject to an upward only rent review in 2021. The rent review is based on the increase in the Consumer Price Index over the 5 year period with a notional increases applied every year subject to this increase not being less than 1% or more than 2.5% (i.e. a collar and a cap).

TERMS OF THE TRANSACTION

The effective date of the transaction will be the date of transfer of the underlying leasehold rights which is expected to be on or about 10 October 2016.

On 26 September 2016, Equites International paid a deposit on account of the purchase consideration in the amount of £1 700 000, with the balance of the purchase consideration being due and payable on the expected effective date.

The transaction is subject to the fulfilment or waiver (as the case may be) of the following conditions precedent by 31 March 2017: - that the seller completes all outstanding building works on the property to the satisfaction of the tenant; - that the seller provides the usual warranties, representations and third party assurances including a survey in respect of the property and the recent major renovation and extension to the building on the property. 

VALUATION

The independent valuation of the 110 year leasehold rights comprising the property was undertaken by Jones Lang LaSalle, an independent external valuer, in accordance with the “RICS Valuation – Professional Standards, the 2012 Edition (the “Red Book”)”. This is an internationally accepted basis of valuation.

FUNDING AND FINANCIAL EFFECTS

Funding for the full purchase consideration in pound sterling has been secured at a five year fixed interest rate of less than 3%. Accordingly, the transaction will contribute positively to Equites’ distributable earnings in the current year, without detracting from attractive growth prospects over the longer term given the overall mix of assets and development within the Equites portfolio.

CATEGORISATION

The transaction is a category 2 transaction in terms of the JSE Listings Requirements and accordingly does not require approval by shareholders. 

Last modified on Tuesday, 27 September 2016 09:52

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