Proposed refinancing, amendment to Articles &am...
To: RNS
From: UK Commercial Property Trust Limited
Date: 5 March 2015
UK Commercial Property Trust Limited
Proposed refinancing, amendment to the Articles and publication of a circular
Introduction and background
UK Commercial Property Trust Limited is a closed-ended Guernsey registered
property investment company which is listed on the Official List of the UK
Listing Authority. The Company's investment objective is to provide
Shareholders with an attractive level of income together with the potential for
capital and income growth from investing in a diversified UK commercial
property portfolio.
The Group has an £80 million term loan facility with Lloyds Bank plc, which is
repayable in June 2015. The Group also has in place a seven year £150 million
term loan facility with Barclays Bank plc which is repayable in May 2018. Both
of these loan facilities are fully drawn down. The Board has been reviewing the
refinancing options for the Group with its Investment Manager and other
advisers. The Board is pleased to announce that the Group is in advanced
negotiations to refinance the Lloyds Facility through a 12 year term loan
facility with a new lender and has agreed terms for the amendment and extension
to the Existing Barclays Facility.
The Articles require the Board to put to Shareholders an ordinary resolution
approving the continuation of the Company at the annual general meeting of the
Company to be held in 2016 and on a five yearly basis thereafter. In the light
of the proposed Refinancing, the Board is proposing a special resolution to
amend the Articles to replace the current continuation vote with a vote in 2020
and seven yearly thereafter.
The Company has today sent a circular to its Shareholders (the "Circular") in
connection with the proposed Refinancing convening an extraordinary general
meeting of the Company to consider the special resolution to amend the Articles
and thereby approve the continuation of the Company. The Circular also explains
why the Directors believe that these proposals are in the best interests of the
Company and Shareholders as a whole and recommends that Shareholders vote in
favour of the Resolution.
New financing arrangements
New term loan
The Group is in advanced negotiations with a new lender to provide a 12 year
term loan facility (the "New Facility") which will be repayable in 2027. The
New Facility will be drawn down through FinanceCo, a new intermediate holding
company of the Group which will hold the UKCPH Subsidiaries, and used to repay
the existing Lloyds Facility.
FinanceCo is expected to enter into a facility agreement with Cornerstone Real
Estate Advisers Europe LLP, a member of the MassMutual Financial Services
Group, reflecting the agreed outline terms. Under the facility agreement
FinanceCo will drawdown £100 million to finance the repayment of the Lloyds
Facility. The balance of the New Facility will be used for general working
capital purposes. The availability of the New Facility will be subject to the
legally binding facility agreement being executed and on a number of conditions
precedent including valid security and guarantees being granted over the assets
of FinanceCo and the UKCPH Subsidiaries including floating charges and fixed
legal charges over the properties at (i) Junction 27 Retail Park, Birstall,
Leeds, (ii) Aberdeen Gateway - Sites A, C2 and D1, Aberdeen, (iii) 81-85 George
Street, Edinburgh, (iv) Broadbridge Retail Park, Horsham, (v) Motor Park,
Portsmouth and (vi) Emerald Park East, Bristol only. There will be a process
under the terms of the New Facility for substitution of the secured properties.
The New Facility will not be secured over the other assets of the Group.
Interest is expected to be payable on the New Facility at a rate in the range
of 1.25 to 1.45 per cent. per annum over the relevant 12 year UK Gilt. Based on
UK Gilt rates as at 3 March 2015 (being the latest practicable date prior to
publication of the Circular) it is estimated that the total interest rate
payable under the New Facility would be between approximately 3.31 and 3.51 per
cent. per annum.
If all or any part of the New Facility is repaid prior to the end of 2026,
FinanceCo will be required to pay an early repayment penalty (being an adjusted
Spens penalty) based on the greater of (i) a specified percentage of the amount
prepaid (being 1 per cent. up to the ninth anniversary of drawdown and 0.5 per
cent. any time thereafter); and (ii) an adjusted redemption premium based on UK
Gilt yields on the date of prepayment and the interest which would have been
payable for the balance of the loan. Accordingly, a higher repayment penalty
will be suffered the earlier the New Facility is repaid and/or if interest
rates are lower at the time of repayment. While the level of UK Gilt yields in
five years time cannot be accurately predicted, it should be noted that any
early repayment penalty would be substantial in an environment of unusually low
yields.
The New Facility is expected to contain covenants, warranties and undertakings
which are customary for a term loan facility of this nature.
Amendment to the Existing Barclays Facility
In addition to the refinancing of the Lloyds Facility, the Group has agreed
heads of terms with Barclays for an extension of the term of the Existing
Barclays Facility to 2020 (the "Extended Barclays Facility") and the provision
of a five year additional revolving credit facility (the "Barclays Revolving
Credit Facility") of up to £50 million (together the "New Barclays
Facilities"). The Group expects to enter into an amended facility agreement in
due course with Barclays substantially reflecting the heads of terms agreed
with Barclays.
Interest is expected to be payable on the Extended Barclays Facility at the
rate of 1.5 per cent. per annum over LIBOR, a reduction of 0.2 per cent. from
the Existing Barclays Facility. It is expected that the Extended Barclays
Facility will contain covenants, warranties and undertakings which are the same
as or substantially similar to the Existing Barclays Facility.
The Barclays Revolving Credit Facility is to be available for general purposes
and may be utilised to fund the acquisition of assets anywhere in the Group.
The facility introduces flexibility to the debt structure as it will allow
aggregate debt to be increased or decreased depending on the Investment
Manager's view of the property market and ongoing cash levels within the Group.
It will also provide the Investment Manager with additional finance that can be
utilised in a quick and efficient manner should acquisition or asset management
opportunities arise.
Gearing policy
In accordance with the Company's investment policy, gearing may not exceed 65
per cent., calculated by borrowings as a percentage of the Group's total
assets. However, it remains the Board's intention that borrowings of the Group
at the time of drawdown will not exceed 25 per cent. of the total assets of the
Group.
Group borrowings
Following the Refinancing, the Group will have available borrowings of £300
million of which £250 million will be drawn down. On the basis that the
Barclays Revolving Credit Facility is undrawn, the weighted average period to
maturity on the Group's debt will be 7.8 years (being an increase of 5.6
years). Based on the total assets of the Group as at 31 December 2014, such
borrowings would represent 18.7 per cent. of the Group's total assets.
The current weighted average interest rate is 3.85 per cent. per annum. The
weighted average interest rate post completion will depend on the underlying
interest rates at the date of completion and the swap strategy the Company
employs in relation to the current interest rate swaps it has in place.
However, based on (i) the New Facility which will be at a fixed interest rate
with a margin expected at a rate of 1.25 per cent. to 1.45 per cent. per annum;
(ii) the crystallisation of the swaps in respect of the repayment of the Lloyds
Facility; and (iii) the potential restructuring of the existing interest rate
swaps on the Barclays Facility (which will be decided on nearer the time of
completion), it is expected that the weighted average interest rate on the
Company's entire borrowings will fall. As at 31 December 2014, the Lloyds and
Barclays swaps were valued at having a break cost of £760,000 and £7,507,000
respectively. These liabilities have been fully reflected in the 31 December
2014 net asset value of the Company announced on 12 February 2015.
Key attractions of the Group
The Directors believe that continuation of the Company is in the best interests
of Shareholders for the following reasons.
* The Group has performed well since its launch in 2006 delivering strong
annualised performance.
* The Company remains one of the most highly rated companies in its sector
and its shares continue to trade at a significant premium to NAV per Share.
* The Property Portfolio is well positioned to continue to out-perform the
wider UK commercial property market over the medium and longer term.
* There are a number of asset management opportunities in the Property
Portfolio that will assist in the performance of the Group over the
forthcoming years.
* Following the Refinancing, the Group will have in place cost effective long
term borrowings which are expected to enhance returns to Shareholders over
the longer term.
Continuation vote
The Articles require the Board to put to Shareholders an ordinary resolution
approving the continuation of the Company at the annual general meeting of the
Company to be held in 2016 and five yearly thereafter. Given the potential
liabilities incurred on repayment of the New Facility during its term, the
Company would prefer to align the continuation votes with the debt repayment
dates. In the light of the proposed Refinancing, the Board is proposing that
Shareholders approve the continuation of the Company by agreeing to a special
resolution to amend the Articles to replace the current continuation vote with
a vote in 2020 (being the expected repayment date of the New Barclays
Facilities) and seven yearly thereafter (i.e. 2027 being the expected repayment
date of the New Facility).
Accordingly, there will be one continuation vote during the proposed term of
the New Facility. Shareholders should note that if the New Facility is repaid
prior to the end of 2026, an early repayment penalty will be payable as
described above. The Board believes that it is in the best interests of
Shareholders to secure long term financing, with a mixed maturity profile, at
current attractive interest rates notwithstanding the requirement to hold a
continuation vote during the term of the New Facility.
Discount control
The Board intends to continue to use the share buyback authority granted at
each annual general meeting to purchase Shares (subject to the income and cash
flow requirements of the Company) if the price of a Share is more than five per
cent. below the published Net Asset Value for a continuous period of time.
In the event that such discount is more than five per cent. for 90 consecutive
dealing days or more, the Directors will convene an extraordinary general
meeting of the Company to be held within three months to consider an ordinary
resolution for the continuation of the Company. In considering whether to
propose a continuation vote in times of market volatility, the Board may
consider estimated Net Asset Values between the published quarterly Net Asset
Values. If this continuation resolution is not passed, the Directors will
convene a further extraordinary general meeting of the Company, to be held
within six months of the first extraordinary general meeting, to consider the
winding up of the Company or a reconstruction of the Company which offers all
Shareholders the opportunity to realise their investment. If such continuation
resolution is passed, this discount policy, save in respect of share buybacks,
would not apply for a period of two years thereafter. If the Company is wound
up during the term of the New Facility, the early repayment penalty noted above
would apply.
Shareholder meeting
If the Resolution is passed by Shareholders at the General Meeting, the
requirement on the Directors to hold a continuation vote at the annual general
meeting in 2016 will be removed from the Articles and replaced with a
continuation vote in 2020 (being the expected repayment date of the New
Barclays Facilities) and seven yearly thereafter.
The General Meeting has been convened for 10.00 a.m. on 31 March 2015, to be
held at Trafalgar Court, Les Banques, St. Peter Port, Guernsey GY1 3QL. All
Shareholders are entitled to attend and vote on the Resolution to be proposed
at the General Meeting.
If the Resolution is not passed, the Directors will consult with Shareholders
in advance of the Refinancing and put to Shareholders an ordinary resolution
for the continuation of the Company at the annual general meeting of the
Company to be held in 2015.
Phoenix Life Limited, the Company's largest Shareholder with a holding of
53.2 per cent. of the issued Shares, has irrevocably undertaken to vote in
favour of the Resolution.
Circular
A copy of the circular has been submitted to the National Storage Mechanism
andwill shortly be available for inspection at
http://www.morningstar.co.uk/uk/NSM .
Definitions
Terms used and not defined in this announcement have the meanings given in
the Circular.
All enquiries:
Robert Boag / Graeme McDonald, Standard Life Investments
Tel: 0131 245 3272 /0131 245 3151
Edward Gibson-Watt / Oliver Kenyon, J.P. Morgan Cazenove
Tel: 020 7742 4000
Richard Sunderland /Claire Turvey/Clare Glynn, FTI Consulting
Tel: 020 3727 1000
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