Seneca Property – tenanted retail warehouse in Bolton
This is an exclusive opportunity for Wealth Club investors to invest in a 26,017 sq ft retail warehouse in Bolton, currently generating annual income of £195k. The property has been let to fashion and homeware retailer Matalan since 1995. A new 10-year lease was signed in August 2018.
Seneca has already completed the transaction, securing a purchase price below market value. Now it is seeking up to £1.38 million of investor capital to refinance part of the investment.
The aim is to give investors annual distributions of 8.5% from interest and capital repayments, as well as the potential for capital growth on exit. The total base-case target return is 1.5x after five years. The offer is a package of equity and loan notes. Please note returns and timings are not guaranteed: capital is at risk.
- Aims for income and capital growth: 8.5% p.a. from interest and capital repayments plus potential equity upside on exit
- Projected base-case total cash return of 1.5x – not guaranteed
- Attractive purchase price below market value
- Contracted annual rental underpinned by a 10-year lease from Matalan Retail Limited
- High-quality tenant (credit rating 5A1, representing ‘minimum failure risk’)
- Upwards-only rent review due in November 2023 (current rent believed to be c.30% lower than local market average)
- Open A1 (non-food) planning consent – alternative use potential
- Proven and professional property manager
- Exit targeted after five years, not guaranteed
- Single commercial property asset with no diversification
- Minimum investment – £20,000
Read important documents and apply
Seneca Property 104H Limited (“SP104H”) acquired the asset, a large retail warehouse just outside Bolton, in June 2019. It secured it at an attractive purchase price of £2.33 million (£150k lower than the independent valuation) on the premise it would move quickly.
The transaction was wholly funded through debt funds managed by Seneca Partners. Now, as part of a refinancing, SP104H is raising £1.38 million equity from private investors. £1.25 million senior debt is being sought from NatWest Bank (LTV of 50%).
Wealth Club investors can exclusively participate in this offer (minimum investment £20,000).
The asset is a 26,017 sq ft retail warehouse with 120 car parking spaces. It has a prominent position on the A676, around one mile from the centre of Bolton. There are no similar retail warehouses in the immediate area.
Since 1995 it has been let to Matalan Retail Limited, an established value homeware and fashion retailer. In August 2018, Matalan signed a new full repairing and insuring 10-year lease, which includes an upwards-only rent review in 2023.
The property currently generates annual rent of £195k. The current rent per square foot is c.30% lower than other similar Matalan sites. Furthermore, comparable retail warehouses within the Bolton area are going for £16-£19 per sq ft, so it is likely to be possible to increase the current rent at the forthcoming review (not guaranteed).
Matalan is a successful retailer which in its most recent accounts (February 2019) reported revenues of £1.1 billion and profit before tax of £28 million. Independent credit scoring agency Dun & Bradstreet gives it a 5A1 credit rating, representing ‘minimum failure risk’.
Matalan is perceived as a high-quality tenant. It has so far managed to avoid the issues that have affected other high-street retailers, as it predominantly trades from cheaper, out-of-town locations.
Seneca Partners Ltd, the AIF (Alternative Investment Fund) Manager to SP104H, is a specialist SME investment and advisory business with more than £450 million under management. Formed in 2010 and headquartered in the North West of England, the management team has extensive experience across a range of sectors, including banking, private finance, wealth management, accountancy and stockbroking.
Seneca Property Investments Ltd will be the property manager and be responsible for providing advice on relationships with tenants, capital and operational expenditure, as well as other property management issues.
Seneca Property Investments is led by Jeff Morton who has overall responsibility for managing real estate investments. Jeff is a Chartered Surveyor and has a 30-year corporate history including BlackRock, Merrill Lynch and, most recently, Henley Investments, a private equity and real estate vehicle where he created and managed a large European multi-let portfolio. He is supported by Chris Bullough, a PWC-trained chartered accountant who has spent his career structuring property and private equity deals. Chris previously worked with Jeff at Henley Investments.
This opportunity offers the potential for both income and equity upside: an annual cash return of 8.5% paid quarterly in arrears (made up of interest of 5% and capital repayment of 3.5%), and a total base-case projected return of 1.5x over five years – please note neither the income nor the equity upside are guaranteed. You should see the Information Memorandum for downside and upside-case target returns.
These base-case forecasts are predicated on increasing rent from £7.50 per sq. ft to £9.75 per sq. ft at the forthcoming rent review. To put this into context, JLL has calculated the current average market rent on standard retail units in the Bolton to stand at £17.31 per sq ft.
With a new 10-year lease at a higher rent, the manager believes the asset could achieve a sale price of £3.05 million by year five.
The business plan anticipates an exit in year five. Exit options and timeframes are not guaranteed. A sale to trade or private equity are possible outcomes.
Structure of the investment
Investor capital is expected to be structured as a package of Shareholder Loans and Ordinary Shares.
Investors equity will be deployed into the ordinary share capital of SP104H, a UK specifically incorporated entity. The Shareholder Loan will reside in Seneca Property 104 Ltd (“Propco”) a wholly owned subsidiary of SP104H. Propco will also have bank debt of £1.25 million.
The majority of the investment will be structured as a shareholder loan which should enable the investor to receive quarterly cash payments of 8.5% per annum comprising of a mixture of interest (5%) and capital repayments (3.5%). The Company will deduct 20% income tax when paying the interest element to an individual investor. The investor will however be able to claim a credit for this tax in their tax return. There is no tax on the capital repayment.
The Ordinary Shareholding should also entitle the investor to 70% of all returns in excess of the Shareholder Loan payments. Seneca Property, the manager, will be entitled to the remaining 30%, once all Shareholder interest and capital have been repaid. Investors are not likely to be able to sell the loan element without the shares, or vice versa.
Please note, income and returns are not guaranteed.
There is no direct initial charge or fees payable by investors. However, there are fees that will indirectly impact investor returns.
As property manager, Seneca Property will receive an initial fee of 2% of the purchase price and Seneca Partners a fundraise and fund management fee of 3% of the investor capital raised. Seneca will pay Wealth Club a fundraising fee of 3% out of this, so there is no additional charge to invest.
Seneca Property receives ongoing fees of 6% of rental income (subject to a minimum of £15k p.a.) and will charge a sale fee of 1% of the sale price on exit.
In addition, any profits over and above the repayment of Shareholder loan and outstanding interest will be shared 70/30 between the investors and Seneca respectively. Please see the information memorandum for more details on fees and illustrative returns.
Risks – important
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. Property investments are high risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments on the Wealth Club website and the Information Memorandum to ensure you fully understand the risks.
This is a single company commercial property offer with no diversification. The business may not be successful; for example, occupancy targets may not be met. Overheads may be greater than forecast and profitability less.
Commercial property values could fall for any number of reasons. This could reduce returns to investors.
The use of the loan from NatWest Bank means there is bank finance risk.
The value of tax benefits depends on circumstances and tax rules can change.
We believe this could be a good investment for experienced investors seeking commercial property exposure. The asset was secured at a £150k discount to market valuation due to Seneca Partners’ extensive network, local reputation and ability to move fast. We consider Matalan a strong covenant, as reflected in its high credit rating, and the current low passing rent offers an opportunity for growth in the next rent review in 2023.
Watch a video interview with Jeff Morton of Seneca Property
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Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
- Commercial property investment
- Target raise
- £1.38 million
- Target total return
- 1.5x (base case)
- Target distributions
- 8.5% p.a.
- Target exit
- 5 years
- Minimum investment