Seneca Property co-investment opportunity
Wealth Club investors can exclusively invest alongside Seneca Property in the acquisition of two successful serviced offices in the North of England. The two sites will be added to Seneca's existing portfolio of 10 sites across the North and Midlands.
Seneca has funded and already completed the transaction, securing a purchase price £1.1 million lower than market value. Now it's seeking up to £1 million of investor capital to refinance a small portion of the investment.
Investors could benefit from both income and equity upside – total projected return is between 1.54x and 1.77x over 4 years, not guaranteed.
- Aims for income and capital growth: coupon of 7.15% p.a. plus potential equity upside on exit
- Projected return 1.54x for business as usual (upside 1.77x) – not guaranteed
- Potential for further upside if portfolio expands
- Attractive off-market purchase price
- Two successful sites with 95% average occupancy rate
- Proven and professional team
- Exclusive co-investment opportunity
- Exit targeted from year 4
- Minimum investment – £25,000
- Closes 21 September 2018
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Using its strong reputation and network in the region, Seneca has successfully secured the two properties for £8.1 million, an estimated £1.1 million below market value. Seneca Property 101EF Limited has been set up for this acquisition. The deal completed on 10 August 2018.
The total cost of the acquisition is £9 million. Seneca Property sourced, negotiated, and funded the deal: it invested £4.15 million equity and provided £4.85 million debt. It is now seeking up to £1 million of investor capital to refinance a small portion of the investment.
Investor capital will be deployed into an interest-bearing loan note and ordinary shares. This offers the potential for both income and equity upside: an annual coupon of 7.15% paid quarterly in arrears, and a total projected return of between 1.54x (equivalent to 12.5% IRR) and 1.77x (equivalent to 17% IRR) over 4 years – please note neither the income nor the equity upside are guaranteed.
The two business centres will complement Seneca’s £30 million portfolio of ten serviced offices across the North and Midlands.
Moreover, the plan is to acquire additional sites (potentially a further 10 to 20 sites) and eventually sell them all as a combined enlarged portfolio, which could potentially attract a premium sales price due to the scale and diversity of the estate. Also with an estate of this scale an IPO could be achievable which could attract a higher valuation – this scenario has not been included in the target returns and is not guaranteed.
The properties and business
The two properties offer a total of 51,000 sq. ft. of premium office space and storage accommodation. They are branded and have excellent locations.
The average occupancy rate across the two properties is 95% and gross annual rental income is currently £1.35 million. There are over 80 tenants, providing good income diversification. 67% of the income comes from customers paying less than £30k per year and no single customer represents more than 5% of the total gross income.
Piccadilly House, Manchester City Centre
Piccadilly House is a six-floor Grade II listed building offering boutique-style office space, conference and meeting rooms. It has been converted to an exceptional standard, combining period features and modern design. The property benefits from superfast internet connectivity and facilities including stylish coffee lounges and luxury shower rooms.
It is situated in a prime location in Manchester City Centre. It is just minutes from the trendy Northern Quarter District and Piccadilly Station, the second busiest interchange station outside London and also a major interchange with the Metrolink light rail system, with expansion plans including High Speed 2 and Northern Powerhouse Rail.
Cleveland Business Centre, Middlesbrough
Cleveland Business Centre is a modern recently refurbished three-storey building, formed from two adjoining blocks and having car parking at the rear. It offers high-quality office accommodation with state of the art conferencing facilities, IT and presentation equipment, in-house health & leisure centre and café.
It is located in Middlesbrough town centre, adjacent to the Law Courts and within 400 yards of Middlesbrough Town Hall, Middlesbrough Borough Council and Middlesbrough Institute of Modern Art. The area is earmarked for a £68 million regeneration initiative by Middlesbrough Council. The property benefits from close proximity to the A66, the region’s major trunk route, as well as direct passage to the main retail core via a pedestrianised thoroughfare.
This offers the potential for both income and equity upside: an annual coupon of 7.15% paid quarterly in arrears, and a total projected return of between 1.54x (equivalent to 12.5% IRR) and 1.77x (equivalent to 17% IRR) over 4 years – please note neither the income nor the equity upside are guaranteed. In order to achieve the business plan target returns, the priority objectives are to:
- Continue excellent operating performance of the two sites
- Maintain current occupancy levels
- Consolidate existing ten-site serviced office portfolio
- Sell combined estate to drive price due to scale and diversity
- Target return per £100,000 invested from three scenarios ranges from £117,000 to £177,000 in 4 years. Superior returns could be generated if the business further expands and/or floats, but there are no guarantees
A large, well managed portfolio could potentially have a successful IPO at a considerably higher valuation multiple. This scenario is not included in the target returns above. This strategy would also require additional capital and potentially create additional risk. Returns are not guaranteed.
The business plan anticipates an exit in year four, however, this could be achieved earlier if the objectives are met earlier. Exit options and timeframes are not guaranteed. A sale to trade, private equity or IPO are all possible outcomes, if the business is successful.
There is no initial charge and no other fees directly payable by investors.
Seneca Property will receive an initial fee of 1% of the purchase price and Seneca Partners an equity raising fee of 2% of the equity. These are substantial but not out of kilter with the market in a deal of this size and complexity in our view.
Seneca Property receives ongoing fees of 10% of the gross rental income and earns interest and fees on providing the senior debt.
In addition, there is a performance fee. Seneca will receive 30% of any surplus profits. However, investors must have received their capital and paid-up interest first. Wealth Club is paid an introducer fee of 3% out of Seneca’s own charges.
This is a speculative and illiquid investment and should only be considered by experienced investors. Capital is at risk. Investors should not invest money they cannot afford to lose. Please refer to the Information Memorandum for full details of the risks.
We believe this could be a good investment for experienced investors seeking commercial property exposure, secured at a very competitive price and complementary to the existing portfolio. Seneca is proving to be a highly skilled acquirer and consolidator in this market and should be well placed to drive shareholder value, although there are no guarantees and you should form your own view.
Should Seneca continue at this pace it will have one of the largest serviced office portfolios in the North and Midlands. The planned consolidation next year could enhance returns in our view. The serviced office market continues to grow and is attracting UK and international institutional interest, which is pushing up exit multiples on good quality portfolios.
Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based 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. 16.08.2018
- Commercial property investment
- Target raise
- Up to £1 million
- Target return
- 1.54x to 1.77x
- Target income
- 7.15% a year
- Target exit
- 4 years
- Minimum investment
- Closing date
- 21 Sep 2018