Seneca Property – tenanted supermarket and car park let to Tesco

Available to Wealth Club experienced investors exclusively

This is an exclusive opportunity to invest alongside experienced asset manager Seneca Property and a high-profile private equity cornerstone investor in a 4-acre purpose-built property currently let to Tesco in Immingham town centre, Lincolnshire. It generates annual rental income of £771k, underpinned by a 25-year inflation-protected lease with the earliest break in 2029.

Seneca completed the £9 million off-market transaction in early April 2020, negotiating a purchase price £750k below market value and securing a fixed low-interest non-amortising debt package from Rothschild & Co. To secure the acquisition and complete the transaction, Seneca put down its own capital and is now seeking up to £2.5 million of investor capital to refinance this part of the investment. 

The aim is to give investors annual cash distributions of 10% from capital repayments (typically tax free), repaying 50% of investor capital by year 5. There is also the potential for a capital profit on the eventual sale of the property (not guaranteed). All capital repayments should be tax free, whilst any profits should be subject to capital gains tax. Bear in mind, tax rules can change and benefits depend on circumstances.

This investment aims to give investors a base-case target return of 10% IRR and 1.5x money (net of fees and carry) after five years. Please note, returns and timings are not guaranteed: capital is at risk. 

The offer is a package of equity ordinary shares and zero-interest shareholder loans.

As part of a diversified portfolio, this could be considered a defensive investment as the food retail market has proved to be particularly resilient since the start of Covid-19. All of Britain’s big four grocers have seen sales boosted by the lockdown, although past performance is not a guide to the future. Tesco plc is considered a strong covenant, as reflected in its D&B 5A 1 credit rating – the maximum score given by leading credit reporting agency Dun & Bradstreet, indicating the combination of ‘maximum financial strength’ and ‘minimum risk of failure’.

Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest.

Read important documents and apply

Seneca Property – Immingham Highlights

  • Projected 5-year hold, base-case target returns of 10% IRR, 1.5x money (net of fees and carry) – not guaranteed
  • 10% p.a. from capital repayments, aims to repay 50% capital by year 5 – not guaranteed
  • Potential for capital profit on eventual sale – not guaranteed
  • Aims for tax efficiency – capital repayments should be tax free and any profits subject to capital gains tax
  • Income underpinned by 25-year lease with Tesco expiring in Nov 2039 (earliest break in 2029)
  • Attractive off-market purchase price
  • Competitive debt package with Rothschild & Co with c.50% LTV
  • High-quality tenant (credit rating 5A 1, representing ‘minimum risk of failure’)
  • Experienced cornerstone investor and asset manager
  • Single commercial property asset with no diversification
  • Minimum investment £25,000 – you can apply online

The offer

Seneca Property 105 Limited (“SP105”) acquired the asset in an off-market transaction in April 2020 for £8.25 million plus purchase costs (stamp duty, valuation report, due diligence, surveys and acquisition fees) – in total costing just over £9 million.

The appointed valuers, a well known national firm, Jones Lang LaSalle, estimated the purchase price to be approximately £750k below market value. Seneca was able to negotiate this discount due to its extensive network, local reputation and ability to move fast. 

The transaction was funded by £4.5 million debt from Rothschild & Co (LTV circa 50%) and £4.5 million equity from Seneca, of which the high-profile cornerstone investor subscribed £2 million.

Now, as part of a refinancing, SP105 is raising up to £2.5 million from private investors. 

This offer is open exclusively to Wealth Club investors – the minimum investment is £25,000.

You can apply online as an individual. Joint (e.g. with a spouse) and corporate applications also available; please contact us

The opportunity 

The asset is a 45,286 sq ft purpose-built, modern supermarket developed in 2014, occupying a large site of over 4 acres (c.25% site coverage) with parking spaces for approximately 308 cars. It is located within Immingham town centre, Lincolnshire.

Immingham is an important shipping town on the Humber estuary in North East England. The Port of Immingham and Grimsby, the UK’s largest port by tonnage, has received over £90 million investment in recent years. Over 37,700 people live within 15 minutes of Immingham; over 236,000 live within 30 minutes of it.

The town appears to be rapidly expanding, with plans to build over 700 new homes.

The asset is close to a large newly built secondary school and in an area of high footfall with a Subway and Poundstretcher next to it. 

Serviced by the key link road A180, the supermarket is 9 miles south of the M180, 7.3 miles from Humberside Airport and 2.8 miles from Harborough railway station.

The asset is entirely let to Tesco Stores Limited, a wholly owned subsidiary of Tesco Plc. It is a 25-year fully repairing and insuring lease expiring in November 2039, subject to a break option in November 2029, with contracted rental reviews linked to RPI compounding every 5 years. The next rent review is in 2024.

A proportion (c.45%) of the property is sublet by Tesco to T J Morris Limited, trading as the well known discount store Home Bargains. Tesco occupies the remainder under its “Jack’s” discount supermarket brand, recently launched to compete with low-cost operators such as Aldi and Lidl.

Seneca informs us that both retailers have performed well at this site, historically and throughout lockdown. Indeed, Tesco Plc reported an underlying UK sales rise of 8.7% in its first quarter to May 30, boosted by lockdown. Independent credit scoring agency Dun & Bradstreet gives Tesco plc a 5A 1 credit rating (representing ‘minimum failure risk’).

The asset currently generates annual rental income of £771k. This translates to a rent per square foot of £17.03, which is in line with the current market. 

The building benefits from an Open A1a planning consent, opening the site to potential alternative uses.Seneca Property – Immingham Jack's

Seneca Property 105 and the Board of Directors

Seneca Property 105 (The “Fund”) is an Internally Managed Alternative Investment Fund (“AIF”) which has been established to invest in the target property. The Fund comprises of Seneca Property 105HH Limited and its wholly owned subsidiaries. 

The board of directors of the Fund has extensive experience of real estate, fund management, private finance and accountancy. 

Jeff Morton MRICS is co-founder and Director of Seneca Property. Established in 2017, Seneca Property has transacted on 17 commercial property deals, with a cost of c£100 million, in addition to £10 million+ of residential properties comprising over 100 individual units. 

Jeff is a Chartered Surveyor with extensive property management experience acquired through a 30-year real estate career. He has been a Managing Director and Head of Investments at BlackRock and was also Head of Transactions & Asset Management at Merrill Lynch (MLIM). Most recently, Jeff was the Chief Operating Officer and an equity partner at Henley Investments, a real estate focused private equity company where he created and managed a large European multi-let portfolio. 

Chris Bullough ACA is co-founder and Director of Seneca Property. He qualified as a Chartered Accountant with PwC in 2010 where he spent the first seven years of his career working on large corporate deals and complex financial transactions. Before joining Seneca in 2016 Chris managed the Deals Team at Henley Investments, where AUM’s tripled to over £800m during his time there. Part of the Seneca Property real estate business, Chris is also Managing Director of Biz Hub, a £50m flexible workspace provider.

Richard Manley FCA is a co-founder and CEO of Seneca Partners, the successful and established investment management and corporate advisory business. He qualified as a chartered accountant with KPMG in 2004, joined NM Rothschild’s leveraged finance team in Manchester in 2007 before joining Cenkos Fund Managers in 2008. Richard joined Seneca on launch in 2010. Richard has been involved in the development of all areas of Seneca’s business and played a key role in its journey from startup to managing hundreds of £million of AUM. 

Target returns

This opportunity offers the potential for both annual repayment of capital and capital profit on the eventual sale of the property – however, neither is guaranteed.

The aim is to give investors 10% of their capital back every year – repaying 50% of the loan capital by year 5. The loan capital is interest free. Repayment of loan capital should not be subject to income tax, but you should seek tax advice if unsure. 

Seneca aims to sell the property in year 5. This should allow investors to receive the repayment of the remaining loan capital as well as any potential capital profit. The targeted total base-case projected return is 10% IRR and 1.5x over five years (net of fees and carry). Timeframes and returns are not guaranteed. 

These base-case forecasts are predicated on successfully using the next rent review in 2024 to negotiate a new 15-year lease to 2039, removing the break in 2029. The plan is to sell the property with the new 15-year lease in place on a target exit yield of 5.75% – which could deliver a sale price of over £10 million (not guaranteed).

Please refer to the Information Memorandum for more details and the downside- and upside-case target returns. Capital is at risk.

Exit strategy

The business plan anticipates an eventual sale in year 5. A sale to another property manager or private equity are possible outcomes. Exit options and timeframes are not guaranteed.

Structure of the investment

Investor capital will be deployed in Seneca Property 105HHH Limited (“SP105HHH”), a UK specifically incorporated entity, which will feed into the Fund and will be managed by Seneca Partners Limited.

Capital is expected to be structured as a 99.9% zero interest shareholder loan (to facilitate efficient capital repayment) and the balance in ordinary shares in SP105HHH. 

Ordinary shares in SP105HHH in total represent approximately 55% of Seneca Property 105 Limited (where the asset sits).

Seneca will be entitled to a carry of 30% once all Shareholder capital has been repaid. Therefore, investors are entitled to 70% of the surplus capital profits pro-rata to their investment allocation. 

Please note, carry will only be due to Seneca once investor loan capital has been repaid in full. Seneca Partners have invested material sums personally in this investment. 

Fees

There is no direct initial charge or fees payable by investors. However, there are fees payable for the sourcing, underwriting and management services that will indirectly impact investor returns. All expected fees and carry have been factored into the base-case target return of 10% IRR and 1.5x money. 

As property manager, Seneca Property will receive an initial fee of 2% of the purchase price and Seneca Partners will receive a marketing and underwriting fee of 3% of the investor capital raised and of this pay Wealth Club a fundraising fee of 3%. No fee is charged directly to investors.

Seneca Property receives ongoing management fees of 6% of rental income (subject to a minimum of £15,000 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 the shareholder loan 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, the Tesco lease may not be renewed on the terms Seneca wants or renewed at all. In that case, a new tenant may need to be secured and it may not be as strong as Tesco. 

Commercial property values could fall for any number of reasons. This could reduce returns to investors.

The use of the loan from Rothschild & Co means there is bank finance risk. This is a non-amortising loan with a bullet repayment at the end of year 4. Covenants will be in place which must not be breached, otherwise, the bank will be in a position to take action.

Please note, Seneca's carry will be triggered as soon as the capital is repaid. There is no other hurdle. A full £2.5 million re-financing will mean Seneca have all their capital returned with none of its own capital remaining in the company. 

The value of tax benefits depends on circumstances and tax rules can change.

Our view

We believe this offer could be of interest to experienced investors seeking commercial property exposure. 

The asset was secured at a £750k discount to market valuation, due to Seneca Partners’ extensive network, local reputation and ability to move fast. 

The contractual £771k annual rent and non-amortising low-interest debt package could enable good annual distributions to investors – not guaranteed. 

We consider Tesco a strong covenant, as reflected in its high credit rating. Both of the brands occupying the property are low-cost operators which could be placed to meet the challenges of the current economic environment.

However, it is not without risk and you should form your own view. 

Register your interest – no obligation

Watch a video interview with Jeff Morton of Seneca Property

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.

The details

Type
Commercial property investment
Target raise
Up to £2.5 million
Target total return
1.5x (base case)
Target distributions
10% p.a.
Target exit
5 years
Minimum investment
£25,000
Deadline
15 September 2020
Last updated: 12 August 2020