Sirius Real Estate, the German business park owner, has announced a proposed capital raise of £135m to part fund the acquisition of UK flexible workspace provider BizSpace for £245m.
Sirius said it believes the acquisition of BizSpace “represents a highly attractive and strategically important opportunity that allows Sirius to enter, at scale, an under-served wider UK market with a one-step acquisition of an established platform”. It added that it could “replicate the success of the Sirius model in another European geography, providing Sirius’ shareholders with an opportunity for significant value creation and further long-term growth potential”.
It will look to fund the acquisition through a combination of new and existing debt together with the proceeds of a proposed fundraise of around £135m, comprising a non pre-emptive placing of new Ordinary Shares to institutional investors including in the UK, a non pre-emptive placing of new Ordinary Shares to selected qualified investors in South Africa and an offer of new Ordinary Shares in the company to be made on behalf of the company by PrimaryBid on its online platform (which will provide retail investors in the UK with an opportunity to participate in the capital raise).
More information on BizSpace
Since its foundation in 2000, BizSpace has grown its network to 72 well-located sites, with a gross asset value (GAV) of £377m as at 31 August 2021, and is now an established, scalable and well-diversified UK regional operator of flexible workspace with significant opportunities for BizSpace to grow both organically and inorganically, due to high levels of market fragmentation and few large scale regional operators. During the COVID-19 pandemic it has maintained high levels of both customer retention and cash collection.
The BizSpace portfolio is regionally diverse and, split on a per square foot basis, is 74% light industrial and 26% out of town office. Despite 75% of BizSpace’s rent roll being let on flexible licences, the average customer tenure across the portfolio is greater than four years, the top 1,000 customers, equating to approximately one third of total customers, contribute 71% of BizSpace’s rent roll and have an average tenure of greater than 4.5 years.
The light industrial sector in the UK has favourable market dynamics, witnessing strong demand, driven most notably by accelerated e-commerce penetration, while supply remains severely constrained due to a lack of available land and expensive build costs. This demand-supply imbalance is evidenced by strong levels of regional rental growth across the UK. The UK market also provides favourable sector dynamics for flexible workspace with increasing focus by the UK government on regional investment (levelling up) and moves towards on-shoring production activities and strong growth in rental rates.
BizSpace’s EBITDA and profit before tax for the 12-month period ended 31 December 2020 were £18.7m and £3.4m respectively. BizSpace’s expected run-rate financial performance as at 31 August 2021 was £43.2m of revenue and £26.8m of NOI, representing a 62% NOI margin, and £20.3m of EBITDA, representing a 47% EBITDA margin.
Sirius added: “The acquisition will be financially attractive with c.11% accretion on a funds from operations (FFO) and dividend basis, and c.4% accretion to adjusted NAV per share, on day one. This excludes additional operational improvements at BizSpace level and additional growth in the business. The deal is expected to be marginally accretive to the recently published 30 September 2021 EPRA net tangible assets (NTA) immediately following completion of the acquisition.
“Sirius management believes that there are significant opportunities to improve the profitability of the BizSpace business, including increasing its EBITDA by c.30% over the next two to three years, through pricing and occupancy improvements as well as ancillary income streams. The acquisition also offers the potential for substantial further synergies relating to overheads, banking and digital marketing. The acquisition will increase Sirius’ gross asset value to c.€1.9bn and its rent roll to in excess of €153m.”
BizSpace’s existing debt facility of £146m is being rolled over as part of the acquisition and is expected to be refinanced in the calendar year 2022. Upon completion of the acquisition, the combined group’s net loan to value (LTV) is expected to rise to 44%, above Sirius’ current target level of 40%. However, Sirius’ management team expects the group to de-leverage towards its target level of 40% in the medium term through its ongoing intensive asset management strategy.
Completion of the acquisition is conditional upon completion of the Capital Raise and is expected to occur on or around 19 November 2021. However, if the acquisition does not complete by 30 November 2021, the seller (Varde Partners) may terminate the acquisition agreement and Sirius will be required to pay a break fee in the amount of £2.5m.
SRE : Sirius Real Estate proposes £135m capital raise to fund acquisition of UK business park owner