RDI Reit acquires four flexible London offices valued at £161.7m

Posted On Tuesday, 16 January 2018 12:29 Published by
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RDI, the FTSE 250 income focused UK-REIT, announces the acquisition of an 80% interest in a portfolio of four established, strategically located and high quality flexible offices in Central London from Forum Partners, Kailong Group and Office Space in Town (“OSIT”). 

Michael_Watters

The portfolio value of £161.7 million reflects an anticipated net initial yield of over 6.0%. The acquisition includes existing debt facilities of £73.5 million reflecting a loan to value (“LTV”) of 45%, in line with the strategic priority of reducing Group leverage. The equity consideration for RDI’s 80% interest in the portfolio of £72.5 million, including transaction costs of less than 1.0%, is a timely and efficient reinvestment of the majority of the proceeds from the recent disposal of the German supermarket portfolio.

The net cash yield on equity is anticipated to be in excess of 9.0%. The acquisition supports the Company’s strategy of recycling capital into assets and locations benefiting from sustainable long-term growth opportunities, structural change in occupational demand and strategic infrastructure investment.   

OSIT, the Company's new strategic partner, will continue as the operator and retain a 20% interest in the portfolio. OSIT is one of the sector’s most experienced managers with a track record of over 25 years developing and managing serviced offices in the UK. OSIT is led by founders Giles Fuchs and Niki Fuchs, who have extensive industry experience and will have a strong alignment of interests through OSIT’s 20% coinvestment and an EBITDA based management fee.  

London is the global leader in the serviced office market, where structural and behavioural changes are driving strong demand for quality, flexible, cost efficient space. In a global workplace with technology supporting employee mobility and flexibility, businesses are demanding the ability to adapt and save costs. This trend is not only seen in small and start-up companies, but also large corporates which are increasingly embracing flexible space.  

Within the flexible office sector there are operators that own the assets outright and others operating a property leased model, essentially sub-letting the space. As owners of the assets, the Company has direct control over the building management, design (including density and service provision), desk rates, cost base and use of the properties. In addition, RDI has the freedom to leverage asset management opportunities and synergies with its existing London portfolio.   

OSIT provides a premium flexible office service at mid-market rates which has consistently delivered high levels of occupancy and client satisfaction. The newly acquired assets offer a high ratio of quality shared and amenity space, while design and services are focused on key client requirements including sound attenuation and market leading IT services. All four properties have been extensively refurbished and redeveloped by OSIT in the last four years and each presents a unique identity with flexibility in design to accommodate customers’ bespoke requirements.  

The four assets are all individually established with proven trading records, while three of the four were recently rated in the top ten serviced offices in London. All are strategically positioned within short walking distances of London Underground stations. New Broad Street and Little Britain are near the new Elizabeth Line Crossrail stations. St Dunstan’s is set between Monument, Tower Hill and London Fenchurch Street stations and Boundary Row, near London Waterloo, provides the Company with further exposure to London’s Southbank market which is benefitting from large scale investment and redevelopment.  

In an exciting and growing market, this acquisition presents a scalable platform which could be easily integrated with potential future acquisitions and which complements RDI’s existing portfolio, through strategic optionality and synergies. 

Trading update 

The Company has had an active period since the end of the 2017 financial year. At a corporate level, our change of name and rebranding exercise has been well received by the market and we look forward to establishing the Company and our brand as the UK’s leading income focused REIT.  

We have seen continued strong tenant performance and a positive letting market. Over 50 lease events have been completed since 31 August 2017 and occupancy levels remain high across the portfolio. Our retail tenants have had varied but generally satisfactory trading over the Christmas period and our hotels continue to trade ahead of budgeted expectations.  

Our stake in the IHL hotel portfolio was successfully increased from 17% to 74% and disposal of the Leopard portfolio of German supermarkets was confirmed at €205 million, a 10.8% premium to the 31 August 2017 valuation. Three further disposals totalling £28.8 million were completed in the period and included the Crescent Centre, Bristol and the House of Fraser store in Hull.  

An office and light industrial park was acquired opportunistically for £18.8 million reflecting a net initial yield of 5.8%. The park is extremely well located in Kingston-upon-Thames and is in close proximity to the mainline railway station and town centre. The acquisition, while fully let, is expected to be part of a larger mixed-use redevelopment in the medium term.  

Mike Watters, CEO of RDI commented: 

“We are very pleased to have secured this opportunity to efficiently recycle the majority of the proceeds from the recent disposal of German retail assets into four high quality flexible London offices whilst maintaining our high-quality income profile. The long-term market outlook for the flexible office sector remains extremely positive, with structural and behavioural change driving the momentum behind strong occupier demand. Our detailed analysis of the market suggests that this sector is resilient and well positioned to withstand any market uncertainty. 

“One of the many benefits of our diversified portfolio strategy is that it provides us with the ability and agility to invest across sectors where we see the best growth prospects. Given our experience with our hotel portfolio, we are confident in investing in operational real estate, as well as collaborating and aligning interests with high quality operational partners. 

“This earnings accretive acquisition enhances our exposure to areas of long-term economic growth and supports our strategic priority of buying and owning assets with strong property fundamentals in order to continue delivering superior, sustainable and growing income returns. Furthermore, and in line with our strategy to reduce leverage, this portfolio is currently financed at 45% LTV, which is at the lower end of our medium-term target of between 45.0% and 50.0%. Our medium-term target of delivering between 3.0% and 5.0% growth in underlying earnings per share remains unchanged.”  

Last modified on Friday, 02 February 2018 09:28

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