Lone Star’s Project Acorn workout continues with £215m Ocean portfolio sell-off

Hudson Advisors has instructed DTZ to sell half of the Brightsea portfolio, formerly owned by F&C REIT Asset Management, in the third major disposal from the Project Acorn legacy Eurohypo non-performing loan portfolio acquired by Lone Star in July last year.

ocean portfolio logoDTZ has been instructed to sell the Brightsea portfolio sub-pool – previously dubbed the Tawny portfolio under F&C REIT’s ownership – comprised of the 12-strong rebranded Ocean portfolio and the Fradley Park industrial park in Lichfield, with a combined asking price of £215m.

F&C REIT acquired the then Tawny portfolio from Evans of Leeds in August 2007 for £380m – just one month after the peak of the UK commercial property market – reflecting a 5.8% net initial yield and financed with a £300m senior loan by Eurohypo.

The collapse in value for the regional portfolio in the subsequent six years, together with a considerable run-off in the Tawny portfolio’s income profile, has seen the value fall considerably from the £380m purchase price to likely around £220m by last October, as reported by CoStar News at the time.

Lone Star acquired the non-performing Eurohypo loan as part of the wider Acorn NPL in July 2013.

Subsequently, Hudson Advisors, the loan servicing division wholly-owned by Lone Star, appointed Fergus Jack and Bryn Williams of DTZ as fixed charge receivers on 8 August, over the entire 5.5m sq ft 26-strong Tawny portfolio, implementing a straight loan-to-own investment strategy on behalf of Lone Star.  

The remaining 13 assets in the formerly-named Brightsea, or Tawny, portfolio not part of the current sales process have in part been sold piecemeal with those remaining under separate individual sales strategies.

The delay in disposing of the portfolio since the initial appointment of receivers 13 months in part is owed to the burning off of a mismatched swap on the legacy Eurohypo loan, together with the implementation of strategic asset management initiatives.

The centrepiece asset now up for sale is the 1,743,289 sq ft Fradley Park industrial park in Lichfield, which carries a standalone asking price of £105m, equating to a 7.21% net initial yield and a capital value of £57.30 per sq ft assuming purchaser’s costs of 5.80%.

Fradley Park, located 21 miles north of Birmingham city centre, is comprised of 13 industrial and distribution warehouses and two office buildings acros 185 acres over 1.74m sq ft.

The current annual income derived from Fradley Park is £7.6m, which equates to £4.52 per sq ft on the let industrial accommodation and £12.91 per sq ft on the let office accommodation.

Across the entire sprawling 1.74m industrial park, the vacany rate is just 6.3%, comprising one modern industrial unit of 99,473 sq ft and three office suites totalling 10,119 sq ft.

The weighted average unexpired lease term (WAULT) is 4.92 years to expiry and 4.31 years to breaks.  There is also an additional 20.24 acres of development land in three plots suitable for prelet investments or speculative development.

The Ocean portfolio, comprising 12 industrial assets across the UK with 167 units over just above 2m sq ft including 20,670 sq ft of offices, carries a separate price tag of £110m.

In addition, the portfolio includes 27.64 acres in development land, comprised of 17.68 acres at Follingsby Park, 8.33 acres at Deeside Industrial Estate and 1.66 acres at York Business Park.

The £110m asking price equates to a net initial yield of 7.24% and a capital value of £51.30 per sq ft, assuming standard purchaser costs of 5.8%.

The weighted average unexpired lease term for the Ocean portfolio is 5.77 years, and 4.32 years to earliest breaks, while the total annual income for the Ocean portfolio is £7.96m, reflecting £4.34 per sq ft on the industrial and £7.44 per sq ft of the offices.

The Ocean portfolio is comprised of:

  • The 867,935 sq ft Follingsby Park in Gateshead, including 80,483 sq ft vacancy, 4.16 yrs WAULT to break and £3.4m annual rent;
  • The 131,696 sq ft York Business Park in York, including 3,834 sq ft vacancy, 4.7 yrs WAULT to break and £815.7k per annum;
  • The 86,353 sq ft Stirling, Lancaster & Horizon, including 2,258 sq ft vacancy, 4.22 yrs WAULT to break and £476.6k per annum;
  • The 52,835 sq ft Apex Park in Leeds, fully let, 4.33 yrs WAULT to break and £274.7k per annum;
  • The 16,958 sq ft Firth Court in Leeds, single let with lease expiry in 6.52 yrs and £166.5k per annum
  • The 7,145 sq ft Viceroy Works in Leeds, single let, expiring in 2.8 yrs and £28.1k annual rent;
  • The 74,993 sq ft Albion Park in Leeds, 8,798 sq ft vacant in one unit, 3.18yrs WAULT to break and £300k annual rent;
  • The 253,392 sq ft Blackrod Estate, two of three units are newly refurbished and remain vacancy, representing 62,360 sq ft, 3.02 yrs WAULT, and £376.5k annual rent;
  • The 102,149 sq ft Deeside Industrial Estate in Cheshire, including 10 of 25 units vacant representing 38,961 sq ft, 2.07 yrs WAULT to break, and £271.9k annual rent;
  • The 116,399 sq ft Unit 1A Swift Park in Rugby, recently let, with 5.66yrs WAULT and £600.2k
  • The 195,539 sq ft Swinderby Industrial Estate, fully let, 7.06 yrs WAULT and £820.1k annual rent

The Ocean Portfolio and Fradley Park together generate a total rent roll of £15.6m per annum.

DTZ’s Charles Howard, Tim Cameron-Jones and Jason Winfield are advising on the Ocean portfolio and Fradley Park sales.

This is the third major workout from Lone Star’s Acorn NPL portfolio.

Back in June, Lone Star sold an Acorn loan secured by the Fusion portfolio, a 3.6m sq ft UK logistics and office portfolio, to Oaktree, and minority JV partner Anglesea Capital for £285m.

Oaktree and Anglesea Capital, which are circa 90:10 split in their investment, recapitalised and refinanced the UK logistics portfolio with a £226.5m whole loan provided by Citigroup, priced at a blended margin of just over 300 basis points.  Citigroup split the whole loan £148m senior and £78.5m junior.

Two weeks ago, Lone Star separately sold the Cameron Toll shopping centre in Edinburgh – also an asset secured by a loan within Project Acorn – again to Oaktree for £46m, after the initial sale to Evans Randall fell through in late July.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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