THIS PROSPECTUS IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the action you should take, you are recommended to seek your own financial advice immediately from an independent financial adviser who is authorised under the Financial Services and Markets Act 2000 (as amended) (“FSMA”) if you are in the United Kingdom, or from another appropriately authorised independent financial adviser if you are in a territory outside the United Kingdom.
A copy of this Prospectus, which comprises a prospectus relating to M7 Multi-Let REIT plc (the “Company”) prepared in accordance with the Prospectus Rules of the UK Listing Authority made pursuant to section 73A of the FSMA and approved by the Financial Conduct Authority (“FCA”) under section 87A of the FSMA, has been filed with the FCA in accordance with Rule 3.2 of the Prospectus Rules.
The Ordinary Shares are only suitable for investors (i) who understand the potential risk of capital loss and that there may be limited liquidity in the underlying investments of the Company; (ii) for whom an investment in the Ordinary Shares is part of a diversified investment programme; and (iii) who fully understand and are willing to assume the risks involved in such an investment programme. Investors in the Company are expected to be institutional investors, professional investors, high net worth investors and advised individual investors who understand the risks involved in investing in the Company and/or who have received advice from their fund manager or broker regarding investment in the Company. The attention of potential investors is drawn to the Risk Factors beginning on page 28 of this Prospectus.
Applications will be made to the UK Listing Authority and the London Stock Exchange for the Ordinary Shares issued and to be issued in connection with the Issue to be admitted to listing on the premium listing segment of the Official List and to trading on the premium segment of the main market for listed securities of the London Stock Exchange respectively. It is not intended that any class of shares in the Company be admitted to listing in any other jurisdiction. It is expected that Admission will become effective and that dealings for normal settlement in the Ordinary Shares will commence at 8.00 a.m. on 13 November 2017.
The Company and the Directors, whose names appear on page 52 of this Prospectus, accept responsibility for the information contained in this Prospectus. To the best of the knowledge and belief of the Company and the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information.
Prospective investors should read the entire document and, in particular, the section headed “Risk Factors” beginning on page 28 when considering an investment in the Company. M7 MULTI-LET REIT PLC (Incorporated in England and Wales with company number 10907965 and registered as an investment company under Section 833 of the Companies Act 2006) Placing, Offer for Subscription and Intermediaries Offer for a target issue of up to 300 million Ordinary Shares at 100 pence per Ordinary Share and Admission to the premium listing segment of the Official List and trading on the London Stock Exchange’s Main Market for listed securities Investment Manager and AIFM M7 REAL ESTATE FINANCIAL SERVICES LTD Global Co-ordinator, Bookrunner and Sponsor Financial Adviser BARCLAYS AKUR LIMITED
Barclays Bank PLC (the “Barclays”), which is authorised by the Prudential Regulation Authority (the “PRA”) in the United Kingdom and regulated by the PRA and FCA, is acting exclusively for the Company and for no-one else in connection with the Admission, the Issue and the other arrangements referred to in this Prospectus and will not regard any other person (whether or not a recipient of this Prospectus) as a client in relation to the Admission, the Issue and the other arrangements referred to in this Prospectus and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Barclays, nor for providing advice in connection with the Admission, the Issue and the other arrangements referred to in this Prospectus. Akur Limited (“Akur”), which is authorised and regulated in the United Kingdom by the FCA, is acting exclusively for the Company and for no-one else in connection with the Admission, the Issue and the other arrangements referred to in this Prospectus, and will not regard any other person (whether or not a recipient of this Prospectus) as a client in relation to the Admission, the Issue and the other arrangements referred to in this Prospectus and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Akur, nor for providing advice in connection with the Admission, the Issue and the other arrangements referred to in this Prospectus.
Apart from the responsibilities and liabilities, if any, which may be imposed on Barclays or Akur by the PRA, FCA or FSMA, or the regulatory regime established thereunder, or under the regulatory regime of any other jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, Barclays and Akur do not accept any responsibility whatsoever and make no representation or warranty, express or implied, nor accept any responsibility whatsoever for, the contents of this Prospectus, including its accuracy, completeness or verification, or for any other statement made or purported to be made by Barclays or Akur, or on behalf of them, the Company or any other person in connection with the Company, the Ordinary Shares, the Admission or the Issue and nothing contained in this Prospectus is or shall be relied upon as a promise or representation in this respect, whether as to the past or future. Each of Barclays and Akur (together with their affiliates) accordingly disclaims, to the fullest extent permitted by law, all and any responsibility or liability (save for any statutory liability) whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this Prospectus or any such statement.
Barclays, Akur or any of their respective affiliates may have engaged in transactions with, and provided various investment banking, financial advisory and other services for, the Company and M7 Real Estate Financial Services Ltd (the “Investment Manager”), for which they would have received customary fees. Barclays, Akur and any of their respective affiliates may provide such services to the Company and the Investment Manager and any of their respective affiliates in the future.
The distribution of this Prospectus and the issue of Ordinary Shares in certain jurisdictions other than the United Kingdom may be restricted by law. No action has been taken by the Company to permit a public offering of Ordinary Shares or possession or distribution of this Prospectus (or any other offering or publicity materials relating to the Ordinary Shares) in any other jurisdiction where action for that purpose may be required or doing so is restricted by law. Accordingly, neither this Prospectus nor any advertisement may be distributed or published in any other jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Prospectus comes are required by the Company, Barclays and Akur to inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.
The Ordinary Shares will be offered and sold only outside the United States in offshore transactions as defined in and in reliance on Regulation S (“Regulation S”) under the United States Securities Act of 1933 (as amended) (the “US Securities Act”) to persons who are not, and are not acting for the account or benefit of, US persons as defined in Regulation S (“US Persons”). The Ordinary Shares have not been and will not be registered under the US Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States, and may not be offered or sold within the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction in the United States. There will be no public offer of the Ordinary Shares in the United States. The Company has not been and will not be registered under the United States Investment Company Act of 1940, as amended (the “US Investment Company Act”), and investors will not be entitled to the benefits of the US Investment Company Act. Neither the United States Securities and Exchange Commission (“SEC”) nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offence.
This Prospectus does not constitute an offer to sell, or the solicitation of an offer to acquire or subscribe for, Ordinary Shares in any jurisdiction where such offer or solicitation is unlawful or would impose any unfulfilled registration, qualification, publication or approval requirements on the Company, Barclays or Akur. The offer and sale of Ordinary Shares has not been and will not be registered under the applicable securities law of Canada, Japan, Australia or the Republic of South Africa. Subject to certain exemptions, the Ordinary Shares may not be offered to or sold within Canada, Japan, Australia or the Republic of South Africa or to any national, resident or citizen of Canada, Japan, Australia or the Republic of South Africa.
Dated: 10 October 2017
2 CONTENTS
Page SUMMARY 4
RISK FACTORS 28
IMPORTANT INFORMATION 42
EXPECTED ISSUE TIMETABLE 50
ISSUE STATISTICS 51
DEALING CODES 51
DIRECTORS, MANAGEMENT AND ADVISERS 52
PART 1 INFORMATION ON THE COMPANY 54
PART 2 M7 REAL ESTATE 66
PART 3 THE INITIAL ACQUISITIONS AND THE INITIAL PORTFOLIO 69
PART 4 OVERVIEW OF THE UK REGIONAL LIGHT INDUSTRIAL AND REGIONAL OFFICE SECTORS 75
PART 5 DIRECTORS, MANAGEMENT AND ADMINISTRATION 89
PART 6 ISSUE ARRANGEMENTS 99
PART 7 VALUATION REPORT 105
PART 8 REIT STATUS AND TAXATION 127
PART 9 ADDITIONAL INFORMATION 149
PART 10 TERMS AND CONDITIONS OF APPLICATION UNDER THE PLACING 184
PART 11 TERMS AND CONDITIONS OF APPLICATION UNDER THE OFFER FOR SUBSCRIPTION 195
PART 12 DEFINITIONS 207
APPENDIX 1 INFORMATION ABOUT MARBLE ACQUISITIONS LTD 219
APPENDIX 2 APPLICATION FORM FOR THE OFFER FOR SUBSCRIPTION 271
3 SUMMARY
Summaries are made up of disclosure requirements known as “Elements”. These elements are numbered in Sections A-E (A.1 – E.7). This Summary contains all the Elements required to be included in a summary for this type of securities and issuer. Some Elements are not required to be addressed which means there may be gaps in the numbering sequence of the Elements. Even though an Element may be required to be inserted into the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of “not applicable”.
Section A – Introduction and warnings
Disclosure Element Requirement Disclosure
A.1 Warning This summary should be read as an introduction to this Prospectus. Any decision to invest in the securities should be based on consideration of this Prospectus as a whole by the investor. Where a claim relating to the information contained in this Prospectus is brought before a court, the plaintiff investor might, under the national legislation of the Relevant Member State, have to bear the costs of translating this Prospectus before the legal proceedings are initiated. Civil liability attaches only to those persons who have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of this Prospectus or it does not provide, when read together with the other parts of this Prospectus, key information in order to aid investors when considering whether to invest in such securities.
A.2Subsequent resale or The Company consents to the use of this Prospectus by final placement of Intermediaries appointed to participate in the Intermediaries securities through Offer and who agree to adhere and be bound by the financial intermediaries Intermediaries Terms and Conditions in connection with the Intermediaries Offer, pursuant to which the Ordinary Shares are being offered to Intermediaries who will facilitate the participation of their retail investor clients (and any member of the public who wishes to become a client of that Intermediary).
The offer period for the Intermediaries Offer for which consent to use this Prospectus is given in accordance with the Intermediaries Terms and Conditions commences on 10 October 2017 and closes on 7 November 2017, unless closed prior to that date.
Any Intermediary that uses this Prospectus must state on its website that it uses this Prospectus in accordance with the Company’s consent. Intermediaries are required to provide the Intermediaries Terms and Conditions to any prospective investor who has expressed an interest in participating in the Intermediaries Offer. Information on the Intermediaries Terms and Conditions is to be provided at the time of the offer by the Intermediaries.
4 Section B – Issuer
Disclosure Element Requirement Disclosure
B.1Legal and commercial M7 Multi-Let REIT plc name B.2Domicile and legal The Company was incorporated in England and Wales on form 9 August 2017 with registered number 10907965 as a private company limited by shares under the Companies Act and re-registered as a public company limited by shares under the Companies Act on 6 September 2017. The Company is registered as an investment company under section 833 of the Companies Act and is domiciled in the United Kingdom. B.5 Group description As at the date of this Prospectus the Company is the holding company of its group with one wholly owned subsidiary M7 Multi-Let REIT Holdco 1 Limited (“Holdco”). Following Admission, the Company will complete the acquisition, through its wholly owned subsidiary Holdco, of (i) Marble Acquisitions Ltd, a private limited company incorporated in England (“Marble” and the “Marble Acquisition”) and (ii) M7 Real Estate Investment Partners II Limited, a private limited company incorporated in Jersey (“REIP II” and the “REIP II Acquisition”) (the REIP II Acquisition together with the Marble Acquisition, the “Initial Acquisitions”). The Initial Acquisitions are conditional on Admission taking place. Marble and REIP II will become wholly owned subsidiaries of Holdco following the Initial Acquisitions. B.6 Major shareholders As at the date of this Prospectus, there are no parties who have a notifiable interest under English law in the Company’s capital or voting rights. All Shareholders have the same voting rights in respect of the share capital of the Company. Pending the allotment of Ordinary Shares pursuant to the Issue, the Company is controlled by M7 Real Estate Ltd as the sole shareholder of the Company. The Company and the Directors are not aware of any other person who directly or indirectly, jointly or severally exercises or could exercise control over the Company. Assuming that the Company issues 300 million Ordinary Shares, the Company and the Directors are not aware of any other person who will be directly or indirectly interested in three per cent. or more of the Company’s issued share capital following Admission.
B.7Key financial Not applicable. As at the date of this Prospectus, the information Company has not commenced operations since its incorporation on 9 August 2017 and no financial statements of the Company have been prepared. The Company will complete the Initial Acquisitions, through its wholly owned subsidiary Holdco, following Admission with the Net Issue Proceeds.
5 The audited historical financial statements for Marble for the period ended 31 December 2015 (from its date of incorporation on 3 November 2014), the year ended 31 December 2016 and the six months ended 30 June 2017 (together with a comparison against the unaudited historical financial information for Marble in respect of the six months ended 30 June 2016) was originally prepared by the Marble directors under UK GAAP and audited by PwC LLP. The Marble historical financial information set out in the tables below was restated by M7 Real Estate in accordance with IFRS (as adopted by the EU) for such financial information to be on a basis consistent with the accounting policies to be adopted by the Company. KPMG LLP has performed procedures and formed an opinion on the restated IFRS financial information. Statement of Comprehensive Income for the Periods ended 31 December 2015, 31 December 2016, 30 June 2016 and 30 June 2017
61 week Year Six months Six months period ended ended ended ended 31 December 31 December 30 June 30 June 2015 2016 2016 2017 (audited) (audited) (unaudited) (audited) –––––––––– –––––––––– –––––––––– –––––––––– £ £ £ £ Rental income 10,217,379 10,446,075 5,267,184 4,834,141 Property operating expenses (2,924,350) (2,799,489) (1,396,740) (1,488,661) Net rental income 7,293,029 7,646,586 3,870,444 3,345,480 Administrative expenses (920,420) (1,053,543) (399,222) (194,705) Profit on disposal of investment properties 3,833,786 1,569,629 1,072,373 1,507,339 Change in fair value of investment properties (710,947) 2,684,576 338,689 7,107,816 –––––––––– –––––––––– –––––––––– –––––––––– Operating profit 9,495,448 10,847,248 4,882,284 11,765,930 Finance costs (2,054,776) (1,678,755) (868,739) (640,970) –––––––––– –––––––––– –––––––––– –––––––––– Profit before tax 7,440,672 9,168,493 4,013,545 11,124,960 Taxation (1,658,854) (1,606,157) (811,504) (1,973,442) –––––––––– –––––––––– –––––––––– –––––––––– Profit for the period 5,781,818 7,562,336 3,202,041 9,151,518 –––––––––– –––––––––– –––––––––– –––––––––– Other comprehensive income – – – – –––––––––– –––––––––– –––––––––– –––––––––– Total comprehensive income for the period attributable to owners of the Company 5,781,818 7,562,336 3,202,041 9,151,518 –––––––––– –––––––––– –––––––––– –––––––––– Earnings per share Comprehensive income for the period attributable to ordinary equity holders of the Company 5,781,818 7,562,336 3,202,041 9,151,518 Number of shares 27,993,857 27,993,857 27,993,857 27,993,857 –––––––––– –––––––––– –––––––––– –––––––––– Basic and diluted earnings per share for profit attributable to the equity holders of the Company during the period 0.21 0.27 0.11 0.33 –––––––––– –––––––––– –––––––––– ––––––––––
6 Statement of Financial Position as at 31 December 2015, 31 December 2016 and 30 June 2017 As at As at As at 31 December 31 December 30 June 2015 2016 2017 (audited) (audited) (audited) –––––––––– –––––––––– –––––––––– £ £ £ ASSETS Non-current assets Investment properties 100,430,705 99,686,859 94,589,903 –––––––––– –––––––––– –––––––––– Total non-current assets 100,430,705 99,686,859 94,589,903 Current assets Trade and other receivables 2,238,866 3,421,393 3,002,587 Cash and cash equivalents 6,464,825 2,905,588 4,067,164 Investment properties held for sale 857,000 – 6,553,750 –––––––––– –––––––––– –––––––––– Total current assets 9,560,691 6,326,981 13,623,501 –––––––––– –––––––––– –––––––––– TOTAL ASSETS 109,991,396 106,013,840 108,213,404 –––––––––– –––––––––– –––––––––– LIABILITIES Current liabilities Trade and other payables 6,940,827 8,654,558 8,186,105 –––––––––– –––––––––– –––––––––– Total current liabilities 6,940,827 8,654,558 8,186,105 Non-current liabilities Borrowings 69,274,894 55,685,754 47,992,086 Deferred tax liabilities – 335,517 1,545,684 –––––––––– –––––––––– –––––––––– Total non-current liabilities 69,274,894 56,021,271 49,537,770 –––––––––– –––––––––– –––––––––– TOTAL LIABILITIES 76,215,721 64,675,829 57,723,875 –––––––––– –––––––––– –––––––––– NET ASSETS 33,775,675 41,338,011 50,489,529 –––––––––– –––––––––– –––––––––– EQUITY Share capital 27,993,857 27,993,857 27,993,857 Retained earnings 5,781,818 13,344,154 22,495,672 –––––––––– –––––––––– –––––––––– TOTAL EQUITY 33,775,675 41,388,011 50,489,529 –––––––––– –––––––––– –––––––––– Statement of Cashflows for the Periods ended 31 December 2015, 31 December 2016, 30 June 2016 and 30 June 2017 61 week Year Six months Six months period ended ended ended year ended 31 December 31 December 30 June 30 June 2015 2016 2016 2017 (audited) (audited) (unaudited) (audited) –––––––––– –––––––––– –––––––––– –––––––––– £ £ £ £ Operating activities Profit before tax 7,440,672 9,168,492 4,013,545 11,124,960 Change in fair value of investment properties 710,947 (2,684,576) (338,689) (7,107,816) Profit on disposal of investment properties (3,833,786) (1,569,629) (1,072,373) (1,507,339) (Increase)/decrease in receivables (2,238,865) (1,182,527) (1,032,044) 418,806 Increase/(decrease) in payables 4,923,855 886,191 (717,567) (913,772) Finance costs 2,054,776 1,678,755 868,739 640,970 Tax paid – (340,271) – (265,919) –––––––––– –––––––––– –––––––––– –––––––––– Net cash flow from operating activities 9,057,599 5,956,435 1,721,611 2,389,890 Investing activities Purchase of investment properties (113,449,019) (929,191) (472,065) (1,501,053) Disposal of investment properties 15,284,153 6,784,241 3,614,863 8,659,414 –––––––––– –––––––––– –––––––––– ––––––––––
7 61 week Year Six months Six months period ended ended ended year ended 31 December 31 December 30 June 30 June 2015 2016 2016 2017 (audited) (audited) (unaudited) (audited) –––––––––– –––––––––– –––––––––– –––––––––– £ £ £ £ Net cash flow (used in)/from investing activities (98,164,866) 5,855,050 3,142,798 7,158,361 Financing activities Proceeds from issue of share capital 27,993,857 – – – Proceeds from borrowings 83,981,573 – – – Repayment of borrowings (14,706,679) (13,589,140) (7,699,654) (7,693,668) Finance costs paid (1,696,659) (1,781,582) (1,111,473) (693,007) –––––––––– –––––––––– –––––––––– –––––––––– Net cash flow from/(used in) financing activities 95,572,092 (15,370,722) (8,811,127) (8,386,675) Net increase/ (decrease) in cash and cash equivalents 6,464,825 (3,559,237) (3,946,718) 1,161,576 Cash and cash equivalents at the beginning of the period – 6,464,825 6,464,825 2,905,588 –––––––––– –––––––––– –––––––––– –––––––––– Cash and cash equivalents at the end of the period 6,464,825 2,905,588 2,518,107 4,067,164 –––––––––– –––––––––– –––––––––– –––––––––– There has been no significant change to the financial condition and operating results of Marble subsequent to the period covered by the historical financial information set out above. The paragraphs below describe the significant changes to the financial condition and operating results of Marble during the period covered by the historical financial information set out above. Total gross revenue amounted to £10.4 million for the year ended 31 December 2016, compared to £10.2 million for the period ended 31 December 2015, representing an increase of £0.2 million, or 2.2 per cent. This increase is primarily attributable to the staggered acquisitions during 2015 which were deployed for the full year in 2016, net of disposals during both accounting periods. Total gross revenues amounted to £4.8 million for the six months ended 30 June 2017, compared to £5.3 million for the six months ended 30 June 2016, a decrease of £0.4 million, or 8.2 per cent. This decrease is primarily attributable to the disposal of investment properties in March 2016, June 2016, November 2016 and May 2017, which adversely impacted the rental income for the six months ended 30 June 2017. Property operating expenses amounted to £2.8 million for the year ended 31 December 2016, compared to £2.9 million for the period ended 31 December 2015, representing a decrease of £0.1 million, or 4.3 per cent. This
8 decrease is primarily due to the savings in property maintenance costs. Property operating expenses amounted to £1.5 million for the six months ended 30 June 2017, compared to £1.4 million for the six months ended 30 June 2016, an increase of £0.1 million, or 6.6 per cent. This increase is primarily attributable to the increase in property maintenance costs. Administrative expenses amounted to £1.1 million for the year ended 31 December 2016, compared to £0.9 million for the period ended 31 December 2015, representing an increase of £0.1 million, or 14.5 per cent. This increase is primarily attributable to an increase in legal and professional fees as a result of the acquisitions and disposals of investment properties. Administrative expenses amounted to £0.2 million for the six months ended 30 June 2017, compared to £0.4 million for the six months ended 30 June 2016, a decrease of £0.2 million, or 51.2 per cent. This decrease is primarily attributable to the reversal of a provision for doubtful debt of £0.3 million net of an increase in legal and professional fees of £0.1 million. Gain on sale of investment properties amounted to £1.6 million for the year ended 31 December 2016, compared to £3.8 million for the period to 31 December 2015, representing a reduction of £2.3 million. Gain on sale of investment properties amounted to £1.5 million for the six months ended 30 June 2017, compared to £1.1 million for the six months ended 30 June 2016, representing an increase of £0.4 million. Change in fair value of investment properties amounted to an increase of £2.7 million for the year ended 31 December 2016, compared to a decrease of £0.7 million for the period to 31 December 2015. Change in fair value of investment properties amounted to an increase of £7.1 million for the six months ended 30 June 2017, compared to an increase of £0.3 million for the six months ended 30 June 2016. Interest payable in respect of the ELQ Loan for the year ended 31 December 2016 was £1.7 million compared to £2.1 million for the period ended 31 December 2015, representing a decrease of £0.4 million, or 18.3 per cent. This decrease is primarily attributable to the partial repayments of the ELQ Loan resulting from the disposal of investment properties which commenced in September 2015. As a result of the factors discussed above, profit on ordinary activities before taxation amounted to £9.2 million for the year ended 31 December 2016, compared to £7.4 million for the period ended 31 December 2015, representing an increase of £1.7 million, or 23.2 per cent, and profit on ordinary activities before taxation amounted to £11.1 million for the six months ended 30 June 2017, compared to £4.0 million for the six months ended 30 June 2016, representing an increase of £7.1 million.
9 B.8Key pro forma financial Assuming that Gross Issue Proceeds of £300 million are information raised under the Issue, the net assets of the Company will increase by approximately £294 million with no debt on Admission, and on completion of the Initial Acquisitions, the net assets of the Company would amount to approximately £286.9 million. Assuming that the Minimum Net Proceeds of £147 million are raised under the Issue the net assets of the Company will increase by approximately £147 million with no debt on Admission, and on completion of the Initial Acquisitions, the net assets of the Company would amount to approximately £139.9 million. Because of its nature, the pro forma financial information above addresses a hypothetical situation and, therefore, does not represent the Company’s actual financial position or results.
B.9 Profit forecast Not applicable. No profit forecast or estimate has been made in this Prospectus. B.10Description of the Not applicable. The Company has been newly incorporated nature of any and has no historical financial information. qualifications in the There are no qualifications in the audit report on the audit report on the historical financial information of Marble. historical financial information
B.11Qualified working Not applicable. The Company is of the opinion that, based capital on the Minimum Net Proceeds, the working capital available to it is sufficient for its present requirements, that is for at least the next 12 months from the date of this Prospectus. B.34 Investment policy Investment Objective The investment objective of the Company is to deliver an attractive Total Shareholder Return, with a particular focus on dividend income. In order to achieve its investment objective, the Company will invest in, manage and grow a diversified portfolio of predominantly regional light industrial assets and regional office assets in the UK with a mix of assets by geography, asset type and tenants. Such diversification will limit any specific location, asset, or tenant credit risk. Furthermore, certain properties acquired by the Company will benefit from, as well as require, active and intensive asset management by a highly experienced and established management team with a strong track record. The Company anticipates that, with the assistance of the Investment Manager, the rental income profile, the property condition and characteristics and the relative attractiveness to tenants of the Company’s assets will be enhanced by carefully selecting assets from an existing and significant pipeline of potential follow-on investments, with the aim of creating a portfolio with income levels and yields above market averages.
10 Investment Policy Investment criteria
The Company will aim to acquire regional properties, directly or through special purpose companies, to create a portfolio that typically meets the following criteria:
• diversity of assets and tenants with limited tenant concentration and credit risk for the Company as a whole;
• a focus on regional light industrial assets and regional office assets;
• properties requiring active asset management; and
• properties that may be acquired below Replacement Value.
All investment decisions will be based on the prospects of future income and capital growth, taking into account the sector, geographic prospects, supply and demand dynamics, tenant mix and strength, lease length, initial and equivalent yields and the potential for active asset management initiatives to leverage and enhance returns. These active asset management initiatives may include but are not limited to:
• increasing rental income across the Company’s property portfolio by targeted marketing of vacant space;
• minimising void costs and increasing Contracted Rent and Passing Rent;
• enhancing the tenant mix and improving overall tenant strength across the Company’s property portfolio;
• re-gearing leases and lengthening the Weighted Average Unexpired Lease Term across the Company’s property portfolio;
• making physical improvements to bring the Company’s property portfolio into a modern, marketable condition by way of refurbishment, increasing the size of properties and changing the configuration as appropriate; and
• procuring changes of use in respect of the properties.
The Company intends to hold its properties over the long term. However, the Company, with the assistance and advice of the Investment Manager, will keep opportunities for disposals under review and may make recommendations to dispose of investments should an opportunity arise that
11 would enhance the value of the Company’s property portfolio as a whole.
The Company is focused on delivering capital growth over the medium term and hence intends to re-invest proceeds from future potential disposals of assets in accordance with the Company’s investment policy. However, should the Company fail to re-invest the proceeds or part proceeds from any disposal within twelve months of receipt of the net proceeds from such disposal, the Directors will consider returning those proceeds or part proceeds to Shareholders in a tax efficient manner as determined by the Directors from time to time.
Whilst the majority of the Company’s assets are expected to be wholly owned, the Company will retain the ability to pursue its investments through a variety of investment structures, including joint ventures or acquisitions of controlling interests, if considered suitable.
Investment restrictions
The Company will at all times invest and manage its assets with an objective of diversifying risk. The Company’s investments (other than in cash, cash equivalents, cash instruments and money market instruments pending re-investment of cash receipts, and derivative instruments such as interest rate swaps or interest rate caps to mitigate interest rate risk resulting from the incurrence of debt by the Group) will adhere to the following investment restrictions, which will be assessed at the time of acquisition of any assets (in calculating the Company’s Gross Asset Value for these purposes, the net proceeds of any previous fund raising by the Company will be assumed to have been fully invested and geared):
• investment in commercial real estate assets located in the UK only;
• investment in a range of geographical areas and sectors across a number of assets and tenants with:
– no individual sector (other than the regional light industrial sector and the regional office sector) to exceed 10 per cent. of the Company’s Gross Asset Value;
– no single property to exceed 5 per cent. of the Company’s Gross Asset Value, provided that, the Directors may, in exceptional circumstances, consider a property having a value of up to 10 per cent. of the Company’s Gross Asset Value; and
– Rental Income attributable to any single tenant not to exceed 5 per cent. of the total Rental Income of the Company’s property portfolio,
12 provided that, the Directors may, in exceptional circumstances, consider Rental Income attributable to a single tenant having a value of up to 10 per cent. of the total Rental Income of the Company’s property portfolio;
• at least 95 per cent. by value of the properties directly or indirectly owned by the Company shall be in the form of freehold or long leasehold (over 50 years remaining at the time of acquisition) properties;
• no investment in speculative developments; and
• no more than 10 per cent. of the Company’s Gross Asset Value invested in other listed closed-ended investment funds or other companies or funds that invest in a portfolio of investments.
The Directors currently intend at all times to conduct the affairs of the Company so as to enable it to qualify as a REIT for the purposes of Part 12 of the CTA 2010 (and the regulations made thereunder).
The Company will at all times invest and manage its assets in a way that is consistent with its objective of spreading investment risk and in accordance with its published investment policy and will not at any time conduct any trading activity which is significant in the context of the business of the Company as a whole.
B.35 Borrowing limits The Company expects to make a prudent use of gearing to finance acquisitions and enhance returns over the long term. The Directors will employ a level of borrowing that they consider to be prudent for the asset class and will seek to achieve a low cost of funds, whilst maintaining flexibility in the underlying security requirements and the structure of both the Group and its property portfolio. The Directors currently intend that the Group should target a level of aggregate borrowings equal to approximately 40 per cent. of the Company’s Gross Asset Value from time to time. The aggregate borrowings will always be subject to an absolute maximum, calculated at the time of each drawdown, of 40 per cent. of the Company’s Gross Asset Value. The incurrence of debt by the Group may give rise to the risk that the Group’s investments are not sufficiently liquid, or do not produce sufficient distributions, to meet any repayment or interest payment obligations of the Group. In managing the Group’s investments, the Investment Manager will seek to ensure that the Group holds at all times a sufficient portfolio of investments such that the income from these investments enables it to discharge its payment obligations. In addition, the Group will seek to mitigate interest rate risk resulting from the incurrence of debt by the Group through
13 the use of derivative instruments such as interest rate swaps or interest rate caps in respect of at least 75 per cent. of its interest rate exposure. The Company will also ensure that the ratio of the Company’s income profits (before the offset of capital allowances, losses from previous accounting periods and certain other financing costs) in respect of its Property Rental Business to the financing costs incurred in respect of its Property Rental Business is more than 1.25 in order to comply with the REIT conditions.
B.36 Regulatory status The Company will not be regulated as a collective investment scheme by the FCA. However, the Company will be subject to the Listing Rules, the Prospectus Rules, the Disclosure Guidance and Transparency Rules, the Market Abuse Regulation and the rules of the London Stock Exchange. The Company is an AIF and M7 Real Estate Financial Services Ltd has been appointed as its AIFM.
As a REIT, the Ordinary Shares will be “excluded securities” under the FCA’s rules on non-mainstream pooled investments. Accordingly, the promotion of the Ordinary Shares will not be subject to the FCA’s restriction on the promotion of non-mainstream pooled investments.
The Company is being established so as to enable it to qualify as a UK REIT. Accordingly, the Company will need to comply with certain ongoing regulations and conditions, including conditions relating to its Property Rental Business and the distribution of profits.
B.37 Typical investor The Ordinary Shares available under the Issue are designed to be suitable for institutional and sophisticated investors and professionally-advised private investors. The Ordinary Shares may also be suitable for investors who are financially sophisticated, non-advised private investors who are capable of evaluating the risks and merits of such an investment and who have sufficient resources to bear any loss which may result from such an investment. Such investors may wish to consult an independent financial adviser who specialises in advising on the acquisition of shares and other securities before investing in the Ordinary Shares. B.38Investment of 20 per The Marble Acquisition will constitute an investment of cent. or more in a 20 per cent. or more of the Company’s Gross Asset Value on single asset or Admission. Details of Marble have been provided in investment company Appendix 1.
B.39Investment of 40 per Not applicable. The Company will not invest 40 per cent. or cent. or more in more of gross assets in another collective investment another collective undertaking. investment undertaking
14 B.40 Applicant’s service Investment Manager providers M7 Real Estate Financial Services Ltd (the “Investment Manager”) has been appointed as the investment manager and AIFM of the Company pursuant to the Investment Management Agreement for a minimum term of two years from the date of Admission. Thereafter, the Investment Manager’s appointment shall continue unless the Company terminates such appointment by giving not less than 12 months’ written notice. The Investment Manager will be responsible for the day-to-day discretionary management of the Group’s investments, and will provide portfolio management and risk management services to the Group, in all cases subject to the investment policy of the Company and the overall supervision of the Board. The Company may also terminate the Investment Manager’s appointment following a Key Person Event or Change of Control Event that has not been resolved within 180 days.
The Investment Manager must consult with the Board in the case of Material Transactions which are defined as:
(a) any acquisition by the Company or any of its subsidiaries of a property, or portfolio of properties (including through one or more holding companies), with a consideration of £4 million or more;
(b) any disposal by the Company or any of its subsidiaries of a property, or portfolio of properties (including through one or more holding companies), with a consideration of £4 million or more;
(c) entry into, or approval, by the Company, or any of its subsidiaries, of any contract or series of contracts in relation to a property or portfolio of properties (other than in respect of an acquisition or disposal) with an aggregate revenue or cost to the Company or any of its subsidiaries in excess of £400,000 per annum; or
(d) incurrence of any borrowing, debt or other leverage by the Company or any Property Holding Company.
The Investment Manager must also notify and consult with the Board prior to taking any action in respect of any event or matter which could, in the reasonable determination of the Investment Manager, be material to the Company or any of its subsidiaries.
Asset Manager The Company and the Investment Manager have appointed M7 Real Estate Ltd (“M7 Real Estate”) as asset manager of the Group, pursuant to the Asset Management Agreement, for a minimum term of two years from the date of Admission. Thereafter, the Asset Manager’s appointment shall continue unless the Company terminates such appointment by giving not less than 12 months’ written notice. The Asset
15 Management Agreement will automatically terminate if the Investment Manager ceases to act as the Company’s investment manager. The Asset Manager will provide certain asset management services and certain administration services to the Group.
Investment Management and Asset Management Fees
Under the terms of the Investment Management Agreement and the Asset Management Agreement, the Investment Manager and the Asset Manager will each be entitled to a fee from the Company together with reimbursement of reasonable expenses incurred by it in the performance of its duties. The fees are payable quarterly in arrear and will, in aggregate, equal 7 per cent. per quarter of the Rent actually collected for that quarter. The fee payable to the Investment Manager will equal 3 per cent. per quarter of the Rent actually collected for that quarter. The fee payable to the Asset Manager will equal 4 per cent. per quarter of the Rent actually collected for that quarter.
No performance fee will be payable to either the Investment Manager or the Asset Manager.
Administrator and Company Secretary
Langham Hall UK Services LLP has been appointed as Administrator and Company Secretary to the Company. Either the Administrator and Company Secretary or the Company may terminate the Administrator and Company Secretary’s appointment on not less than six months’ written notice. The Administrator and Company Secretary may also provide certain administration support services to the Asset Manager, to enable the Asset Manager to provide the day- to-day administration of the Company.
The fee payable under the Administration and Company Secretary Agreement is £60,000 per annum.
Depositary
Langham Hall UK Depositary LLP has been appointed as Depositary to the Company for the purposes of the AIFM Directive. Either the Depositary, the Company or the Investment Manager may terminate the Depositary’s appointment on not less than six months’ written notice. The fee payable under the Depositary Agreement is £40,000 per annum plus an additional fee of 0.4 basis points per annum on any capital raised by the Company in excess of £250 million. In addition, the Depositary may also be entitled to additional annual fees if the Company undertakes more than eight acquisitions in any year or if the Company undertakes more than four share placings in any year.
16 Registrar
Computershare Investor Services PLC has been appointed registrar of the Company. Under the terms of the Registrar Agreement the Registrar is entitled to an annual maintenance fee per Shareholder account per annum subject to a minimum annual fee. The Registrar is also entitled to certain transaction fees under the Registrar Agreement.
Receiving Agent
Computershare Investor Services PLC has been appointed as receiving agent of the Company in connection with the Offer for Subscription. Under the terms of the Receiving Agent Agreement, the Receiving Agent is entitled to fees in connection with the Offer for Subscription, including a professional advisory fee and a processing fee per application.
B.41Regulatory status of The Investment Manager and the Depositary are authorised investment manager and regulated by the Financial Conduct Authority. and custodian
B.42Calculation of Net The Investment Manager has delegated calculation of the Asset Value Company’s Net Asset Value (and Net Asset Value per Ordinary Share) to the Asset Manager. The Net Asset Value (and Net Asset Value per Ordinary Share) will be calculated on a semi-annual basis as at 30 June and 31 December by the Asset Manager (and reviewed by the Company and the Investment Manager). Calculations will be made in accordance with IFRS. Details of each valuation, and of any suspension in the making of such valuations, will be announced by the Company through a Regulatory Information Service as soon as practicable after the end of the relevant period. The semi-annual valuations of the Net Asset Value (and Net Asset Value per Ordinary Share) will be calculated on the basis of the independent annual valuation of the Company’s properties as at 31 December and the quarterly desk-top valuation as at 30 June, as the case may be. The calculation of the Net Asset Value will only be suspended in circumstances where the underlying data necessary to value the investments of the Company cannot readily, or without undue expenditure, be obtained or in other circumstances (such as a systems failure of the Company) which prevent the Asset Manager from making such calculations. Details of any suspension in making such calculations will be announced through a Regulatory Information Service as soon as practicable after any such suspension occurs.
B.43 Cross liability Not applicable. The Company is not an umbrella collective investment undertaking and as such there is no cross liability between classes or investment in another collective investment undertaking.
17 B.44No financial The Company has not commenced operations and no statements have financial statements have been made up as at the date of been made up this Prospectus. B.45 Portfolio Not applicable. The Company is newly incorporated and does not currently hold any assets. Following Admission, the Company will complete the Initial Acquisitions, through its wholly owned subsidiary Holdco, using the Net Issue Proceeds.
The Initial Portfolio
The Company and Holdco have entered into a conditional acquisition agreement to acquire Marble for approximately £108.8 million (the “Marble Conditional Acquisition Agreement”) and a conditional acquisition agreement to acquire REIP II for approximately £11 million (the “REIP II Conditional Acquisition Agreement” and, together with the Marble Conditional Acquisition Agreement, the “Conditional Acquisition Agreements”).
Marble is a portfolio with 90 properties valued at £108.9 million. REIP II comprises three properties valued at £11 million. M7 Real Estate is currently the appointed asset manager to both Marble and REIP II.
The properties owned by Marble and REIP II (the “Initial Portfolio”) are comprised of a diversified portfolio of regional light industrial assets, regional office assets and retail assets across the United Kingdom. The key information in respect of the Initial Portfolio as at 30 September 2017 is summarised in the table below.
Number of assets 93 Location of assets England (52 per cent.) (by Contracted Rent) Scotland (18 per cent.) Wales (30 per cent.) Sector of assets Industrial (81 per cent.) (by Contracted Rent) Office (15 per cent.) Retail (4 per cent.) GVA valuation as at £119,900,000 30 September 2017 Average value per asset £1,289,247 Net initial yield, assuming 8.64 per cent. standard market purchase cost Contracted Rent (per annum) £10,878,891 Passing Rent (per annum) £9,179,727 Estimated Rental Value, £12,304,291 assuming 100 per cent. occupancy (per annum) Estimated Rental Value (per square foot) £3.65
18 Number of units 899 Number of tenants 631 Number of leases 693 Weighted Average Unexpired 2.97 years to break and Lease Term 4.18 years to expiry Diversification Largest tenant by Contracted Rent (3.65 per cent.) Top 10 tenants by Contracted Rent (21.9 per cent.) Largest asset by Passing Rent (8 per cent.) Top 10 assets by Passing Rent (37 per cent.) Total area (square feet) 3,373,300 Average size per asset 36,666 (square feet) Average size per unit 3,752 (square feet) Vacant units 151 Total area of vacant units 451,685 (13.39 per (square feet) cent. of total area) Estimated Rental Value of £1,643,339 vacant units (per annum) Estimated Rental Value of £3.64 vacant units (per annum; per square foot)
Following the Initial Acquisitions, the Group intends to acquire, manage and dispose of properties in accordance with its investment policy.
B.46 Net Asset Value Not applicable. The Company has not commenced operations and so has no Net Asset Value as at the date of this Prospectus. At Admission, the Net Asset Value per Ordinary Share is expected to be 98 pence (assuming Gross Issue Proceeds of £300 million).
19 Section C – Securities
Disclosure Element Requirement Disclosure
C.1Type and class of The Company intends to target an issue of up to 300 million securities Ordinary Shares offered at an Issue Price of 100 pence per Ordinary Share. The Minimum Net Proceeds that the Company is seeking to raise is £147 million.
The ISIN of the Ordinary Shares is GB00BF04B031. The SEDOL of the Ordinary Shares is BF04B03. The ticker for the Ordinary Shares is M7M.
C.2 Currency The Ordinary Shares are denominated in sterling with a nominal value of one penny each.
C.3Details of share capital Set out below is the issued share capital of the Company as at the date of this Prospectus:
Nominal Value (£) Number –––––––– –––––––– Redeemable Preference Shares 50,000 50,000 Ordinary Shares 0.01 1
The Redeemable Preference Shares are fully paid up and will be redeemed immediately following Admission out of the proceeds of the Issue and cancelled. The Ordinary Share is fully paid up.
C.4Rights attaching to the The holders of the Ordinary Shares are entitled to receive, Ordinary Shares and to participate in, any dividends declared in relation to the Ordinary Shares.
On a winding-up or a return of capital by the Company, the net assets of the Company shall be divided pro rata among the holders of the Ordinary Shares.
The Ordinary Shares carry the right to receive notice of, attend and vote at general meetings of the Company.
The consent of the holders of the Ordinary Shares will be required for the variation of any rights attached to the Ordinary Shares.
C.5Restrictions on the free There are no restrictions on the free transferability of the transferability of the Ordinary Shares, subject to compliance with applicable securities securities regulations.
C.6 Admission Applications will be made to the UK Listing Authority for all of the Ordinary Shares to be issued pursuant to the Issue to be admitted to the premium segment of the Official List and to the London Stock Exchange for such Ordinary Shares to be admitted to trading on the premium segment of the London Stock Exchange’s main market for listed securities.
It is expected that Admission will become effective and dealings will commence on 13 November 2017.
20 C.7 Dividend policy The Company is targeting a quarterly dividend yield equating to approximately 6.5 per cent. per annum by reference to the Issue Price once fully invested. In addition, the Company is targeting Total Shareholder Return of at least 10 per cent. per annum by reference to the Issue Price once fully invested. The dividend and return targets stated above are targets only and not a profit forecast. There can be no assurance that these targets will be met and they should not be taken as an indication of the Company’s expected future results. Accordingly, potential investors should not place any reliance on these targets in deciding whether or not to invest in the Company and should decide for themselves whether or not the target dividend yield and target Total Shareholder Return are reasonable or achievable. The Company intends to pay dividends on a quarterly basis in cash, with the first interim dividend expected to be declared in April 2018 and paid in May 2018. In order to obtain and comply with REIT status the Company will be required to meet a minimum distribution test for each year that it is a REIT. This minimum distribution test requires the Company to distribute (by way of a dividend in cash or by way of an issue of share capital in lieu of a cash dividend) on or before the filing date for the Company’s tax returns for the accounting period in question, 90 per cent. of the REIT Group’s income profits of the Property Rental Business for each accounting period, as adjusted for tax purposes and 100 per cent. of any property income distributions received from other UK REITs. In order to increase the distributable reserves available to facilitate any future share buy-backs and/or payment of dividends, the Company has resolved that, conditional upon Admission and the approval of the Court, the amount standing to the credit of the share premium account of the Company immediately following completion of the Issue be cancelled and transferred to a special distributable reserve. The Company may, at the discretion of the Board, use such distributable reserves to fund any future share buy-backs and/or pay all or any part of any future dividends out of this special distributable reserve, taking into account the Company’s investment objective.
Section D – Risks
Disclosure Element Requirement Disclosure
D.1 Key information on the Risks relating to the Company, its investment strategy key risks that are and operations specific to the • The Company may not achieve its investment Company or its industry objective to deliver an attractive Total Shareholder Return, with a particular focus on dividend income, or achieve its targeted returns.
21 • The Company’s targeted returns are based on estimates and assumptions that are inherently subject to significant uncertainties and contingencies, and the actual rate of return may be materially lower than the targeted returns.
• Although the Company, acting on advice from the Investment Manager, has identified a number of available properties that are consistent with its Investment Guidelines, there can be no certainty that the Group will be able to acquire these or other properties on acceptable terms or at all.
• The Company’s due diligence may not identify all risks and liabilities in respect of an acquisition.
• The Investment Manager will need to identify suitable investment opportunities, investigate and pursue such opportunities and negotiate asset acquisitions on suitable terms, all of which require significant expenditure prior to consummation of the acquisitions. There is a risk that the Company may incur substantial expenses arising from unsuccessful transactions.
• Changes in laws or regulations governing the Group’s operations may adversely affect the Group’s business.
• The Group is exposed to risks relating to the UK and global economies. Portfolio concentration risk could have a material adverse effect on the Group.
• The UK’s proposed exit from the European Union could have a material impact on the Group’s activities. The Group may be subject to a significant period of uncertainty in the period leading up to eventual exit from the European Union including uncertainty in relation to any potential regulatory or tax change. In addition, the macroeconomic effect of an eventual Brexit on the value of investments in the UK real estate sector is unknown.
Real estate risks
• Difficulty in maintaining occupancy levels for the Group’s properties and tenant default may affect the income of the Group. Failure by tenants to comply with their rental obligations could also affect the ability of the Company to pay dividends to Shareholders.
• The Group may not be able to maintain or increase the rental rates for its properties, which may, in the longer term, have a material adverse impact on the value of the Group’s properties, as well as the Group’s turnover.
22 • The Group will invest in commercial properties predominantly consisting of regional light industrial and regional office assets. These investments could be illiquid and may be difficult or impossible to realise at a particular time.
• The Group is subject to the performance and conditions of the property market. Any property market recession or future deterioration in the property market could, inter alia: (i) make it harder for the Group to attract new tenants for its properties; (ii) lead to an increase in tenant defaults; (iii) lead to a lack of finance available to the Group; (iv) cause the Group to realise its investments at lower valuations; and (v) delay the timings of the Group’s realisations.
• Property valuation is inherently subjective and uncertain, in part because all property valuations are made on the basis of assumptions which may not prove to be accurate, and in part because of the individual nature of each property.
• The Group’s properties may suffer physical damage resulting in losses (including loss of rent) which may not be fully compensated by insurance or at all.
Risks relating to service providers
• The Group has no employees and is reliant on the performance of third party service providers for certain of its executive functions. In particular, the Investment Manager, the Asset Manager, the Administrator and Company Secretary and the Registrar will be performing services which are integral to the operation of the Group. Shareholders will only be able to exercise their rights directly against the Company and will not have any direct contractual rights against the service providers of the Group appointed from time to time.
• The Group is dependent on the expertise of members of M7, including the Investment Manager, the Asset Manager and their key personnel. The past performance of other investments managed or advised by M7 or its investment professionals, including the track record information contained in this Prospectus, cannot be relied upon as an indicator of the future performance of the Group. The success of the Group will depend, inter alia, on M7’s ability to identify, acquire and realise properties in accordance with the Investment Guidelines.
• The Investment Manager and its affiliates may provide services to other clients which could compete directly or indirectly with the activities of the Company and
23 may be subject to conflicts of interest with the Company.
Risks relating to taxation
• If the Group fails to qualify, or remain qualified, as a REIT, its rental income and gains will be subject to UK corporation tax.
D.3Key information on the The market price of the Ordinary Shares, like shares in all key risks that are investment companies, may fluctuate independently of the Net specific to the Ordinary Asset Value per Ordinary Share and may trade at a discount Shares or premium at different times. While the Directors may seek to mitigate any discount to Net Asset Value per Ordinary Share through such discount management mechanisms as they consider appropriate, there can be no guarantee that they will do so or that such mechanisms will be successful.
The Company cannot predict or effectively influence the extent to which investor interest will lead to the development of an active and liquid trading market for the Ordinary Shares or, if such a market develops, whether it will be maintained. In addition, if such a market does not develop, relatively small transactions or intended transactions in the Ordinary Shares may have a significant negative impact on the price of the Ordinary Shares whilst transactions or intended transactions related to a significant number of Ordinary Shares may be difficult to execute at a stable price.
Section E – Offer
Disclosure Element Requirement Disclosure
E.1Proceeds and costs of The maximum aggregate amount of costs and expenses of the Issue the Issue have been fixed at two per cent. of the Gross Issue Proceeds. Assuming 300 million Ordinary Shares are issued resulting in Gross Issue Proceeds of £300 million, the costs and expenses of the Issue payable by the Company will be £6 million and the Net Issue Proceeds will be £294 million.
If the Minimum Net Proceeds are raised, the costs and expenses of the Issue payable by the Company will be £3 million.
E.2.aReason for the issue The reason for the Issue is to raise funds to pay for (i) the and use of proceeds consideration for the Initial Acquisitions, together with associated costs and expenses, in the amount of approximately £126.9 million; (ii) the redemption of the Redeemable Preference Shares for £50,000; and (iii) new investments sourced and acquired in accordance with the Company’s investment objective and policy.
24 E.3Terms and conditions Ordinary Shares are being made available under the Issue of the offer at the Issue Price. The Issue comprises the Placing, the Offer for Subscription and the Intermediaries Offer.
Barclays has agreed to use its reasonable endeavours to procure subscribers pursuant to the Placing for the Ordinary Shares. The Placing will close at 3.00 p.m. on 7 November 2017 (or such later date as the Company, the Investment Manager and Barclays may agree, being no later than 30 November 2017). If the Issue is extended, the revised timetable will be notified through a Regulatory Information Service.
The Offer for Subscription is being made in the United Kingdom, the Channel Islands and the Isle of Man only. Applications under the Offer for Subscription must be for shares with a minimum subscription of 1,000 Ordinary Shares and then in multiples of 100 Ordinary Shares thereafter. Completed Application Forms and the accompanying payment in relation to the Offer for Subscription must be posted to Computershare Investor Services PLC so as to be received by no later than 11.00 a.m. on 7 November 2017.
Under the Intermediaries Offer, the Ordinary Shares are being offered to Intermediaries in the United Kingdom, the Channel Islands and the Isle of Man, who will facilitate the participation of their retail investor clients located in the United Kingdom, the Channel Islands and the Isle of Man. A minimum application of 1,000 Ordinary Shares per Underlying Applicant will apply. Completed Applications from Intermediaries must be received by no later than 11.00 a.m. on 7 November 2017.
The Issue is conditional upon: (a) the Conditional Acquisition Agreements becoming wholly unconditional (save as to Admission); (b) the Placing Agreement becoming unconditional as to the Issue (save as to Admission) and not having been terminated in accordance with its terms prior to Admission; (c) Admission occurring by 8.00 a.m. on 13 November 2017 (or such later date as the Company, the Investment Manager and Barclays may agree, being no later than 30 November 2017); and (d) the Minimum Net Proceeds being raised. Shares may be allotted pursuant to the Issue if the Minimum Net Proceeds are raised and the offer conditions above are satisfied. In the event that the Company, in consultation with Barclays and Akur, wishes to waive condition (d) referred to above, the Company will be required to publish a supplementary prospectus (including a working capital statement based on a revised Minimum Net Proceeds figure).
25 E.4 Material interest In addition to being asset manager to Marble and REIP II, M7 Real Estate also holds 0.89 per cent. of Marble’s issued share capital and 27.33 per cent. of REIP II’s issued share capital and is one of the sellers in the Initial Acquisitions.
M7 Real Estate intends to subscribe for 7 million Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, M7 Real Estate will hold 2.33 per cent. of the Company’s issued share capital following Admission.
Richard Croft, the Chief Executive Officer of M7 Real Estate, intends to subscribe for 100,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, Richard Croft will hold 0.033 per cent. of the Company’s issued share capital following Admission.
Andrew Jenkins, the Chief Operating Officer of M7 Real Estate, intends to subscribe for 100,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, Andrew Jenkins will hold 0.033 per cent. of the Company’s issued share capital following Admission.
David Ebbrell, the Chief Investment Officer of M7 Real Estate, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, David Ebbrell will hold 0.017 per cent. of the Company’s issued share capital following Admission.
Teresa Gilchrist, the Head of Investor Relations and New Business of M7 Real Estate, intends to subscribe for 30,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, Teresa Gilchrist will hold 0.01 per cent. of the Company’s issued share capital following Admission.
Stephen Smith, the independent non-executive chairman of the Board of the Company, intends to subscribe for 75,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, Stephen Smith will hold 0.025 per cent. of the Company’s issued share capital following Admission.
Robert Bould, an independent non-executive director of the Company, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, Robert Bould will hold 0.017 per cent. of the Company’s issued share capital following Admission.
Peter Denton, an independent non-executive director of the Company, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, Peter
26 Denton will hold 0.017 per cent. of the Company’s issued share capital following Admission.
Gerald Parkes, an independent non-executive director of the Company, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, Gerald Parkes will hold 0.017 per cent. of the Company’s issued share capital following Admission.
The Issue will proceed whether or not any of the above investors do so subscribe, subject to the Minimum Net Proceeds being raised.
E.5Name of person selling Not applicable. No person or entity is offering to sell securities and lock-up Ordinary Shares as part of the Issue. arrangements The Company has agreed with Barclays and Akur not to issue any further Ordinary Shares in the Company (other than as consideration for an acquisition of properties or portfolios of properties in accordance with the Investment Guidelines) for a period of 365 days from the date of Admission without the prior written consent of Barclays and Akur (such consent not to be unreasonably withheld or delayed).
M7 Real Estate Ltd has agreed, subject to certain customary exceptions, not to dispose of any Ordinary Shares or any interest in Ordinary Shares for a period of two years from the date of Admission without the prior written consent of Barclays and Akur (such consent not to be unreasonably withheld or delayed).
Each of Richard Croft, David Ebbrell, Andrew Jenkins, Teresa Gilchrist and the Directors has agreed, subject to certain customary exceptions, not to dispose of any Ordinary Shares or any interest in Ordinary Shares for a period of 365 days from the date of Admission without the prior written consent of Barclays and Akur (such consent not to be unreasonably withheld or delayed).
E.6 Dilution No dilution will result from the Issue.
E.7Estimated expenses Not applicable. The costs and expenses of the Issue will be charged to the investor borne by the Company in full and no costs will be charged by the issuer to investors. All expenses incurred by any Intermediary are for its own account. Investors should confirm separately with any Intermediary whether there are any commissions, fees or expenses that will be applied by such Intermediary in connection with any application made through that Intermediary pursuant to the Intermediaries Offer.
27 RISK FACTORS
Any investment in the Ordinary Shares is subject to a number of risks. Prior to investing in the Ordinary Shares, prospective investors should consider carefully the factors and risks associated with any investment in the Ordinary Shares, the Group’s business and the industry in which it operates, together with all other information contained in this Prospectus including, in particular, the risk factors described below.
Prospective investors should note that the risks relating to the Group, its industry and the Ordinary Shares summarised in the section of this Prospectus headed “Summary” are the risks that the Directors believe to be the most essential to an assessment by a prospective investor of whether to consider an investment in the Ordinary Shares. However, as the risks which the Group faces relate to events and depend on circumstances that may or may not occur in the future, prospective investors should consider not only the information on the key risks summarised in section D of the summary of this Prospectus but also, among other things, the risks and uncertainties described below.
The risks and uncertainties described below represent those the Directors consider to be material as at the date of this Prospectus. The following is not an exhaustive list or explanation of all risks which investors may face when making an investment in the Ordinary Shares and should be used as guidance only. Additional risks and uncertainties relating to the Group that are not currently known to the Group, or that it currently deems immaterial, may individually or cumulatively also have a material adverse effect on the Group’s business, prospects, results of operations and financial position and, if any such risk should occur, the price of the Ordinary Shares may decline and investors could lose all or part of their investment. Investors should consider carefully whether an investment in the Ordinary Shares is suitable for them in the light of the information in this Prospectus and their personal circumstances.
RISKS RELATING TO THE COMPANY, ITS INVESTMENT STRATEGY AND OPERATIONS
The Company may not meet its investment objectives or achieve its targeted returns.
The investment objective of the Company is to deliver an attractive Total Shareholder Return, with a particular focus on dividend income, by investing in, managing and growing a diversified portfolio of predominantly regional light industrial and regional office assets in the UK. The Company may not achieve its investment objective. Meeting the investment objective is a target but the existence of such an objective should not be considered as an assurance or guarantee that it can or will be met.
The payment of future dividends and the level of any future dividends paid by the Company is subject to the discretion of the Directors and will depend upon, amongst other things, the Company successfully pursuing its Investment Guidelines and the Company’s earnings, financial position, cash requirements, level and rate of borrowings and availability of profit, as well as the provisions of relevant laws or generally accepted accounting principles from time to time. There can be no assurance that any dividends will be paid in respect of any financial year or period and no guarantee as to the level of any future dividends to be paid by the Company. There is no guarantee that the Company will achieve the stated target dividend yield or target Total Shareholder Return referred to in this Prospectus.
The Company has no operating history.
The Company was incorporated on 9 August 2017. The Company has not commenced operations and has no operating history. Save for the Marble historical financial information set out in Section B of Appendix 1 of this Prospectus and the Valuation Report set out in Part 7 of this
28 Prospectus, no historical financial statements or other meaningful operating or financial data upon which prospective investors may base an evaluation of the likely performance of the Company have been made up. An investment in the Company is therefore subject to all risks and uncertainties associated with a new business, including the risk that the Company will not achieve its investment objective or the stated target Total Shareholder Return referred to in this Prospectus and that the value of an investment in the Company could decline substantially as a consequence.
The Company’s targeted returns are based on estimates and assumptions that are inherently subject to significant uncertainties and contingencies, and the actual rate of return may be materially lower than the targeted returns.
The Company’s targeted returns set out in this Prospectus are targets only (and, for the avoidance of doubt, are not profit forecasts) and are based on estimates and assumptions about a variety of factors including, without limitation, purchase price, yield and performance of the Company’s investments, which are inherently subject to significant business, economic and market uncertainties and contingencies, many of which are beyond the Company’s control and may adversely affect the Company’s ability to achieve its targeted returns.
The targeted returns are based on the Investment Manager’s assessment, in light of its experience, of appropriate expectations for returns on the investments that the Company proposes to make and the ability of the Investment Manager to enhance the return generated by those investments through active asset management and based on assumptions including those relating to forecasts of increases in property capital, rental values and occupancy rates. There can be no assurance that these assessments, expectations and assumptions will prove to be correct and failure to achieve any or all of them may materially adversely impact the Company’s ability to achieve the targeted returns.
The Company may not be able to implement its investment objective and investment policy in a manner that generates returns in line with the targets. Furthermore, the targeted returns are based on the market conditions and the economic environment at the time of assessing the targeted returns, and are therefore subject to change. In particular, the targeted returns assume no material changes occur in government regulations or other policies, or in law and taxation, and that the Group is not affected by natural disasters, terrorism, social unrest or civil disturbances or the occurrence of risks described elsewhere in this Prospectus. Many, if not all, of these factors are (to a greater or lesser extent) beyond the Group’s control and all could adversely affect the Company’s ability to achieve its targeted returns.
There is no guarantee that actual (or any) returns can be achieved at or near the levels set out in this Prospectus. Accordingly, the actual rate of return achieved may be materially lower than the targeted returns, or may result in a partial or total loss, which could have a material adverse effect on the Company’s profitability, the Net Asset Value and the price of the Ordinary Shares.
The Group may be unable to make acquisitions.
Although the Company, acting on advice from the Investment Manager, has identified a number of available properties that are consistent with its Investment Guidelines (in addition to the Initial Acquisitions, details of which are set out in Part 3 of this Prospectus), there can be no certainty that the Group will be able to acquire these or other properties on acceptable terms or at all.
The availability of potential investments which meet the Company’s Investment Guidelines will also depend on the state of the economy and financial markets in the UK. The Company can offer no assurance that it will be able to identify and make investments, in addition to the Initial Acquisitions, that are consistent with its Investment Guidelines or that it will be able to fully invest its available capital. There is no guarantee that investment opportunities will continue to be available in the future at a time or in a form which is convenient for the Group or that the Group will or will be able to invest in these opportunities.
29 The Group may also be unable to make acquisitions due to competition from other property investors. Competitors may have greater financial resources than the Group and a greater ability to borrow funds to acquire properties. Competition in the property market may also lead to a shortage of properties available for acquisition in the target market or the price of properties being driven up through competing bids by potential purchasers.
Any delays in the completion of the Initial Acquisitions and in the deployment of the Net Issue Proceeds may have an impact on the Group’s results of operations, cash flows and the ability of the Company to pay dividends to Shareholders and to achieve the stated target Total Shareholder Return referred to in this Prospectus. In the event of delays in the completion of the Initial Acquisitions and the deployment of the Net Issue Proceeds, the Company intends to hold such funds in cash and cash equivalents, or to invest them in near cash instruments and money market instruments for cash management purposes. Interim cash management is likely to yield lower returns than the expected returns from investments.
The inability to find or agree terms for investment opportunities could have a material adverse effect on the Company’s profitability, the Net Asset Value and value of the Ordinary Shares.
The Company’s due diligence may not identify all risks and liabilities in respect of an acquisition.
Prior to entering into any agreement to acquire a property, the Company will have performed due diligence on the properties concerned. In doing so it would typically rely on third parties to conduct a significant portion of this due diligence (including legal reports on title and property valuations). To the extent that such third parties underestimate or fail to identify risks and liabilities (including any environmental liabilities) associated with the properties in question, or the full extent of such risks, the Company may be affected by defects in title, or exposed to environmental, structural or operational defects requiring remediation or giving rise to additional costs of liabilities, or may be unable to obtain necessary permits or permissions, any of which may have a material adverse effect on the Company’s profitability, the Net Asset Value and the price of the Ordinary Shares.
A due diligence failure may also result in properties that are acquired failing to perform in accordance with projections, particularly as to rent and occupancy, which may have a material adverse effect on the Company’s profitability, the Net Asset Value and the price of the Ordinary Shares.
The Company’s investment strategy includes the use of leverage and borrowings, which exposes the Group to risks associated with borrowing.
The Group intends to secure borrowing facilities in the future to pursue the Company’s investment objective. It is not certain that such facilities will be available on acceptable terms or at all.
The Group currently intends to target a level of aggregate borrowings over the medium term equal to approximately 40 per cent. of the Company’s Gross Asset Value from time to time. The aggregate borrowings will always be subject to an absolute maximum, calculated at the time of each drawdown, of 40 per cent. of the Company’s Gross Asset Value. The Group will pay interest on its borrowings. As such, the Group may be exposed to interest rate risk due to fluctuations in the prevailing market rates. In particular, the cost of any such debt to the Group will be adversely impacted by increases in interest rates from current levels. This may adversely affect the ability of the Group to grow in the future and acquire further properties and/or may increase the cost of the debt to the Group which could, as a consequence, have a material adverse impact on the financial position of the Company and the level of returns and dividends paid to Shareholders. Any amounts that are secured under a bank facility are likely to rank ahead of Shareholders’ entitlements and accordingly, should returns derived from the Group’s investments not be sufficient to cover the costs and liabilities of such borrowings on a liquidation of the Company, Shareholders may not recover their initial investment and in certain circumstances may lose their entire investment.
30 Whilst the use of borrowings should enhance the Net Asset Value per Ordinary Share where the value of the Group’s investments is rising, it will have the opposite effect where the value of the Group’s investments is falling. In addition, in the event that rental income from the Group’s investments falls (for example as a result of defaults by tenants), the use of borrowings will increase the impact of such falls on the net revenue of the Group and this in turn will have an adverse effect on the Company’s ability to pay dividends.
Unsuccessful transaction costs may be incurred.
The Investment Manager will need to identify suitable investment opportunities, investigate and pursue such opportunities and negotiate asset acquisitions on suitable terms, all of which require significant expenditure prior to consummation of the acquisitions. There is a risk that the Group may incur substantial legal, financial and other advisory expenses arising from unsuccessful transactions which may include expenses incurred in dealing with transaction documentation and legal, accounting and other due diligence. There can be no assurance as to the level of such costs and, given that there can be no guarantee that the Investment Manager will be successful in its negotiations to acquire any given asset on behalf of the Group, the greater the number of potential investments that do not reach completion, the greater the likely adverse impact of such costs on the Group’s performance.
Investor returns will be dependent upon the performance of the Group’s portfolio and the Group may experience fluctuations in its operating results.
Returns achieved are reliant primarily upon the performance of the Group’s portfolio. No assurance is given, express or implied, that Shareholders will be able to realise the amount of their original investment in the Ordinary Shares. The Group may experience fluctuations in its operating results due to a number of factors, including an increase in supply of commercial properties in the market, changes in the values of properties in the Group’s portfolio from time to time, changes in its rental rates and income, operating expenses, occupancy rates, the degree to which it encounters competition and general economic and market conditions. Such variability may be reflected in dividends, may lead to volatility in the Net Asset Value per Ordinary Share and trading price of the Ordinary Shares and may cause the Company’s results for a particular period not to be indicative of its performance in a future period. In addition, the Company will not be managed to meet or exceed the performance of any property index and consequently may have returns, favourable or unfavourable, that differ from the performance of UK commercial property markets as a whole.
Derivative instruments may expose the Group to greater risk and have a material adverse effect on the Group’s performance.
The Group will seek to mitigate interest rate risk resulting from the incurrence of debt by the Group through the use of derivative instruments such as interest rate swaps or interest rate caps in respect of at least 75 per cent. of its interest rate exposure. However, there can be no assurances or guarantees that the Group will successfully hedge against such risks or that adequate hedging arrangements will be available on an economically viable basis. Hedging arrangements may result in additional costs being incurred or losses being greater than if hedging had not been used.
Changes in laws or regulations governing the Company’s operations may adversely affect the Company’s business.
The Company is subject to laws and regulations enacted by European, national and local governments. In particular, the Company is subject to and will be required to comply with certain regulatory requirements that are applicable to listed closed-ended investment companies. In addition, the Company is subject to the continuing obligations imposed by the UK Listing Authority on all investment companies whose shares are listed on the Official List.
31 In particular, the Group’s properties must comply with laws and regulations (whether domestic or international (including, currently, in the EU)) which relate to, among other things, property, land use, development, zoning, health and safety requirements and environmental compliance. These laws and regulations often provide broad discretion to the administering authorities. Additionally, all of these laws and regulations are subject to change, which may be retrospective, and changes in regulations could adversely affect existing planning consents, costs of property ownership, the capital value of the Group’s assets and the income arising from the Group’s portfolio. Such changes may also adversely affect the Group’s ability to use a property as intended and could cause the Group to incur increased capital expenditure or running costs to ensure compliance with the new applicable laws or regulation which may not be recoverable from tenants. Similarly, changes in laws and governmental regulations governing leases could restrict the Group’s ability to increase the rent payable by tenants, terminate leases or determine the terms on which a lease may be renewed. The occurrence of any of these events may have a material adverse effect on the Company’s financial condition, business, prospects and results of operations.
Any change in the law and regulation affecting the Group may have a material adverse effect on the ability of the Company to carry on its business and successfully pursue its investment policy and on the value of the Company and/or the Ordinary Shares. In such event, the investment returns of the Company may be materially adversely affected.
The Group is exposed to risks relating to the UK and global economies. Portfolio concentration risk could have a material adverse effect on the Group.
The Group is subject to risks arising from the conditions of the UK and global economy. The global financial system has experienced difficulties since 2007, which resulted in the severe dislocation of financial markets around the world, significant declines in the values of most asset classes and volatility in the capital markets. There remains uncertainty around the pace and scale of economic recovery globally and in the UK, and conditions could deteriorate. The precise nature of all the risks and uncertainties that the Group faces as a result of the volatility and uncertainty of the global and UK economic outlook is difficult to predict. The Group and its assets could be adversely affected by any, all or a combination of: lack of available credit, decreasing real estate values, decreasing rental income, difficulties in selling its assets at acceptable values or at all, and tenant defaults.
Although the Group will seek to build a multi-let portfolio diversified by sector and tenant, all of the Group’s assets will be invested in UK property with a focus on regional light industrial and regional office assets. The Group and its assets will therefore be subject to geographical and portfolio concentration risks tied to the economic conditions in the UK, which may lead to greater volatility in the value of the Group’s investments. In particular, any downturn in the UK and its economy could have a material adverse effect on the business outlook, prospects and stability of the UK’s SME sector, which could in turn have a negative impact upon the number and profile of tenants and potential tenants and the asset and rental values for the Group’s properties which will be focused on servicing the SME market in the regional light industrial and regional office sectors. This could have a material adverse effect on the Group’s financial condition, business, prospects and results of operations.
The UK’s proposed exit from the European Union could have a material impact on the Group’s activities.
A referendum was held on 23 June 2016 to decide whether the UK should remain in the EU. A vote was given in favour of the UK leaving the EU (“Brexit”). Subsequently, the UK parliament passed the European Union (Notification of Withdrawal) Act 2017 which gave the UK government power to begin the formal process for Brexit. A process of negotiation, which was formally begun on 29 March 2017 when the UK submitted its Article 50 notice of intention to withdraw from the European Union, will determine the terms of the UK’s European Union exit and a possible future framework agreement.
32 The extent of the impact of Brexit on the Group will depend in part on the nature of the arrangements that are put in place between the UK and the EU following the eventual Brexit and the extent to which the UK continues to apply laws that are based on EU legislation. The Group may be subject to a significant period of uncertainty in the period leading up to eventual Brexit including, inter alia, uncertainty in relation to any potential regulatory or tax change. In addition, the macroeconomic effect of an eventual Brexit on the value of investments in the UK real estate sector and, by extension, the value of the investments in the Group’s eventual investment portfolio and the rental income that the Group is able to achieve from its portfolio, is unknown. Brexit could also create significant UK (and potentially global) stock market uncertainty, which may have a material adverse effect on the price of the Ordinary Shares. As such, it is not possible to accurately state the impact that Brexit will have on the Group and its proposed investments at this stage. Brexit may also make it more difficult for the Company to raise capital in the EU and/or increase the regulatory compliance burden on the Company. This could restrict the Group’s future activities and thereby negatively affect returns.
REAL ESTATE RISKS
Difficulty in maintaining occupancy levels for the Group’s properties and tenant default may affect the income of the Company.
The success of the Group will depend largely on its ability to maintain high occupancy levels at its properties (once properties have been acquired) and on the quality of its tenants. In addition, dividends payable by the Company will be dependent on the rental income from the properties it owns. In order to obtain and comply with REIT status the Company will be required to meet a minimum distribution test for each year that it is a REIT. This minimum distribution test requires the Company to distribute 90 per cent. of the income profits from its Property Rental Business for each accounting period, as adjusted for tax purposes and 100 per cent. of any property income distributions received from other UK REITs. However, a failure to maintain occupancy levels or a failure by tenants to comply with their rental obligations would reduce the Group’s rental income and could affect the ability of the Company to pay dividends to Shareholders or reduce the amount of such dividends.
The Group may experience difficulty in attracting new tenants, or renewing leases with existing tenants, on suitable terms or at all. The Group may need to incur additional costs and expenses, including the granting of rent free periods, legal and surveying costs, maintenance costs, insurance costs, rates and marketing costs as a result of properties being without tenants and in order to attract tenants.
In particular, non-renewal of leases or early termination by significant tenants could materially adversely affect the Group’s net rental income. If the Group’s net rental income declines, the Company would have less cash available to make distributions to Shareholders and to service and repay its indebtedness. In addition, significant expenditures associated with a real estate asset, such as taxes, service charges and maintenance costs, are generally not reduced in proportion to any decline in rental income from that real estate asset. If rental income from a real estate asset declines while the related costs do not decline, the Group’s income and cash receipts could be materially adversely affected.
In addition, the assumptions made by the valuers regarding the length of tenancy void periods may underestimate the actual void periods suffered by the Group. If vacancies continue for longer periods of time, the Group may suffer reduced revenues resulting in less income being available for distribution to Shareholders.
33 The Group may not be able to maintain or increase the rental rates for its properties, which may, in the longer term, have a material adverse impact on the value of the Group’s properties, as well as the Group’s turnover.
The value of the Group’s property portfolio, and the Group’s turnover, will be dependent on the rental rates that can be achieved from its property portfolio. The ability of the Group to maintain or increase the rental rates for its properties may generally be adversely affected by general UK economic conditions. In addition, there may be other factors that depress rents or restrict the Group’s ability to increase rental rates, including local factors relating to particular properties or their locations (such as increased competition). Any failure to maintain or increase the rental rates within the Group’s property portfolio may have a material adverse effect on the Company’s profitability, the Net Asset Value, the price of the Ordinary Shares, the Company’s ability to pay dividends and the Group’s ability to meet interest and capital repayments on any debt facilities.
The Group’s investments could be illiquid and may be difficult or impossible to realise at a particular time.
The Group will invest in commercial properties predominantly consisting of regional light industrial and regional office assets. Such investments are illiquid; they may be difficult for the Group to sell and the price achieved on any realisation may be at a discount to the prevailing valuation of the relevant property, which may have a material adverse effect on the Group’s profitability, the Net Asset Value and the price of the Ordinary Shares.
The Group is subject to the performance and conditions of the UK property market.
Any property market recession or future deterioration in the property market in the UK could, inter alia: (i) make it harder for the Group to attract new tenants for its properties; (ii) lead to an increase in tenant defaults; (iii) lead to a reduction in rental prices; (iv) lead to a lack of finance available to the Group; (v) cause the Group to realise its investments at lower valuations; and (vi) delay the timings of the Group’s realisations. Any of the foregoing could have a material adverse effect on the ability of the Company to achieve its investment objective, on the Net Asset Value and on the price of the Ordinary Shares.
Property valuation is inherently subjective and uncertain.
The success of the Group depends significantly on the ability of the Company and the Investment Manager to assess the values of real estate assets, both at the time of acquisition and the time of disposal. Valuations of the Group’s real estate assets will also have a significant effect on the Company’s financial standing and Net Asset Value on an ongoing basis and on its ability to obtain financing.
Property valuation is inherently subjective and uncertain, in part because all property valuations are made on the basis of assumptions which may not prove to be accurate, and in part because of the individual nature of each property. As a result, valuations are subject to uncertainty and there can be no assurance that the Valuation Report and estimates resulting from the valuation process on an ongoing basis will reflect actual sales prices that could be realised by the Group in the future. The Investment Manager will rely on annual independent property valuations and quarterly desk-top property valuations in calculating the Company’s Net Asset Value. To the extent valuations of the Group’s assets do not accurately reflect the value of the underlying assets, whether due to the above factors or otherwise, this may have a material adverse effect on the Group’s business, financial condition and results of operations.
34 The Group’s properties may suffer physical damage resulting in losses (including loss of rent) which may not be fully compensated by insurance or at all.
There are certain types of losses, generally of a catastrophic nature, that may be uninsurable or are not economically insurable. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also result in insurance proceeds being insufficient to repair or replace a property. Should an uninsured loss or a loss in excess of insured limits occur, the Group may lose capital invested in the affected property as well as anticipated future revenue from that property. The Group might also remain liable for any debt or other financial obligations related to that property. Any material uninsured losses may have a material adverse effect on the Group’s business prospects, results of operations and financial condition.
Asset management initiatives may be more expensive than anticipated and take longer to implement.
Where necessary and in accordance with the active asset management initiatives set out in the Investment Guidelines, the Group may undertake asset management initiatives such as refurbishment works, increasing the size of properties and changing the configuration of properties as appropriate, to modernise and improve the marketability of its property portfolio. These works may be more extensive, expensive and take longer than anticipated. The ability to carry out refurbishment works may be adversely affected by a number of factors including constraints on location, planning legislation, the need to obtain other licences, consents and approvals and the existence of restrictive covenants. In implementing refurbishment works the Group will rely upon the performance of third party service providers and contractors. Failure by any such service providers and contractors to carry out their obligations in accordance with their appointment terms could result in the refurbishment works being more expensive than anticipated and taking longer to complete.
The Group may be subject to environmental liabilities.
As the owner of real property, the Group will be subject to environmental regulations that can impose liability for cleaning up contaminated land, watercourses or groundwater on the person causing or knowingly permitting the contamination. If the Group acquires contaminated land, it could also be liable to third parties for harm caused to them or their property as a result of the contamination. If the Group is found to be in violation of environmental regulations, it could face reputational damage, regulatory compliance penalties, reduced letting income and reduced asset valuation, which could have a material adverse effect on the Group’s business, financial condition, results of operations, future prospects and/or the price of the Ordinary Shares.
RISKS RELATING TO SERVICE PROVIDERS
The Group has no employees and is reliant on the performance of third party service providers.
The Group has no employees and the Directors have all been appointed on a non-executive basis. Whilst the Company has taken all reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations, the Group is reliant upon the performance of third party service providers for certain of its executive functions. In particular, the Investment Manager, the Asset Manager, the Administrator and Company Secretary and the Registrar will be performing services which are integral to the operation of the Company. For example, the Group will be reliant on M7 and its systems and network to identify and access suitable investment opportunities, and to perform subsequent asset management functions. Failure by any service provider to carry out its obligations to the Group in accordance with the terms of its appointment could have a material adverse effect on the operation of the Group.
35 Shareholders will only be able to exercise their rights directly against the Company and will not have any direct contractual rights against the service providers of the Group appointed from time to time. The foregoing is without prejudice to other rights which shareholders may have under ordinary rules of law or pursuant to specific legislation (e.g. a right of access to and rectification of personal data).
The Company is dependent on the expertise of members of M7, including the Investment Manager, the Asset Manager and their key personnel, to evaluate investment opportunities and to assist in the implementation of the Company’s investment objective and investment policy.
The Company will be reliant upon, and its success will depend on, the members of M7, including the Investment Manager, the Asset Manager and their personnel, services and resources. The past performance of other investments managed or advised by M7 or its investment professionals, including the track record information contained in this Prospectus, cannot be relied upon as an indicator of the future performance of the Group. Investor returns will be dependent upon the Company successfully pursuing its investment objective and investment policy. The success of the Group will depend, inter alia, on M7’s ability to identify, acquire and realise properties in accordance with the Investment Guidelines. This, in turn, will depend on M7’s reputation and relationships in the industry and the ability of M7 to apply its investment analysis processes in a way which is capable of identifying suitable properties for the Group to invest in. There can be no assurance that M7 will be able to do so or that the Group will be able to invest its assets on attractive terms or generate any investment returns for Shareholders or indeed avoid investment losses.
The future ability of the Company to successfully pursue its investment objective and investment policy may, among other things, also depend on the ability of M7 to retain its existing staff and/or to recruit individuals of similar experience and calibre. The retention of key members of the team cannot be guaranteed. Furthermore, in the event of a departure of a key individual of M7, there is no guarantee that M7 would be able to recruit a suitable replacement or that any delay in doing so would not adversely affect the performance of the Company.
The Company is subject to the risk that the Investment Management Agreement may be terminated and that no suitable replacement will be found. If the Investment Management Agreement is terminated and a suitable replacement is not secured in a timely manner or key personnel of the Investment Manager are not available to the Company with an appropriate time commitment, the ability of the Company to execute its investment objective and investment policy may be adversely affected.
The AIFMD may impair the ability of the Investment Manager to manage investments of the Group, which may adversely affect the Company’s ability to implement its Investment Policy.
Pursuant to the AIFMD, the Company is an AIF and has appointed the Investment Manager as its external AIFM. The Investment Manager is authorised and regulated by the FCA and has permission, inter alia, to manage an unauthorised AIF. If the Investment Manager ceases to act, or becomes unable to act, as the Company’s AIFM, then the Company must either seek authorisation from the FCA to be an internally managed AIF, or appoint another suitably authorised person as its AIFM. There is no guarantee that the Company will be able to obtain such authorisation or to identify and appoint a suitably authorised person as its AIFM. If the Company is not authorised to act as an internally managed AIF, or is unable to appoint a suitably authorised person as its AIFM, then the Company may not be able to operate or may have its operations materially adversely affected.
In addition, the AIFMD may be subject to change, including through the issuance of additional or revised guidance, and such change may have a material adverse effect on the ability of the
36 Investment Manager to manage investments of the Company, which may adversely affect the Company’s ability to implement its Investment Policy.
The Investment Manager and its affiliates may provide services to other clients which could compete directly or indirectly with the activities of the Company and may be subject to conflicts of interest in respect of their activities on behalf of the Company.
Although the Investment Manager will allocate any potential investment in the regional light industrial and regional office sectors that falls within the Investment Guidelines and that, as determined by the Investment Manager acting reasonably and in accordance with its duties under the AIFMD Rules, is suitable for the Company, to the Company in priority to any other clients of M7, except to the extent that such potential investment is subject to the Onyx Right of First Refusal as described in paragraph 5 of Part 1 of this Prospectus, the Investment Manager and its affiliates are involved in other activities which may on occasion give rise to conflicts of interest with the Company. In particular: (i) the Investment Manager, the Asset Manager or their affiliates may manage and/or advise other funds and may provide investment management or other services in relation to these funds or future funds which may have similar investment policies to that of the Company; (ii) the Investment Manager, the Asset Manager and their affiliates may carry on investment activities for their own accounts and for other accounts in which the Company has no interest; and (iii) the Investment Manager, the Asset Manager and their affiliates may give advice and recommend investments to other managed accounts or investment funds which may differ from advice given to, or investments recommended or bought for, the Company, even though their investment policies may be the same or similar. If these conflicts of interest are managed to the detriment of the Company by the Investment Manager or the Asset Manager, they could materially and adversely affect the performance of the Company.
The Investment Manager and the Asset Manager are not entitled to receive performance fees from the Company. However, in respect of other products that they may advise upon, the Investment Manager or the Asset Manager may be entitled to performance related fees or incentives. As a result, personnel of the Investment Manager or the Asset Manager may be incentivised to devote more time to the activities of those other products than to the Company.
RISKS RELATING TO TAXATION
A change in the Group’s tax status or in taxation legislation in the UK could adversely affect the Group’s profits and portfolio value and/or returns to Shareholders.
The levels of and reliefs from taxation may change. The tax reliefs referred to in this Prospectus are those currently available and their value depends on the individual circumstances of investors. Any change in the Group’s tax status or in taxation legislation in the UK or any other tax jurisdiction affecting Shareholders or investors could affect the value of the investments held by the Group, affect the Company’s ability to achieve its investment objective for the Ordinary Shares or alter the post-tax returns to Shareholders. Changes to tax legislation could include the imposition of new taxes or increases in tax rates. In particular, an increase in the rates of stamp duty land tax could have a material impact on the price at which UK land can be sold, and therefore on asset values. Any changes could adversely affect the financial prospects of the Group and/or the returns payable to Shareholders. If you are in any doubt as to your tax position, you should consult your own professional adviser without delay.
If the Company and its group fail to qualify, or remain qualified, as a REIT, its rental income and gains will be subject to UK corporation tax.
It is the expectation of the Directors that the Company will fulfil the relevant qualifying conditions for UK REIT status following Admission and completion of the Initial Acquisitions, such that the Company will be able to give HMRC notice to become a group REIT (the “REIT Group”). The Company cannot guarantee that the REIT Group will qualify, or remain qualified, as a REIT.
37 If the REIT Group fails to qualify or remain qualified as a REIT, it will be subject to UK corporation tax on some or all of its property rental income and chargeable gains on the sale of properties and may, in some circumstances, be subject to the claw back of the tax benefit of having been within the REIT regime, which would reduce the amounts available to distribute to Shareholders.
The requirements for maintaining REIT status are complex. Minor breaches of certain conditions within the REIT regime may result in additional tax being payable. A serious breach of the REIT regime may lead to the Company ceasing to be a REIT. If the Company or REIT Group fails to meet certain of the statutory requirements to remain qualified as a REIT, it may be subject to UK corporation tax on the profits of its Property Rental Business including any chargeable gains on the sale of its properties. This could reduce the reserves available to make distributions to Shareholders and the yield on the Ordinary Shares. In addition, incurring a UK corporation tax liability might require the Group to borrow funds, liquidate some of its assets or take other steps that could negatively affect its operating results. Moreover, if the Company’s REIT status is withdrawn altogether because of its failure to meet one or more REIT conditions, it may be disqualified from being a REIT from the end of the accounting period preceding that in which the failure occurred.
The Company or REIT Group could lose its status as a REIT as a result of actions by third parties (for example, if the Company is taken over by a company that is not itself a REIT).
Distribution requirements may limit the Group’s flexibility in executing its acquisition plans.
To maintain REIT status and as a result obtain full exemption from UK corporation tax on the profits of its Property Rental Business, the Company is required to distribute annually to Shareholders an amount sufficient to meet the 90 per cent. distribution test by way of Property Income Distributions. The Company would be required to pay tax at regular UK corporation tax rates on any shortfall to the extent that the Company distributes as Property Income Distributions less than the amount required to meet the 90 per cent. distribution test for each accounting period.
In addition, differences in timing between the receipt of cash and the recognition of income for the purposes of the REIT rules and the effect of any potential debt amortisation payments could require the Group to borrow funds to meet the distribution requirements that are necessary to achieve the full tax benefits associated with qualifying as a REIT, even if the then-prevailing market conditions are not favourable for these borrowings.
As a result of these factors, the constraints of maintaining REIT status could limit the Group’s flexibility to make investments.
The Company’s status as a REIT may restrict the Company’s distribution opportunities to Shareholders.
The Company may become subject to an additional tax charge if it makes a distribution to, or in respect of, a Substantial Shareholder, that is broadly a shareholder which has rights to at least 10 per cent. of the distributions on Ordinary Shares or controls at least 10 per cent. of the voting rights. This additional tax charge will not be incurred if the Company has taken reasonable steps to avoid paying distributions to a Substantial Shareholder. Therefore, the Articles contain provisions designed to avoid the situation where distributions may become payable to a Substantial Shareholder and these provisions are summarised at paragraph 5 of Part 8 of this Prospectus. These provisions provide the Directors with powers to identify Substantial Shareholders and to prohibit the payment of dividends on Ordinary Shares that form part of a Substantial Shareholding unless certain conditions are met. The Articles also allow the Directors to require the disposal of Ordinary Shares forming part of a Substantial Shareholding in certain circumstances where the Substantial Shareholder has failed to comply with the above outlined provisions.
38 Automatic exchange of information (AEOI) may require the Company and shareholders to provide information to tax authorities.
To the extent that the Company may be a Reporting Financial Institution under FATCA and/or the Common Reporting Standard, it may require Shareholders to provide it with certain information in order to comply with its AEOI obligations which information may be provided to the UK tax authorities who may in turn exchange that information with certain other tax authorities.
Tax charges may arise depending on the level of the Company’s borrowings.
A tax charge will arise if, in respect of any accounting period, the ratio of the Company’s income profits (before the offset of capital allowances, losses from previous accounting periods and certain other financing costs) in respect of its Property Rental Business to the financing costs incurred in respect of the Property Rental Business is less than 1.25. In addition, corporate interest restriction rules are expected to be introduced in late 2017 which will be effective from 1 April 2017. If these rules cause an interest disallowance, the Company may be required to allocate some of that disallowance to the taxable residual business of the REIT Group. Any such allocation may give rise to a tax charge to the extent it is not sheltered by tax losses.
RISKS RELATING TO THE ORDINARY SHARES
The market value of the Ordinary Shares may fluctuate.
The value of an investment in the Company, and the income derived from it, if any, may go down as well as up and an investor may not get back the amount invested.
The market price of the Ordinary Shares, like shares in all investment companies, may fluctuate independently of the Net Asset Value per Ordinary Share and may trade at a discount or premium at different times, depending on factors such as supply and demand for the Ordinary Shares, market conditions and general investor sentiment. There can be no guarantee that any discount control policy will be successful or capable of being implemented. The market value of an Ordinary Share may therefore vary considerably from the Net Asset Value per Ordinary Share.
Fluctuations could also result from a change in national and/or global economic and financial conditions, the actions of governments in relation to changes in the national and global financial climate or taxation and various other factors and events, including rental yields, variations in the Company’s operating results and business developments of the Company and/or its competitors. Stock markets have experienced significant price and volume fluctuations in the past that have affected market prices for securities.
The price of an Ordinary Share may also be affected by speculation in the press or investment community regarding the business or investments of the Company or factors or events that may directly or indirectly affect its investments.
It may be difficult for Shareholders to realise their investment and there may not be a liquid market in the Ordinary Shares.
The price at which the Ordinary Shares will be traded and the price at which investors may realise their investment will be influenced by a large number of factors, some specific to the Company and its investments and some which may affect companies generally. Admission should not be taken as implying that there will be a liquid market for the Ordinary Shares. Consequently, the share price may be subject to greater fluctuation on small volumes of trading of Ordinary Shares and the Ordinary Shares may be difficult to sell at a particular price. The market price of the Ordinary Shares may not reflect the Net Asset Value per Ordinary Share.
39 While the Directors retain the right to effect repurchases of Ordinary Shares, they are under no obligation to use such powers or to do so at any time and Shareholders should not place any reliance on the willingness of the Directors so to act. Shareholders wishing to realise their investment in the Company may therefore be required to dispose of their Ordinary Shares in the market. There can be no guarantee that a liquid market in the Ordinary Shares will develop or that the Ordinary Shares will trade at prices close to the Net Asset Value per Ordinary Share. Accordingly, Shareholders may be unable to realise their investment at the Net Asset Value per Ordinary Share or at all.
The number of Ordinary Shares to be issued pursuant to the Issue is not yet known, and there may be a limited number of holders of Ordinary Shares. Limited numbers and/or holders of Ordinary Shares may mean that there is limited liquidity in the Ordinary Shares which may affect: (i) an investor’s ability to realise some or all of his investment; (ii) the price at which such investor can effect such realisation; and/or (iii) the price at which such Ordinary Shares trade in the secondary market.
The Company may not have adequate distributable profits to allow the Company to pay dividends or to return capital to Shareholders.
The distribution of future dividends depends upon, amongst other things, the Company’s results of operations, financing and investment requirements, as well as the availability of distributable retained earnings or distributable reserves. The Company is not obligated to pay dividends, and the Directors may decide not to pay dividends. Furthermore, as a newly incorporated company, initial dividends will depend on the cancellation of the Company’s share premium account following Admission to create distributable reserves. Such reduction of capital is to be confirmed by the Companies Court. In addition, in accordance with the Companies Act, shares may only be repurchased out of the proceeds of a fresh issue of shares made for the purpose of the repurchase or out of distributable profits (including any reserve arising out of the proposed cancellation of the Company’s share premium account). There can be no assurance that the Company will have any such proceeds or distributable profits to allow the Company at any time to pay dividends or to utilise any granted buy-back authority and to thereby return capital to Shareholders.
The Ordinary Shares are subject to certain provisions that may cause the Board to refuse to register, or require the transfer of, Ordinary Shares.
Although the Ordinary Shares are freely transferable, there are certain circumstances in which the Board may, under the Articles and subject to certain conditions, compulsorily require the transfer of the Ordinary Shares. These circumstances include where the holding or beneficial ownership of any shares in the Company by any person (whether on its own or taken with other shares), in the opinion of the Directors: (i) would cause the assets of the Company to be treated as “plan assets” of any Benefit Plan Investor; (ii) would or might result in the Company and/or its shares and/or any of its appointed investment managers or investment advisers being required to be registered or qualified under the US Investment Company Act and/or the US Investment Advisers Act of 1940 and/or the US Securities Act and/or the US Exchange Act and/or any similar legislation (in any jurisdiction) that regulates the offering and sale of securities; (iii) may cause the Company not to be considered a “Foreign Private Issuer” under the US Exchange Act; (iv) may cause the Company to be a “controlled foreign corporation” for the purpose of the US Code; (v) may cause the Company to become subject to any withholding tax or reporting obligation under FATCA or any similar legislation in any territory or jurisdiction (including the United Kingdom’s International Tax Compliance Regulations 2015 (SI 2015/878)), or to be unable to avoid or reduce any such tax or to be unable to comply with any such reporting obligation (including by reason of the failure of the shareholder concerned to provide promptly to the Company such information and documentation as the Company may have requested to enable the Company to avoid or minimise such withholding tax or to comply with such reporting obligation); or (vi) creates a significant legal or
40 regulatory issue for the Company under the US Bank Holding Company Act of 1956 (as amended) or regulations or interpretations thereunder.
Additional equity financing may be dilutive to those Shareholders who cannot, or choose not to, participate in such financing.
Following the Issue, the Company may seek to issue new equity in the future. While the Companies Act contains statutory pre-emption rights for Shareholders in relation to issues of shares in consideration for cash, the Company currently has authority to issue up to 60 million Ordinary Shares on a non-pre-emptive basis following Admission. Where statutory pre-emption rights are dis-applied, any additional equity financing will be dilutive to the shareholdings and voting rights of those Shareholders who cannot, or choose not to, participate in such financing and could have a dilutive effect on the Net Asset Value per Ordinary Share as well as the market price of the existing Ordinary Shares.
In addition, securities laws of certain jurisdictions may restrict the Company’s ability to allow participation by certain Shareholders in any further pre-emptive issues of new equity in the future. Shareholders who have a registered address in or who are resident in, or who are citizens of, countries other than the UK would need to consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their pre-emptive rights in the future. Any additional equity financing will be dilutive to those Shareholders who cannot participate in such future pre-emptive equity financings due to restrictions under securities laws.
Future acquisitions by the Company, where shares are issued to the sellers as consideration, will be dilutive to the Shareholders.
Following the Issue, the Company may decide to issue new equity for the purposes of, or in connection with, an acquisition of target assets or investments. Any additional issues of equity will be dilutive to the shareholdings and voting rights of the existing Shareholders and could have a dilutive effect on the Net Asset Value per Ordinary Share as well as the market price of the existing Ordinary Shares.
Future sales of Ordinary Shares could cause the market price of the Ordinary Shares to fall.
Sales of Ordinary Shares or interests in the Ordinary Shares by significant investors could depress the market price of the Ordinary Shares. A substantial amount of Ordinary Shares being sold, or the perception that sales of this type could occur, could also depress the market price of the Ordinary Shares. Both scenarios, occurring either individually or collectively, may make it more difficult for Shareholders to sell the Ordinary Shares at a time and price that they deem appropriate.
41 IMPORTANT INFORMATION
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements, including, without limitation, statements containing the words “believes”, “estimates”, “anticipates”, “expects”, “intends”, “may”, “will” or “should” or, in each case, their negative or other variations or similar expressions. Such forward- looking statements involve unknown risks, uncertainties and other factors which may cause the actual results, financial condition, performance or achievements of the Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Given these uncertainties, prospective investors are cautioned not to place any undue reliance on such forward-looking statements. These forward-looking statements speak only as at the date of this Prospectus. Subject to its legal and regulatory obligations (including under the Prospectus Rules), the Company expressly disclaims any obligations to update or revise any forward-looking statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based unless required to do so by law or any appropriate regulatory authority, including FSMA, the Prospectus Rules, the Disclosure Guidance and Transparency Rules, the Market Abuse Regulation and the Listing Rules.
Nothing in the preceding two paragraphs should be taken as limiting the working capital statement in paragraph 11 of Part 9 of this Prospectus.
GENERAL
No broker, dealer or other person has been authorised by the Company to issue any advertisement or to give any information or to make any representations in connection with the offering or sale of Ordinary Shares other than those contained in this Prospectus and, if issued, given or made, such advertisement, information or representation must not be relied upon as having been authorised by the Company.
This Prospectus does not constitute, and may not be used for the purposes of, an offer or solicitation to anyone in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it is unlawful to make such offer or solicitation. The distribution of this Prospectus and the offering of Ordinary Shares in certain jurisdictions may be restricted and accordingly persons into whose possession this Prospectus is received are required to inform themselves about and to observe such restrictions.
In connection with the Issue, Barclays and any of its affiliates acting as an investor for its or their own account(s), may subscribe for Ordinary Shares and, in that capacity, may retain, purchase, sell, offer to sell or otherwise deal for its or their own account(s) in such Ordinary Shares, any other securities of the Company or other related investments in connection with the Issue or otherwise. Accordingly, references in this Prospectus to the Ordinary Shares being issued, offered, subscribed or otherwise dealt with, should be read as including any issue or offer to, or subscription or dealing by, Barclays and any of its affiliates acting as an investor for its or their own account(s). Neither Barclays nor any of its affiliates intends to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so. In addition, in connection with the Issue, Barclays or its affiliates may enter into financing arrangements with investors, such as share swap arrangements or lending arrangements where Ordinary Shares are used as collateral, that could result in Barclays or its affiliates acquiring shareholdings in the Company.
42 Under the Intermediaries Offer, the Ordinary Shares are being offered to Intermediaries who will facilitate the participation of their retail investor clients (and any member of the public who wishes to become a client of that Intermediary) located in the United Kingdom, the Channel Islands and the Isle of Man. The Company consents to the use of this Prospectus in connection with the Intermediaries Offer on the following terms: (i) in respect of the Intermediaries who have been appointed prior to the date of the Prospectus, as listed in paragraph 15 of Part 9 of this Prospectus; and (ii) in respect of Intermediaries who are appointed after the date of the Prospectus, a list of which appears on the Company’s website, from the date on which they are appointed to participate in the Intermediaries Offer and agree to adhere and be bound by the Intermediaries Terms and Conditions and, in each case, until the closing of the Intermediaries Offer at 11.00 a.m. on 7 November 2017, unless closed prior to that date.
The offer period for the Intermediaries Offer for which consent to use this Prospectus is given in accordance with the Intermediaries Terms and Conditions commences on 10 October 2017 and closes on 7 November 2017, unless closed prior to that date (any such prior closure to be announced via a Regulatory Information Service).
Any Intermediary that uses this Prospectus must state on its website that it uses this Prospectus in accordance with the Company’s consent. Intermediaries are required to provide the Intermediaries Terms and Conditions to any prospective investor who has expressed an interest in participating in the Intermediaries Offer. Information on the Intermediaries Terms and Conditions is to be provided at the time of the offer by the Intermediaries.
Any new information with respect to the Intermediaries Offer unknown at the time of approval of this Prospectus will be available on the Company’s website.
PRESENTATION OF INFORMATION
Market, economic and industry data
Market, economic and industry data used throughout this Prospectus is sourced from various industry publications and other independent sources, including, but not limited to Knight Frank, Jones Lang LaSalle, Savills, IPD, Property Data, OECD and ONS. Where information contained in this Prospectus has been sourced from a third party, the Company confirms that such information has been accurately reproduced and, as far as the Company is aware and is able to ascertain from information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. Where third-party information has been used in this Prospectus, the source of such information has been identified.
This Prospectus contains a Valuation Report produced by GVA Grimley Limited (“GVA” or the “Valuer”) on the Initial Portfolio and reproduced at Part 7 of this Prospectus. The Valuer has given and not withdrawn its written consent to the inclusion in this Prospectus of references to its name in the form and context in which it appears and has authorised the reproduction of the Valuation Report and accepts responsibility for the Valuation Report for the purposes of Prospectus Rule 5.5.3R(2)(f). To the best of the knowledge and belief of the Valuer (who has taken all reasonable care to ensure that such is the case), the information contained in the Valuation Report is in accordance with the facts and does not omit anything likely to affect the import of such information. The Valuer was incorporated in England and Wales on 26 September 2007 as a private limited company under the Companies Act 2006 (registered number 6382509) with its registered office at 3 Brindley Place, Birmingham, B1 2JB.
Currency presentation
Unless otherwise indicated, all references in this Prospectus to “sterling”, “pounds sterling”, “£” or “pence” are to the lawful currency of the UK.
43 Definitions
A list of defined terms used in this Prospectus is set out in Part 12 of this Prospectus.
Past performance
Past performance is not necessarily indicative of future results, and there can be no assurance that the Group or its portfolio will achieve comparable results to those presented in this Prospectus, that the Company or the Investment Manager will be able to implement their investment strategies or achieve the Company’s investment objective or that the returns generated by any investments by the Group will equal or exceed any past returns presented herein.
Financial information
The following historical financial information in relation to Marble has been included in Section B of Appendix 1 of this Prospectus:
• audited historical financial information for Marble in respect of the period ended 31 December 2015 (from its date of incorporation on 3 November 2014) and the financial year ended 31 December 2016; and
• audited interim financial information for Marble in respect of the six months ended 30 June 2017 (together with a comparison against the unaudited historical financial information for Marble in respect of the six months ended 30 June 2016), in each case, prepared in accordance with IFRS (as adopted by the EU).
INVESTMENT CONSIDERATIONS
The contents of this Prospectus are not to be construed as advice relating to legal, financial, taxation, investment or any other matters. Prospective investors should inform themselves as to:
• the legal requirements within their own countries for the subscription for, purchase, holding, transfer or other disposal of Ordinary Shares;
• any foreign exchange restrictions applicable to the subscription for, purchase, holding, transfer or other disposal of Ordinary Shares which they might encounter; and
• the income and other tax consequences which may apply in their own countries as a result of the subscription for, purchase, holding, transfer or other disposal of Ordinary Shares.
Prospective investors must rely upon their own representatives, including their own legal advisers and accountants, as to legal, tax, investment or any other related matters concerning the Group and an investment in Ordinary Shares.
An investment in Ordinary Shares should be regarded as a long term investment. There can be no assurance that the Company’s investment objective will be achieved.
This Prospectus should be read in its entirety before making any investment in Ordinary Shares. All Shareholders are entitled to the benefit of, are bound by and are deemed to have notice of, the provisions of the Articles, which investors should review.
Prospective investors should rely only on the information contained in this Prospectus. No person has been authorised to give any information or make any representations other than as contained in this Prospectus and, if given or made, such information or representations must not be relied on as having been authorised by the Company, the Investment Manager, the Administrator and Company Secretary, the Depositary, Barclays, Akur or any of their respective affiliates, officers,
44 directors, members, employees or agents. Without prejudice to the Company’s obligations under the Prospectus Rules, the Listing Rules, the Market Abuse Regulation and the Disclosure Guidance and Transparency Rules, neither the delivery of this Prospectus nor any subscription for or purchase of Ordinary Shares made pursuant to the Issue shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this Prospectus, or that the information contained herein is correct as at any time subsequent to the date of this Prospectus.
Apart from the responsibilities and liabilities, if any, which may be imposed on Barclays or Akur by the PRA, FCA or FSMA or the regulatory regime established thereunder, or under the regulatory regime of any other jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, Barclays and Akur do not accept any responsibility whatsoever and make no representation or warranty, express or implied, nor accept any responsibility whatsoever for, the contents of this Prospectus, including its accuracy, completeness or verification, or for any other statement made or purported to be made by Barclays or Akur, or on behalf of them, the Company or any other person in connection with the Company, the Ordinary Shares, the Admission or the Issue and nothing contained in this Prospectus is or shall be relied upon as a promise or representation in this respect, whether as to the past or future. Each of Barclays and Akur (together with their affiliates) accordingly disclaims, to the fullest extent permitted by law, all and any responsibility or liability (save for any statutory liability) whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this Prospectus or any other statement.
Statements made in this Prospectus are based on the law and practice in force in England and Wales as at the date of this Prospectus and are subject to changes therein.
WEBSITE
The contents of the following website www.m7mlreit.co.uk do not form part of this Prospectus. Investors should base their decision whether or not to invest in the Ordinary Shares on the contents of this Prospectus alone.
DATA PROTECTION
The information that a prospective investor in the Company provides in documents in relation to a subscription for Ordinary Shares or subsequently by whatever means which relates to the prospective investor (if it is an individual) or a third party individual (“personal data”) will be held and processed by the Company (and any third party in the United Kingdom to whom it may delegate certain administrative functions in relation to the Company) in compliance with the relevant data protection legislation and regulatory requirements of the United Kingdom. Each prospective investor acknowledges and consents that such information will be held and processed by the Company (or any third party, functionary, or agent appointed by the Company) for the following purposes:
• verifying the identity of the prospective investor to comply with statutory and regulatory requirements in relation to anti-money laundering procedures;
• contacting the prospective investor with information about other products and services provided by the Investment Manager or its affiliates, which may be of interest to the prospective investor;
• carrying out the business of the Company and the administering of interests in the Company;
• meeting the legal, regulatory, reporting and/or financial obligations of the Company in the UK or elsewhere; and
45 • disclosing personal data to other functionaries of, or advisers to, the Company to operate and/or administer the Company.
Each prospective investor acknowledges and consents that where appropriate it may be necessary for the Company (or any third party, functionary, or agent appointed by the Company) to:
• disclose personal data to third party service providers, affiliates, agents or functionaries appointed by the Company or its agents to provide services to prospective investors; and
• transfer personal data outside of the EEA to countries or territories which do not offer the same level of protection for the rights and freedoms of prospective investors in the United Kingdom (as applicable).
If the Company (or any third party, functionary or agent appointed by the Company) discloses personal data to such a third party, agent or functionary and/or makes such a transfer of personal data it will use reasonable endeavours to ensure that any third party, agent or functionary to whom the relevant personal data is disclosed or transferred is contractually bound to provide an adequate level of protection in respect of such personal data.
Prospective investors are responsible for informing any third party individual to whom the personal data relates to the disclosure and use of such data in accordance with these provisions.
NOTICE TO INVESTORS
This Prospectus does not constitute an offer to sell, or the solicitation of an offer to acquire or subscribe for, Ordinary Shares in any jurisdiction where such offer or solicitation is unlawful or would impose any unfulfilled registration, qualification, publication or approval requirements on the Company, Barclays or Akur.
The offer and sale of Ordinary Shares has not been and will not be registered under the applicable securities law of Canada, Japan, Australia or the Republic of South Africa. Subject to certain exemptions, the Ordinary Shares may not be offered to or sold within Canada, Japan, Australia or the Republic of South Africa or to any national, resident or citizen of Canada, Japan, Australia or the Republic of South Africa.
FOR THE ATTENTION OF PROSPECTIVE INVESTORS IN THE EUROPEAN ECONOMIC AREA
In relation to each Relevant Member State, no Ordinary Shares have been offered or will be offered pursuant to the Issue to the public in that Relevant Member State other than the offers contemplated in this Prospectus in the United Kingdom provided that the Company has (where required by the laws of the United Kingdom) consented in writing to the use of this Prospectus for any such offer, except that offers of Ordinary Shares to the public may be made at any time under the following exemptions under the Prospectus Directive:
• to any legal entity which is a “qualified investor” as defined in the Prospectus Directive;
• to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) in such Relevant Member State subject to obtaining the consent of the Global Co-ordinator for any such offer; or
• in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Ordinary Shares shall result in a requirement for the publication of a Prospectus pursuant to Article 3 of the Prospectus Directive or any measure implementing the Prospectus Directive in a Relevant Member State and each person who initially acquires any
46 Ordinary Shares or to whom any offer is made under the Issue will be deemed to have represented, acknowledged and agreed with the Global Co-ordinator, Financial Adviser, Intermediaries Offer Advisers and the Company that it is a “qualified investor” within the meaning of Article 2(1)(e) of the Prospectus Directive.
For the purposes of this provision, the expression an “offer to the public” in relation to any offer of Ordinary Shares in any Relevant Member State means a communication in any form and by any means presenting sufficient information on the terms of the offer and any Ordinary Shares to be offered so as to enable an investor to decide to purchase or subscribe for the Ordinary Shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (as amended, including by Directive 2010/73/EU), and includes any relevant implementing measure in each Relevant Member State.
For the purposes of the AIFMD and the UK Alternative Investment Fund Managers Regulations 2013 (as amended), the Company is an AIF and the Investment Manager is a Full Scope UK AIFM. In accordance with the AIFMD, the Investment Manager has applied to the FCA to manage the Company and has obtained the marketing passport to enable the marketing of Ordinary Shares to professional investors in Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Spain and Sweden.
FOR THE ATTENTION OF PROSPECTIVE INVESTORS IN GUERNSEY
The Issue referred to in this Prospectus has not been authorised or approved by any regulatory body in Guernsey. Accordingly, the Issue may only be promoted in or from within the Bailiwick of Guernsey either by persons who are (a) licensed to do so under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 (as amended) (the “POI Law”) or (b) exempt from the requirement to be so in compliance with section 29(1)(c) of the POI Law.
The Issue referred to in this Prospectus is available, and may be made, in or from within the Bailiwick of Guernsey, and this Prospectus may only be distributed or circulated directly or indirectly in or from within the Bailiwick of Guernsey:
(i) by persons licensed to do so under the POI Law; or
(ii) by persons permitted to do so under the laws of a country specified in Schedule 3 to the Investor Protection (Designated Countries and Territories) Regulations, 1989 (as amended) provided such person has its main place of business in that country and does not carry on any restricted activity from a permanent place of business in the Bailiwick of Guernsey.
The Issue and this Prospectus are not available in or from within the Bailiwick of Guernsey other than in accordance with paragraphs (i) and (ii) above and must not be relied upon by any person unless made or received in accordance with such paragraphs.
FOR THE ATTENTION OF PROSPECTIVE INVESTORS IN JERSEY
Subject to certain exemptions (if applicable), the Company shall not raise money in Jersey by the issue anywhere of Ordinary Shares, and this Prospectus relating to the Ordinary Shares shall not be circulated in Jersey, without first obtaining consent from the Jersey Financial Services Commission pursuant to the Control of Borrowing (Jersey) Order 1958, as amended. No such consents have been obtained by the Company. Subject to certain exemptions (if applicable), offers for securities in the Company may only be distributed and promoted in or from within Jersey by persons with appropriate registration under the Financial Services (Jersey) Law 1998, as amended. It must be distinctly understood that the Jersey Financial Services Commission does not accept any responsibility for the financial soundness of or any representations made in connection with the Company.
47 FOR THE ATTENTION OF PROSPECTIVE INVESTORS IN THE ISLE OF MAN
The Issue is available, and may be made, in or from within the Isle of Man and this Prospectus is being provided in or from within the Isle of Man only:
(i) by persons licensed to do so under the Isle of Man Financial Services Act 2008; or
(ii) to persons: (a) licensed under Isle of Man Financial Services Act 2008; (b) falling within exclusion 2(r) of the Isle of Man Regulated Activities Order 2011 (as amended); or (c) whose ordinary business activities involve them in acquiring, holding, managing or disposing of shares or debentures (as principal or agent), for the purposes of their business.
The Issue referred to in this Prospectus is not available in or from within the Isle of Man other than in accordance with paragraphs (i) and (ii) above and must not be relied upon by any person unless made or received in accordance with such paragraphs.
FOR THE ATTENTION OF PROSPECTIVE INVESTORS IN SWITZERLAND
The Ordinary Shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This Prospectus has been prepared without regard to the disclosure standards for issuance prospectuses under article 652a of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under articles 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the Ordinary Shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
The distribution of Ordinary Shares in Switzerland will be exclusively made to, and directed at, regulated qualified investors (the “Regulated Qualified Investors”), as defined in Article 10 (3)(a) and (b) of the Swiss Collective Investment Schemes Act of 23 June 2006, as amended (“CISA”). Accordingly, the Company has not been and will not be registered with the Swiss Financial Market Supervisory Authority (FINMA) and no Swiss representative or paying agent have been or will be appointed in Switzerland.
FOR THE ATTENTION OF PROSPECTIVE INVESTORS IN HONG KONG
No Ordinary Shares have been offered or sold or will be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance.
No advertisement, invitation or document relating to the Ordinary Shares has been issued or has been in the possession of any person for the purposes of issue, nor will any such advertisement, invitation or document be issued or be in the possession of any person for the purpose of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Ordinary Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance. The contents of this Prospectus have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the Issue. If you are in any doubt about any of the contents of this Prospectus, you should obtain independent professional advice.
48 FOR THE ATTENTION OF PROSPECTIVE INVESTORS IN MONACO
The Ordinary Shares may not be offered or sold, directly or indirectly, to the public in Monaco other than by a Monaco Bank or a duly authorised Monegasque intermediary. Consequently, this document may only be communicated to Monaco banks duly licensed by the “Autorité de Contrôle Prudentiel” and fully licensed Monaco portfolio management companies by virtue of Law n° 1.144 of July 26, 1991 and Law 1.338, of September 7, 2007 duly licensed by the “Commission de Contrôle des Activités Financières” (“CCAF”). Such regulated intermediaries may in turn communicate this document to potential investors. The addressees hereof are perfectly fluent in English and expressly waive the possibility of a French translation of the present document.
49 EXPECTED ISSUE TIMETABLE
2017 Publication of the Prospectus 10 October
Issue opens 10 October
Latest time and date for receipt of completed Application Forms in respect of the Offer for Subscription 11.00 a.m. on 7 November
Latest time and date for receipt of completed applications from the Intermediaries in respect of the Intermediaries Offer 11.00 a.m. on 7 November
Latest time and date for commitments under the Placing 3.00 p.m. on 7 November
Publication of results of the Issue 8 November
Admission and dealings in Ordinary Shares commence 8.00 a.m. on 13 November
CREST accounts credited with uncertificated Ordinary Shares 13 November
Where applicable, definitive share certificates despatched by post in the week commencing* 20 November
* Underlying Applicants who apply to Intermediaries for Ordinary Shares under the Intermediaries Offer will not receive share certificates. The dates and times specified are subject to change without further notice. All references to times in this Prospectus are to London time unless otherwise stated. Any changes to the expected Issue timetable will be notified by the Company through a Regulatory Information Service.
50 ISSUE STATISTICS
Issue Price 100 pence per Ordinary Share
Target number of Ordinary Shares to be issued pursuant to the Issue 300 million
Target Gross Issue Proceeds £300 million
Estimated Net Issue Proceeds(1) £294 million
Minimum Net Proceeds(2) £147 million
Estimated Net Asset Value per Ordinary Share at Admission(1) 98 pence
(1) Assuming Gross Issue Proceeds of £300 million. The number of Ordinary Shares to be issued pursuant to the Issue, and therefore the Gross Issue Proceeds, is not known as at the date of this Prospectus but will be notified by the Company via a Regulatory Information Service prior to Admission. The costs of the Issue to be borne by the Company have been fixed at two per cent. of the Gross Issue Proceeds (that is £6 million assuming Gross Issue Proceeds of £300 million). (2) The Issue is conditional upon the Minimum Net Proceeds of £147 million being raised.
DEALING CODES
ISIN GB00BF04B031
SEDOL BF04B03
Ticker M7M
LEI 213800HE6LOTNUDNHM54
51 DIRECTORS, MANAGEMENT AND ADVISERS
Directors Stephen Smith (Non-executive Chairman) Robert Bould (Non-executive Director) Peter Denton (Non-executive Director) Gerald Parkes (Non-executive Director)
Registered Office of the 5th Floor, 5 Old Bailey Company London EC4M 7BA
Investment Manager and AIFM M7 Real Estate Financial Services Ltd 26 Red Lion Square London WC1R 4AG
Asset Manager M7 Real Estate Ltd 26 Red Lion Square London WC1R 4AG
Global Co-ordinator, Barclays Bank PLC Bookrunner and Sponsor 5 The North Colonnade Canary Wharf London E14 4BB
Financial Adviser Akur Limited 66 St James’s Street London SW1A 1NE
Intermediaries Offer Advisers Barclays Bank PLC 5 The North Colonnade Canary Wharf London E14 4BB
Scott Harris UK Ltd Victoria House 1-3 College Hill London EC4R 2RA
Legal Adviser to the Company Skadden, Arps, Slate, Meagher & Flom (UK) LLP 40 Bank Street Canary Wharf London E14 5DS
Legal Adviser to Ashurst LLP Global Co-ordinator, Broadwalk House Bookrunner, Sponsor and 5 Appold Street Financial Adviser London EC2A 2HA
52 Depositary Langham Hall UK Depositary LLP 5th Floor, 5 Old Bailey London EC4M 7BA
Administrator and Langham Hall UK Services LLP Company Secretary 5th Floor, 5 Old Bailey London EC4M 7BA
Registrar Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS13 8AE
Receiving Agent Computershare Investor Services PLC Corporate Actions Projects The Pavilions Bridgwater Road Bristol BS99 6AH
Auditor and Reporting KPMG LLP Accountant 15 Canada Square Canary Wharf London E14 5GL
Valuer GVA Grimley Limited 3 Brindley Place Birmingham B1 2JB
53 PART 1
INFORMATION ON THE COMPANY
1. Background
Overview
The Company is a newly established closed-ended investment company incorporated in England and Wales on 9 August 2017. The Company intends to carry on business as a REIT, subject to meeting the necessary qualifying conditions.
The Company will focus on multi-let real estate assets in the UK, a sector which the Directors and the Investment Manager believe is often overlooked due to the small individual lot sizes and the management intensive nature of the underlying assets. However, multi-let real estate is important to small and medium sized enterprises (“SME”) in the UK, and the Directors and Investment Manager believe there is an opportunity to build a diversified portfolio of assets, delivering an attractive Total Shareholder Return, with a focus on dividend income.
In particular the Directors and Investment Manager believe that there are a number of structural drivers behind the regional light industrial and regional office markets in the UK presently which make these sectors more resilient to changes in the UK economy. Factors such as limited exposure to overseas business and foreign currencies, the increased penetration of the internet in domestic retail and increasing demand for assets for alternative, higher value uses such as residential, have resulted in attractive supply and demand dynamics in the regional light industrial and regional office markets. This trend is further accentuated by, in many cases, the current market value of regional real estate often being below replacement cost which further suppresses development activity.
The Directors believe that whilst a focus on multi-let real estate presents an opportunity, the complexity of managing a highly diversified portfolio requires an experienced and well-staffed investment manager using a scalable platform. The Directors believe that the Investment Manager has an established platform, a proprietary database, market leading information and data management systems and an experienced team and, consequently, is well placed to assist the Company to realise the opportunity. The Investment Manager and the Asset Manager together have a team of ten staff whose primary role will be the management of the Group’s portfolio of assets as well as screening and recommending potential acquisition and disposal opportunities to the Investment Committee. The Investment Manager’s interests are also aligned with the interests of the Company’s shareholders to the extent its fees are based on the Rent actually collected by the Company or its subsidiaries.
The Initial Acquisitions
Following Admission, the Company will complete the acquisitions of Marble and REIP II through its wholly owned subsidiary Holdco. Marble is a portfolio with 90 properties valued at £108.9 million. REIP II comprises three properties valued at £11 million. M7 Real Estate is currently the appointed asset manager to both Marble and REIP II. The Initial Portfolio is comprised of a diversified portfolio of regional light industrial assets, regional office assets and retail assets across the United Kingdom as more fully described in Part 3 of this Prospectus.
Pipeline
Following Admission and completion of the Initial Acquisitions, the Group expects to use the remaining proceeds of the Issue to acquire further assets which meet the Company’s Investment Guidelines. Potential assets have been identified through the Investment Manager’s and its
54 affiliates’ extensive contacts and relationships in the UK real estate sector and its leading in-house information and data systems, and are available for potential acquisition in the near term. The identified pipeline comprises assets and portfolios with an estimated value in excess of £400 million, comprising more than 100 regional light industrial and regional office assets.
Whilst the Company has not entered into any definitive agreements with respect to any of these opportunities and there can be no certainty that the Group will complete any of these acquisitions, the Investment Manager is confident that it will be able to deploy the remaining proceeds from the Issue within nine months following Admission. If the Group proceeds to acquire any of these assets, it would finance such acquisitions using the remaining proceeds of the Issue, through the issue of new Ordinary Shares and/or debt finance.
2. Investment Objective
The investment objective of the Company is to deliver an attractive Total Shareholder Return, with a particular focus on dividend income.
In order to achieve its investment objective, the Group will invest in, manage and grow a diversified portfolio of predominantly regional light industrial assets and regional office assets in the UK with a mix of assets by geography, asset type and tenants. Such diversification will limit any specific location, asset or tenant credit risk.
Furthermore, certain properties acquired by the Group will benefit from, as well as require, active and intensive asset management by a highly experienced and established management team with a strong track record. The Directors believe that, with the assistance of the Investment Manager, the rental income profile, the property condition and characteristics and the relative attractiveness to tenants of the Group’s assets will be enhanced by carefully selecting assets from an existing and significant pipeline of potential follow-on investments, with the aim of creating a portfolio with income levels and yields above market averages.
3. Investment Policy
Investment criteria
The Company will aim to acquire regional properties, directly or through special purpose companies, to create a portfolio that typically meets the following criteria:
• diversity of assets and tenants with limited tenant concentration and credit risk for the Group as a whole;
• a focus on regional light industrial assets and regional office assets;
• properties requiring active asset management; and
• properties that may be acquired below Replacement Value.
All investment decisions will be based on the prospects of future income and capital growth, taking into account the sector, geographic prospects, supply and demand dynamics, tenant mix and strength, lease length, initial and equivalent yields and the potential for active asset management initiatives to leverage and enhance returns. These active asset management initiatives may include but are not limited to:
• increasing rental income across the Group’s property portfolio by targeted marketing of vacant space;
• minimising void costs and increasing Contracted Rent and Passing Rent;
55 • enhancing the tenant mix and improving overall tenant strength across the Group’s property portfolio;
• re-gearing leases and lengthening the Weighted Average Unexpired Lease Term across the Group’s property portfolio;
• making physical improvements to bring the Group’s property portfolio into a modern, marketable condition by way of refurbishment, increasing the size of properties and changing the configuration as appropriate; and
• procuring changes of use in respect of the properties.
Until the Net Issue Proceeds are fully invested in accordance with the Investment Policy, and pending re-investment or distribution of cash receipts, the Company intends to hold such funds in cash and cash equivalents, or to invest them in near cash instruments and money market instruments.
The Group intends to hold its properties over the long term. However, the Group, with the assistance and advice of the Investment Manager, will keep opportunities for disposals under review and the Investment Manager may make recommendations to dispose of investments should an opportunity arise that would enhance the value of the Group’s property portfolio as a whole.
The Company is focused on delivering capital growth over the medium term and hence intends to re-invest proceeds from future potential disposals of assets in accordance with the Company’s investment policy. However, should the Company fail to re-invest the proceeds or part proceeds from any disposal within twelve months of receipt of the net proceeds from such disposal, the Directors will consider returning those proceeds or part proceeds to Shareholders in a tax efficient manner as determined by the Directors from time to time.
Whilst the majority of the Group’s assets are expected to be wholly owned, the Company will retain the ability to pursue its investments through a variety of investment structures, including joint ventures or acquisitions of controlling interests, if considered suitable.
Investment restrictions
The Company will at all times invest and manage its assets with an objective of diversifying risk. The Group’s investments (other than in cash, cash equivalents, cash instruments and money market instruments pending re-investment of cash receipts, and derivative instruments such as interest rate swaps or interest rate caps to mitigate interest rate risk resulting from the incurrence of debt by the Group) will adhere to the following investment restrictions, which will be assessed at the time of acquisition of any assets (in calculating the Company’s Gross Asset Value for these purposes, the net proceeds of any previous fund raising by the Company will be assumed to have been fully invested and geared):
• investment in commercial real estate assets located in the UK only;
• investment in a range of geographical areas and sectors across a number of assets and tenants with:
– no individual sector (other than the regional light industrial sector and the regional office sector) to exceed 10 per cent. of the Company’s Gross Asset Value;
– no single property to exceed 5 per cent. of the Company’s Gross Asset Value, provided that, the Directors may, in exceptional circumstances, consider a property having a value of up to 10 per cent. of the Company’s Gross Asset Value; and
56 – Rental Income attributable to any single tenant not to exceed 5 per cent. of the total Rental Income of the Group’s property portfolio, provided that, the Directors may, in exceptional circumstances, consider Rental Income attributable to a single tenant having a value of up to 10 per cent. of the total Rental Income of the Group’s property portfolio;
• at least 95 per cent. by value of the properties directly or indirectly owned by the Company shall be in the form of freehold or long leasehold (over 50 years remaining at the time of acquisition) properties;
• no investment in speculative developments; and
• no more than 10 per cent. of the Company’s Gross Asset Value invested in other listed closed-ended investment funds or other companies or funds that invest in a portfolio of investments.
The Directors currently intend at all times to conduct the affairs of the Company so as to enable it to qualify as a REIT for the purposes of Part 12 of the CTA 2010 (and the regulations made thereunder). Further details of the REIT conditions are set out at Part 8 of this Prospectus.
The Company will at all times invest and manage its assets in a way that is consistent with its objective of spreading investment risk and in accordance with its published investment policy and will not at any time conduct any trading activity which is significant in the context of the business of the Group as a whole.
Leverage policy
The Company expects to make a prudent use of gearing to finance acquisitions and enhance returns over the long term. The Directors will employ a level of borrowing that they consider to be prudent for the asset class and will seek to achieve a low cost of funds, whilst maintaining flexibility in the underlying security requirements and the structure of both the Group and its property portfolio. The Directors currently intend that the Group should target a level of aggregate borrowings equal to approximately 40 per cent. of the Company’s Gross Asset Value from time to time. The aggregate borrowings will always be subject to an absolute maximum, calculated at the time of each drawdown, of 40 per cent. of the Company’s Gross Asset Value. The incurrence of debt by the Group may give rise to the risk that the Group’s investments are not sufficiently liquid, or do not produce sufficient distributions, to meet any repayment or interest payment obligations of the Group. In managing the Group’s investments, the Investment Manager will seek to ensure that the Group holds at all times a sufficient portfolio of investments such that the income from these investments enables it to discharge its payment obligations. In addition, the Group will seek to mitigate interest rate risk resulting from the incurrence of debt by the Group through the use of derivative instruments such as interest rate swaps or interest rate caps in respect of at least 75 per cent. of its interest rate exposure. The Company will also ensure that the ratio of the Company’s income profits (before the offset of capital allowances, losses from previous accounting periods and certain other financing costs) in respect of its Property Rental Business to the financing costs incurred in respect of its Property Rental Business is more than 1.25 in order to comply with the REIT conditions.
For as long as the Company remains admitted to the Official List, the Company will be subject to and will comply with the Listing Rules. The Listing Rules state that the Company should avoid cross-financing between businesses forming part of its investment portfolio and should avoid the operation of common treasury functions as between the Company and its investee companies.
57 For as long as the Company remains admitted to the Official List, any material changes to the Company’s Investment Guidelines set out in paragraphs 2 and 3 of this Part 1 may only be made in accordance with the requirements of the Listing Rules.
4. Dividend Policy and Target Returns
The Company is targeting a quarterly dividend yield equating to approximately 6.5 per cent. per annum by reference to the Issue Price once fully invested. In addition, the Company is targeting Total Shareholder Return of at least 10 per cent. per annum by reference to the Issue Price once fully invested.
The dividend and return targets stated above are targets only and not a profit forecast. There can be no assurance that these targets will be met and they should not be taken as an indication of the Company’s expected future results. Accordingly, potential investors should not place any reliance on these targets in deciding whether or not to invest in the Company and should decide for themselves whether or not the target dividend yield and target Total Shareholder Return are reasonable or achievable.
The Company intends to pay dividends on a quarterly basis in cash, with the first interim dividend expected to be declared in April 2018 and paid in May 2018.
In order to obtain and comply with REIT status the Company will be required to meet a minimum distribution test for each year that it is a REIT. This minimum distribution test requires the Company to distribute (by way of a dividend in cash or by way of an issue of share capital in lieu of a cash dividend) on or before the filing date for the Company’s tax returns for the accounting period in question, 90 per cent. of the REIT Group’s income profits of the Property Rental Business for each accounting period, as adjusted for tax purposes.
In order to increase the distributable reserves available to facilitate any future share buy-backs and/or payment of dividends, the Company has resolved that, conditional upon Admission and the approval of the Court, the amount standing to the credit of the share premium account of the Company immediately following completion of the Issue be cancelled and transferred to a special distributable reserve. The Company may, at the discretion of the Board, use such distributable reserves to fund any future share buy-backs and/or pay all or any part of any future dividends out of this special distributable reserve, taking into account the Company’s investment objective.
5. Investment Process
Investment Committee
The Investment Manager has formed the Investment Committee (whose members are described in Part 5 below) for the purposes of, among other things, approving all investment decisions to be made by the Investment Manager and executing the Company’s investment strategy. In the context of the Company, this includes approvals of each stage of the investment process in relation to a potential investment and approval of each investment recommendation paper.
Sourcing investments
The Investment Manager will conduct an initial review of each potential investment to determine whether it is within the Investment Guidelines and is suitable for the Company. If the Investment Committee determines that the investment is suitable, the Investment Manager will conduct further analysis of the potential investment as described below. The Investment Manager may utilise the services of other members of M7 in order to complete such analysis.
58 Review and approval
If the Investment Committee determines that a potential investment may be suitable for the Company, the Investment Manager will procure that further due diligence is conducted on the potential investment.
Following such due diligence, if the Investment Manager determines that the Company should proceed with the potential investment, the Investment Manager will prepare an investment recommendation paper that will be presented for approval by the Investment Committee. If the investment recommendation paper is approved by the Investment Committee, the Investment Manager will proceed with the investment. However, if the potential investment constitutes a Material Transaction, the Investment Manager will present the investment recommendation paper to the Board and the Investment Manager will consult with the Board before proceeding. Each investment recommendation paper presented to the Board shall provide sufficient information to the Board to enable the Board to provide a considered view on the Material Transaction.
A Material Transaction is defined as:
(a) any acquisition by the Company or any of its subsidiaries of a property, or portfolio of properties (including through one or more holding companies), with a consideration of £4 million or more;
(b) any disposal by the Company or any of its subsidiaries of a property, or portfolio of properties (including through one or more holding companies), with a consideration of £4 million or more;
(c) entry into, or approval, by the Company, or any of its subsidiaries, of any contract or series of contracts in relation to a property or portfolio of properties (other than in respect of an acquisition or disposal) with an aggregate revenue or cost to the Company or any of its subsidiaries in excess of £400,000 per annum; or
(d) incurrence of any borrowing, debt or other leverage by the Company or any Property Holding Company.
If the Board has not raised any concerns about a Material Transaction within 10 Business Days of receipt of the investment recommendation paper, the Investment Manager may proceed with the potential investment, provided that the terms of the potential investment do not materially change from those disclosed in the investment recommendation paper. If the Board raises a concern about a Material Transaction within 10 Business Days of receipt of the investment recommendation paper, the Investment Manager may not proceed with such Material Transaction unless such concerns have been addressed.
The Investment Manager has the discretion and authority to enter into transactions on behalf of the Company within the scope of the Investment Guidelines which are not Material Transactions without prior consultation with the Board.
The Investment Manager must also notify and consult with the Board prior to taking any action in respect of any event or matter which could, in the reasonable determination of the Investment Manager, be material to the Company or any of its subsidiaries.
If a proposed acquisition or disposal would be a related party transaction for the purposes of the Listing Rules, or would otherwise present a conflict of interest for the Investment Manager, the Investment Manager will provide adequate notice of such proposed related party transaction to enable the Board and the Company to comply with the relevant Listing Rules that apply to related party transactions.
59 Execution
Once the Investment Committee has approved a potential investment (and, in the case of a Material Transaction, the Investment Committee has consulted with Board as outlined above and addressed any concerns raised by the Board), the Investment Manager will perform the additional due diligence required, including, as the Investment Manager deems appropriate, detailed legal, environmental, building survey and valuation diligence, utilising third party professional advisers where needed.
The due diligence reports will be reviewed by the Investment Committee and will be provided to the Board in the case of a Material Transaction. If, following such review, the Investment Committee approves the potential investment, the Investment Manager will then proceed with execution of the transaction, including provision of the following services:
• providing project management, and overall control of the transaction, to include co-ordinating the work of other professional advisers and service providers, including agents, surveyors, valuers, lawyers, accountants, and tax advisers;
• leading in the negotiation with any third party (whether buying, selling, refinancing, or otherwise);
• leading in the negotiation and structuring of the transaction to ensure it meets the Investment Guidelines of the Company and does not detrimentally impact the Company’s status as a REIT;
• leading in the negotiation and structuring of any borrowings on the transaction;
• working as closely as requested with the Directors during the acquisition process; and
• leading the preparation of final documentation (in conjunction with legal and accounting advisers).
Monitoring and reporting
The Investment Manager (with assistance from the Asset Manager) will continually monitor the progress of the Group’s investments. This will include regular site visits and meetings with tenants on an asset-by-asset basis, negotiating any lease, or reviewing the implications of any existing lease.
The Investment Manager will update the Board on the progress of the Group’s investments on a quarterly basis with additional formal contact being made where significant events have occurred which may impact the Company’s income, expenditure or NAV.
The Investment Manager will oversee the preparation of valuation statements for the Group’s portfolio in each three month period (working with independent professional valuers, and assisting the Company in selecting appropriate valuers).
Holding and exit
The Group intends to hold its properties over the long term. However, the Group, with the assistance and advice of the Investment Manager, will keep opportunities for disposals under review and may make recommendations to dispose of investments should an opportunity arise that would enhance the value of the Group’s property portfolio as a whole. Any disposal which constitutes a Material Transaction will be subject to consultation with the Board.
60 Conflict management
Pursuant to the Investment Management Agreement, the Investment Manager will allocate any potential investment in the regional light industrial and regional office sectors that falls within the Investment Guidelines and that, as determined by the Investment Manager acting reasonably and in accordance with its duties under the AIFMD Rules, is suitable for the Company, to the Company in priority to any other clients of M7, except to the extent that such potential investment is subject to the Onyx Right of First Refusal described below. If the Investment Manager determines that a potential investment that falls within the Investment Guidelines is not suitable for the Company, the Investment Manager shall not, and shall procure that its Affiliates shall not, allocate such potential investment to any other client of M7 without first consulting with the Board and providing to the Board an explanation for the Investment Manager’s determination.
Pursuant to an agreement between Onyx Super Topco S.a.r.l. (“Onyx”), M7 Real Estate and M7 Real Estate Onyx LLP dated 29 December 2016 (the “Onyx Agreement”), M7 Real Estate agreed that, during an exclusivity period from 31 January 2017 until 31 January 2020, Onyx shall have a right of first refusal over the purchase of any industrial and/or logistics properties in the UK and Europe and portfolios where more than 66.67% of assets are in the industrial and/or logistics space (the “Onyx Right of First Refusal”). Onyx is a joint venture between Blackstone and M7 Real Estate and M7 Real Estate acts as the asset manager to the joint venture. To date all the acquisitions made under the Onyx Agreement have been of a significantly larger scale than the assets that will be targeted by the Company. Given the granular nature of the assets that the Company intends to target and the likely blend of asset mix in any portfolio targeted by the Company being below the 66.67% industrial and/or logistics threshold as set out in the Onyx Agreement, the Investment Manager and the Asset Manager believe that the Onyx Right of First Refusal will not in practice result in significant opportunities being allocated by the Investment Manager to Onyx over the Company.
The Investment Manager will at all times have regard to its obligations to the Company and will seek to ensure that conflicts are resolved fairly. The Directors have satisfied themselves that the Investment Manager has procedures in place to address potential conflicts of interest and that, where a conflict arises, the Investment Manager will allocate any opportunity to the Company on a fair basis.
6. Valuation Policy
Full annual valuation by a professional independent valuer at fair value as determined by the relevant valuer on the basis of market value in accordance with the internationally accepted RICS Appraisal and Valuation Standards will be conducted as at 31 December each year. Quarterly desk-top valuations will be conducted as at 31 March, 30 June and 30 September each year. The Investment Manager’s valuation committee formed to approve such valuations will be functionally independent from the portfolio management function (within the meaning of the AIFMD Rules).
The first valuation was conducted on the Initial Portfolio by the Valuer on 30 September 2017 and the Valuation Report is set out in Part 7 of this Prospectus. The next full valuation will be conducted as at 31 December 2017.
Valuations will only be suspended in circumstances where the underlying information necessary to value the Group’s properties cannot readily, or without undue expenditure, be obtained or in other circumstances (such as a systems failure of the independent valuer) which prevents the Company from making such valuations. Details of any suspension in the making of such valuations will be announced by the Company via a Regulatory Information Service announcement as soon as practicable after the relevant valuation date.
61 7. Calculation of Net Asset Value
The Investment Manager has delegated calculation of the Company’s Net Asset Value (and Net Asset Value per Ordinary Share) to the Asset Manager. The Net Asset Value (and Net Asset Value per Ordinary Share) will be calculated on a semi-annual basis as at 30 June and 31 December by the Asset Manager (and reviewed by the Company and the Investment Manager). Calculations will be made in accordance with IFRS. Details of each calculation, and of any suspension in the making of such calculations, will be announced by the Company via a Regulatory Information Service announcement as soon as practicable after the end of the relevant period. The semi- annual calculations of the Net Asset Value (and Net Asset Value per Ordinary Share) will be calculated on the basis of the independent valuation of the Group’s properties as at 31 December and the quarterly desk-top valuation as at 30 June, as the case may be.
The calculation of the Net Asset Value will only be suspended in circumstances where the underlying data necessary to value the investments of the Group cannot readily, or without undue expenditure, be obtained or in other circumstances (such as a systems failure of the Group) which prevents the Asset Manager from making such calculations. Details of any suspension in making such calculations will be announced via a Regulatory Information Service announcement as soon as practicable after any such suspension occurs.
8. Meetings, Reports and Accounts
The Company will hold its first annual general meeting before the end of June 2018 and will then hold an annual general meeting each year thereafter. The annual report and accounts of the Company will be made up to 31 December in each year with copies expected to be sent to Shareholders within the following four months. The first annual report will be prepared for the period to 31 December 2017. The Company will also publish unaudited half-yearly reports to 30 June with copies expected to be sent to Shareholders within the following three months. The first half-yearly report will be prepared to 30 June 2018.
The Company’s financial statements will be prepared in accordance with IFRS.
9. Share Rating Management
The Board considers that it would be undesirable for the market price of the Ordinary Shares to diverge significantly from the Net Asset Value per Ordinary Share. The Board has the discretion to seek to manage, on an ongoing basis, the premium or discount at which the Ordinary Shares may trade to the Net Asset Value per Ordinary Share through further issues and buy-backs, as appropriate.
Share premium
The Company has resolved that, conditional upon Admission and the approval of the Court, the amount standing to the credit of the share premium account of the Company immediately following completion of the Issue be cancelled and transferred to a special reserve which may be treated as distributable profits. The Company may, at the discretion of the Board, use such distributable profits to pay dividends or fund share buy-backs, taking into account the Company’s investment objective.
Further issues
The Directors have the authority to issue up to 60 million Ordinary Shares immediately following Admission until the first annual general meeting of the Company. Shareholders’ pre-emption rights over this unissued share capital have been disapplied so that the Directors will not be obliged to offer any new Ordinary Shares issued pursuant to this authority to Shareholders on a pro rata basis
62 to existing Shareholders. No Ordinary Shares will be issued at a price less than the (cum income) Net Asset Value per existing Ordinary Share at the time of their issue.
Investors should note that the issuance of new Ordinary Shares is entirely at the discretion of the Board, and no expectation or reliance should be placed on such discretion being exercised on any one or more occasions.
Treasury shares
The Companies Act allows companies to hold shares acquired by way of market purchase as treasury shares, rather than having to cancel them. This would give the Company the ability to re-issue Ordinary Shares quickly and cost effectively, thereby improving liquidity and providing the Company with additional flexibility in the management of its capital base. No Ordinary Shares will be sold from treasury at a price less than the (cum income) Net Asset Value per existing Ordinary Share at the time of their sale unless they are first offered pro rata to existing Shareholders.
Discount management
The Company may seek to address any significant discount to Net Asset Value at which its Ordinary Shares may be trading by purchasing its own Ordinary Shares in the market on an ad hoc basis.
The Directors have the authority to make market purchases of up to 14.99 per cent. of the Ordinary Shares in issue on Admission. The maximum price (exclusive of expenses) which may be paid for an Ordinary Share must not be more than the higher of: (i) 5 per cent. above the average of the mid-market values of the Ordinary Shares for the five Business Days before the purchase is made; or (ii) that stipulated by the regulatory technical standards adopted by the EU pursuant to the Market Abuse Regulation from time to time. Ordinary Shares will be repurchased only at prices below the prevailing Net Asset Value per Ordinary Share, which should have the effect of increasing the Net Asset Value per Ordinary Share for remaining Shareholders.
It is intended that a renewal of the authority to make market purchases will be sought from Shareholders at each annual general meeting of the Company. Purchases of Ordinary Shares will be made within guidelines established from time to time by the Board. Any purchase of Ordinary Shares would be made only out of the available cash resources of the Company. Ordinary Shares purchased by the Company may be held in treasury or cancelled.
The Directors will have regard to the Company’s REIT status when making any repurchase and purchases of Ordinary Shares may be made only in accordance with the Companies Act, the Listing Rules, the Disclosure Guidance and Transparency Rules and the Market Abuse Regulation.
Investors should note that the repurchase of Ordinary Shares is entirely at the discretion of the Board and no expectation or reliance should be placed on such discretion being exercised on any one or more occasions or as to the proportion of Ordinary Shares that may be repurchased.
10. The Issue
The Company is seeking to issue up to 300 million Ordinary Shares and is targeting Gross Issue Proceeds of £300 million, before expenses, by way of the Issue. The Minimum Net Proceeds that the Company is seeking to raise is £147 million.
The actual number of Ordinary Shares to be issued pursuant to the Issue, and therefore the Gross Issue Proceeds, are not known as at the date of this Prospectus but will be notified by the Company via a Regulatory Information Service announcement prior to Admission.
63 Barclays has agreed to use its reasonable endeavours to procure subscribers pursuant to the Placing for Ordinary Shares at the Issue Price on the terms and subject to the conditions set out in the Placing Agreement. The Issue is not being underwritten.
The Company has agreed to make an offer of Ordinary Shares pursuant to the Offer for Subscription at the Issue Price, subject to the terms and conditions of application. The terms and conditions of application should be read carefully before an application is made. Investors should consult their independent financial adviser if they are in any doubt about the contents of this Prospectus or the acquisition of Ordinary Shares.
Investors may also subscribe for Ordinary Shares pursuant to the Intermediaries Offer.
M7 Real Estate intends to subscribe for 7 million Ordinary Shares at the Issue Price under the Offer for Subscription.
Richard Croft, the Chief Executive Officer of M7 Real Estate, intends to subscribe for 100,000 Ordinary Shares at the Issue Price under the Offer for Subscription.
David Ebbrell, the Chief Investment Officer of M7 Real Estate, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription.
Andrew Jenkins, the Chief Operating Officer of M7 Real Estate, intends to subscribe for 100,000 Ordinary Shares at the Issue Price under the Offer for Subscription.
Teresa Gilchrist, the Head of Investor Relations and New Business of M7 Real Estate, intends to subscribe for 30,000 Ordinary Shares at the Issue Price under the Offer for Subscription.
Stephen Smith, the independent non-executive chairman of the Board of the Company, intends to subscribe for 75,000 Ordinary Shares at the Issue Price under the Offer for Subscription.
Robert Bould, an independent non-executive director of the Company, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription.
Peter Denton, an independent non-executive director of the Company, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription.
Gerald Parkes, an independent non-executive director of the Company, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription.
The Issue will proceed whether or not any of the above investors do so subscribe, subject to the Minimum Net Proceeds being raised.
11. REIT Status and Taxation
The Company will give notice to HMRC (in accordance with Section 523 CTA 2010) that it will become a REIT when it has acquired its first three qualifying properties following Admission and the Company will need to comply with certain ongoing regulations and conditions (including minimum distribution requirements) thereafter.
Potential investors are referred to Part 8 of this Prospectus for details of the REIT regime and taxation of the Company and Shareholders in the UK. Investors who are in any doubt as to their tax position or who are subject to tax in jurisdictions other than the UK are strongly advised to consult their own professional advisers immediately.
64 12. Regulatory Status of the Ordinary Shares
As a REIT, the Ordinary Shares will be “excluded securities” under the FCA’s rules on non-mainstream pooled investments. Accordingly, the promotion of the Ordinary Shares will not be subject to the FCA’s restriction on the promotion of non-mainstream pooled investments.
13. Risk Factors
The Company’s performance is dependent on many factors and potential investors should read the whole of this Prospectus and in particular the section entitled “Risk Factors” on pages 28 to 41.
65 PART 2
M7 REAL ESTATE
1. Overview
M7 was established in 2009, is headquartered in London and has over 190 employees across 13 countries in the United Kingdom and Europe. M7 is wholly owned by its senior managers, whom collectively have an average of 20 years of experience each in the real estate sector (further details of the senior leadership team are set out in Part 5 of this Prospectus).
M7 Real Estate Financial Services Ltd, a wholly owned subsidiary of M7 Real Estate, will act as Investment Manager and AIFM to the Company (pursuant to the appointment under the Investment Management Agreement as more fully described at paragraph 7 of Part 9 of this Prospectus). M7 Real Estate will act as the Asset Manager to the Company and its investments (pursuant to the appointment under the Asset Management Agreement as more fully described at paragraph 7 of Part 9 of this Prospectus).
M7 believes that it has the following key competitive strengths:
• it is one of the leading specialists in the pan-European multi-let real estate market;
• it has a value oriented investment philosophy combined with an active asset management platform;
• it has a strong historical performance track record and significant experience of working with some of the largest real estate investors globally;
• it has a market leading focus on technology to drive insight into end markets and assets; and
• it has extensive access to regional markets and the ability to source assets.
2. Strategy
M7 believes that regional UK real estate assets are often overlooked and considered inefficient due to the small individual lot sizes and underlying assets requiring active and intensive management. This backdrop provides an opportunity to acquire regional real estate at attractive yields. Through its experienced team and using in-house information technology built over many years, M7 can identify value-add investment opportunities in this sector for investors with target assets acquired below Replacement Value. Individual assets are typically aggregated to form larger portfolios with income levels and yields above market averages. M7 has access to regional markets and off-market opportunities in the smaller, regional multi-let sector. Through the Company, M7 intends to build a diverse portfolio of regional UK assets that will generate attractive income returns.
The Company is targeting a quarterly dividend yield equating to approximately 6.5 per cent. per annum by reference to the Issue Price once fully invested. In addition, the Company is targeting Total Shareholder Return of at least 10 per cent. per annum by reference to the Issue Price once fully invested.
The dividend and return targets stated above are targets only and not a profit forecast. There can be no assurance that these targets will be met and they should not be taken as an indication of the Company’s expected future results. Accordingly, potential investors should not place any reliance on these targets in deciding whether or not to invest in the Company and should decide for
66 themselves whether or not the target dividend yield and target Total Shareholder Return are reasonable or achievable.
3. Experience, Strong Performance and Track Record
M7 currently manages over 995 industrial, office and retail properties valued at approximately €4.6 billion on behalf of real estate investors such as Blackstone, Oaktree, HIG Capital and Starwood Capital.
Since 2009, M7 has transacted in and managed, in the form of joint ventures, M7 managed funds and separate accounts, over 1,200 assets valued in excess of €5 billion, covering approximately 90 million square feet and including more than 10,000 units. In the United Kingdom, as at 30 September 2017, M7 has transacted and managed properties valued in excess of £1.5 billion and manages a United Kingdom portfolio valued at £1.1 billion.
M7 currently operates a number of mandates in the form of joint ventures, M7 managed funds and separate accounts. Joint venture mandates involve M7 entering into joint ventures with partner investors and acting as the promoted asset manager for the joint venture. Fund mandates involve M7 establishing and co-investing in funds alongside multiple investors and acting as the investment and asset manager to the fund. Separate account asset management mandates involve M7 acting as third party asset manager for institutional, family office and high net worth investors’ portfolios.
In relation to the UK investment vehicles that M7 has fully exited, M7 has achieved on average a geared internal rate of return in excess of 25 per cent. per annum after taking into account fees, costs and expenses.
4. Market Leading Technology
M7 utilises proprietary data held within “Coyote” to help enhance value by providing comprehensive insight into end markets and assets and to support its asset management functions.
Coyote is a bespoke and comprehensive property database system initially developed by M7 in-house and provides M7 with advantages in sourcing and selecting target assets. Coyote tracks a property from introduction to acquisition (or rejection) and provides acquisition and management data for M7 and investors.
Coyote is comprised of two modules – “Coyote Market” and “Coyote Managed”.
Coyote Market stores all property data in a single location and provides an overall perspective that is very difficult to achieve through traditional spreadsheets. The aggregated data provides improved market intelligence, enables opportunities to be analysed faster and supports more informed decision making. Coyote Market also tracks deal flow and allows parties including debt providers, agents and advisers to access information in real time. Customised investor and asset reports can also be generated very quickly, providing time and cost efficiencies.
Coyote Managed integrates multiple systems, including M7’s “Yardi” system (described below) and provides a central hub for all data. This allows portfolio performance to be monitored in real time and enables faster and more accurate reporting. The data can also be accessed and updated remotely and on mobile devices.
M7 has used the Coyote system to collect data on more than 15,000 assets across the United Kingdom and Europe, with a total asset value of approximately £31 billion. The data within Coyote is constantly expanding and provides M7 with an extensive pipeline.
67 M7 also uses the “Yardi” and “Qlikview” systems for the management of assets. Yardi is an asset management and ledger accounting system which has an interface with Coyote to transfer data electronically, minimising human error. Qlikview provides comprehensive investor reporting functions and is an interactive, web based report generator directly accessing Yardi data.
The Coyote, Yardi and Qlikview systems provide significant efficiencies which increase the time available to M7 for value added asset management.
68 PART 3
THE INITIAL ACQUISITIONS AND THE INITIAL PORTFOLIO
The Company and Holdco have entered into the Conditional Acquisition Agreements to acquire Marble and REIP II for approximately £119.8 million. Associated costs, including fees and expenses for the Initial Acquisitions, are estimated to be approximately £7.1 million. The Initial Acquisitions are conditional on Admission. Completion of the Initial Acquisitions is expected to take place following Admission using the Net Issue Proceeds. Further details in respect of the Conditional Acquisition Agreements are set out at paragraph 7 of Part 9 of this Prospectus.
Marble is a portfolio with 90 properties valued at £108.9 million. M7 Real Estate has been the appointed asset manager to Marble since January 2015.
REIP II comprises three properties valued at £11 million. M7 Real Estate has been the appointed asset manager to REIP II since October 2014.
The Initial Portfolio is comprised of a diversified portfolio of regional light industrial assets, regional office assets and retail assets across the United Kingdom. Regional light industrial assets, regional office assets and retail assets make up 81 per cent., 15 per cent. and 4 per cent. respectively of the Initial Portfolio by Contracted Rent.
As illustrated in the diagram below, as at 30 September 2017, the top 10 tenants in the Initial Portfolio account for 21.9 per cent. of total Contracted Rent for the Initial Portfolio, with no single tenant representing more than 3.65 per cent. of Contracted Rent for the Initial Portfolio. 621 tenants represent the remaining 78.1 per cent. of total Contracted Rent for the Initial Portfolio.
3.7% 3.0% 2.9% 2.3% 2.0% 1.9% Top 10 tenants: 21.9% 1.9% 1.8% 1.2% 1.2%
78.1%
Source: M7 Real Estate
The full list of the 93 assets making up the Initial Portfolio is set out in the Valuation Report reproduced at Part 7 of this Prospectus. The Valuation Report sets out a description of the Initial Portfolio and highlights material points which have been taken into account in the valuations of the Marble and REIP II properties in the Initial Portfolio. The Company and the Valuer believe that there have been no material changes since the date of the Valuation Report.
69 The key information in respect of the Initial Portfolio as at 30 September 2017 is summarised in the table below.
Number of assets 93
Location of assets England (52 per cent.) (by Contracted Rent) Scotland (18 per cent.)
Wales (30 per cent.)
Sector of assets Industrial (81 per cent.) (by Contracted Rent) Office (15 per cent.)
Retail (4 per cent.)
GVA valuation as at £119,900,000 30 September 2017
Average value per asset £1,289,247
Net initial yield, assuming 8.64 per cent. standard market purchase cost
Contracted Rent (per annum) £10,878,891
Passing Rent (per annum) £9,179,727
Estimated Rental Value, £12,304,291 assuming 100 per cent. occupancy (per annum)
Estimated Rental Value £3.65 (per square foot)
Number of units 899
Number of tenants 631
Number of leases 693
Weighted Average Unexpired Lease Term 2.97 years to break and 4.18 years to expiry
Diversification Largest tenant by Contracted Rent (3.65 per cent.) Top 10 tenants by Contracted Rent (21.9 per cent.)
Largest asset by Passing Rent (8 per cent.) Top 10 assets by Passing Rent (37 per cent.)
Total area (square feet) 3,373,300
Average size per asset 36,666 (square feet)
Average size per unit (square feet) 3,752
Vacant units 151
Total area of vacant units 451,685 (13.39 per cent. of total area) (square feet)
70 Estimated Rental Value of vacant £1,643,339 units (per annum)
Estimated Rental Value of £3.64 vacant units (per annum; per square foot)
The properties in the Initial Portfolio are located in England, Scotland and Wales. In England, the properties are located across various regions, with the largest concentrations (by Contracted Rent) in the North West and Merseyside region (27 per cent.), the West Midlands (8 per cent. per cent.), the East Midlands (26 per cent.), the South East (17 per cent.), the East (6 per cent.), the South West (7 per cent.) and Yorkshire and the Humber (9 per cent.). In Scotland, the properties are located with close proximity to the M8 corridor which connects Glasgow in the west and Edinburgh in the east. In Wales, the majority of the properties are located on and around the M4 corridor, the key arterial route in the country which links South Wales to Bristol, with close proximity to the major population centres of Newport and Cardiff.
In January 2015, the vacancy rate for the Initial Portfolio was 16.64 per cent. This has been reduced to 13.39 per cent. as at 30 September 2017. The reduction of the vacancy rate resulted from the repositioning of a number of assets through a targeted and phased capital expenditure programme which has been able to capture occupier demand as well as increase tenant retention rates through efficient asset management and marketing.
Historically, the Marble properties, which form the majority of the Initial Portfolio, were acquired from a distressed position and capital constraints had an impact on overall performance. The initiatives implemented post acquisition have resulted in improvements to the overall occupancy and performance of the Marble properties. M7 Real Estate intends to continue the overall strategy of reducing the vacancy rate, increasing income through letting vacant units, and increasing existing rent through proactive asset management and engagement with tenants. Whilst ongoing capital expenditure is expected, it is anticipated that future expenditure will be below what has been incurred since January 2015.
The table below provides a summary of the top 10 properties in the Initial Portfolio (by value) as at 30 September 2017.
71 material discount to competing new build stock. Although M7 currently has a conservative Estimated in place for the asset, it believes that Rental Value asset should be well positioned to capture future rental growth. estate is fully let to 5 tenants on a mixed income profile generating a Contracted Rent of £499,867 per annum. appeal to a large pool of potential occupiers. with the majority of space let to two tenants, both whom are strong covenants generating a Contracted Rent of £753,430 per annum. leases on Floors 4 and 5 a new year term without break illustrating their commitment to the location as well as increasing their occupied space in other suites within the asset. a Contracted Rent of £310,000 per annum until September 2025 with a tenant only break option in September 2021. commitment to the location and has invested significantly in the operation on site. • Currently fully let to tenants. • modern specification, it is let at Given the asset’s Commentary • The property is well located in its local market and the • The units within the asset are of varying sizes and thus • The main mill building operates as a business centre • to renew the Another tenant is currently under offer • The property is let on a single lease to strong tenant at • The tenant renewed the lease in 2016 illustrating its Vacancy: 0% Vacancy: Contracted Rent: £499,867 £501,500 Estimated Rental Value: 5.44% Vacancy: Contracted Rent: £779,564 £671,605 Estimated Rental Value: 0% Vacancy: Contracted Rent: £310,000 £369,500 Estimated Rental Value: Vacancy/ Contracted Rent (per annum)/ (pa) Estimated Rental Value 0% Vacancy: Contracted Rent: £483,040 £453,200 Estimated Rental Value: proximity to the Linclive interchange which connects the main arterial route in Central the M8 motorway, Scotland. two opposing terraces. Each unit benefits from its own secure yard and car parking with ancillary office accommodation. East of Sheffield. flexibility to further sub divide. units benefiting from self-contained yards. c8.1 acres and the more recently constructed Mosley Mill to the front. the roof deck of Mosley Mill. suites benefit from air conditioning, Internally the office perimeter and underfloor category 5 cabling, manned reception, conference facilities, parking with CCTV. centre in an established industrial estate surrounded mainly by residential areas. in the area. further loading facility with canopy accommodation to the rear and is well specified. It has an extensive secure yard area. Location & Description • Located in Linwood to the west of Glasgow close • The asset comprises 4 semi-detached units arranged in •A635 to the North The asset is well located close to the • It comprises of five standalone industrial units with • The units vary in age and specification with some of the • former mill within India Mill is a Grade II listed Victorian • Car parking is laid out around the rear of site and on • space. The asset provides both warehouse and office • The property is located to the south of Derby town • Rolls Royce have a strong local manufacturing presence • The main building is a double bay industrial unit with £5,100,000 £5,660,000 Value £6,240,000 £4,800,000 Address Imperial Park India Mill Business Centre Goldthorpe Industrial Estate Amberley Drive 2. 3. 4. 1.
72 whole property. Commencement of the lease is subject whole property. to the refurbishment of the building to an landlord’s There is a agreed specification by separate agreement. Contracted A tenant only break on the 5th anniversary. Rent of £397,612 per annum has been agreed. their occupied space in addition to that presently utilised on a new 10 year lease expiring in June 2027 with tenant only break option in June 2022 at a Contracted Rent of £125,000. £396,750. lease with a tenant only break on the 5th anniversary at a Contracted Rent of £330,000 per annum. Commentary • tenant has recently agreed a ten year lease over the A • The largest tenant in the asset has recently increased • The total asset is generating a Contracted Rent of • The asset has been let recently to a tenant on 10 year Vacancy/ Contracted Rent (per annum)/ (pa) Estimated Rental Value 0% Vacancy: Contracted Rent: £397,612 £397,612 Estimated Rental Value: Vacancy: 0% Vacancy: Contracted Rent: £330,000 £330,000 Estimated Rental Value: 2.56% Vacancy: Contracted Rent: £396,750 £412,463 Estimated Rental Value: the heart of Nottingham’s premier commercial area. the heart of Nottingham’s Nottingham ring road) which in turn provides convenient access to Junctions 24, 25 and 26 of the M1 motorway. and easily Nottingham city centre is a short drive away, accessible by public transport. The building is of steel building dating to the mid-1990s. frame construction with masonry elevations at ground a mixture of full-height glazing and profile metal floor, and profile metal sheeting to the sheeting at first floor, pitched roof. raised access floors (ramped on ground floor); perimeter central heating radiators; double-glazed windows; suspended ceilings with mineral fibre tiles; inset lighting (and some feature wall lights); comfort cooling (both an in-ceiling system and some stand-alone units); a passenger lift serving all floors. Llantarnam Park in the town of Cwmbran. to the west and Newport and thereafter to Cardiff east the national motorway network. been subdivided into suites benefiting from a communal The building reception area and dedicated car parking. sqft and is currently configured provides a total of 46,411 as 19 separate suites/units. of the M6 motorway, to the South of Wigan, and thus of the M6 motorway, has excellent connectivity both North to Cumbria and and beyond. Manchester can be South to Warrington A580. easily reached via the has recently been extensively refurbished. facility with four roller shutter doors to the front, two and personnel entrances to the the rear and offices sides. Location & Description • The property is prominently located on Lenton Lane, within •A52 (trunk road and The location is adjacent to the • The subject property is a 2/3-storey “pavilion” office • accommodation includes: The specification of the office • The building is prominently located on the established •A4042 provides rapid connection to the M4 at The • building which has It comprises a self-contained office • The property is located in close proximity to Junction 24 • The property is a single storey stand-alone asset which • The building consists of a distribution and warehousing £3,820,000 £4,800,000 Value £4,420,000 Address South Lancashire Industrial Estate 2 Central Park, Lenton Lane Brecon House, Cwmbran 6. 5. 7.
73 lease renewals have been agreed with the existing tenant. location at the main entrance to estate with potential to add value by examining possible change of use consents. diversified income profile generating a total Contracted Rent of £322,690 per annum. letting of vacant space with an Estimated Rental Value of circa £42,500 per annum. a wide potential pool industrial accommodation affords of occupiers. units from 500-5,000 sq ft. across several terraces offering General occupancy levels are stabilised in excess of 85%. Commentary • The property is let to a number of occupiers providing • There is the potential to improve returns further by • and The split nature of the asset between office • The asset comprises a multi let estate of 50,000 sq ft • The asset comprises of two buildings for which recent • There is a further development site in prominent Vacancy: 24.91% Vacancy: Contracted Rent: £322,690 £397,762 Estimated Rental Value: 0% Vacancy: Contracted Rent: £235,000 £220,700 Estimated Rental Value: Vacancy/ Contracted Rent (per annum)/ (pa) Estimated Rental Value 6.58% Vacancy: Contracted Rent: £266,534 £278,469 Estimated Rental Value: west of Mansfield town centre and almost immediately to the north of Mansfield & A38 dual carriageway and excellent access onto the thereafter Junction 28 of the M1 motorway. established business location. building completed to a BREEAM ‘very storey office rating together with a neighbouring detached good’ terrace of eight industrial units. M90 Motorway which is the main motorway linking The location is Edinburgh to Dundee and the North. improving further with the recent completion of Queensferry Crossing across the River Forth. A470 which links Cardiff and Merthyr Tydfil and provides Tydfil and Merthyr A470 which links Cardiff access to the M4. • The Oakham Business Park is located 2 miles south • Ashfield Regeneration Route (MARR), which gives • The Oakham Business Park is a popular and • Built in 2008 the property comprises a detached, four- Location & Description • Dalgety Bay is located in Fife, close proximity to the • Situated north of Pontypridd with strong links to the £2,765,000 Value £3,470,000 £2,735,000 Address i2 Centre, Oakham Business Park Donibristle Industrial Estate, Dalgety Bay Albion Industrial Estate, Pontypridd 8. 9. 10.
74 PART 4
OVERVIEW OF THE UK REGIONAL LIGHT INDUSTRIAL AND REGIONAL OFFICE SECTORS
Certain of the information contained in this Part 4 (Overview of the UK Regional Light Industrial and Regional Office Sectors) has been sourced from industry publications, including, but not limited to, Knight Frank, Jones Lang LaSalle, Savills, IPD, Property Data, OECD and ONS. The Directors believe that such sources are reliable, but the accuracy of such information is not guaranteed and the projections they contain may be based on a number of significant assumptions. The Company confirms that information sourced from such industry publications has been accurately reproduced, and, as far as the Company is aware and is able to ascertain from information contained in such publications, no facts have been omitted which would render the reproduced information inaccurate or misleading.
Introduction
Notwithstanding the UK’s decision to leave the European Union in 2016 and the subsequent economic and political uncertainty, investment markets across UK regions have held up well. The UK economy is estimated to have grown by 1.8 per cent. during 2016, a strong performance given the initial uncertainty following the EU referendum, and only marginally below the 2.2 per cent. recorded during 2015, according to figures from Oxford Economics. The Monetary Policy Committee (“MPC”) has recently upgraded its 2017 economic growth forecast to 2.0 per cent. from 1.4 per cent. in November 2016 (Savills, Spring 2017), whilst OECD forecasts predict an average of 1.5 per cent. cumulative real gross domestic product (“GDP”) growth from 2016 to 2018.
However, the UK economy faces, and will continue to face, a number of challenges throughout 2017 and beyond. The first of these will be rising inflation. With weaker sterling leading to rising input costs, this will continue to cut developer margins. Oxford Economics forecast consumer price index inflation to reach 3 per cent. by the second half of the year. This is ultimately slowing real wage growth, and having a knock on effect on sales in the high street. At 62 per cent. of GDP, consumption is the key driver of economic growth, which could suggest growth figures below that of 2016. With the UK regional economy well balanced across a range of sectors and therefore more resilient to Brexit, Savills considers this to be a driver of continued growth. In addition, some London based occupiers are expected to attempt to save on property costs by relocating their back office functions to regional cities with large talent pools, further enhancing demand for well located regional assets.
Given the investment objective and policy of the Company as set out in Part 1 of this Prospectus, the remainder of this section will outline a brief overview of the UK SME sector, the regional light industrial sector and the regional office sector in the UK.
UK SME Sector
The UK regional real estate market is a core part of the UK’s SME infrastructure, providing premises to the UK’s growing regional small and medium sized business population.
In 2016, there were 1.3 million businesses with employees in the United Kingdom, compared to just above 1.1 million in 2000. This represents an increase of 19 per cent. over the period. According to data by the Department for Business, Energy & Industrial Strategy (Statistical Release, October 2016), SMEs (with employees) represent 99.5 per cent. of all employing private sector businesses by number and have driven the majority of growth in employing private sector businesses since 2000, as illustrated by the chart below. It is noteworthy in this context that despite the rate of the number of SMEs going out of business typically being higher than that of large
75 private sector businesses, the rate of formation of new SMEs in the vast majority of years since 2000 more than offset this, supporting the resilience of SMEs as a tenant base.
Figure 1: Number of UK private sector businesses (with employees) by size (indexed to 2000) (Source: Department for Business, Energy & Industrial Strategy, Statistical Release, October 2016)
Base year 2000=100 130
Medium (50-249 employees) 124
120 119
110 Small (1-49 employees)
Large (250+ employees) 100 100
90
80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
In addition, SMEs with employees are key contributors to economic growth and employment in the United Kingdom, providing 52 per cent. of all private sector employment and generating 44 per cent. of all private sector turnover as at the start of 2016 (see diagram below).
Figure 2: Contribution of different sized businesses to total employment and turnover (Source: Department for Business, Energy & Industrial Strategy, Statistical Release, October 2016)
100%
80%
56% 60% 48% 37% 40% 28%
15% 20% 15%
0% Small Medium Large Employment Turnover
The growth of SMEs will impact the availability of, and provide strong demand for, multi-let regional light industrial and regional office space, with local and regional SMEs expected to continue to make up the majority of the tenant base. The real estate market will therefore have to adapt to accommodate SMEs seeking flexible, high quality, multi-let space.
76 Regional Light Industrial Sector
1. Introduction
Light industrial assets are typically defined as warehouses under 10,000 square metres in size (approximately 100,000 square feet) and are often let to local SMEs, which cover a very wide variety of uses. In many instances, the nature of the occupier base for these assets is such that units occupied are often the sole place of business for the relevant business, or indeed private individual, and as such are vital to the ongoing viability of the business even in times of economic difficulty. The assets are able to capture a wide range of economic activity and in overall terms can be occupied at a significant cost discount to office or retail assets.
Supply of warehouse space, in particular near or within urban areas, has in recent years come under pressure, due to increased warehousing demand driven by a shift in retail distribution models and supply chain management, as well as a reduction in overall supply in more land-constrained areas where competition comes more from alternative, higher-value land uses, such as residential or retail. In addition, the lack of new development of relevant light industrial assets in the regions is exercising upwards pressure on rents generally as supply becomes more constrained.
2. Market Drivers
The key drivers for the light industrial sector can be summarised as follows:
Economic environment: A supportive economic environment is vital for the success of the customer base which is dependent on healthy consumer demand for its products. Improving sales volumes require greater warehouse space. The OECD forecasts that real GDP in the UK will grow by a cumulative average 1.5 per cent. between 2016 and 2018 (Source: OECD forecasts).
Figure 3: UK Economic Output Indices (Source: ONS)
Index Q4 2011 = 100 125
118
111
104
97
90 Q2 2013 Q4 2013 Q2 2014 Q4 2014 Q2 2015 Q1 2016 Q1 2017 Q4 2012 Q1 2013 Q3 2013 Q1 2014 Q1 2015 Q4 2015 Q2 2016 Q4 2016 Q3 2014 Q3 2015 Q3 2016
All UK GDP Manufacturing Distribution and Retail
Convenience retailing: Grocery retailers are increasingly opening smaller, local stores which offer a more limited variety of faster-moving stock. Urban warehousing allows stock of (often perishable) items to be stored close to the final destination and delivered quickly on a ‘just-in-time’ basis.
Online retailing: The internet and access to it has changed consumers’ expectations of how they purchase and how they receive products. Over the past few years there has been a very clear shift in the location at which purchases are made from physical stores to websites. In turn, consumers now expect their purchases to be delivered directly to a location convenient to them in a short amount of time. In cities, this is increasing demand for urban warehousing to meet consumers’ expectations.
77 Figure 4: Internet Sales as a Percentage of Total Retail Sales (Source: ONS)
% 20%
16%
12%
8%
4% Nov 2011 May 2012 Nov 2012 May 2013 Nov 2013 May 2014 Nov 2014 May 2015 Nov 2015 May 2016 Nov 2016 May 2017
Operating efficiencies: Online retailing in particular has had a significant impact on the nature and the cost of a retailer’s supply chain due, in part, to individual deliveries being more expensive and complicated to coordinate. Urban warehouses are necessary to facilitate the final stage of the supply chain, commonly known as “last mile delivery”, in which large volumes of individual packages can be broken down into individual items and delivered by smaller vehicles to the final destination.
3. Occupier Market Dynamics
The occupier market has improved in recent years due to the strengthening and diversification of the occupier base as demand is being driven by the resilience of its key manufacturing industries and the resultant impact on the supply chain such as the automotive sector in the North East (Nissan) and in the Midlands (Jaguar Land Rover). A particular feature of the UK manufacturing market is that there is often geographical clustering around certain industries such as oil and energy in Aberdeen and the North East of Scotland and the petrochemical industry around Stockton and the Tees Valley. Often the nature of the supply chain in such instances is that many occupier requirements are contract led. This is a key determinant in the length of lease term to which an occupier will be able to commit.
In overall terms, SMEs and private individuals require greater flexibility in their lease commitments. Lease lengths on light industrial assets are a reflection of this, albeit there is a continuing trend of occupiers renewing in situ rather than incurring relocation costs which are exacerbated if the business operates from a single location.
According to research carried out by Jones Lang LaSalle (“JLL”), demand was higher during 2016 compared with 2015 in eight out of 11 UK regions, stable in two (Scotland and the West Midlands) and lower in only one (the North East). However, the translation of this demand into higher take-up was not as clear-cut as might be expected (take-up flat or down in six regions), primarily due to a reduction in available supply (observed in 10 out of 11 regions). The only region where no change in available supply was observed was in the South East, which was due to speculative developments that came on-stream during the year.
78 Figure 5: UK Logistics Take-Up (50,000 square feet plus) (Source: Knight Frank) m sq ft 25
20
15
10
5
0 H2 2011 H1 2012 H2 2012 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 H2 2016 H1 2017 Pre-Let Newbuild Secondhand
In general, the speculative developments that started last year attracted strong interest. According to JLL, as at January 2016 there were 77 industrial schemes within its coverage (involving all unit sizes) speculatively under construction across the UK, totalling some 11.5 million square feet. As at January 2017, one year on, 46 per cent. of this floor space had been taken up. Reflecting trends this year to July 2017 according to CBRE, take-up over the last twelve month period has been led by the East and West Midlands (approximately 11.7 million square feet), followed by the South East (approximately 5.2 million square feet) and the North West (approximately 3.1 million square feet).
Figure 6: Industrial floorspace speculatively under construction at the start of 2016 and availability status at the start of 2017 (Source: Jones Lang LaSalle) m sq ft 3
2
1
0 Greater South East South West Wales East West North West Yorkshire & North east Scotland London Midlands midlands Humberside Let Available
These demand and supply dynamics have driven industrial rental growth in 2016, with every UK region posting uplifts for the year. JLL data, based on monitoring prime headline rents for standard buildings between 10,000 square feet and 20,000 square feet in 59 locations nationally, showed average growth across the country last year of 6 per cent., with the strongest uplifts in the South East (9 per cent.) and London (8 per cent.). Independent IPD data shows growth of 3.8 per cent. for the industrial sector overall in 2016, with an average 4.3 per cent. growth for standard industrial properties and 2.7 per cent. for distribution warehouses.
Over the past 30 years, according to data by IPD, rental value declines during economic downturns have been least pronounced in the regional industrial market in the UK (Rest of UK Industrial) averaging a 9 per cent. peak to trough decline as compared to an average of 16 per cent. decline for London industrial (based on the recessions of the early 1990s and the financial crisis after
79 2007; the dotcom crisis did not result in rental value declines in the industrial sector in the UK, according to IPD data).
Figure 7: Industrial estimated rental value since 1981 (Source: IPD)
Index 1981 = 100
300
250
200
150
100 1981 1986 1991 1996 2001 2006 2011 2016
London Industrial South-East Industrial Rest of UK Industrial
With yield movement making a very modest contribution to capital growth during 2016, despite the Brexit vote in the middle of the year, the overall total return delivered by the UK industrial market was a strong 7.7 per cent. (according to IPD), which was significantly in excess of other sectors.
Over the past 15 years, Rest of UK Industrial (excluding the South-East and London) has generated a compound average total annual return of 8 per cent., compared to 10 per cent. for London and 8 per cent. for South East Industrial.
Figure 8: UK total return performance, annualised (Source: IPD)
16% 14% 13% 11% 12% 10% 10% 8% 8% 8% 8% 8% 5% 5% 4% 4%
0% 15 Years 10 Years 5 Years All Property London Industrial South-East Industrial Rest of UK Industrial
4. Investment Market
Investor demand for logistics and industrial assets remains strong, buoyed by the sector’s favourable underlying demand and supply conditions, and income generating attributes. The latest figures from Property Data show that £3.2 billion worth of industrial property assets changed hands during the first half of 2017. This represents an increase of 13 per cent. on the previous half year’s volume of £2.9 billion.
80 Figure 9: Industrial investment transactions (Source: Property Data/Knight Frank)
£m Deals 4,500 350
3,600 280
2,700 210
1,800 140
900 70
0 0 H1 2011 H1 2011 H2 2011 H2 2011 H1 2009 H1 2010 H2 2010 H2 2012 H1 2013 H2 2013 H1 2014 H1 2015 H2 2015 H1 2016 H2 2016 H2 2009 H1 2012 H2 2014 H1 2017
Volumes (£m) No. of Transactions
Overseas investors and property companies have been the major players so far this year accounting for 34 per cent. and 31 per cent., respectively, of total investment activity over the first half of 2017. UK institutions accounted for a further 25 per cent.
The IPD Monthly Index shows that industrial capital value growth remains on an upward trajectory with industrial values now rising at an annual rate of 6.2 per cent. Industrial rental value growth continues to exceed inflation with an annual rental value growth of 3.8 per cent. in June 2017.
Figure 10: Industrial sector performance (Source: IPD/Knight Frank)
% per annum 20%
10%
0%
(10)%
(20)%
(30)% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Capital Growth Rental Growth
In terms of the wider market, industrials continue to outperform the other two core sectors and positive market sentiment for the industrial sector has contributed to steady yield compression. The IPD All Industrial Equivalent Yield stood at 6.16 per cent. in June 2017, 0.29 per cent. down since the start of the year, and the lowest on record since October 2007. However, yield spreads of the regional industrial market to London and the South East are elevated by historic standards, as shown by the yield differential between Rest of UK Industrial versus London Industrial and South-East Industrial in Figure 11 below.
81 Figure 11: London, South-East and Rest of UK Industrial Yields (Source: IPD)
11%
9%
7%
5%
3% 1981 1986 1991 1996 2001 2006 2011 2016
London Industrial South-East Industrial Rest of UK Industrial
Regional Office Sector
1. Introduction
Regional offices have seen increased investor interest in recent months given the yield gap to London and the South East. The demand for “safe haven” and trophy assets in London and the South East, often led by international investors, has meant that more income-focused investors are increasingly looking at higher yielding regional assets. This is exacerbated by fears over the impact of Brexit in areas that may be more exposed to reduced occupier demand in the short term, driven by the potential relocation of parts of the financial services industry from London and the South East to other EU countries. Regional markets are considered to benefit from less reliance on macro-economic forces, coupled with the trend of decentralisation of many corporates seeking space in the regions. Examples include the relocation of the BBC to Salford and the ongoing Government Property Unit (GPU) requirements to consolidate into regional hubs to achieve cost efficiencies.
There has been a relative lack of speculative office development in many of the regions (particularly in the out of town office sector) given a general ongoing lack of speculative development finance and developers waiting for pre-lets. Refurbishments are providing the majority of good quality space in the short and medium terms. Lease flexibility remains a key feature of the leasing markets for space in the sub 1,000 square metre (10,000 square foot) sector.
2. Market Drivers
The key drivers for the regional office sector can be summarised as follows:
A Resilient UK Economy: As can be seen from the chart below, the regional office market is closely linked to UK economic performance. Defying predictions of a recession following the June 2016 referendum, GDP growth was better than expected in the third and fourth quarters of 2016, 0.6 per cent. in each quarter. Unemployment has remained low, 4.8 per cent. at year-end, just below the rate before the June 2016 referendum. In 2017, the UK economy will face challenges which largely relate to uncertainty of Brexit negotiations and rising inflation. The triggering of Article 50 negotiations will cause some increase in concerns over the future trading environment for UK exporters. However, as the talks progress, more clarity could emerge on the future arrangements for trade, which would allow businesses to plan with more confidence. A rise in inflation could dampen consumer spending if pay rises do not keep pace. However, with a tight labour market, employers may be eager to retain staff, and if pay increases do match, then current spending levels may continue. The MPC’s 1.7 per cent. real GDP growth forecast for 2017 (as per
82 the August 2017 Inflation Report) would be supportive of on-going demand for commercial property.
Figure 12: Historical Total Returns for UK Offices outside of the South East and London vs. UK GDP growth (Source: IPD)
8% 40%
6% 30%
4% 20%
2% 10%
0% 0%
(2%) (10%)
(4%) (20%)
(6%) (30%) 2011 2011 1991 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2013 2014 2015 2016 1987 1988 1989 1990 1992 1993 1994 1995 1996 1997 1998 1999 2000
GDP Growth (LHS) Regional Office Total Return (RHS)
Changing Occupier Requirements: Despite an uncertain backdrop, occupational demand across the UK in 2017 will be robust, according to Knight Frank. On-going technological disruption is leading businesses to rethink and restructure; this will change the characteristics of market demand as a result. There are expected to be a greater number of smaller deals driven by specialist project teams locating away from mainstream businesses, as well as from a burgeoning SME supplier base serving big business. Flexibility, either in lease terms or via the increased utilisation of co-working, will thus feature more. Demand is expected to continue to gravitate towards amenity-rich buildings and locations that help occupiers attract and retain key personnel.
Continuing Interest from Overseas Investors: Having experienced the more challenging environment in 2016, the UK investment market started 2017 on a positive footing. Buoyed by positive economic data and active occupiers, investors are actively searching for regional opportunities. Investment transactions increased in the final quarter of 2016 following a pause in activity around the June 2016 referendum and this momentum is expected to continue through the year. UK institutions are expected to be a key buyer group alongside overseas buyers, all of whom are looking for regional UK opportunities in their search for yield and the latter further encouraged by the recent weakness of sterling.
Government Focus: Local and national government continue to play major roles in the fortunes of regional cities both from a political and new business sense. Even before the June 2016 referendum, a core part of Government economic policy was to rebalance the national economy. Infrastructure investment underpins current strategy alongside the devolution of power to city regions, a process that will bring newly elected mayors to some cities and importantly, allow more autonomy in budgetary spending. Consolidation of the government office estate is also creating opportunities in the regional office markets. The strategy of creating collaborative hubs has led to large-scale requirements for new office space across many UK centres. According to Savills in its report dated 11 May 2017, the Government Property Unit (GPU) was actively seeking two million square feet of office space across the UK, equating to approximately 33 per cent. of the combined annual office total take-up, according to Knight Frank.
Less Exposure to Financial and Insurance Sectors: In 2016, financial and insurance services contributed £124.2 billion in gross value added (GVA) to the UK economy, 7.2 per cent. of the UK’s total GVA. London accounted for 51 per cent. of the total financial and insurance sector GVA in the UK in 2015 (House of Commons Library- 31 March 2017- Briefing Paper). The regions are
83 consequently less exposed to any negative impact caused by the ongoing Brexit negotiations on this particular occupier segment.
Values relative to new build costs: In many regional office markets, good quality, Grade A/marketable offices can be purchased at lower rates than construction costs for similar property. The BCIS identifies construction costs for offices (no air conditioning) as being £126 per square foot assuming a 1-2 storey building (as of June 2017). This is exclusive of land costs and fees. As such there is limited justification for development whilst existing stock remains, thus limiting additional supply and protecting the market for existing accommodation. New build development, especially speculative, is predominantly limited to locations that command high rental levels, i.e. the prime regional centres.
Rental levels remain at or below the 2008 peak: Office rental levels in many regional locations remain at or below 2008 levels, as confirmed by research carried out by GVA.
Limited Obsolescence Risk: By concentrating investment on low rise office buildings in the regions, exposure to the risk of M&E obsolescence (air conditioning, lift systems etc) is more limited and therefore future capital expenditure can be kept to a minimum, improving the net yield on offer to investors.
3. Occupier Market Dynamics
Savills anticipates that the UK’s key regional cities will show the strongest office based employment growth over the next five years. The fastest growing sectors going forward are expected to be administrative and tech based employment, forecast to rise 7.2 per cent. and 6.3 per cent., respectively. Bristol, Edinburgh and Manchester are all set to see faster tech based employment growth than Greater London over the next five years. Positive sentiment has started to increase and, according to Deloitte’s CFO survey, 11 per cent. of Chief Financial Officers expect to increase hiring over the next 12 months. This represents a marked increase on the 1 per cent. who expected hiring to increase immediately following the June 2016 referendum. The ‘northshoring’ trend is expected to continue over 2017 as London based occupiers move their front and back office functions to the UK regions to take advantage of lower property and staff costs. Given that the UK unemployment rate stands at only 4.8 per cent., in line with the level recorded during 2005, aggressive employment growth is not expected as it was previously. The UK economy is already operating at near full capacity, which could suggest opportunities for wage growth going forward (Regional Office Market Review & Outlook Spring 2017).
For the fourth consecutive year, regional take-up in 2016 has surpassed the long term average of 9.1 million square feet. Total take-up reached 9.6 million square feet, despite a year of political uncertainty. Any signs of a post referendum ‘slow down’ during the third quarter of 2016 have been abated, with a strong 2016 final quarter of take-up reaching 2.4 million square feet, the strongest quarter since the second quarter of 2015. On the whole, the same level of occupational demand was recorded during the first half and second half of 2016, with no slowdown post the June 2016 referendum evident.
84 Figure 13: Regional Office Take-up by Geography (Source: Savills) m sq ft 12
9
6
3
0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Aberdeen Birmingham Bristol Cambridge Cardiff Edinburgh Glasgow Leeds Manchester M25 Forecast
A key driver of occupational demand in these markets was the Government Property Unit (GPU) requirements consolidating into regional hubs in order to reduce costs. The GPU is expected to be the key contributor to acquisitions of over 100,000 square feet in key UK cities throughout 2017, including Birmingham, Manchester, Leeds, Cardiff, Edinburgh and Belfast.
The tech sector remained an important contributor to take-up during 2016 and accounted for 20 per cent. of the number of transactions. This sector has traditionally contributed to the smaller end of the market, with a number of start-ups taking accommodation throughout the regions. This has proven particularly prominent in the Manchester market, where Co-op Digital acquired 45,000 square feet of accommodation during the final quarter of 2016, whilst a number of other tech-based occupiers clustered around Media City, Salford Quays. Micro-chip designer, Cirrus Logic’s 70,000 square feet letting at Quartermile, Edinburgh marked the largest regional tech deal in 2016.
Regional supply levels have continued to fall across the UK regional markets. Some of this loss can be attributed to the conversion of approximately 3 million square feet to residential through permitted development rights (“PDRs”). Due to the shortage of Grade A floor space in-town, occupiers have been forced to look to the periphery during 2016, with total fringe/out-of-town take-up reaching 2.8 million square feet, eclipsing the record level set during 2014. Occupiers have been attracted to out-of-town due to availability of larger floor plate stock and cheaper rents, particularly in the Manchester and Glasgow markets. Glasgow’s take-up in the out-of-town market exceeded the city centre, following the University of the West of Scotland’s 225,000 square feet pre-let of the Eco Campus. However, occupiers’ appetite for new accommodation is evidenced by 44 per cent. of the 3.6 million square feet currently under construction across the UK regions having been pre-let.
85 Figure 14: Regional Office Supply by Geography (Source: Savills) m sq ft 40
30
20
10
0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Aberdeen Birmingham Bristol Cambridge Cardiff Edinburgh Glasgow Leeds Manchester M25
Over the long term, it is interesting to note that the regional UK office market has seen the least volatile rental growth over the past 35 years in comparison to Central London or South East Offices, according to data by IPD, albeit at the expense of a more modest overall return.
Figure 15: Office estimated rental value since 1981 (Source: IPD)
Index 1981 = 100
300
250
200
150
100 1981 1986 1991 1996 2001 2006 2011 2016
Central London Office South-East Office Rest of UK Office
Figure 16: UK total return performance, annualised (Source: IPD)
16% 14%
12% 11% 9% 10% 8% 8% 8% 7% 6% 5% 5% 4% 4% 1%
0% 15 Years 10 Years 5 Years All Property Central London Office South-East Office Rest of UK Office
86 4. Investment Market
Following a weaker third quarter of 2016, UK regional office investment volumes bounced back during the final quarter of 2016, to reach £1.4 billion, 15 per cent. above the 10 year quarterly average. This boosted the UK regions’ total office investment for 2016 to £6.1 billion, marking a very strong recovery following the outcome of the June 2016 referendum. With the UK regions generally less exposed to financial services than London, regional office investment volumes remained 9 per cent. above the five year average, whilst Greater London recorded volumes 21 per cent. below their five year average. During 2016, 28 per cent. of the UK’s total office investment took place in the UK regions, above the long term average of 23 per cent. Sentiment within the regions remains positive as investors increasingly look to them amid concerns over the affordability of London’s stock. The South East remained the most heavily invested region outside London, with office investment reaching £1.9 billion. The North West also saw investment deals exceed £1 billion, with the majority of deals in Greater Manchester.
Figure 17: UK Regional and London Office Investment Volumes (Source: Savills)
£35bn 35%
£30bn 30%
£25bn 25%
£20bn 20%
£15bn 15%
£10bn 10%
£5bn 5%
£0bn 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
London Offices UK Regional Offices UK Regions %
The most active purchasers during 2016 were overseas investors, who contributed £2.4 billion, 41 per cent. above the five year average of £1.7 billion. It was the German funds who were the most active overseas investor during 2016, investing a total of £655 million, 28 per cent. of the overseas total. Far Eastern investors followed, with a total of £639 million invested. One particularly active investor sub-type during 2016 was local councils, who have acquired office stock with a value of £338 million, over twice the 10 year annual average. 85 per cent. of these transactions occurred in the second half of 2016, as local councils searched for price cuts following the June 2016 referendum.
One of the key drivers of the overseas demand during 2016 was the weaker sterling and this has continued into 2017. A key transaction so far during the first quarter of 2017 was HSBC’s £260 million purchase of 3, 4, 5, 6 & 9 Brindley Place, representing a yield of 6 per cent. Data from MSCI shows how the UK Institutions’ risk appetite has fallen since the outcome of the June 2016 referendum. Between the second and third quarter of 2016, “negligible” risk occupiers as a percentage of total fund portfolios increased from 54 per cent. to 60 per cent., whilst average lease length across offices extended from 10.2 years to 12.8 years. Well-let, income producing assets with a strong covenant profile are top of investors’ agenda.
87 Figure 18: Office Initial Yields by Region (Source: IPD)
11%
9%
7%
5%
3% 1981 1986 1991 1996 2001 2006 2011 2016 Central London Office South-East Office Rest of UK Office
88 PART 5
DIRECTORS, MANAGEMENT AND ADMINISTRATION
1. Directors
The Directors are responsible for the determination of the Company’s investment policy and have overall responsibility for the Company’s activities, including the review of investment activity and performance and the control and supervision of the Company’s service providers. All of the Directors are non-executive and are independent of the Investment Manager. The Directors will meet at least four times per annum.
The Directors are as follows:
Stephen Smith, Non-executive Chairman
Stephen Smith has over 40 years of experience in the real estate industry. Stephen is currently non-executive Chairman of Starwood European Real Estate Finance Limited, The PRS REIT plc and AEW UK Long Lease REIT plc, and non-executive director of Gatehouse Bank plc. He was also formerly a non-executive director of Tritax Big Box REIT plc.
From January 2010 to March 2013, he was the Chief Investment Officer of British Land Company PLC, the FTSE 100 real estate investment trust with responsibility for the group’s property and investment strategy. He was formerly Global Head of Asset Management and Transactions at AXA Real Estate Investment Managers, where he was responsible for the asset management of a portfolio of more than €40 billion on behalf of life funds, listed property vehicles, unit linked and closed end funds. Prior to joining AXA in 1999, he was Managing Director at Sun Life Properties for five years.
Robert Bould, Non-executive Director
Robert Bould has over 40 years of experience advising on commercial property in the UK and in Europe. Until February 2016, he was Chief Executive Officer of GVA Bilfinger, Executive Vice President of Bilfinger Real Estate and Chairman of GVA Worldwide, having started his career at Grimley & Son in Birmingham. He held various roles in the business including Head of Investment and Chairman of GVA’s Capital Markets Group.
Robert now runs his own consultancy business and is a Fellow of the Royal Institution of Chartered Surveyors. He also sits on the investment committee for the Palmer Capital Income Fund. He has been a non-executive director of Industrial Ownership Ltd, Property Fund Management plc, Teesland Advantage Property Income Trust and several other listed and non-listed entities, and is currently a non-executive director of IPSX, the UK based commercial property securities exchange.
Robert is a past Chairman and life member of the Investment Property Forum and past Master of the Worshipful Company of Chartered Surveyors, the surveyors livery company.
Peter Denton, Non-executive Director
Peter Denton has 23 years of experience in the pan European real estate sector, covering a broad range of strategic leadership roles and has experience in investment, asset management, joint ventures, capital markets, treasury and fundraising roles with an aggregate value over £20 billion. Before joining the Hyde Group as Group Finance Director in February 2017, Peter was a Partner at the Starwood Capital Group for five years where he managed the firm’s special situations and credit businesses in Europe. Peter also led the initial public offering of Starwood European Real
89 Estate Finance and listing on the London Stock Exchange in 2012, creating one of Europe’s largest publicly traded real estate finance companies.
Prior to this Peter held senior EMEA real estate investment banking roles at BNP Paribas, Barclays, Deutsche Bank, Eurohypo and WestImmo. Peter qualified as a Chartered Accountant with Arthur Andersen in 1997 and is a former Chairman of the Commercial Real Estate Finance Council (Europe).
Gerald Parkes, Non-executive Director
Gerald Parkes spent the first 30 years of his career as an investor in property and has built and managed cross border investment portfolios for blue chip institutions in both the US and Europe, responsible for strategy, implementation of numerous and diversified investment programmes and supervision of all aspects of portfolio management.
Gerald is a founding partner of Property Capital Partners Europe (formerly Pacific Real Estate Capital Partners) and has raised capital and invested in numerous projects across UK and Europe including through North Row Capital LLP, a joint venture with Brooks Macdonald. Prior to that, he was Managing Director and Head of Private Equity Real Estate – Europe for Lehman Brothers, a private equity business with US$30 billion gross assets under management that was ring-fenced from the bankruptcy of the holding company. Having been a partner in Richard Ellis Inc, Gerald became CEO of European Real Estate Investment for LendLease before founding Parkes and Company. Subsequently, he sold his company to Amvescap/Invesco and became a Global Partner and CEO of its European real estate division.
Gerald has a MA in Land Economy from Cambridge University and was a Fellow of the Royal Institution of Chartered Surveyors. Among his non-profit roles, he is a Private Sector member of the Major Project Review Group for HM Cabinet Office and a Governor of the Urban Land Institute.
2. Investment Manager and the Asset Manager
The Company has appointed M7 Real Estate Financial Services Ltd as the Company’s investment manager and AIFM (the “Investment Manager”) for a minimum term of two years from the date of Admission. Thereafter, the Investment Manager’s appointment shall continue unless the Company terminates such appointment by giving not less than 12 months’ written notice. The Company may also terminate the Investment Manager’s appointment following a Key Person Event or Change of Control Event that has not been resolved within 180 days (as further described in paragraph 7 of Part 9 below). The Investment Manager is authorised and regulated in the conduct of investment business by the FCA. The Investment Manager will be responsible for identifying and acquiring assets which meet the Investment Guidelines, and for the management of the Group’s portfolio of properties. The Investment Manager is for the purposes of the AIFMD and the rules of the FCA, a “full scope” UK alternative investment fund manager with a Part 4A permission for managing AIFs, such as the Company. The Investment Manager and the Asset Manager together have a team of ten staff whose primary role will be the management of the Group’s portfolio of assets as well as screening and recommending potential acquisition and disposal opportunities to the Investment Committee.
Investment Committee
The Investment Manager has formed an Investment Committee which is comprised of the key individuals at M7 listed below who will be responsible for executing the Company’s investment strategy.
90 Richard Croft
Richard Croft is the Chief Executive Officer of M7 Real Estate. Richard is also an FCA approved person. He is responsible for the strategic direction of the company as well as capital raising, and leads the real estate fund management function. In this capacity, he sits on the board and Investment Committees of all of M7 Real Estate’s funds in addition to numerous other boards of M7 Real Estate’s joint ventures.
Prior to co-founding M7 Real Estate in April 2009, Richard founded Halverton REIM LLP (subsequently GPT Halverton), a European real estate fund management business which was sold to The GPT Group (an Australian listed property trust) in July 2007. From 2005 to late 2008, Richard was Chief Executive Officer of GPT Halverton which at the time of sale employed approximately 180 people across ten European offices and managed approximately €2 billion of assets.
Before his time at Halverton, Richard was International Investment Director of Property Fund Management PLC (now the Cromwell Property Group), and was responsible for setting up their international infrastructure, including offices in Amsterdam, Paris, Berlin, Warsaw, Copenhagen and Madrid.
Richard has been involved in over €5 billion of property transactions across the UK and Europe during his 25 years of real estate experience.
David Ebbrell
David Ebbrell is the Chief Investment Officer for M7 Real Estate. David is an FCA approved person and also a director of the Investment Manager. He is responsible for sourcing new properties across Europe. David is a member of the Royal Institution of Chartered Surveyors, trained as a surveyor at Healey & Baker and has a degree in Estate Surveying.
Prior to co-founding M7 in 2009, David was a Fund Director at GPT Halverton where he was responsible for funds with a combined value of €600 million. These included BIP (which invested in German and Dutch multi-let industrial property) and DAF (which invested in Dutch multi-let industrial office properties). As Fund Director, David was responsible for acquisitions, portfolio performance, client reporting and asset management strategy. He was also responsible for many of the German and French acquisitions made by the Halverton Babock Industrial Fund. Whilst at GPT Halverton, David was involved with acquisitions with a combined purchase price of approximately €900 million.
Before joining GPT Halverton, David worked for Teesland iOG (now the Cromwell Property Group) and undertook UK acquisitions for the Industrial Trust and the Industrial Investment Partnership.
Other key individuals
The Company and the Investment Manager have also appointed M7 Real Estate to provide asset management services to the Company and the Group’s properties. Key individuals at M7 Real Estate who will be responsible for such asset management services include:
Andrew Jenkins
Andrew Jenkins is the Chief Operating Officer for M7 Real Estate. He is responsible for the general management of M7’s operations across Europe (encompassing the standard suite of support service functions) as well as for strategy formulation and execution.
91 Prior to joining M7, Andrew spent more than 20 years at Jones Lang LaSalle. He covered a variety of roles during that period including the roles of European Chief Financial Officer and Chief Operating Officer and also spent two years in Paris.
Andrew trained as a Chartered Accountant with Deloitte and has an Honours Degree in Economics from Bristol University.
David Simmonds
David Simmonds is a Chartered Certified Accountant and the Chief Financial Officer for M7 Real Estate, with overall responsibility for M7’s finance function. David is an FCA approved person and also a director of the Investment Manager. David joined M7 in April 2016 from APN Property Group where he was Finance Director of Australian Securities Exchange listed Industria REIT since its inception and IPO in December 2013.
Prior to working in the Australian market, David held a series of senior positions across multiple geographies and real estate asset types, working in a number of European markets throughout his career of more than 20 years. This included the role of Chief Financial Officer for Europe at APN’s office in London, where he was responsible for APN’s European business activities across 11 European jurisdictions and over 60 corporate entities.
David also spent over three years from 2007 to 2010 as Financial Director for the Goodman Group, where he was responsible for their European Business Parks Division.
Teresa Gilchrist
Teresa Gilchrist is the Head of Investor Relations and New Business at M7 Real Estate. Teresa is an FCA approved person and also a director of the Investment Manager. She is also a member of the Investment Management team and plays a key role in new business development.
Prior to co-founding M7 in 2009, Teresa worked at GPT Halverton where she was responsible for all areas of new business. She was involved in liaising with potential investors, setting up new vehicles and raising debt. Teresa was also responsible for the areas of compliance, marketing and ongoing debt management.
Before her time at GPT Halverton, Teresa worked at INVESCO Real Estate (formerly Parkes & Company) where she was responsible for fund structuring, debt and equity raising and general capital markets advisory work. She also worked as a management consultant at PwC after qualifying as a chartered surveyor with the commercial arm of Chesterton.
Teresa has over 22 years of real estate experience, has an MA in Land Economy from Cambridge University and is a member of the Royal Institution of Chartered Surveyors.
John Murnaghan
John Murnaghan is the Head of UK Real Estate at M7 Real Estate. He oversees the UK portfolio and asset management strategies, develops the UK business plan and leads new UK business initiatives to enhance value and sustainability for the company and its capital partners.
Prior to joining M7 in August 2014, John worked for UBS Global Asset Management where he was a Director in the UK Real Estate team responsible for the UBS Triton Property Fund, a UK balanced property unit trust. He was directly responsible for 30 assets, valued at approximately £500 million across all sectors. In addition, John was responsible for the investment management of a collection of properties for private UBS Wealth Management clients.
92 Prior to working at UBS, John worked at Land Securities Trillium as Senior Asset Manager where he undertook strategic asset management for an occupational portfolio of 335 properties.
John is a Chartered Surveyor, holds the Investment Management Certificate (IMC) and has over 16 years of real estate experience. John has a BSc Hons degree in Real Estate Management from Oxford Brookes University.
Investment Management Agreement
The Company and the Investment Manager have entered into the Investment Management Agreement, a summary of which is set out in paragraph 7 of Part 9 of this Prospectus, under which the Investment Manager has been appointed to act as the Investment Manager and AIFM of the Company for a minimum term of two years from the date of Admission. Thereafter, the Investment Manager’s appointment shall continue unless the Company terminates such appointment by giving not less than 12 months’ written notice. The Company may also terminate the Investment Manager’s appointment following a Key Person Event or Change of Control Event that has not been resolved within 180 days (as further described in paragraph 7 of Part 9 below). The Investment Manager will be responsible for the day-to-day discretionary management of the Group’s investments, and will provide portfolio management and risk management services to the Group, in all cases subject to the investment policy of the Company and the overall supervision of the Board. The Investment Manager must consult with the Board in the case of a Material Transaction.
Details of the fees and expenses payable to the Investment Manager are set out in paragraph 6 of this Part 5 below.
Asset Management Agreement
The Company, the Investment Manager and the Asset Manager have entered into the Asset Management Agreement, a summary of which is set out in paragraph 7 of Part 9 of this Prospectus, under which the Asset Manager has been appointed to act as the Asset Manager for a minimum term of two years from the date of Admission. Thereafter, the Asset Manager’s appointment shall continue unless the Company terminates such appointment by giving not less than 12 months’ written notice. The Asset Management Agreement will automatically terminate if the Investment Manager ceases to act as the Company’s investment manager. The Asset Manager will be responsible for the day-to-day discretionary management of the Group’s properties, and will provide certain administration services to the Company, in each case subject to the overall supervision of the Board.
Details of the fees and expenses payable to the Asset Manager are set out in paragraph 6 of this Part 5 below.
3. Administrator and Company Secretary
Langham Hall UK Services LLP has been appointed as the Administrator and Company Secretary to the Company to perform certain secretarial services and to provide certain accounting, administration and related support to the Asset Manager, to enable the Asset Manager to provide the day-to-day administration of the Company.
4. Depositary
Langham Hall UK Depositary LLP has been appointed as Depositary to provide cash monitoring, safekeeping and asset verification and oversight functions as prescribed by the AIFMD.
93 5. Registrar
Computershare Investor Services PLC has been appointed to provide registrar services to the Company pursuant to the Registrar Agreement. Under the Registrar Agreement the Registrar has responsibility for maintaining the register of Shareholders, receiving transfers of Ordinary Shares for certification and registration and receiving and registering Shareholders’ dividend payments together with related services.
6. Fees and Expenses
Formation and initial expenses
The formation and initial expenses of the Company are those which are necessary for the incorporation of the Company, the Issue and the Admission. These expenses include fees and commissions payable under the Placing Agreement (including all fees, commissions and expenses payable to the Intermediaries), which have been fixed at two per cent. of the Gross Issue Proceeds. Assuming 300 million Ordinary Shares are issued resulting in Gross Issue Proceeds of £300 million, the costs and expenses of the Issue payable by the Company will be £6 million. No costs will be charged to investors.
In addition, the expenses associated with the Initial Acquisitions (excluding the aggregate acquisition price of approximately £119.8 million) are anticipated to be approximately £7.1 million.
Such fees and expenses will be met by the Company and will be paid following Admission out of the Gross Issue Proceeds.
Ongoing annual expenses
Ongoing annual expenses will include the following:
• Investment Manager and Asset Manager
Under the terms of the Investment Management Agreement and the Asset Management Agreement, the Investment Manager and the Asset Manager will each be entitled to a fee which will be payable quarterly in arrear. The fees payable to the Investment Manager and the Asset Manager will, in aggregate, be equal to 7 per cent. per quarter of the Rent actually collected for that quarter. The fee payable to the Investment Manager will equal 3 per cent. per quarter of the Rent actually collected for that quarter. The fee payable to the Asset Manager will equal 4 per cent. per quarter of the Rent actually collected for that quarter.
No performance fee will be payable to either the Investment Manager or the Asset Manager.
The Investment Manager and the Asset Manager are each entitled to be reimbursed by the Company for all reasonable out-of-pocket expenses, disbursements, fees and costs incurred by the Investment Manager or the Asset Manager on behalf of the Company, or in relation to the Company’s business, including without limitation:
(a) any costs or expenses which relate to a potential investment opportunity of the Company considered by the Investment Manager but ultimately not completed;
(b) any acquisition costs of an investment made by the Company together with any capitalised expenses associated with such acquisition (including any irrecoverable VAT, legal expenses, other due diligence costs, brokerage, transfer taxes, capital duties and other Tax arising in connection with the acquisition);
94 (c) all fees, costs or expenses related to the actual or proposed acquisition, holding, custody or disposition of a prospective or actual investment;
(d) all costs of all legal, financial or other professional advisers and all independent consultants retained to advise the Investment Manager or the Asset Manager in respect of the Company, whether generally or with respect to potential acquisitions or realisations of investments by the Company;
(e) all out-of-pocket costs incurred in relation to: (i) analysing, negotiating, making, funding, owning, managing and realising investments and/or potential investments; (ii) any collateral realised on or in connection with any investment; and (iii) the exercise by the Investment Manager or the Asset Manager of any and all voting, conversion or other rights attaching to investments;
(f) all costs of the Auditor, professional valuers and other persons in the preparation of the annual audit of the Company and of valuations, certifications and other reports for the Company and its Shareholders;
(g) all costs of any administrators, custodians, depositaries, loan service providers and all costs related to any relevant databases used in connection with the Company;
(h) all costs including legal fees arising from any litigation or arbitration by or against the Company or any Property Holding Company and all reasonable legal fees incurred for the purposes of the Company or any Property Holding Company;
(i) all Tax and any statutory or regulatory fees, if any, levied against or in respect of the Company together with the costs of preparing any submission required by any Tax, statutory or regulatory authority;
(j) the amount of any irrecoverable VAT paid by the Investment Manager or the Asset Manager in relation to, or in connection with, the business or administration of the Company;
(k) the costs of any appropriate liability insurance (including without limitation warranty and indemnity insurance) taken out in respect of the Company, and any directors and officers’ liability insurance taken out in respect of any directors or officers of the Company, the Investment Manager, or the Asset Manager with respect to their duties to the Company; and
(l) the reasonable costs and expenses of meetings of the Company (including reasonable accommodation and travel costs in connection therewith).
The Investment Manager and the Asset Manager shall each bear its own day-to-day operating expenses and overheads. This includes, without limitation, compensation of its own professional staff, the cost of office space, office equipment, communications, utilities and other normal overhead expenses.
• Administrator and Company Secretary
Under the terms of the Administration and Company Secretary Agreement, the Administrator and Company Secretary is entitled to receive a fee of £60,000 per annum.
• Depositary
Under the terms of the Depositary Agreement, the Depositary is entitled to receive a fee of £40,000 per annum plus an additional fee of 0.4 basis points per annum on any capital raised by the Company in excess of £250 million. In addition, the Depositary may also be
95 entitled to additional annual fees if the Company undertakes more than eight acquisitions in any year or if the Company undertakes more than four share placings in any year.
• Registrar
Under the terms of the Registrar Agreement, the Registrar is entitled to an annual maintenance fee per Shareholder account per annum subject to a minimum annual fee. The Registrar is also entitled to certain transaction fees under the Registrar Agreement.
• Directors
Each of the Directors is entitled to receive a fee from the Company at such rate as may be determined in accordance with the Articles. Save for the Chairman, the initial fees will be £50,000 for each Director per annum. The Chairman’s initial fee will be £75,000 per annum.
Each of the Directors will also be entitled to be paid all reasonable expenses properly incurred by them in attending general meetings, board or committee meetings or otherwise in connection with the business of the Company. The Board may determine that additional remuneration may be paid, from time to time, to any one or more Directors in the event such Director or Directors are requested by the Board to perform extra or special services on behalf of the Company.
• Other operational expenses
Other ongoing operational expenses (excluding fees paid to service providers as detailed above) of the Company will be borne by the Company including travel, accommodation, printing, audit, finance costs, legal fees (including those incurred on behalf of the Company by the Investment Manager), corporate broking and financial advisory fees, annual London Stock Exchange fees and AIC membership fees. All reasonable out of pocket expenses of the Investment Manager, the Registrar, the Valuer, the Company’s other service providers and the Directors relating to the Company will be borne by the Company.
7. Conflicts of Interest
M7 and its officers and employees may from time to time act for other clients or manage or advise other funds, which may have similar investment objectives and policies to that of the Company. Circumstances may arise where investment opportunities will be available to the Company which are also suitable for one or more of such clients of M7 or such other funds. The Directors have satisfied themselves that M7 has procedures in place to address potential conflicts of interest.
Pursuant to the Investment Management Agreement, the Investment Manager will allocate any potential investment in the regional light industrial and regional office sectors that falls within the Investment Guidelines and that, as determined by the Investment Manager acting reasonably and in accordance with its duties under the AIFMD Rules, is suitable for the Company, to the Company in priority to any other clients of M7, except to the extent that such potential investment is subject to the Onyx Right of First Refusal described below. If the Investment Manager determines that a potential investment that falls within the Investment Guidelines is not suitable for the Company, the Investment Manager shall not, and shall procure that its Affiliates shall not, allocate such potential investment to any other client of M7 without first consulting with the Board and providing to the Board an explanation for the Investment Manager’s determination. The Investment Manager has also agreed that, for the duration of the Investment Management Agreement, it shall not act as the primary source of transactions on behalf of any pooled investment fund or managed account with an investment policy that is substantially the same as the Company, excluding any pooled investment fund or managed account established prior to Admission.
96 Pursuant to an agreement between Onyx Super Topco S.a.r.l. (“Onyx”), M7 Real Estate and M7 Real Estate Onyx LLP dated 29 December 2016 (the “Onyx Agreement”), M7 Real Estate agreed that, during an exclusivity period from 31 January 2017 until 31 January 2020, Onyx shall have a right of first refusal over the purchase of any industrial and/or logistics properties in the UK and Europe and portfolios where more than 66.67% of assets are in the industrial and/or logistics space (the “Onyx Right of First Refusal”). Onyx is a joint venture between Blackstone and M7 Real Estate and M7 Real Estate acts as the asset manager to the joint venture. To date all the acquisitions made under the Onyx Agreement have been of a significantly larger scale than the assets that will be targeted by the Company. Given the granular nature of the assets that the Company intends to target and the likely blend of asset mix in any portfolio targeted by the Company being below the 66.67% industrial and/or logistics threshold as set out in the Onyx Agreement, the Investment Manager and the Asset Manager believe that the Onyx Right of First Refusal will not in practice result in significant opportunities being allocated by the Investment Manager to Onyx over the Company.
The Investment Manager will at all times have regard to its obligations to the Company and will seek to ensure that conflicts are resolved fairly. The Directors have satisfied themselves that the Investment Manager has procedures in place to address potential conflicts of interest and that, where a conflict arises, the Investment Manager will allocate any opportunity to the Company on a fair basis.
The Board will also have responsibility for the oversight and management of conflicts of interest that may affect the Company. To the extent a potential acquisition or disposal would be a related party transaction for the purposes of the Listing Rules, or would otherwise present a conflict of interest for the Investment Manager, the Investment Manager must provide adequate notice of such proposed related party transaction to enable the Board and the Company to comply with the relevant Listing Rules that apply to related party transactions.
M7 and any of its directors, officers, employees, agents and affiliates and the Directors and any person or company with whom they are affiliated or by whom they are employed (each an “Interested Party”) may be involved in other financial, investment or other professional activities which may cause conflicts of interest with the Company. In particular, Interested Parties may provide services similar to those provided to the Company to other entities and shall not be liable to account for any profit from any such services. For example, an Interested Party may acquire on behalf of a client an investment in which the Company may invest.
8. Corporate Governance
The Board of the Company has considered the principles and recommendations of the AIC Code by reference to the AIC Guide. The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company as an investment company.
The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Corporate Governance Code), will provide better information to Shareholders.
The Financial Reporting Council (“FRC”), the UK’s independent regulator for corporate reporting and governance responsible for the UK Corporate Governance Code, has endorsed the AIC Code and the AIC Guide. The terms of the FRC’s endorsement mean that AIC members who report against the AIC Code and the AIC Guide meet fully their obligations under the UK Corporate Governance Code and the related disclosure requirements contained in the Listing Rules.
With effect from Admission, the Company intends to comply with the recommendations of the AIC Code and the relevant provisions of the UK Corporate Governance Code, except as set out below.
97 The UK Corporate Governance Code includes provisions relating to: the role of the chief executive; the appointment of a senior independent director; executive directors’ remuneration; and the need for an internal audit function. For the reasons set out in the AIC Guide, the Board considers these provisions are not relevant to the position of the Company, being an externally managed investment company and the Company does not, therefore, intend to comply with them.
The Company’s Audit Committee will be chaired by Peter Denton and, due to the size and independent nature of the Board, will consist of all the Directors. The Audit Committee will meet at least twice a year. The Board considers that the members of the Audit Committee have the requisite skills and experience to fulfil the responsibilities of the Audit Committee. The Audit Committee will examine the effectiveness of the Company’s risk management and internal control systems. It will review the half-yearly and annual reports and also receive information from the Investment Manager. It will also review the scope, results, cost effectiveness, independence and objectivity of the external auditor.
In accordance with the AIC Code the Company has established a Management Engagement Committee which will be chaired by Robert Bould and, due to the size and independent nature of the Board, will consist of all the Directors. The Management Engagement Committee will meet at least once a year or more often if required. Its principal duties will be to consider the terms of appointment of the Investment Manager and other service providers and it will annually review this appointment and the terms of the Investment Management Agreement.
In compliance with the FCA Handbook, the Investment Manager is also subject to the rules requiring the Investment Manager to treat all customers fairly. The Investment Manager has implemented a Treating Investors Fairly Policy, in which it sets out how it abides by the general principles of Article 12 of the AIFMD, with FCA Principle 6 regarding the fair treatment of customers and with the FCA six consumer outcomes concerning fair treatment of customers.
Directors’ share dealings
The Board has agreed to adopt and implement a dealing code for Directors and other persons discharging managerial responsibilities (“PDMRs”) such as the directors of the Company’s subsidiaries which imposes restrictions on conducting transactions in the Company’s securities beyond those imposed by law. Its purpose is to ensure that the Directors, other PDMRs and their closely associated persons do not abuse, and do not place themselves under suspicion of abusing, inside information they may be thought to have, in particular during periods leading up to an announcement of the Company’s results.
98 PART 6
ISSUE ARRANGEMENTS
1. The Issue
The Company is targeting an issue of up to 300 million Ordinary Shares pursuant to the Issue at the Issue Price of 100 pence per Ordinary Share. The Minimum Net Proceeds that the Company is seeking to raise is £147 million. In this Prospectus, the Placing, the Offer for Subscription and the Intermediaries Offer are together referred to as the “Issue”. The actual number of Ordinary Shares to be issued pursuant to the Issue, and therefore the Gross Issue Proceeds, are not known as at the date of this Prospectus but will be notified by the Company via a Regulatory Information Service announcement prior to Admission. The Issue is not being underwritten. The maximum Issue size should not be taken as an indication of the number of Ordinary Shares to be issued.
The aggregate proceeds of the Issue, after deduction of expenses relating to the incorporation of the Company, the Issue and Admission, are expected to be £294 million on the assumption that the Gross Issue Proceeds are £300 million.
Immediately following Admission, it is expected that more than 25 per cent. of the Company’s issued Ordinary Share capital will be held in public hands.
2. Reasons for the Issue and Use of Proceeds
The Company will use the Net Issue Proceeds to pay for: (i) the consideration for the Initial Acquisitions, together with associated costs and expenses, in the amount of approximately £126.9 million; (ii) the redemption of the Redeemable Preference Shares for £50,000; and (iii) new investments sourced and acquired in accordance with the Company’s investment objective and policy.
Until the Net Issue Proceeds are fully invested in accordance with the Investment Policy, and pending re-investment or distribution of cash receipts, the Company intends to hold such funds in cash and cash equivalents, or to invest them in near cash instruments and money market instruments.
3. The Placing
Barclays has agreed to use its reasonable endeavours to procure subscribers pursuant to the Placing for the Ordinary Shares on the terms and subject to the conditions set out in the Placing Agreement. The Issue is not being underwritten. Details of the Placing Agreement are set out in paragraph 7 of Part 9 of this Prospectus.
The terms and conditions which shall apply to any subscription for Ordinary Shares procured by Barclays are set out in Part 10 of this Prospectus. The Placing will close at 3.00 p.m. on 7 November 2017 (or such later date, as the Company, the Investment Manager and Barclays may agree, being no later than 30 November 2017). If the Placing is extended, the revised timetable will be notified through a Regulatory Information Service.
Each Placee agrees to be bound by the Articles (as amended from time to time) once the Ordinary Shares, which the Placee has agreed to subscribe for pursuant to the Placing, have been acquired by the Placee. The contract to subscribe for the Ordinary Shares under the Placing and all disputes and claims arising out of or in connection with its subject matter or formation (including non- contractual disputes or claims) will be governed by, and construed in accordance with, the laws of England and Wales. For the exclusive benefit of Akur and Barclays, the Company, the Investment Manager and the Registrar, each Placee irrevocably submits to the jurisdiction of the courts of
99 England and Wales and waives any objection to proceedings in any such court on the ground of venue or on the ground that proceedings have been brought in an inconvenient forum. This does not prevent an action being taken against the Placee in any other jurisdiction.
Commitments under the Placing, once made, may not be withdrawn without the consent of the Directors.
4. The Offer for Subscription
The Directors are also proposing to offer Ordinary Shares under the Offer for Subscription, subject to the terms and conditions of the Offer for Subscription set out in Part 11 of this Prospectus. These terms and conditions and the Offer for Subscription Application Form attached as Appendix 2 to this Prospectus should be read carefully before an application is made. The Offer for Subscription will close at 11.00 a.m. on 7 November 2017. If the Offer for Subscription is extended, the revised timetable will be notified through a Regulatory Information Service.
Applications under the Offer for Subscription must be for shares with a minimum subscription of 1,000 Ordinary Shares and then in multiples of 100 Ordinary Shares thereafter. Multiple applications will be accepted. Application Forms accompanied by a cheque or banker’s draft in sterling made payable to Computershare Investor Services PLC “RE: M7 Multi-Let REIT plc – OFS Application” for the appropriate sum should be returned to Computershare Investor Services PLC by no later than 11.00 a.m. on 7 November 2017. For applicants sending subscription monies by electronic bank transfer (CHAPS), payment must be made for value by no later than 11.00 a.m. on 7 November 2017. Please contact Computershare Investor Services PLC by email at [email protected] and Computershare Investor Services PLC will provide applicants with the bank account details, together with a unique reference number which must be used when sending payment.
Applicants choosing to settle via CREST on a delivery versus payment basis (“DVP”), will need to match their instructions to Computershare Investor Services PLC’s participant account 3RA13 by no later than 11.00 a.m. on 7 November 2017, allowing for the delivery and acceptance of Ordinary Shares to be made against payment of the Issue Price per Ordinary Share, following the CREST matching criteria set out in the Application Form.
Commitments under the Offer for Subscription, once made, may not be withdrawn without the consent of the Directors.
Please also refer to the section below headed “CREST”.
5. Intermediaries Offer
Investors may also subscribe for Ordinary Shares at the Issue Price of 100 pence per Ordinary Share pursuant to the Intermediaries Offer. Only the Intermediaries’ clients in the United Kingdom, the Channel Islands and the Isle of Man are eligible to participate in the Intermediaries Offer. Investors may apply to any one of the Intermediaries to be accepted as their client.
No Ordinary Shares allocated under the Intermediaries Offer will be registered in the name of any person whose registered address is outside the United Kingdom, the Channel Islands or the Isle of Man. A minimum application of 1,000 Ordinary Shares per Underlying Applicant will apply. Allocations to Intermediaries will be determined solely by the Company (following consultation with the Intermediaries Offer Advisers).
An application for Ordinary Shares in the Intermediaries Offer means that the Underlying Applicant agrees to acquire the Ordinary Shares applied for at the Issue Price. Each Underlying Applicant must comply with the appropriate money laundering checks required by the relevant Intermediary and all other laws and regulations applicable to their agreement to subscribe for Ordinary Shares.
100 Where an application is not accepted or there are insufficient Ordinary Shares available to satisfy an application in full, the relevant Intermediary will be obliged to refund the Underlying Applicant as required and all such refunds shall be made without interest. The Company, the Investment Manager, Barclays, Akur and Intermediaries Offer Advisers accept no responsibility with respect to the obligation of the Intermediaries to refund monies in such circumstances.
Each Intermediary has agreed, or will on appointment agree, to the Intermediaries Terms and Conditions, which regulate, inter alia, the conduct of the Intermediaries Offer on market standard terms and provide for the Intermediaries Offer Advisers to procure the payment of a commission and/or fee (to the extent permissible by the rules of the FCA) to Intermediaries from the Company if such Intermediary elects to receive a commission and/or fee. Pursuant to the Intermediaries Terms and Conditions, in making an application, each Intermediary will also be required to represent and warrant that they are not located in the United States and are not acting on behalf of anyone located in the United States.
In addition, the Intermediaries may prepare certain materials for distribution or may otherwise provide information or advice to investors in the United Kingdom, subject to the terms of the Intermediaries Terms and Conditions. Any such materials, information or advice are solely the responsibility of the relevant Intermediary and will not be reviewed or approved by any of the Company, the Investment Manager, Barclays, Akur or the Intermediaries Offer Advisers. Any liability relating to such documents shall be for the relevant Intermediaries only.
The Intermediaries Terms and Conditions provide for the Intermediaries to have an option (where the payment of such commission and/or fee is not prohibited) to be paid a commission and/or fee which shall be procured by the Intermediaries Offer Advisers where they have elected to receive such commission and/or fee in respect of the Ordinary Shares allocated to and paid for by them pursuant to the Intermediaries Offer.
6. Conditions to the Issue
The Issue is conditional, inter alia, on:
6.1 the Conditional Acquisition Agreements becoming wholly unconditional (save as to Admission);
6.2 the Placing Agreement becoming wholly unconditional in respect of the Issue (save as to Admission) and not having been terminated in accordance with its terms at any time prior to Admission;
6.3 Admission having become effective on or before 8.00 a.m. on 13 November 2017 or such later time and/or date as the Company, the Investment Manager and Barclays may agree, being no later than 30 November 2017; and
6.4 the Minimum Net Proceeds being raised.
Shares may be allotted pursuant to the Issue if the Minimum Net Proceeds are raised and the offer conditions above are satisfied.
In the event that the Company, in consultation with Barclays and Akur, wishes to waive condition 6.4 referred to above, the Company will be required to publish a supplementary prospectus (including a working capital statement based on a revised Minimum Net Proceeds figure).
The Directors also have the discretion not to proceed with the Issue if all of the above conditions have been met. If the Issue does not proceed, any monies received under the Issue will be returned to applicants without interest within 14 days at the applicants’ risk.
101 7. Scaling Back and Allocation
In the event that commitments under the Issue exceed the maximum number of Ordinary Shares available, applications under the Issue will be scaled back at the Company’s discretion in consultation with Akur and Barclays. The Company does not intend to scale back the applications for subscription received from M7 Real Estate, Richard Croft, David Ebbrell, Andrew Jenkins, Teresa Gilchrist and the Directors that are described at Paragraph 13 of Part 6 of this Prospectus.
Save for the applications for subscription received from M7 Real Estate, Richard Croft, David Ebbrell, Andrew Jenkins, Teresa Gilchrist and the Directors that are described at Paragraph 13 of Part 6 of this Prospectus, there will be no priority given to applications under the Placing, applications under the Offer for Subscription or applications under the Intermediaries Offer pursuant to the Issue.
8. The Main Market and the Official List
The main market of the London Stock Exchange is an EU regulated market. Consequently, upon Admission, the Company will be subject to the Listing Rules, the Prospectus Rules, the Disclosure Guidance and Transparency Rules and the Market Abuse Regulation.
9. The Placing Agreement
The Placing Agreement contains provisions entitling Barclays to terminate the Issue (and the arrangements associated with it) at any time prior to Admission in certain circumstances. If this right is exercised, the Issue and these arrangements will lapse and any monies received in respect of the Issue will be returned to each applicant without interest within 14 days at the applicant’s risk.
The Placing Agreement provides for Barclays and Akur to be paid commission by the Company in respect of the Ordinary Shares to be allotted pursuant to the Issue. Any Ordinary Shares subscribed for by Barclays or Akur may be retained or dealt in by them for their own benefit.
Barclays and Akur are also entitled under the Placing Agreement to retain agents.
Further details of the terms of the Placing Agreement are set out in paragraph 7 of Part 9 of this Prospectus.
10. General
Pursuant to anti-money laundering laws and regulations with which the Company must comply in the UK, the Company and its agents (and their agents) may require evidence in connection with any application for Ordinary Shares, including further identification of the applicant(s), before any Ordinary Shares are issued to that applicant.
In the event that there are any significant changes affecting any of the matters described in this Prospectus or where any significant new matters have arisen after the publication of this Prospectus and prior to Admission, the Company will publish a supplementary prospectus. The supplementary prospectus will give details of the significant change(s) or the significant new matter(s).
The Directors (in consultation with Akur and Barclays) may in their absolute discretion waive the minimum application amounts in respect of any particular application for Ordinary Shares under the Issue.
11. Admission, Clearing and Settlement
Applications will be made to the UK Listing Authority for all of the Ordinary Shares to be issued pursuant to the Issue to be admitted to the premium segment of the Official List and to the London
102 Stock Exchange for such Ordinary Shares to be admitted to trading on the premium segment of the London Stock Exchange’s main market for listed securities. It is expected that Admission will become effective and dealings will commence on 13 November 2017.
Ordinary Shares will be issued in registered form and may be held in either certificated or uncertificated form. In the case of Ordinary Shares to be issued in uncertificated form pursuant to the Issue, these will be transferred to successful applicants through the CREST system.
Where applicable, definitive share certificates in respect of the Ordinary Shares are expected to be despatched by post at the risk of recipients to the relevant holders in the week beginning 13 November 2017. Prior to the despatch of definitive share certificates in respect of any Ordinary Shares which are held in certificated form, transfer of those Ordinary Shares will be certified against the Register. No temporary documents of title will be issued.
The ISIN number of the Ordinary Shares is GB00BF04B031 and the SEDOL code is BF04B03.
The Company does not guarantee that at any particular time market maker(s) will be willing to make a market in the Ordinary Shares, nor does it guarantee the price at which a market will be made in the Ordinary Shares. Accordingly, the dealing price of the Ordinary Shares may not necessarily reflect changes in the Net Asset Value per Ordinary Share.
12. CREST
CREST is a paperless settlement procedure enabling securities to be evidenced otherwise than by a certificate and transferred otherwise than by written instrument. The Articles permit the holding of Ordinary Shares under the CREST system. The Company has applied for the Ordinary Shares to be admitted to CREST with effect from Admission. Accordingly, settlement of transactions in the Ordinary Shares following Admission may take place within the CREST system if any Shareholder so wishes.
13. Material Interests
In addition to being asset manager to Marble and REIP II, M7 Real Estate also holds 0.89 per cent. of Marble’s issued share capital and 27.33 per cent. of REIP II’s issued share capital and is one of the sellers in the Initial Acquisitions.
M7 Real Estate intends to subscribe for 7 million Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, M7 Real Estate will hold 2.33 per cent. of the Company’s issued share capital following Admission.
Richard Croft, the Chief Executive Officer of M7 Real Estate, intends to subscribe for 100,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, Richard Croft will hold 0.033 per cent. of the Company’s issued share capital following Admission.
Andrew Jenkins, the Chief Operating Officer of M7 Real Estate, intends to subscribe for 100,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, Andrew Jenkins will hold 0.033 per cent. of the Company’s issued share capital following Admission.
David Ebbrell, the Chief Investment Officer of M7 Real Estate, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, David Ebbrell will hold 0.017 per cent. of the Company’s issued share capital following Admission.
103 Teresa Gilchrist, the Head of Investor Relations and New Business of M7 Real Estate, intends to subscribe for 30,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, Teresa Gilchrist will hold 0.01 per cent. of the Company’s issued share capital following Admission.
Stephen Smith, the independent non-executive chairman of the Board of the Company, intends to subscribe for 75,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, Stephen Smith will hold 0.025 per cent. of the Company’s issued share capital following Admission.
Robert Bould, an independent non-executive director of the Company, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, Robert Bould will hold 0.017 per cent. of the Company’s issued share capital following Admission.
Peter Denton, an independent non-executive director of the Company, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, Peter Denton will hold 0.017 per cent. of the Company’s issued share capital following Admission.
Gerald Parkes, an independent non-executive director of the Company, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Assuming that the Company issues 300 million Ordinary Shares, Gerald Parkes will hold 0.017 per cent. of the Company’s issued share capital following Admission.
The Issue will proceed whether or not any of the above investors do so subscribe, subject to the Minimum Net Proceeds being raised.
14. Profile of a Typical Investor
The Ordinary Shares available under the Issue are designed to be suitable for institutional and sophisticated investors and professionally-advised private investors. The Ordinary Shares may also be suitable for investors who are financially sophisticated, non-advised private investors who are capable of evaluating the risks and merits of such an investment and who have sufficient resources to bear any loss which may result from such an investment. Such investors may wish to consult an independent financial adviser who specialises in advising on the acquisition of shares and other securities before investing in the Ordinary Shares.
15. Overseas Persons
Potential investors in any territory other than the United Kingdom should refer to the notices set out in the section entitled “Important Information” of this Prospectus.
The Company reserves the right to treat as invalid any agreement to subscribe for Ordinary Shares under the Issue if it appears to the Company or its agents to have been entered into in a manner that may involve a breach of the securities legislation of any jurisdiction.
104 PART 7
VALUATION REPORT 3 Brindleyplace Birmingham B1 2JB
T: +44 (0)8449 02 03 04 F: +44 (0)121 609 8314
Our Ref: RM20/MS17/JG09 gva.co.uk
10 October 2017
M7 Multi-Let REIT plc 5th Floor, 5 Old Bailey London EC4M 7BA
M7 Real Estate Ltd The Monument Building 11 Monument Street London EC3R 8AF
M7 Real Estate Financial Services Ltd The Monument Building 11 Monument Street London EC3R 8AF
Barclays Bank PLC 5 The North Colonnade Canary Wharf London E14 4BB
Akur Limited 66 St James’s Street London SW1A 1NE
Dear Sirs
Property Valuation of the portfolio of 93 properties held by Marble Acquisitions Ltd and M7 Real Estate Investment Partners II Limited
In accordance with your instructions we now report formally our valuation of the subject portfolio. We are instructed, as external valuers, to report to you our opinion of Market Value of the individual properties within the portfolio as at 30 September 2017.
GVA is the trading name of GVA Grimley The valuation report has been prepared for the purpose of inclusion in Limited registered in England and Wales number 6382509. Registered office, the prospectus published by M7 Multi-Let REIT plc on 10 October 2017 3 Brindleyplace, Birmingham B1 2JB. (the “Prospectus”) in connection with the Placing, Offer for Subscription Regulated by RICS. Birmingham Bristol Cardiff Dublin and Intermediaries Offer being conducted by M7 Multi-Let REIT plc and Edinburgh Glasgow Leeds Liverpool the subsequent admission to listing on the premium listing segment of London Manchester Newcastle the Official List of the United Kingdom Listing Authority and admission to trading on the premium segment of the main market for listed securities of the London Stock Exchange (the “Listing”) of its ordinary shares.
105 We draw your attention to the Definitions and Reservations for Valuations to which our advice is subject and to the Terms of Engagement agreed between us.
Valuation
We are of the opinion that the aggregate of the Market Values of the freehold, heritable and leasehold properties, as identified within the attached schedule at Appendix 1, as at 30 September 2017 was:
£119,900,000 (One Hundred and Nineteen Million, Nine Hundred Thousand Pounds)
The Market Values are apportioned as followed:
Type of Property Number Valuation Freehold 59 £60,095,000 Heritable 13 £19,395,000 Leasehold 15 £27,560,000 Freehold & Leasehold 4 £10,990,000 Heritable & Leasehold 2 £1,860,000 Total 93 £119,900,000
All valuations are reported exclusive of VAT.
Basis of Value
We confirm that the valuations have been undertaken by us as qualified surveyors and in accordance with the RICS Valuation – Global Standards 2017 in particular in accordance with the requirements of VPS 3 and UKVS4 and IFRS 13. The valuation is a Regulated Purpose Valuation as defined in the Red Book.
We further confirm that our valuations and report have been prepared in accordance with the relevant provisions of Rule 5.6.5G of the Prospectus Rules published by the Financial Conduct Authority and Paragraphs 128 to 130 of the European Securities and Markets Authority’s (“ESMA”) update to the Committee of European Securities Regulators’ (CESR) recommendations for the consistent implementation of the European Commission’s Regulation of Prospectuses No. 809/2004 (“ESMA Guidelines”). We also confirm that unless otherwise defined, terms have the meaning given to them in the above sources.
The properties are all held for investment purposes and have been valued on the basis of Market Value. We have adopted a market based valuation for the properties with reference to available rental and sales comparables.
Our valuation is subject to our Definitions and Reservations that apply to all United Kingdom valuations, a copy of which is attached, different parts of which may relate to different properties.
The properties have been valued individually and not as a portfolio. No account has been taken of any discount or premium that may be negotiated in the market place if the properties were to be offered either as a single portfolio or by grouping a number of individual properties into lots. No allowance has been made in our valuation for the expenses of realisation or for taxation that may arise in the event of disposal and our valuation is expressed exclusive of any VAT that may become chargeable. The reported valuation figures are net of the purchaser’s notional acquisition costs.
106 The properties have been inspected externally during August and September 2017 and internally inspected in September 2014. We have previously measured the majority of the accommodation as at September 2014. Where we were unable to access a unit/property, we have relied on the floor areas provided by M7. We have reasonably assumed that the floor areas within the tenancy schedule provided were prepared in accordance with the Code of Measuring Practice (6th Edition). Unless otherwise advised, we have assumed that there have been no changes to the properties which would affect the valuation. Our measured survey was carried out in accordance with the RICS Code of Measuring Practice, 6th edition.
Status of Valuer
This valuation has been prepared by a number of surveyors under the supervision of Rebecca Millard MRICS. We can confirm that they are all RICS Registered Valuers and have the knowledge, skills and understanding to undertake this valuation competently
Nature and source of information to be relied upon
M7 have provided us with up to date tenancy and sales information for the properties. We have also had discussions with the relevant asset manager for each property in respect of any current negotiations and other on-going management issues. We have relied upon the accuracy of this information when preparing our valuations.
We have been provided with Certificates on Title and overview reports prepared on the properties by Greenburg Traurig LLP and DWF LLP. Our valuations take into account the contents of these reports.
Town Planning and Highways
Where considered appropriate we have made oral enquiries of the relevant Town Planning and Highways Authorities in respect of matters that may have a material effect on value. No responsibility will be taken for the accuracy of the information given.
We have assumed that each of the properties has been constructed, or is being constructed, and occupied or used within all the relevant consents and that there are no outstanding statutory notices.
Repairs
We have not undertaken any building survey on the properties within the portfolio although where independent reports have been commissioned and supplied to us they have been read. We are therefore unable to comment as to whether all properties are free from structural fault, rot, infestation or defects of any other nature or any inherent weaknesses due to the construction materials. No tests were carried out on the services within the properties.
We have not investigated the ground conditions and therefore have assumed that, subject to any comments related to environment issues below, the load bearing qualities of each site are sufficient to support the building or buildings constructed or to be constructed on the site without abnormal costs on foundations or services.
Environmental Matters
In accordance with the RICS Practice Standards Guidance Note, ‘Contamination, the Environment and Sustainability’, 3rd Edition – dated April 2010, we acknowledge that some properties may be affected by environmental issues that are an inherent feature of either the property itself, or the surrounding area, and could have an impact on the value of the property interest. Therefore, the
107 following paragraphs describe the underlying assumptions we have made regarding environmental issues.
We have been instructed not to make any investigations, in relation to the presence or potential presence of contamination or other environmental features in land or buildings affecting the properties.
We have not carried out any investigation into past uses, either of the properties or any adjacent land, to establish whether there is any potential for contamination from such uses or sites, and unless we have been provided with information to the contrary, we have therefore assumed that none exists.
In practice, purchasers in the property market do require knowledge about contamination and other environmental factors. A prudent purchaser of these properties would be likely to require appropriate investigations to be made to assess any risk before completing a transaction. Should it be established that contamination does exist, or the properties are affected by other environmental factors, this might reduce the value now reported.
We have previously had sight of historic Phase 1 Environmental Reviews prepared by Ambiente International LLP or Environmental Risk Assessment Summary Reports prepared by Enviros for the majority of the properties. Unless we have been provided with information to the contrary, we have assumed that none of the properties are, or are likely to be affected by land contamination. Also we have assumed that future development would not be curtailed by the existing ground conditions. Should it be discovered at a later date that a property within the portfolio, or an area in close proximity, is contaminated then it is likely to have negative effect on the value of that asset.
Disclosures
We confirm that GVA Grimley Limited (‘GVA’) meets the requirement of the client in the role of External Valuer.
We also confirm that in relation to the total fee income earned by GVA from M7 Real Estate Ltd in the last financial year was less than 5% of the total fee income of GVA. We acknowledge and support the RICS Rules of Conduct and have methods of identifying conflicts of interest.
Valuations and Reports are only for the use of the party to whom they are addressed. They may be disclosed only to other professional advisors assisting in respect of the Listing. No responsibility is accepted to any third party for the whole or any part of the contents.
However, for the purposes of Annex I item 23.1 of the European Commission Regulation No. 809/2004, GVA consents to the inclusion of this valuation report in the Prospectus. For the purposes of Prospectus Rule 5.5.3R(2)(f), GVA accepts responsibility for the information within this report and declares that it has taken all reasonable care to ensure that the information contained in this report is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in compliance with Annex I item 1.2 of the European Commission Regulation No. 809/2004. With the exception of the Prospectus, neither the whole nor any part of a valuation, report or other document or any reference thereto may be included in any published article, document, circular or statement or published in any way without prior written approval of GVA of the form and context in which it may appear.
Reports should be considered in their entirety and should only be used within the context of the instructions under which they are prepared.
108 Yours faithfully
Rebecca Millard MRICS Mark Shelley MRICS RICS Registered Valuer RICS Registered Valuer Senior Director Director [email protected] [email protected] 0121 609 8044 0121 609 8658 Valuation Consultancy Valuation Consultancy For and on behalf of GVA Grimley Limited For and on behalf of GVA Grimley Limited
109 APPENDIX 1 – SCHEDULE OF VALUES
Ref Property Postal Address Surveyor Qualifications Inspection Sector Tenure Passing Rent Market Value Comments Date 30/09/2017 30/09/2017
Marble Properties 1 30 Fern Close, Pen-y-fan Steve Gibbon FRICS 04/09/2017 Industrial Freehold £80,000 £820,000 Industrial Estate, Oakdale, Gwent, NP11 3EH 2 Albion Industrial Estate, Cllfynydd, John MRICS 30/08/2017 Industrial Freehold £220,528 £2,735,000 Pontypridd, CF37 4NX Townsend
3 Albion Way, East Kilbride, Stuart Jolly MRICS 18/07/2017 Industrial Heritable £112,630 £1,865,000 G75 0YN
4 Alexander Works, Mountain Ash, Samantha MRICS 23/08/2017 Industrial Freehold £18,000 £145,000 Rhondda Cynon Taff, CF45 4EY Booth
5 Alltwen Industrial Estate, Carys MRICS 11/08/2017 Industrial Freehold £0 £400,000 Under offer at £400,000 for residential Pontardawe, Swansea, SA8 3DE Chandler development. Due to complete end of October 2017.
110 6 Unit B, Amberley Drive, Sinfin, Mark Shelley MRICS 05/09/2017 Industrial Leasehold £310,000 £4,800,000 999 year lease from May 2003 at a Derby, DE24 9RE peppercorn rent.
7 Units 1, 2, 11 & 15 Apex Court, Clare MRICS 23/08/2017 Office Freehold £49,858 £700,000 Almondsbury, Bristol, BS32 4JT Horrocks
8 ARD Business Park, Pontypool, Steve Gibbon FRICS 04/09/2017 Industrial Leasehold £111,620 £1,035,000 NP4 0SQ
9 Units 1-3, Block 3, Baldovie Derek Reid MRICS 25/07/2017 Industrial Heritable £33,000 £275,000 Industrial Estate, Dundee, DD4 0NT 10 Units 5 & 6, Bedwas Business John MRICS 30/08/2017 Industrial Freehold £57,232 £680,000 Park, Caerphilly, CF83 8DU Townsend
11 Bonnyton Industrial Estate, Stuart Jolly MRICS 18/07/2017 Industrial Heritable £36,000 £365,000 Kilmarnock, KA1 2NP
12 Units 11 & 14, Boston Court, Adam Mason MRICS 07/09/2017 Industrial Leasehold £227,000 £1,760,000 Unit 11 is held long leasehold for 99 Salford, Lancashire, M50 2GN years from 1 February 1988. Unit 14 is held long leasehold for 99 years from 31 March 1989 (lease also includes an option to renew for a further 26 years). Total combined ground rent payable across both units is £33,020 pa. Comments Previously held Long Leasehold but now Heritable following Long Leases (Scotland) Act 2012. We understand that a new lease has We been agreed with the Council on Suite 13 subject to a 2 month rent free period. hands. This deal is in solicitors’ 30/09/2017 Market Value £835,000 £3,820,000 £940,000 £980,000 £1,235,000 £1,840,000 £315,000 £1,130,000 £2,765,000 £775,000 £980,000 £2,385,000 £1,030,000 30/09/2017 Passing Rent £25,954 £108,855 £94,679 £270,837 £100,054 £152,383 £120,000 £235,000 £110,540 £116,865 £115,960 £262,057 £42,838 Tenure Freehold Freehold Leasehold Freehold Freehold Heritable Freehold Heritable Freehold Freehold Heritable Heritable Freehold Sector Industrial Office Industrial Industrial Industrial Industrial Retail Retail Industrial Industrial Industrial Industrial Industrial Date Inspection 22/08/2017 22/07/2017 07/09/2017 04/09/2017 01/09/2017 18/07/2017 29/08/2017 11/08/2017 20/08/2017 25/07/2017 22/08/2017 26/09/2017 17/07/2017 Qualifications MRICS FRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS Surveyor Stuart Jolly John Townsend Samantha Booth Richard Maden Derek Reid Hannah Munn Steve Gibbon Antony Clark Stuart Jolly Carys Chandler Josh Spicer Samantha Booth Derek Reid Property Postal Address Property Postal Ely Industrial Estate, Porth, Williamstown, Tonyrefall, CF40 1RA Formal House & Estate, Oldmixon Crescent, Weston-Super-Mare, Somerset, BS24 9AH Cornwall Place, Buckingham, Buckinghamshire, MK18 1SB Empress Court, Greenock, PA15 4RW Brecon House, Llanfarnam Park, Cwmbran, NP44 3AB Avenue, Units 17 & 39, Millers Brynmenyn Industrial Estate, Bridgend, CF32 9TP Carlyon Road Industrial Estate, Atherstone, Warwickshire, V9 1JH Dinas Isaf Industrial Estate, Williamstown, Tonyrefall, CF40 1NY Blocks 5, 13 & 17, Donibristle Industrial Estate, Dalgety Bay, 9JU KY11 Carbrain Industrial Estate, Cumbernauld, G67 2UH Cwmbach Industrial Estate, Cwmbach, Aberdare, Mid Glamorgan, CF44 0AE Dixon Place, East Kilbride, G75 5JF Deans Court Shopping Centre, Oxfordshire, OX26 6RD Bicester, 17 22 Ref Marble Properties 13 14 16 19 21 23 25 15 18 20 24
111 Comments Unit 1 is under offer at a price of Unit 1 is under offer £2,080,000. Freehold to be retained. 30/09/2017 Market Value £1,240,000 £2,080,000 £590,000 £200,000 £1,140,000 £165,000 £1,130,000 £1,680,000 £880,000 £860,000 £1,170,000 £5,660,000 30/09/2017 Passing Rent £21,826 £499,865 £74,417 £73,800 £212,740 £126,918 £16,333 £117,211 £76,000 £600 £89,681 £92,696 Tenure Freehold Freehold Freehold Freehold Freehold Freehold Freehold Leasehold Freehold Freehold Freehold Freehold Sector Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Date Inspection 23/08/2017 04/09/2017 30/08/2017 30/08/2017 05/09/2017 04/09/2017 22/08/2017 18/08/2017 22/08/2017 22/08/2017 14/09/2017 04/09/2017 Qualifications MRICS FRICS MRICS MRICS MRICS MRICS MRICS MRICS FRICS FRICS MRICS MRICS Surveyor John Townsend Steve Gibbon Samantha Booth John Townsend Adam Mason Rachel Whittaker Steve Gibbon Samantha Booth Steve Gibbon Samantha Booth Jayne Griffin Richard Maden Property Postal Address Property Postal Goldthorpe Industrial Estate, Yorkshire, Goldthorpe, South S63 9BL Forward House, Western Industrial Estate, Caerphilly, CF83 8DW Gelligron Industrial Estate, CF39 8ES Tonyrefall, Gasworks Road Industrial Estate, Aberdare, CF44 6RS Aberaman, Units 1-6 & 32-46, Gelli Industrial Estate, Pentre, CF42 7UW Highfields Industrial Estate, Ferndale, Mid Glamorgan, CF43 4SX Greenway Workshops, Bedwas Greenway Workshops, House Industrial Estate, CF83 8DW Caerphilly, Guardian Road Industrial Estate, Guardian Road, Norwich, NR5 8PF High Post Business Park, Wiltshire, Highpost, Salisbury, SP4 6AT Frederick House, Dunkinfield, Hyde, SK14 4QD Hadnock Road Industrial Estate, Monmouth, Gwent, NP25 3QG Hirwaun Industrial Estate, Hirwaub, Aberdare, Mid- Glamorgan, CF44 9UP 37 Ref 26 30 33 35 36 Marble Properties 28 29 31 32 34 27
112 Comments The Company owns both the heritable and leasehold interest however on the basis that both interests are registered and no approach has been made to the Registers of Scotland to confirm that confusio applies both interests continue The lease is a 125 year ground to exist. lease at £1 pa if asked, with an option to purchase for £1. The property is held freehold under title numbers LA512020 and LA715687. Other areas of land and buildings within the subject property are held long leasehold under title numbers LA512021, LA715688, LA792349 and The length of the long LA869079. leasehold titles range between 800 years and 1000 years. Our valuation assumes that all ground rents are at a peppercorn rent. 30/09/2017 Market Value £1,100,000 £5,100,000 £1,300,000 £165,000 £6,240,000 £1,025,000 £440,000 £340,000 £750,000 £910,000 30/09/2017 Passing Rent £42,549 £88,560 £85,000 £22,500 £102,130 £745,591 £41,134 £0 £8,466 £404,660 Tenure Heritable and Leasehold Freehold and Leasehold Leasehold Freehold and Leasehold Freehold Heritable Heritable Leasehold Leasehold Freehold Sector Industrial Industrial Industrial Office Industrial Industrial Industrial Industrial Industrial Industrial Date Inspection 14/09/2017 22/07/2017 11/08/2017 29/08/2017 18/07/2017 22/07/2017 04/09/2017 18/08/2017 23/08/2017 18/07/2017 Qualifications MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS Surveyor Derek Reid Samantha Booth Carys Chandler John Townsend Adam Mason Jayne Griffin Sam Vinall Stuart Jolly Derek Reid Stuart Jolly Property Postal Address Property Postal Llwyncelyn Industrial Estate, Porth, CF39 8ES India Mill Business Centre, Bolton Road, Darwen, Lancashire, BB3 1AE Airport Units 1-22, Javelin Road, Industrial Estate, Norwich, NR6 6HX Units 8-15, Lidgate Crescent, Langthwaite Grange Industrial WF9 3NR Estate, South Kirby, Llantarnam Park Industrial Estate, Cwmbran, NP44 3HD Imperial Park, Paisley, PA1 2FB PA1 Imperial Park, Paisley, Lenziemill Industrial Estate, Cumbernauld, G67 2NJ Unit 1, Links Court, St Mellons CF3 0LT Business Park, Cardiff, Lochshore East Industrial Estate, Glengarnock, KA14 3DB Imex Business Centre, Craig Leith Road, Stirling, FK7 7LQ 42 44 47 Ref Marble Properties 38 40 41 43 45 39 46
113 Comments 30/09/2017 Market Value £625,000 £830,000 £115,000 £1,410,000 £1,235,000 £640,000 £1,525,000 £550,000 £1,330,000 £270,000 £220,000 £40,000 £650,000 30/09/2017 Passing Rent £0 £125,000 £14,910 £58,299 £99,184 £101,783 £64,172 £68,600 £23,558 £143,613 £42,000 £61,973 £8,000 Tenure Leasehold Leasehold Freehold Freehold Freehold Freehold Leasehold Heritable Heritable Freehold Freehold and Leasehold Freehold Freehold Sector Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Date Inspection 10/08/2017 17/08/2017 18/07/2017 08/09/2017 30/08/2017 22/08/2017 18/08/2017 25/07/2017 31/08/2017 22/07/2017 05/09/2017 23/08/2017 18/07/2017 Qualifications MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS Surveyor Derek Reid Kristian Williams Jayne Griffin Stuart Jolly John Townsend Patrick Good Derek Reid Mark Shelley Richard Maden Rachel Whittaker Samantha Booth Stuart Jolly Carys Chandler Property Postal Address Property Postal Units 1-16, Meteor Close, Airport Units 1-16, Meteor Close, Industrial Estate, Norwich, NR6 6HQ Maritime Workshops, Maritime Maritime Workshops, Industrial Estate, Pontypridd, CF37 1NY Unit 2, Martinfields Business Garden City, Centre, Welwyn Hertfordshire, AL7 1HG Motherwell Business Centre, Coursington Road, Motherwell, ML1 1PW B2 & D1, venture Crescent, Motorway Link Industrial Estate, Alfreton, Derbyshire, DE55 7RA Units 2a & 2b, Nash Mead, New Quay Road, Newport, NP19 4SU Industrial Estate, Yard Navigation Ash, Rhondda Cynon Mountain CF45 4EY Taff, Paddockholm Industrial Estate, Riverside Place, Kilbirnie, KA25 7PW Lochshore South Industrial Estate, Glengarnock, KA14 3AW Units 2-4, Millfield Industrial Estate, Chard, Somerset, TA20 2BB Units 5 & 6, Loverock Road Industrial Estate, Reading, Berkshire, RG30 1EA Mitchelston Industrial Estate, Midfield Court, Kirkcaldy, KY1 3PB Lane, Lynn Norton Works, WS14 0EA Staffordshire, 54 57 52 Ref 49 50 51 55 56 60 Marble Properties 48 53 58 59
114 Comments 30/09/2017 Market Value £1,135,000 £570,000 £1,190,000 £950,000 £1,120,000 £1,030,000 £215,000 £600,000 £2,100,000 £1,110,000 £2,410,000 30/09/2017 Passing Rent £97,300 £23,997 £51,950 £121,006 £116,021 £50,000 £99,082 £45,653 £90,339 £118,725 £130,000 Tenure Freehold Freehold Freehold Freehold Freehold Freehold Freehold Freehold Freehold Freehold Freehold Sector Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Date Inspection 10/08/2017 22/08/2017 10/08/2017 11/08/2017 04/09/2017 11/09/2017 23/08/2017 10/08/2017 10/08/2017 04/09/2017 12/09/2017 Qualifications MRICS MRICS MRICS MRICS MRICS MRICS MRICS FRICS MRICS FRICS MRICS Surveyor Carys Chandler Samantha Booth Carys Chandler Carys Chandler Samantha Booth Carys Chandler Carys Chandler Hannah Munn Steve Gibbon Hayley Kibbler Steve Gibbon Property Postal Address Property Postal Priority Workshops, Priority Priority Workshops, Barry, Enterprise Park, Sully View, of Glamorgan, CF63Vale 2BG Avenue Units 1-22, Purcell Talbot, Industrial Estate, Port SA12 7PT Units 18-21, Queensway Meadows Industrial Estate, Estuary Road, Newport, NP19 4SP 2 & 4, Redwongs Way, Huntingdon, PE29 7HB Selly Oak Industrial Estate (Units 5 - 8), Elliott Road, Birmingham B29 6LR Palmerston Workshops, of Vale Palmerston Road, Barry, Glamorgan, CF63 2TZ Pontcynon Industrial Estate, Ash, Rhondda Cynon Mountain CF45 4EY Taff, Uits 1-26, Pontymister Industrial Newport, Estate, Pontymister, 6NP NP11 Rassau Industrial Estate, Ebbw Blaenau Gwent, NP23 5SD Vale, Rising Sun Industrial Estate, Blaina, Blaenau Gwent, NP13 3JW Penycraig Industrial Estate, CF40 1JN Tonypandy, 63 66 69 71 Ref Marble Properties 62 64 65 70 61 68 67
115 Comments Unit 6 is held long leasehold for 999 years from 7 February 1997 at a contracted rent of Total peppercorn rent. factors in rent £330,000 pa. Valuation which free period up until 18/11/2017 was agreed as part of the new lease to from 03/07/17. Track Pallet the of river erosion affecting Aware northern side of the site, which may impact value, dependant on the nature and cost of any necessary remedial works. In the absence of specific costings, we are unable to speculate what this may be. However should it later be established that these are significant, this may have a direct material impact and we would require the opportunity to re-assess value provided. Previously long leasehold but now Heritable following Long Leases (Scotland) Act 2012. 30/09/2017 Market Value £4,420,000 £1,070,000 £2,625,000 £1,380,000 £910,000 £450,000 £1,540,000 £840,000 30/09/2017 Passing Rent £44,380 £73,410 £0 £210,000 £138,133 £92,018 £89,211 £106,570 Tenure Freehold Heritable Freehold Leasehold Freehold Leasehold Heritable Freehold Sector Industrial Industrial Industrial Industrial Industrial Industrial Industrial Retail Date Inspection 29/08/2017 18/07/2017 08/09/2017 20/08/2017 20/09/2017 14/09/2017 02/09/2017 22/07/2017 Qualifications MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS Surveyor Adam Mason Richard Maden Stuart Jolly Kristian Williams Derek Reid Josh Spicer Hayley Kibbler Adam Mason Property Postal Address Property Postal Unit 6, South Lancashire Industrial Estate, Lockett Road, Ashton in Makerfield, Wigan, WN4 8DE Road, Town The Quadrant, Stoke-on-Trent, Hanley, ST1 2QD Staffordshire, The Rutherford Centre, Rutherford Road, Basingstoke, Hampshire, RG24 8PB Blocks 1-5, Castlehill Industrial Threave Court, Carluke, Estate, ML8 5UF The Booths Industrial Estate, Road, Ilkeston, Awsworth Erewash, DE7 8HX Stable Hobba Industrial Estate, Newlyn, Penzance, Cornwall, TR20 8TL Industrial Estate. Way Telford Kettering, Northamptonshire, NN16 8UN Tennant Complex, Tennant Complex, Tennant East Kilbride, G74 5NA Avenue, 75 Ref 73 74 76 77 78 Marble Properties 72 79
116 Comments Under offer at £50,000 Under offer Unit 7 title number WA912542. Unit 9 Unit 7 title number WA912542. The Property is title number WA931079. subject to two 999 year leases granted and running from 30 June 2005. Under the leases, each tenant has an option to freehold title for purchase the landlord’s £1 within the option period, which runs for 20 years from the date of grant of the lease. numbers ON137089, ON249137, Title ON255670. Plots of land remaining after the development and freehold disposal of industrial units at Windrush Industrial Park. 30/09/2017 Market Value £900,000 £1,600,000 £760,000 £440,000 £0 £910,000 £360,000 £50,000 £0 30/09/2017 Passing Rent £101,487 £47,250 £47,960 £2 £0 £84,000 £124,031 £89,628 £0 Tenure Freehold Freehold Freehold Freehold Freehold Heritable and Leasehold Leasehold Freehold Freehold Sector Industrial Industrial Industrial Industrial Industrial Industrial Industrial Land Land Date Inspection 18/07/2017 11/08/2017 30/08/2017 29/08/2017 22/08/2017 n/a 14/09/2017 n/a n/a Qualifications MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS MRICS Surveyor Carys Chandler Stuart Jolly Hayley Kibbler Stuart Jolly John Townsend Richard Maden Samantha Booth Rebecca Millard Rebecca Millard Property Postal Address Property Postal Walker Lines Industrial Estate, Walker Bodmin, Cornwall, PL31 1EY Ynyswen Industrial Estate, CF42 6EP Treorchy, of Leven Industrial Estate, Vale Dumbarton Aberafon Road, Units 7 and 9, Talbot Baglan Industrial Park, Port SA12 7DJ 1. Land on the south side of Burford Road, Minster Lovell, Witney 2. Land lying to the south of Block 5, Windrush Park Road, Witney 3. Land on the south and east sides of Range Road, Witney Unit 1A, Darby Road, Tremorfa Unit 1A, Darby Road, Industrial Estate, Cardiff, CF24 5SB Business Centre, Viking Swadlincote, Woodville, 7EH Derbyshire, DE11 Willowyard Industrial Estate, Beechfield Road, Beith, KA15 1LN Varlin Court, Western Industrial Court, Western Varlin CF83 1BQ Estate, Caerphilly, 82 83 85 87 88 Ref Marble Properties 81 84 86 80
117 Comments Title number WM851760. The property number WM851760. Title is subject to a 999 year headlease sold at a premium to Keelex 283 Limited The tenant has an peppercorn rent. option to purchase the freehold title of the Property for £1 which must be exercised within 21 years from 30 June 2005. Much of the number WA909448. Title by way of Property has been sold off 999 year lease of Units 35 and 36 at a peppercorn rent dated 30 June 2005 made between Lear Investments The Limited and Keelex 283 Limited. tenant has an option to acquire the reversionary interest on the landlord’s demised premises for 21 years from 30 The remaining land June 2005 for £1. extends to 0.965 ha (2.35 acres), however the majority of this land is designated as sandstone safeguarding within the Caerphilly County Borough Local Plan. The property is held long leasehold under title number NT275644 for 125 years from March 1992 at a peppercorn There is an area of land to the rear rent. of the building which is hatched on OS title plan and is held freehold under The contracted title number NT261536. rent is £397,612 per annum. 30/09/2017 Market Value £108,900,000 £0 £0 £4,800,000 30/09/2017 Passing Rent – £8,957,812 £0 – Tenure Freehold and Leasehold Freehold Freehold Sector Industrial Land Land Date Inspection n/a n/a 25/07/2017 Qualifications MRICS MRICS MRICS Surveyor Rebecca Millard Sam Booth Jayne Griffin Property Postal Address Property Postal Units 35 and 36 Nine Mile Point Industrial Estate, Cwmfelinfach, 7HZ Ynysddu, NP11 Phoenix Works, Neachells Lane, Phoenix Works, Wolverhampton Wednesfield, 3PQ WV11 2 Central Park, Lenton Lane, Nottingham, NG7 2NR Ref 90 91 Marble Properties 89 II Properties REIP
118 Comments Total contracted rent of £276,630 pa. Total 24 month rent free period in regards to the Shearings leases. The property is held long leasehold under title number NT420212 for a term of 986 years from March 2005 at a peppercorn rent (if demanded). 30/09/2017 Market Value £2,730,000 £3,470,000 £11,000,000 30/09/2017 Passing Rent £246,558 £73,859 £172,699 Tenure Freehold Leasehold Sector Industrial Industrial Date Inspection 08/09/2017 09/08/2017 Qualifications MRICS MRICS Surveyor Adam Mason Rachel Whittaker Property Postal Address Property Postal Waterside House, Waterside Waterside Drive, Wigan, WN3 5AZ 2 Centre, Hamilton Court, Oakham Business Park, Mansfield, Nottinghamshire, NG18 5FB Ref II Properties REIP 93 92
119 APPENDIX 2 – DEFINITIONS AND RESERVATIONS FOR VALUATIONS
Information
All information supplied by the Client, the Client’s staff and professional advisers, local authorities, other statutory bodies, investigation agencies and other stated sources is accepted as being correct unless otherwise specified.
Tenure
Title Deeds and Leases are not inspected (unless specifically stated) and, unless we are informed to the contrary, it is assumed that a property is free of any onerous covenants, easements, other restrictions or liabilities including mortgages, grants and capital allowances which may affect the value.
No responsibility or liability will be accepted for the true interpretation of the legal position of the client or other parties.
Tenants
Tenants’ status is investigated only where we are so instructed and so specified in the valuation.
Plans
Any plans supplied are for identification purposes only unless otherwise stated. The valuation assumes site boundaries are as indicated to us. The reproduction of Ordnance Survey sheets has been sanctioned by the Controller of Her Majesty’s Stationery Office, Crown Copyright reserved.
Site Areas
Site areas are normally computed from plans or the Ordnance Survey and not from a physical site survey. They are approximate unless otherwise indicated.
Floor Areas and Dimensions
Floor areas and dimensions are taken from inspection unless otherwise specified but are nevertheless approximate. Areas quoted are calculated in accordance with the RICS Professional Statement – RICS Property Measurement 1st edition, May 2015 on the basis agreed with the Client, i.e. adopting either (1) The Code of Measuring Practice, 6th edition published by the Royal Institution of Chartered Surveyors, or (2) The International Property Measurement Standards (IPMS): Office Buildings.
The following bases are those most frequently used under the Code of Measuring Practice, 6th edition:
Net Internal Area – Measured to the internal faces of external walls, excluding toilets, permanent corridors, internal walls and partitions, stairwells, plant rooms etc.
Gross Internal Area – Measured to the internal faces of external walls, including toilets, permanent corridors, internal walls and partitions, stairwells, plant rooms etc.
Gross External Area – Measured to the external faces of external walls, including toilets, permanent corridors, internal walls and partitions, stairwells, plant rooms etc.
120 The following bases are those used under The International Property Measurement Standards (IPMS): Office Buildings:
IPMS1 – The sum of the areas of each floor level of a building measured to the outer perimeter of external construction features and reported on a floor by floor basis.
IPMS 2 – Office – The sum of the areas of each floor level of an office building measured to the internal dominant face and reported on a component by component basis for each floor of a building.
IPMS 3 – Office – The floor area available on an exclusive basis to an occupier, but excluding standard facilities and calculated on an occupier-by-occupier or floor-by-floor basis for each building.
Ground Conditions
Soil stability, mining and geological reports are not undertaken by us or normally inspected. Unless we are instructed to the contrary, we assume that the ground and any adjoining or nearby areas are not contaminated, that there are no dangerous materials in the vicinity and that it is capable of development without the need for abnormal costs on foundations and services.
Condition of Buildings, Plant Etc
Our inspection of a property does not constitute a structural survey. When preparing our valuation we have regard to apparent defects and wants of repair and take into account the age of the property. We do not however carry out the detailed search for defects which is undertaken as part of the structural survey neither do we necessarily set out the various defects when making the report. We do not inspect woodwork or other parts of the structure which are covered, unexposed or inaccessible. We do not arrange for any investigation to be carried out to determine whether or not high alumina cement concrete or calcium chloride additive or any other deleterious materials or permanent woodwool shuttering or composite panelling has been used in the construction.
Unless so instructed we do not arrange for any investigations to be carried out to determine whether or not any deleterious or hazardous material or techniques have been used in the construction of the property or has since been incorporated and the services are not tested.
We are therefore unable to report that the property is free from defect in these respects.
For valuation purposes we assume unless otherwise stated that the property (including associated plant and machinery, fixtures and fittings) is in serviceable order and will remain so for the foreseeable future. It will be assumed that the building/s is/are in good repair, except for defects specifically noted.
Asbestos Regulations
The Control of Asbestos Regulations 2012 came into force on 6 April 2012, updating previous asbestos regulations to take account of the European Commission’s view that the UK had not fully implemented the EU Directive on exposure to asbestos (Directive 2009/148/EC). Your legal advisers should enquire as to compliance with these regulations and property owners will need to be able to provide confirmation as to the existence and condition of asbestos.
Fire Safety
The Regulatory Reform (Fire Safety) Order 2005 (The Order) replaces previous fire safety legislation including both the Fire Precautions Act 1971 and the Fire Precautions (workplace)
121 Regulation 1997. Consequently any fire certificate issued under the Fire Precautions Act 1971 will cease to have any effect. The Order came into force completely on the 1st April 2006.
The Order applies to the majority of premises and workplaces in England and Wales although does not include people’s private homes. It covers general fire precautions and other fire safety duties, which are needed to protect ‘relevant persons’ in case of fire in and around most ‘premises’.
Under the order, anyone who has control in a premises or anyone who has a degree of control over certain areas may be classified as a ‘responsible person’. It is thus the duty of such individuals to comply with the requirements of the Order and make certain that all measures are taken to ensure the safety of all the people he or she is directly or indirectly responsible for.
The responsible person must then carry out a Fire Risk Assessment. In short this is a five-point process whereby fire hazards must be identified, relevant persons at risk recognised, potential risks reduced, staff training implemented and the whole assessment regularly reviewed. The assessment must pay particular attention to those at special risk such as disabled people, those who have special needs and young persons. Furthermore the responsible person must provide and maintain clear Means of Escape, Signs, Notices, Emergency Lighting, Fire Detection & Alarm and Extinguishers.
This approach is different from previous legislation, as it is now necessary to consider everyone who might be on your premises, whether they are employees, visitors or members of the public.
The Risk Assessment must be regularly reviewed and if necessary amended. Finally if the responsible person employs five or more people, the premises are licensed or the Inspector requires it then the Risk Assessment must be formally recorded.
The Smoke and Carbon Monoxide Alarm (England) Regulations 2015 effective 1 October 2015 require that landlords of residential property must provide (1) a smoke alarm on each storey of the premises on which there is a room used wholly or partly as living accommodation and (2) a carbon monoxide alarm in any room of the premises which is used wholly or partly as living accommodation and contains a solid fuel burning combustion appliance. The landlord has a responsibility to ensure that the detectors are checked and in proper working order.
It is assumed that the property is compliant in regard to the above regulations.
Accessibility
From 1 October 2010, the Equality Act 2010 replaced previous anti-discrimination laws, including the Disability Discrimination Act, with a single Act to make the law simpler and to remove inconsistencies. The Equality Act protects the important rights of disabled people to access everyday facilities and services and to ensure that disabled workers are not disadvantaged.
Our report will contain observations of a general nature on the extent to which we consider that the building would be regarded by the market as complying with the accessibility requirements of the Equality Act. We have not, however, carried out an in-depth study which would be required to reach a formal view.
Energy Performance Certificates
From 2008 Energy Performance Certificates (EPCs) are required for the sale, rental or construction of commercial buildings. The requirement was phased in over 6 months between 6 April and 1 October 2008. Commercial properties with a useful floor area of more than 10,000 sq m were affected from 6 April 2008, those exceeding 2,500 sq m had to comply from 1 July 2008 and the remaining properties had to comply from 1 October 2008. An EPC must be provided on the sale, rental or construction (or in some cases modification) subject to transitional
122 arrangements. Non-compliance may lead to sanction under civil legislation, involving a financial penalty.
Unless stated to the contrary, our valuation assumes that the property has an Energy Performance Certificate (if required under the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007) and that the Certificate will be maintained as required.
Services
It is assumed that the services and any associated controls or software, are in working order and free from defect.
Composite Panels and Insurance
We will not test any panels within the property to see whether there are any polystyrene insulated composite panels. The presence of such panels may result in the property being uninsurable, which would have an adverse impact on value.
Defective Premises Act 1972
Obligations or liabilities or any rights thereunder, whether prospective or accrued, are not reflected in valuations unless actually specified.
Environmental Issues
Our Valuation Report does not constitute an Environmental Audit or survey and nothing contained in it should be treated as a statement that there are no contamination or pollution problems relating to the property or confirmation that the property, or any process carried on therein, complies with existing or proposed legislation on environmental matters. If we have been provided with third party reports, we have accepted their contents as being correct.
Enquiries
Enquiries of local authorities and statutory undertakers are made verbally in respect of contingent liabilities such as road widening, road charges, redevelopment proposals and the possible effect of any town planning restrictions, and on occasion in respect of rating assessments. Local searches are not undertaken. No responsibility is accepted for any inaccurate information provided.
Generally it is assumed that buildings are constructed and used in accordance with valid Town Planning Consents, Permits, Licences and Building Regulation Approval, with direct access from a publicly maintained highway, that Town Planning Consents do not contain restrictions which may adversely affect the use of a property and that there are no outstanding statutory or other notices in connection with a property or its present or intended use.
It is further assumed unless otherwise stated that all necessary licences, permits etc either run with the property or are transferable to a new occupier as appropriate.
Flooding Risk
The valuer will make enquiries concerning flooding risk where it is perceived to be of relevance as published by the Environmental Agency. However we are not qualified to definitively assess the risk of flooding and our valuation will assume no difficulties in this regard. Further, GVA shall not undertake any additional enquiries to confirm this information.
123 Plant, Machinery, Fixtures and Fitting
Unless otherwise specified, all items normally associated with the valuation of land and buildings are included in our valuations and reinstatement cost assessments, including:
Fixed space heating, domestic hot water systems, lighting and mains services supplying these, sprinkler systems and associated equipment, water, electricity, gas and steam circuits not serving industrial or commercial processes, sub-station buildings, lifts and permanent structures including crane rails where forming an integral part of the building structure, fixed demountable partitions, suspended ceilings, carpets, drains, sewers and sewerage plants not primarily concerned with treating trade effluent, air conditioning except where part of a computer installation or primarily serving plant and machinery.
Unless otherwise specified, the following items are excluded:
All items of process plant and machinery, tooling and other equipment not primarily serving the building, cranes, hoists, conveyors, elevators, structures which are ancillary to, or form part of an item of process plant and machinery, sewerage plants primarily concerned with treating trade effluent, air conditioning where part of a computer installation or primarily serving plant and machinery, and water, electricity, gas, steam and compressed air supplies and circuits serving industrial and commercial processes.
Unless otherwise specified, no allowance is made for the cost of repairing any damage caused by the removal from the premises of items of plant, machinery, fixtures and fittings.
In the case of filling stations, hotels and other properties normally sold and valued as operational entities, all items of equipment normally associated with such a property are assumed to be owned and are included within the valuation unless otherwise specified.
Taxation and Grants
Value Added Tax, taxation, grants and allowances are not included in capital and rental values as, unless otherwise specified in the report, these are always stated on a basis exclusive of any VAT liability even though VAT will in certain cases be payable.
It is assumed for the purposes of valuation that any potential purchaser is able to reclaim VAT, unless otherwise stated. In particular it should be noted that where a valuation has been made on a Depreciated Replacement Cost basis the Replacement Cost adopted is net of VAT unless otherwise stated.
Unless otherwise specified GVA will not take into account of any existing or potential liabilities arising for capital gains or other taxation or tax reliefs as a result of grants or capital allowances, available to a purchaser of the property.
Market Value (MV)
The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
Market Value provides the same basis as the OMV basis of value supported by the first four editions of the Red Book, but no longer used as a defined term.
Passing Rent
The amount of rent which is receivable on the valuation date. This may be a different amount to the contracted rent as a result of current tenant incentives.
124 Apportionment of Values
Apportionments provided between buildings, land and plant and machinery are normally for depreciation purposes only. In normal circumstances apportionments are not valuations and they should not be used for any other purpose unless specified in our report.
Future Useful Economic Life
Future useful economic life of buildings is normally assessed in bands of years, most frequently subject to a maximum of fifty years. This applies to freehold properties and to leasehold properties where the future life is less than the unexpired term of the lease. An average figure is usually provided for groups of buildings forming a single asset. The figures are appropriate for depreciation purposes only.
Compliance with Valuation Standards
Where applicable our valuations are in accordance with the RICS Valuation – Global Standards 2017, published by the Royal Institution of Chartered Surveyors (“RICS”), the Insurance Companies (Valuation of Assets) Regulations 1981, the Financial Conduct Authority (FCA) “Listing Rules” (“Source Book”) and “City Code on Takeovers and Mergers” (“Blue Book”) as amended and revised from time to time. A copy is available for inspection.
RICS investigations
The valuation may be investigated by the RICS for the purposes of the administration of the Institutions conduct and disciplinary regulations. Guidance on the operation of the RICS monitoring scheme including matters relating to confidentiality is available from www.rics.org.
Total Valuation
Where provided this is the aggregate of the value of each individual property. It is envisaged that properties would be marketed singly or in groups over an appropriate period of time. If all properties were to be sold as a single lot, the realisation would not necessarily be the same as the total of the valuations. This assumption is not applicable to valuations made for taxation purposes.
Legal Issues
Any interpretation of leases and other legal documents and legal assumptions is given in our capacity as Property Consultants (including Chartered Surveyors and Chartered Town Planners) and must be verified by a suitability qualified lawyer if it is to be relied upon. No responsibility or liability is accepted for the true interpretation of the legal position of the client or other parties.
Date, Market Conditions and Validity of Valuation
Valuations may be relied upon for the stated purpose as at the date specified. In normal market conditions the value may not change materially in the short term. However the property market is constantly changing and is susceptible to many external facets which can affect business confidence. If any reliance is to be placed on the valuation following any changes which could affect business confidence, then further consultation is strongly recommended. In any event, the valuation should not be considered valid after a period of three months.
Valuations and Reports
A copy of this report may be provided (on a non-reliance basis) (i) where disclosure is required by applicable law or regulation, by any court of competent jurisdiction or any competent judicial, governmental, supervisory or regulatory body or in respect of legal or arbitration proceedings in connection with this report; (ii) where disclosure is required by the rules of any stock exchange,
125 listing authority or similar body upon which an Addressee’s shares or other securities are listed; (iii) to an Addressee’s affiliates, and any of its or their officers, directors, employees, auditors and professional advisors in connection with the loan and hedging transactions under any Facility Agreement; (iv) to any financial institution or other entity in connection with the loan and hedging transactions under the Facility Agreement; (v) to any person to whom such Addressee may potentially assign, transfer or sub-participate all or any of its rights and obligations under any documentation relating to or under any Facility Agreement and to the professional advisors of each such person; (vi) to any rating agency in connection with any securitisation of (or referable to) any Facility Agreement and to investors in such securitisation including in each case their professional advisers and (vii) or otherwise, with our prior written consent.
To the extent legally permissible, we accept no responsibility to any party other than the report addressee for any liability such party may incur in relation to the report. Reports should be considered in their entirety and should only be used within the context of the instructions under which they are prepared. Neither the whole nor any part of a valuation, report or other document or any reference thereto may be included in any published article, document, circular or statement or published in any way without our prior written consent.
Warranties
M7 Real Estate Ltd warrants and represents that, to the best of its knowledge, information and belief, the information supplied by and on its behalf to GVA is true and accurate and that it will advise and instruct its third party advisers to advise GVA in the event that it receives notice that any such information is either misleading or inaccurate.
Updated July 2017
126 PART 8
REIT STATUS AND TAXATION
1. Summary
1.1 Principal tax advantage of REIT status
The principal tax advantage of REIT status is that the REIT, which in this case, and for the purposes of this Part 8, will be the Company as principal company of a REIT Group following Admission, the completion of the Initial Acquisitions and notification to HMRC, will be exempt from UK corporation tax on both rental profits and chargeable gains on direct disposals of properties held for the purposes of its Property Rental Business. This will remove the effective double tax charge currently suffered by many investors in UK companies (see paragraph 2.1 of this Part 8 for more information). It should be noted that the sale of shares by a REIT or member of a REIT Group in a property owning company will continue to be subject to UK corporation tax.
1.2 Principal tax disadvantages of REIT status
The principal tax disadvantages of REIT status are as follows:
1.2.1 in order for it to remain a REIT, the REIT will have to comply with the various tests outlined in paragraph 2.2 of this Part 8 on an ongoing basis; and
1.2.2 withholding tax of 20 per cent. must be deducted from certain distributions made to certain Shareholders (see paragraph 3 of this Part 8 for further details).
Overall, the Board believes that the tax advantage of REIT status outweighs the tax disadvantages.
1.3 Dividend policy under REIT regime
The Company will have to meet a minimum distribution test for each accounting period that it is a REIT or the principal company of a REIT Group. This minimum distribution test requires the Company to distribute 90 per cent. of the income profits of the Property Rental Business for each accounting period. As a REIT Group, the REIT’s Property Rental Business profits are the sum of the group’s UK Property Rental Business profits as shown in the group financial statement. See further paragraphs 2.1 or 2.3.3 below. The Board believes that the Company’s dividend policy will enable the Company to meet this minimum distribution requirement.
1.4 The Substantial Shareholder rule
Under the REIT regime, a tax charge may be levied on the Company if it makes a distribution to or in respect of a Substantial Shareholder, unless the Company has taken “reasonable steps” to avoid such a distribution being paid. This tax charge may be imposed only if, after joining the REIT regime, the Company pays a dividend in respect of a Substantial Shareholding and the dividend is paid to a person who is a Substantial Shareholder. The charge is not triggered merely because a Shareholder is a Substantial Shareholder, or if the person beneficially entitled to the dividend is a Substantial Shareholder. The amount of the charge is calculated by reference to the whole dividend paid to the Substantial Shareholder, and not just that part of the dividend attributable to Ordinary Shares held by the Substantial Shareholder in excess of 10 per cent. of the Company’s issued share capital. See further paragraph 2.3.2 below.
127 A summary of the Articles is set out at paragraph 5 of Part 9 and the relevant provisions intended to give the Board the powers it needs to demonstrate to HMRC that “reasonable steps” have been taken to avoid making distributions to Substantial Shareholders are set out in paragraphs 4 and 5 of this Part 8.
1.5 Non-close company condition
As mentioned below in paragraph 2.2.1 of this Part 8, the Company must not be a close company other than only by virtue of having as a participator an institutional investor. An institutional investor includes the trustee or manager of an authorised unit trust (or overseas equivalent) or a pension scheme, an insurance company, a charity, a limited partnership which is a collective investment scheme, a registered social landlord, an open-ended investment company or the foreign equivalent of an open-ended investment company, a person with sovereign immunity from UK corporation or income tax, and a UK REIT or the foreign equivalent of a UK REIT. However the Company may be close for tax purposes for up to three years after joining the regime. If the non-close company requirement is not met at the start of the first day after the end of the first three-year period, the Company will lose its REIT status at the end of the three-year period. If the non-close company requirement is not met at any time after the first day following the first three-year period, the Company will cease to be a REIT at the end of the accounting period preceding the accounting period in which the breach began or, if later, the end of the first three-year period. Loss of REIT status would have a material impact on the Company because of the loss of tax benefits conferred by the REIT regime.
Although the Board does not expect the close company condition to be breached in the ordinary course of events, there is a risk that the Company may fail to meet this condition for reasons beyond its control. However, under certain circumstances a breach of this condition may be disregarded if the reason for the breach is because the Company, and any subsidiaries become members of another group REIT or if the breach is the result of anything done (or not done) by a person other than the Company and the Company remedies the breach before the end of the accounting period after that in which the breach began.
1.6 Exit from the REIT regime
The Company can give notice to HMRC at any time that it wants to leave the REIT regime. The Board retains the right to decide to exit the REIT regime at any time in the future without the consent of Shareholders if it considers this to be in the best interests of the Company and the Shareholders.
If the Company voluntarily leaves the REIT regime within ten years of joining and disposes of any property or other asset that was involved in its Property Rental Business within two years of leaving, any uplift in the base cost of any property held by the Company as a result of the deemed disposal on entry into the REIT regime, movement into the ring fence or exit from the REIT regime would be disregarded in calculating the gain or loss on the disposal. It is important to note that the Company cannot guarantee continued compliance with all of the REIT conditions and that the REIT regime may cease to apply in some circumstances.
HMRC may require the Company or REIT Group to exit the REIT regime if:
1.6.1 it regards a breach of the conditions (including failure to satisfy the conditions relating to the Property Rental Business), or an attempt to avoid tax, as sufficiently serious;
1.6.2 the Company or members of its REIT Group has committed a certain number of breaches of the conditions within a specified period; or
128 1.6.3 HMRC has given the Company or members of its REIT Group two or more notices in relation to the avoidance of tax by the Company or members of its REIT Group within a ten year period.
The Company or REIT Group may lose its status as a REIT from the first day of joining the REIT regime if during the first accounting period certain conditions have not been met. In such circumstances the REIT status may not apply for the whole period.
In addition, the Company or REIT Group would automatically lose REIT status if any of the following were to occur:
1.6.4 the Company ceases to be solely UK resident for tax purposes;
1.6.5 the Company becomes an open-ended company;
1.6.6 the conditions for REIT status relating to the share capital of the Company are breached;
1.6.7 the conditions for REIT status relating to the prohibition on entering into loans with abnormal returns are breached;
1.6.8 the shares forming the Company’s ordinary share capital are not admitted to trading on a recognised stock exchange on the first day of accounting period 1 and throughout the remainder of that period. If this condition is not met in relation to an accounting period and the failure has not arisen as a result of the principal company of the REIT Group becoming a member of another group UK REIT, the REIT Group will be treated as having ceased to be a UK REIT at the end of the previous accounting period. Therefore shareholders should note that it is possible that the Company or REIT Group could lose its status as a REIT as a result of actions by third parties (for example, if the Company is taken over by a company that is not itself a REIT; or
1.6.9 throughout an accounting period the shares forming the ordinary share capital are not either (i) included in the Official List or officially listed in a qualifying country outside the United Kingdom in accordance with provisions corresponding to those generally applicable in EEA states; or (ii) traded on a recognised stock exchange. Although note that this listing/trading requirement is relaxed in the REIT Group’s first three accounting periods.
Future changes in legislation may cause the Company to lose its REIT status.
If the Company or REIT Group is required to leave the REIT regime within 10 years of joining, HMRC has wide powers to direct how the Company or REIT Group should be taxed, including in relation to the date on which the Company or REIT Group is treated as exiting the REIT regime. In some circumstances HMRC can impose a charge which claws back all benefits of having been within the REIT regime.
2. The REIT Regime
The following paragraphs are intended as a general guide only and constitute a high-level summary of the Company’s understanding of current UK law and HMRC practice, each of which is subject to change. They do not constitute advice.
129 2.1 Overview
The REIT regime is intended to encourage greater investment in the UK property market and follows similar legislation in other European countries, as well as the long-established regime in the United States.
Investing in property through a corporate investment vehicle (such as a UK company) has the disadvantage that, in comparison to a direct investment in property assets, some categories of shareholders (but not most UK companies) effectively suffer tax twice on the same income: first, indirectly, when the vehicle pays UK direct tax on its profits; and secondly, directly when the shareholder receives a dividend. Non-tax paying entities, such as UK pension funds, suffer tax indirectly when investing through a corporate vehicle that is not a REIT whereas they do not suffer if they invest directly in the property assets.
Provided certain conditions and tests are satisfied (see “Qualification as a REIT” below), REITs will not pay UK corporation tax on the profits of their Property Rental Business. Instead, distributions in respect of the Property Rental Business will be treated for UK tax purposes as property income in the hands of shareholders. However, UK corporation tax will still be payable in the normal way in respect of income and gains from any Residual Business (generally including any property trading business) not included in the Property Rental Business.
While within the REIT regime, the Property Rental Business will be treated as a separate business for UK corporation tax purposes to the Residual Business, and a loss incurred by the Property Rental Business cannot be set off against profits of the Residual Business (and vice versa).
A REIT will be required to distribute to its shareholders (by way of a dividend in cash or by way of an issue of share capital in lieu of a cash dividend), generally on or before the filing date for the REIT’s tax return for the accounting period in question, at least 90 per cent. of the REIT Group’s income profits (calculated using normal tax rules) of the Property Rental Business arising in each accounting period and 100 per cent. of any property income distributions received from other UK REITs. Failure to meet this requirement will result in a UK corporation tax charge calculated by reference to the extent of the failure, although this charge can be avoided if an additional dividend is paid within a specified period which brings profits distributed up to the required level.
In this Part 8, references to a company’s accounting period are to its accounting period for tax purposes. This period can differ from a company’s accounting period for other purposes.
Subject to certain exceptions, PIDs will be subject to withholding tax at the basic rate of income tax (currently 20 per cent.). Further details of the UK tax treatment of Shareholders after entry into the REIT regime are contained in paragraph 3 of this Part 8.
2.2 Qualification as a REIT
A company or group becomes a REIT by correctly serving notice on HMRC before the date from which it wishes to come under the REIT regime. In order to qualify as a REIT, the Company and/or REIT Group must satisfy certain conditions set out in Part 12 of CTA 2010. A non-exhaustive summary of the material conditions is set out below. Broadly, the Company and/or REIT Group must satisfy the conditions set out in paragraphs 2.2.1 to 2.2.4 below.
130 2.2.1 Company conditions
The principal company of a REIT Group must be a solely UK tax-resident company whose ordinary shares are admitted to trading on a recognised stock exchange, which includes the main market of the London Stock Exchange and the principal company of a REIT Group must not be an open-ended investment company. Additionally, throughout an accounting period the shares forming the ordinary share capital of the principal company of the REIT Group must either be (i) included in the Official List or officially listed in a qualifying country outside the United Kingdom in accordance with provisions corresponding to those generally applicable in EEA states; or (ii) traded on a recognised stock exchange. This listing/trading requirement is relaxed in the REIT Group’s first three accounting periods. After the first three years, the principal company of a REIT Group must also not be a close company for UK tax purposes other than by virtue of having as a participator an institutional investor (as to the meaning of institutional investor see paragraph 1.5 above). Broadly, a close company is a UK resident company controlled by five or fewer participants, or by participants who are directors. A participant is a person having a share or interest in the income or capital of a company.
2.2.2 Share capital restrictions
The principal company of a REIT Group must have only one class of ordinary shares in issue and the only other shares it may issue are particular types of non-voting restricted preference shares.
2.2.3 Interest restrictions
The principal company of a REIT Group must not be party to any loan in respect of which the lender is entitled to interest which exceeds a reasonable commercial return on the consideration lent or where the interest depends to any extent on the results of any of its business or on the value of any of its assets. A loan is not treated as carrying results-dependant interest by reason only that the terms of the loan provide for interest to reduce if the results improve or to increase if the results deteriorate. In addition, the amount repayable must either not exceed the amount lent or must be reasonably comparable with the amount generally repayable (in respect of an equal amount lent) under the terms of issue of securities listed on a recognised stock exchange.
2.2.4 Conditions for the Property Rental Business
The Property Rental Business must satisfy the conditions summarised below in respect of each accounting period during which the Company is to be treated as a REIT or the principal company of a REIT Group:
• the Property Rental Business must, throughout the accounting period, involve at least three properties;
• throughout the accounting period, no one property may represent more than 40 per cent. of the total value of all the properties involved in the Property Rental Business. Assets must be valued in accordance with IFRS, and at fair value when IFRS offers a choice between a cost basis and a fair value basis;
• at least 90 per cent. of the amounts shown in the financial statements of the REIT Group as income profits (broadly, calculated using normal tax rules) and 100 per cent. of any property income distributions received from other UK REITs must be distributed to shareholders of the REIT in the form of a
131 PID on or before the filing date for the REIT’s tax return for the accounting period (the “90 per cent. distribution test”). For the purpose of satisfying the 90 per cent. distribution test, any dividend withheld in order to comply with the rule relating to Substantial Shareholders (as described in paragraph 2.3.2 below) will be treated as having been paid. The issue of stock dividends will count towards the 90 per cent. threshold;
• the income profits arising from the Property Rental Business must represent at least 75 per cent. of the REIT Group’s total profits for the accounting period (the “75 per cent. profits test”). Profits for this purpose means profits before deduction of tax and excludes realised and unrealised gains and losses (for example, gains and losses on the disposal of property, and gains and losses on the revaluation of properties) calculated in accordance with IFRS; and
• at the beginning of the accounting period the value of the assets in the Property Rental Business must represent at least 75 per cent. of the total value of assets held by the REIT Group (the “75 per cent. assets test”). Cash held on deposit and gilts may be added to the value of assets relating to the Property Rental Business for the purpose of meeting the 75 per cent. assets test. Non-cash assets must be valued in accordance with IFRS and at fair value where IFRS offers a choice of valuation between cost basis and fair value. In applying this test, no account is to be taken of liabilities secured against or otherwise relating to assets (whether generally or specifically).
2.2.5 Investment in other REITs
Any distribution of profits or gains of the Property Rental Business by a REIT received by another REIT are treated as tax exempt profits of the Property Rental Business of the investing REIT. The investing REIT would be required to distribute 100 per cent. of such distributions to its shareholders. For the purposes of the 75 per cent. assets test, the investment by a REIT in the shares of another REIT will be included as an asset of the investing REIT’s Property Rental Business.
2.3 Effect of becoming a REIT
2.3.1 Tax savings
As a REIT, the member or members of the REIT Group will not pay UK corporation tax on profits and gains from the Property Rental Business. UK corporation tax will still apply in the normal way in respect of the Residual Business which includes certain trading activities, incidental letting in relation to property trades and letting of administrative property which is temporarily surplus to requirements.
The member or members of the REIT Group would also continue to pay indirect taxes such as VAT, stamp duty land tax and stamp duty and payroll taxes (such as national insurance) in the normal way.
2.3.2 The Substantial Shareholder rule
A REIT will become subject to an additional tax charge if it pays a dividend to, or in respect of, a Substantial Shareholder. The additional tax charge will be calculated by reference to the whole dividend paid to a Substantial Shareholder, and not just by reference to the proportion which exceeds the 10 per cent. threshold. It should be noted that this restriction only applies to shareholders that are bodies corporate and to certain entities which are deemed to be bodies corporate for tax purposes in
132 accordance with the law of an overseas jurisdiction with which the UK has a double taxation agreement or in accordance with such a double taxation agreement. It does not apply to nominees.
This tax charge will not be incurred if the REIT has taken “reasonable steps” to avoid paying dividends to such a shareholder. HMRC guidance describes certain actions that a REIT may take to show it has taken such “reasonable steps”. One of these actions is to include restrictive provisions in the REIT’s articles of association to address this requirement. The Articles are consistent with such provisions.
2.3.3 Dividends
When a REIT pays a dividend (including a stock dividend), that dividend will be a PID to the extent necessary to satisfy the 90 per cent. distribution test. If the dividend exceeds the amount required to satisfy that test, the REIT may determine that all or part of the balance is a Non-PID Dividend paid out of the profits of the activities of the Residual Business. Any remaining balance of the dividend (or other distribution) will be deemed to be a PID: firstly, in respect of the income profits out of which a PID can be paid and which have not been distributed in full; and secondly, a PID paid out of certain chargeable gains which are exempt from tax by virtue of the REIT regime. Any remaining balance will be attributed to any other profits and will be a Non-PID Dividend.
2.3.4 Interest cover ratio
A tax charge will arise if, in respect of any accounting period, the ratio of the Company’s income profits (before the offset of capital allowances, losses from previous accounting periods and certain other financing costs) in respect of its Property Rental Business to the financing costs incurred in respect of the Property Rental Business is less than 1.25. The ratio is based on the cost of debt finance taking into account interest, amortisation of discounts or premiums and the financing expense implicit in payments made under finance leases. The corporation tax charge is capped at a maximum of 20 per cent. of the profits of the Property Rental Business for the accounting period in question.
2.3.5 OECD Base Erosion and Profit Shifting, tax deductibility of corporate interest
Following recommendations from the Organisation for Economic Co-operation and Development (OECD) as part of its Base Erosion and Profit Shifting (BEPS) project and two consultations, the Finance Bill 2017 initially contained legislation introducing new rules limiting interest deductibility for large groups from April 2017. Due to the general election, these provisions were not enacted in the Finance Act 2017. However, on 13 July 2017, the government announced that the Finance (No. 2) Bill 2017 will be published after the summer Parliamentary recess, which ends on 4 September 2017. The government has published updated clauses and schedules for the measures that take effect before the introductions of the Finance (No. 2) Bill 2017.
The key features are that the “tax-interest expense” will be restricted to 30 per cent. of a UK group’s “tax-EBITDA”, with an optional substitution of the fixed ratio with a worldwide group ratio equalling net “qualifying group-interest expense” divided by “group-EBITDA”. The current debt cap rules will also be replaced with modified rules limiting deductible tax-interest to net accounting finance expenses after certain adjustments. A de minimis of £2 million will apply (with only the excess being subject to restriction).
133 These new rules will apply to REITs and a new section 452 will be inserted into the Taxation (International and Other Income) Act 2010 (TIOPA 2010) to provide that for the purposes of the interest deductibility rules:
(a) The property rental business and the residual business are to be treated as two separate group companies.
(b) The profits of the property rental business are assumed to not be exempt from corporation tax when calculating tax-interest and tax-EBITDA.
Section 452 of TIOPA 2010 will set out five steps to be followed to calculate how the restricted interest should be allocated between the Property Rental Business and the residual business, and will provide that any disallowed amounts allocated to the Property Rental Business must not be so great that the Company would be entitled to ignore the distribution requirement due to having insufficient reserves.
These proposals do not affect the operation of the interest cover ratio rule at 2.3.4.
2.3.6 Property development and property trading by a REIT
A property development undertaken by the REIT for the purposes of the investment business can be within the Property Rental Business provided certain conditions are met. However, if the costs of the development exceed 30 per cent. of the fair value of the asset at the later of: (a) the date on which the relevant company becomes or becomes a member of a REIT; and (b) the date of the acquisition of the development property, and the REIT sells the development property within three years of completion of the development, the property will be treated as never having been part of the Property Rental Business for the purposes of calculating any gain arising on disposal of the property. Any gain will be chargeable to corporation tax.
If the REIT disposes of a property (whether or not a development property) in the course of a trade, the property will be treated as never having been within the Property Rental Business for the purposes of calculating any profit arising on disposal of the property. Any profit will be chargeable to corporation tax.
2.3.7 Certain tax avoidance arrangements
If HMRC believes that a member of a REIT has been involved in certain tax avoidance arrangements, it may cancel the tax advantage obtained and, in addition, impose a tax charge equal to the amount of the tax advantage. These rules apply to both the Residual Business and the Property Rental Business.
2.3.8 Movement of assets in and out of the Property Rental Business
In general, where an asset owned by a REIT and used for the Property Rental Business begins to be used for the Residual Business, there will be a tax-free step up in the base cost of the property. Where an asset used for the Residual Business begins to be used for the Property Rental Business, this will generally constitute a taxable market value disposal of the asset, except for capital allowances purposes. Special rules apply to disposals by way of a trade and of development property.
2.3.9 Joint ventures
If a REIT is beneficially entitled to at least 40 per cent. of the profits available for distribution to equity holders in a joint venture company and at least 40 per cent. of the assets of the joint venture company available to equity holders in the event of a
134 winding up, that joint venture company is carrying on a qualifying property rental business which satisfies the 75 per cent. profits test and the 75 per cent. assets test (the “JV company”) and certain other conditions are satisfied, the REIT may, by giving notice to HMRC, elect for the relevant proportion of the assets and income of the JV company to be included in the Property Rental Business for tax purposes. In such circumstances, the income and assets of the JV company will count towards the 90 per cent. distribution test, the 75 per cent. profits test and the 75 per cent. assets test to the extent of the REIT’s interest in the JV company. Note that these rules also apply to joint venture groups.
The REIT’s share of the underlying income and gains arising from any interest in a tax transparent vehicle carrying on a Property Rental Business, including offshore trusts or partnerships, should automatically fall within the REIT tax exemption, and will count towards the 75 per cent. profits and assets tests, provided the REIT is entitled to at least 20 per cent. of the profits and assets of the relevant tax transparent vehicle. The REIT’s share of the Property Rental Business profits arising will count towards the 90 per cent. distribution test.
2.3.10 Acquisitions and takeovers
If a REIT is taken over by another REIT, the acquired REIT does not necessarily cease to be a REIT and will, provided the conditions are met, continue to enjoy tax exemptions in respect of the income profits of its Property Rental Business and chargeable gains on disposal of properties in the Property Rental Business.
The position is different where a REIT is taken over by an acquirer which is not a REIT. In these circumstances, the acquired REIT is likely in most cases to fail to meet the requirements for being a REIT and will therefore be treated as leaving the REIT regime at the end of its accounting period preceding the takeover and ceasing from the end of this accounting period to benefit from tax exemptions on the income profits of its Property Rental Business and chargeable gains on disposal of property forming part of its Property Rental Business. The properties in the Property Rental Business are treated as having been sold and reacquired at market value for the purposes of UK corporation tax on chargeable gains immediately before the end of the preceding accounting period. These disposals should be tax-free as they are deemed to have been made at a time when the company was still in the REIT regime and future chargeable gains on the relevant assets will, therefore, be calculated by reference to a base cost equivalent to this market value. If the REIT ends its accounting period immediately prior to the takeover becoming unconditional in all respects, dividends paid as PIDs before that date should not be re-characterised retrospectively as normal dividends.
3. United Kingdom Tax Treatment of Shareholders under REIT Status
3.1 Introduction
The following paragraphs are intended as a general guide only and are based on the Company’s understanding of current UK tax law and HMRC practice, each of which is subject to change, possibly with retrospective effect. They do not constitute advice.
The following paragraphs relate only to certain limited aspects of the United Kingdom taxation treatment of PIDs and Non-PID Dividends paid by the Company, and to disposals of Ordinary Shares, in each case, after the Company achieves and maintains REIT status. Except where otherwise indicated, they apply only to Shareholders who are resident for tax purposes solely in the United Kingdom. They apply only to Shareholders who are the absolute beneficial owners of both their PIDs and their Ordinary Shares and who hold their
135 Ordinary Shares as investments. They do not apply to Substantial Shareholders. They do not apply to certain categories of Shareholders, such as dealers in securities or distributors, persons who have or are deemed to have acquired their Ordinary Shares by reason of their or another employment, persons who hold their Ordinary Shares as part of hedging or conversion transactions, or persons who hold their Ordinary Shares in connection with a UK branch, agency or permanent establishment. Except where otherwise indicated at paragraph 3.3.4 (Withholding tax) below, they do not apply to persons holding Ordinary Shares by virtue of an interest in any partnerships, insurance companies, life insurance companies, mutual companies, collective investment schemes, charities, trustees, local authorities, or pension scheme administrators.
Shareholders who are in any doubt about their tax position, or who are subject to tax in a jurisdiction other than the United Kingdom, should consult their own appropriate independent professional adviser without delay, particularly concerning their tax liabilities on PIDs, whether they are entitled to claim any repayment of tax, and, if so, the procedure for doing so.
3.2 UK taxation of Non-PID Dividends
3.2.1 Individual Shareholders
A UK resident individual Shareholder does not pay income tax on any Non-PID Dividend income they receive in a tax year which is below the tax-free dividend allowance (currently £5,000). The rates of income tax for Non-PID Dividends received above the tax-free dividend allowance will be:
(a) 7.5 per cent. for dividend income within the basic rate income tax band;
(b) 32.5 per cent. for dividend income within the higher rate income tax band; and
(c) 38.1 per cent. for dividend income within the additional rate band.
3.2.2 Corporate Shareholders
A Shareholder within the charge to UK corporation tax which is a “small company” (for the purposes of UK taxation of dividends) will not generally be subject to tax on Non-PID Dividends from the Company, provided certain conditions are met.
Other Shareholders within the charge to UK corporation tax will not be subject to tax on Non-PID Dividends from the Company so long as they fall within an exempt class and do not fall within certain specified anti-avoidance provisions. Examples of dividends that are within an exempt class are dividends paid on “non-redeemable ordinary shares” for UK tax purposes and dividends in respect of portfolio holdings, where the recipient owns less than 10 per cent. of the issued share capital of the payer (or any class of that share capital).
3.3 UK taxation of PIDs
3.3.1 UK taxation of individual Shareholders
Subject to certain exceptions, a PID will generally be treated in the hands of Shareholders who are individuals as the profit of a single UK property business (as defined in Section 264 of the Income Tax (Trading and Other Income) Act 2005). A PID is, together with any property income distribution from any other company to which Part 12 of the CTA 2010 applies, treated as a separate UK property business
136 from any other UK property business (a “different UK property business”) carried on by the relevant Shareholder. This means that surplus expenses from a Shareholder’s different UK property business cannot be offset against a PID as part of a single calculation of the profits of the Shareholder’s UK property business.
Please see also paragraph 3.3.4 (Withholding tax) below.
3.3.2 UK taxation of corporate Shareholders
Subject to certain exceptions, a PID will generally be treated in the hands of Shareholders who are within the charge to UK corporation tax as profit of a UK property business (as defined in Section 205 of the Corporation Tax Act 2009). This means that, subject to the availability of any exemptions or reliefs, such Shareholders should be liable to UK corporation tax on income on the entire amount of their PID. A PID is, together with any property income distribution from any other company to which Part 12 of the CTA 2010 applies, treated as a different UK property business carried on by the relevant Shareholder. This means that any surplus expenses from a Shareholder’s different UK property business cannot be off-set against a PID as part of a single calculation of the Shareholder’s UK property profits.
Please see also paragraph 3.3.4 (Withholding tax) below.
3.3.3 UK taxation of Shareholders who are not resident for tax purposes in the UK
Where a Shareholder who is resident outside the UK receives a PID, the PID will generally be chargeable to UK income tax as profit of a UK property business and this tax will generally be collected by way of a withholding by the Company.
Please see also paragraph 3.3.4 (Withholding tax) below.
3.3.4 Withholding tax
• General
Subject to certain exceptions summarised below, the Company is required to withhold income tax at source at the basic rate (currently 20 per cent.) from its PIDs. The Company will provide Shareholders with a certificate setting out the amount of tax withheld.
• Shareholders solely resident in the UK
Where UK income tax has been withheld at source, Shareholders who are individuals may, depending on their circumstances, either be liable to further tax on their PID at their applicable marginal rate, or be entitled to claim repayment of some or all of the tax withheld on their PID. Shareholders who are bodies corporate may, depending upon their circumstances, be liable to pay UK corporation tax on their PID but they should note that, where income tax is (exceptionally) withheld at source, the tax withheld can be set against the Shareholder’s liability to UK corporation tax in the accounting period in which the PID is received.
• Shareholders who are not resident for tax purposes in the UK
It is not possible for a Shareholder to make a claim under a relevant double taxation treaty with the UK for a PID to be paid by the Company gross or at
137 a reduced rate. However, the Shareholder may be able to claim repayment of any part of the tax withheld from a PID, depending on the existence and terms of any such double taxation treaty between the UK and the country in which the Shareholder is resident for tax purposes.
• Exceptions to requirement to withhold income tax
Shareholders should note that in certain circumstances the Company may not be obliged to withhold UK income tax at source from a PID. These include where the Company reasonably believes that the person beneficially entitled to the PID is a company resident for tax purposes in the UK, a charity, or a body mentioned in Section 468 of the CTA 2010 which is allowed the same exemption from tax as a charity. They also include where the Company reasonably believes that the PID is paid to the scheme administrator of a registered pension scheme, or the subscheme administrator of certain pension sub-schemes or the account manager of a NISA, provided the Company reasonably believes that the PID will be applied for the purposes of the relevant scheme or account.
The Company will also not be required to withhold income tax at source from a PID where the Company reasonably believes that the body beneficially entitled to the PID is a partnership each member of which is a body described in the paragraph above.
In order to pay a PID without withholding tax, the Company will need to be satisfied that the Shareholder concerned is entitled to that treatment. For that purpose the Company will require such Shareholders to submit a valid claim form.
3.4 UK taxation of chargeable gains
Individual Shareholders who are resident in the UK for tax purposes will generally be subject to UK capital gains tax in respect of any gain arising on a disposal of their Ordinary Shares. Each such individual has an annual exemption, such that capital gains tax is chargeable only on gains arising from all sources during the tax year in excess of this figure. The annual exemption is £11,300 for the tax year 2017-2018. Capital gains tax chargeable will be at the current rate of 10 per cent. (for basic rate tax payers) and 20 per cent. (for higher and additional rate tax payers) during the tax year 2017-2018.
Shareholders who are individuals and who are temporarily non-resident in the UK may, under anti-avoidance legislation, still be liable to UK tax on any capital gain realised (subject to any available exemption or relief).
Corporate Shareholders who are resident in the UK for tax purposes will generally be subject to UK corporation tax on chargeable gains arising on a disposal of their Ordinary Shares. The indexation allowance may reduce the amount of chargeable gain that is subject to UK corporation tax but may not create or increase any allowable loss.
A Shareholder who is not UK resident for tax purposes will not currently be subject to UK tax on a gain arising on a disposal of their Ordinary Shares unless (i) such Shareholder carries on a trade, profession or vocation in the UK through a branch, agency or (in the case of a Shareholder which is a body corporate) permanent establishment and, broadly, holds the Ordinary Shares for the purposes of the trade, profession, vocation, branch, agency or permanent establishment or (ii) such Shareholder falls within certain anti- avoidance rules.
138 3.5 UK stamp duty and stamp duty reserve tax
Transfers on a sale of Ordinary Shares will generally be subject to UK stamp duty at the rate of 0.5 per cent. of the consideration given for the transfer. The purchaser normally pays the stamp duty.
An agreement to transfer Ordinary Shares will normally give rise to a charge to stamp duty reserve tax (“SDRT”) at the rate of 0.5 per cent. of the amount or value of the consideration payable for the transfer. If a duly stamped transfer in respect of the agreement is produced within six years of the date on which the agreement is made (or, if the agreement is conditional, the date on which the agreement becomes unconditional) any SDRT paid is repayable, generally with interest, and otherwise the SDRT charge is cancelled. SDRT is, in general, payable by the purchaser.
Paperless transfers of Ordinary Shares within the CREST system will generally be liable to SDRT, rather than stamp duty, at the rate of 0.5 per cent. of the amount or value of the consideration payable. CREST is obliged to collect SDRT on relevant transactions settled within the CREST system. Deposits of Ordinary Shares into CREST will not generally be subject to SDRT, unless the transfer into CREST is itself for consideration.
3.6 NISAs and SIPPs
Ordinary Shares acquired by a UK resident individual Shareholder pursuant to the Offer for Subscription, the Intermediaries Offer or in the secondary market (but not Ordinary Shares acquired directly under the Placing) should be eligible to be held in a NISA, subject to applicable annual subscription limits.
Investments held in NISAs will be free of UK tax on both capital gains and income. Sums received by a Shareholder on a disposal of Ordinary Shares would not count towards the Shareholder’s annual limit; but a disposal of Ordinary Shares held in a NISA will not serve to make available again any part of the annual subscription limit that has already been used by the Shareholder in that tax year.
Individuals wishing to invest in Ordinary Shares through a NISA should contact their professional advisers regarding their eligibility.
Subject to the rules of the trustees of the SIPP, the Ordinary Shares should be eligible for inclusion in a SIPP provided, broadly, that the pension scheme member (or a connected person) does not occupy or use any residential property held by the Company and the SIPP in question does not hold (directly or indirectly) more than 10 per cent. of any of the Ordinary Shares or the Company’s voting rights or rights to income or amounts on a distribution or rights to the assets on a winding up.
4. Description of the REIT Provisions included in the Articles
4.1 Introduction
The Articles contain provisions designed to enable the Company to demonstrate to HMRC that it has taken “reasonable steps” to avoid paying a dividend (or making any other distribution) to any Substantial Shareholder.
If a distribution is paid to a Substantial Shareholder and the Company has not taken reasonable steps to avoid doing so, the Company would become subject to a UK corporation tax charge.
The Articles contain special articles for this purpose (the “Special Articles”). The text of the Special Articles is set out in paragraph 5 of this Part 8.
139 The Special Articles:
• provide Directors with powers to identify its Substantial Shareholders (if any);
• prohibit the payment of dividends on Ordinary Shares that form part of a Substantial Shareholding, unless certain conditions are met;
• allow dividends to be paid on Ordinary Shares that form part of a Substantial Shareholding where the Shareholder has disposed of sufficient interests in all or some of the shares concerned, including the rights to dividends on its Ordinary Shares; and
• seek to ensure that if a dividend is paid on Ordinary Shares that form part of a Substantial Shareholding and arrangements of the kind referred to in the preceding paragraph are not met, the Substantial Shareholder concerned does not become beneficially entitled to that dividend.
The effect of the Special Articles is explained in more detail below.
4.2 Identification of Substantial Shareholders
The share register of the Company records the legal owner and the number of Ordinary Shares they own but does not identify the persons who are beneficial owners of the Ordinary Shares or are entitled to control the voting rights attached to the Ordinary Shares or are beneficially entitled to dividends. While the requirements for the notification of interests in shares provided in Part VI of the Companies Act and the Board’s rights to require disclosure of such interests (pursuant to Part 22 of the Companies Act and Article 200 of the Articles) should assist in the identification of Substantial Shareholders, those provisions are not on their own sufficient.
Accordingly, the Special Articles require a Substantial Shareholder and any registered Shareholder holding Ordinary Shares on behalf of a Substantial Shareholder to notify the Company if his Ordinary Shares form part of a Substantial Shareholding. Such a notice must be given as soon as reasonably practicable but not later than the earlier of (i) two business days; or (ii) prior to the Company making a distribution. The Special Articles give the Board the right to require any person to provide information in relation to any Ordinary Shares in order to determine whether the Ordinary Shares form part of a Substantial Shareholding. If the required information is not provided within the time specified (which is seven days after a request is made or such other period as the Board may decide), the Board is entitled to impose sanctions, including withholding dividends (as described in paragraph 4.3 below) and/or requiring the transfer of the Ordinary Shares to another person who is not, and does not thereby become, a Substantial Shareholder (as described in paragraph 4.6 below).
4.3 Preventing payment of a dividend to a Substantial Shareholder
The Special Articles provide that a dividend will not be paid on any Ordinary Shares that the Board believes may form part of a Substantial Shareholding unless the Board is satisfied that the Substantial Shareholder is not beneficially entitled to the dividend.
If in these circumstances payment of a dividend is withheld, the dividend will be paid subsequently if the Board is satisfied that:
• the Substantial Shareholder concerned is not beneficially entitled to the dividends (see also paragraph 4.4 below);
• the shareholding is not part of a Substantial Shareholding;
140 • all or some of the Ordinary Shares and the right to the dividend have been transferred to a person who is not, and does not thereby become, a Substantial Shareholder (in which case the dividends will be paid to the transferee); or
• sufficient Ordinary Shares have been transferred (together with sufficient rights including the right to the dividends) such that the Ordinary Shares retained are no longer part of a Substantial Shareholding (in which case the dividends will be paid on the retained Ordinary Shares).
For this purpose references to the “transfer” of an Ordinary Share include the disposal (by any means) of beneficial ownership of, control of voting rights in respect of and beneficial entitlement to dividends in respect of, that Ordinary Share.
4.4 Payment of a dividend where rights to it have been transferred
The Special Articles provide that dividends may be paid on Ordinary Shares that form part of a Substantial Shareholding if the Board is satisfied that the right to the dividend has been transferred to a person who is not, and does not thereby become, a Substantial Shareholder and the Board may be satisfied that the right to the dividend has been transferred if it receives a certificate containing appropriate confirmations and assurances from the Substantial Shareholder. Such a certificate may apply to a particular dividend or to all future dividends in respect of Ordinary Shares forming part of a specified Substantial Shareholding, until notice rescinding the certificate is received by the Company. A certificate that deals with future dividends will include undertakings by the person providing the certificate:
• to ensure that the entitlement to future dividends will be disposed of; and
• to inform the Company immediately of any circumstances which would render the certificate no longer accurate.
The Directors may require that any such certificate is copied or provided to such persons as they may determine, including HMRC.
If the Board believes a certificate given in these circumstances is or has become inaccurate, then it will be able to withhold payment of future dividends (as described in paragraph 4.3 above). In addition, the Board may require a Substantial Shareholder to pay to the Company the amount of any tax payable (and other costs incurred) as a result of a dividend having been paid to a Substantial Shareholder in reliance on the inaccurate certificate. The Board may require a sale of the relevant Ordinary Shares and retain the amount claimed from the proceeds.
Certificates provided in the circumstances described above will be of considerable importance to the Company in determining whether dividends can be paid. If the Company suffers loss as a result of any misrepresentation or breach of undertaking given in such a certificate, it may seek to recover damages directly from the person who has provided it. Any such tax may also be recovered out of dividends to which the Substantial Shareholder concerned may become entitled in the future or from the proceeds of selling the relevant shares.
The effect of these provisions is that there is no restriction on a person becoming or remaining a Substantial Shareholder provided that the person who does so makes appropriate arrangements to divest itself of the entitlement to dividends.
141 4.5 Trust arrangements where rights to dividends have not been disposed of by a Substantial Shareholder
The Special Articles provide that if a dividend is in fact paid on Ordinary Shares forming part of a Substantial Shareholding (which might occur, for example, if a Substantial Shareholding is split among a number of nominees and is not notified to the Company prior to a dividend payment date) the dividends so paid are to be held on trust by the recipient for any person (who is not a Substantial Shareholder) nominated by the Substantial Shareholder concerned. The person nominated as the beneficiary could be the purchaser of the Ordinary Shares if the Substantial Shareholder is in the process of selling down their holding so as not to cause the Company to breach the Substantial Shareholder rule. If the Substantial Shareholder does not nominate anyone within 12 years, the dividend concerned will be held on trust for the Company or such charity as the Board may nominate.
If the recipient of the dividend passes it on to another without being aware that the Ordinary Shares in respect of which the dividend was paid were part of a Substantial Shareholding, the recipient will have no liability as a result. However, the Substantial Shareholder who receives the dividend should do so subject to the terms of the trust and as a result may not claim to be beneficially entitled to those dividends.
4.6 Mandatory sale of Substantial Shareholdings
The Special Articles also allow the Board to require the disposal of Ordinary Shares forming part of a Substantial Shareholding if:
• a Substantial Shareholder has been identified and a dividend has been announced or declared and the Board has not been satisfied that the Substantial Shareholder has transferred the right to the dividend (or otherwise is not beneficially entitled to it);
• there has been a failure to provide information requested by the Board; or
• any information provided by any person proves materially inaccurate or misleading.
In these circumstances, if the Company incurs a charge to tax as a result of one of these events or the requirements of a disposal notice are not complied with to the satisfaction of the Board within the specified period, the Board may, instead of requiring the Shareholder to dispose of the Ordinary Shares, arrange for the sale of the relevant Ordinary Shares and for the Company to retain from the sale proceeds an amount equal to any tax so payable.
4.7 Takeovers
The Special Articles do not prevent a person from acquiring control of the Company through a takeover or otherwise, although as explained above, such an event may cause the Company to cease to qualify as a REIT.
4.8 Other
The Special Articles also give the Company power to require any Shareholder who applies to be paid dividends without any tax withheld to provide such certificate or declarations as the Board may require from time to time.
The Special Articles may be amended by special resolution passed by the Shareholders in the future, including to give powers to the Directors to ensure that the Company can comply with the close company condition described in paragraphs 1.5 and 2.2.1 of this Part 8, which powers may include the ability to arrange for the sale of Ordinary Shares on behalf of Shareholders.
142 5. The Special Articles
“Real Estate Investment Trust
199 Cardinal principle
(1) It is a cardinal principle that, for so long as the Company qualifies as a REIT, it should not be liable to pay tax under Section 551 of the CTA 2010 on or in connection with the making of a Distribution.
(2) Articles 200 to 204 support such cardinal principle by, among other things, imposing restrictions and obligations on the members and, indirectly, certain other persons who may have an interest in the Company, and shall be construed accordingly so as to give effect to such cardinal principle.
(3) The Board will use reasonable diligence to ensure that the provisions of Articles 200 to 204 are followed.
200 Notification of Substantial Shareholder and other status
(1) Each member and any other relevant person shall serve notice in writing on the Company at the Office on:
(a) his becoming a Substantial Shareholder (together with the percentage of voting rights, share capital or dividends he controls or is beneficially entitled to (in either case whether directly or indirectly), details of the identity of the member(s) who hold(s) the relevant Substantial Shareholding and such other information, certificates or declarations as the Board may require from time to time, such other information, certificates or declarations to be provided promptly following a request therefor);
(b) his becoming a Relevant Registered Shareholder (together with such details of the relevant Substantial Shareholder and such other information, certificates or declarations as the Board may require from time to time, such other information, certificates or declarations to be provided promptly following a request therefor); and
(c) any change to the particulars contained in any such notice under (a) or (b) above (or in such other information, certificates or declarations), including on the relevant person ceasing to be a Substantial Shareholder or a Relevant Registered Shareholder.
Any such notice shall be delivered as soon as reasonably practicable but not later than the earlier of (i) by the end of the second Business Day after the day on which the person becomes a Substantial Shareholder or a Relevant Registered Shareholder or the change in relevant particulars; or (ii) prior to the Company making a Distribution; or (iii) within such shorter or longer period as the Board may specify from time to time.
(2) the Board may at any time give notice in writing to any person requiring him, within such period as may be specified in the notice (being seven days from the date of service of the notice or such shorter or longer period as the Board may specify in the notice), to deliver to the Company at the Office such information, certificates and declarations as the Board may require to establish whether or not he is a Substantial Shareholder or a Relevant Registered Shareholder or to comply with
143 any Reporting Obligation. Each such person shall deliver such information, certificates and declarations within the period specified in such notice.
201 Distributions in respect of substantial shareholdings
(1) In respect of any Distribution, the Board shall, if the Board determines that the condition set out in Article 201(2) is satisfied in relation to any shares in the Company, withhold payment of such Distribution on or in respect of such shares. Any Distribution so withheld shall be paid as provided in Article 201(3) and until such payment the persons who would otherwise be entitled to the Distribution shall have no right to the Distribution or its payment.
(2) The condition referred to in Article 201(1) is that, in relation to any shares in the Company and any Distribution to be paid or made on and in respect of such shares:
(a) the Board believes that such shares comprise all or part of a Substantial Shareholding of a Substantial Shareholder, and
(b) the Board is not satisfied that such Substantial Shareholder would not be beneficially entitled to the Distribution if it was paid, and, for the avoidance of doubt, if the shares comprise all or part of a Substantial Shareholding in respect of more than one Substantial Shareholder this condition is not satisfied unless it is satisfied in respect of all such Substantial Shareholders.
(3) If a Distribution has been withheld on or in respect of any shares in the Company in accordance with Article 201(1), provided that one of the following criteria applies, it shall be paid as follows:
(a) if it is established to the satisfaction of the Board that the condition in Article 201(2) is not satisfied in relation to such shares, in which case the whole amount of the Distribution withheld shall be paid; and
(b) if the Board is satisfied that sufficient interests in all or some of the shares concerned, including the rights to the Distribution attributable to such shares, have been transferred to a third party so that such transferred shares no longer form part of the Substantial Shareholding, in which case the Distribution attributable to such shares shall be paid (provided the Board is satisfied that following such transfer such shares concerned do not form part of a Substantial Shareholding); and
(c) if the Board is satisfied that as a result of a transfer of interests in shares referred to in Article 201(3)(b) above the remaining shares no longer form part of a Substantial Shareholding, in which case the Distribution attributable to such remaining shares shall be paid.
In this Article 201, references to the “transfer” of a share include the disposal (by any means) of beneficial ownership of, control of voting rights in respect of and beneficial entitlement to dividends in respect of, that share.
(4) A Substantial Shareholder may satisfy the Board that he is not beneficially entitled to a Distribution by providing a Distribution Transfer Certificate. The Board shall be entitled to (but shall not be bound to) accept a Distribution Transfer Certificate as evidence of the matters therein stated and the Board shall be entitled to (i) require such other information, certifications or declarations as they think fit; or (ii) continue to withhold payment of a Distribution where they believe that such Distribution Transfer Certificate will or may not be complied with or has become inaccurate.
144 (5) The Board may withhold payment of a Distribution on or in respect of any shares in the Company if any notice given by the Board pursuant to Article 201(2) in relation to such shares shall not have been complied with to the satisfaction of the Board within the period specified in such notice. Any Distribution so withheld will be paid when the notice is complied with to the satisfaction of the Board unless the Board withholds payment pursuant to Article 201(1) and until such payment the persons who would otherwise be entitled to the Distribution shall have no right to the Distribution or its payment.
(6) If the Board decides that payment of a Distribution should be withheld under Article 201(1) or Article 201(5), they shall within seven Business Days give notice in writing of that decision to the Relevant Registered Shareholder. If the Board decide that payment of a Distribution should be made under Article 201(2), they shall inform the recipient of such Distribution in writing explaining the reason that they have decided to pay such Distribution.
(7) If any Distribution shall be paid on or in respect of a Substantial Shareholding and an Excess Charge becomes payable, the Substantial Shareholder shall indemnify the Company (on an after tax basis) against and on demand pay to the Company an amount (calculated on an after-tax basis) equal to the amount of such Excess Charge and all costs and expenses incurred by the Company in connection with the recovery of such amount to the Company. Without prejudice to the right of the Company to claim such amount from the Substantial Shareholder, such recovery may be made out of the proceeds of any disposal pursuant to Article 203(2) or out of any subsequent Distribution in respect of the shares to such person or to the members of all shares in relation to or by virtue of which the Board believes that person has an interest in the Company (whether that person is at that time a Substantial Shareholder or not).
202 Distribution trust
(1) If a Distribution is paid on or in respect of a Substantial Shareholding (except where the Distribution is paid in circumstances where the Substantial Shareholder is not otherwise beneficially entitled to the Distribution or the Board has determined that they are satisfied that no Excess Charge will arise in connection with payment thereof), the Distribution and any income arising from it shall be held by the payee or other recipient to whom the Distribution or right to it is transferred by the payee on trust absolutely for the sole benefit of the persons nominated by the relevant Substantial Shareholder under Article 202(2) in such proportions as the relevant Substantial Shareholder shall in the nomination direct. In the absence of a valid nomination under Article 202(2) being made (which may only be made in the 12 years following the Distribution), the Distribution and any income arising from it shall be held by the payee on trust absolutely for the sole benefit of the Company or, where this would or in the opinion of the Board may cause any condition of the REIT Legislation to be breached, for such UK registered charity as may be nominated by the Board at that time.
(2) The relevant Substantial Shareholder of shares in the Company on or in respect of which a Distribution is paid shall be entitled within 12 years following the Distribution to nominate in writing any two or more persons (not being Substantial Shareholders) to be the beneficiaries of the trust on which the Distribution is held under Article 202(1) and the Substantial Shareholder may in any such nomination state the proportions in which the Distribution is to be held on trust for the nominated persons, failing which the Distribution shall be held on trust for the nominated persons in equal proportions. No person may be nominated under this Article 202(2)
145 who is or would, on becoming a beneficiary in accordance with the nomination, become a Substantial Shareholder. If the Substantial Shareholder making the nomination is not by virtue of Article 202(1) the trustee of the trust, the nomination shall not take effect until it is delivered to the person who is the trustee.
(3) Any income arising from a Distribution which is held on trust under Article 202(1) shall until the earlier of (i) the making of a valid nomination under Article 202(2) and (ii) the expiry of the period of 12 years from the date when the Distribution is paid be accumulated as an accretion to the Distribution. Income shall be treated as arising when payable, so that no apportionment shall take place. The Company shall be entitled to deduct and pay to HMRC any tax due on the income arising for which it or any member of the Group is liable to account.
(4) No person who by virtue of Article 202(1) holds a Distribution on trust shall be under any obligation to invest the Distribution or to deposit it in an interest-bearing account.
(5) No person who by virtue of Article 202(1) holds a Distribution on trust shall be liable for any breach of trust unless due to his own wilful fraud or wrongdoing or, in the case of an incorporated person, the fraud or wilful wrongdoing of its directors, officers or employees.
203 Obligation to dispose
(1) If at any time, the Board believes that:
(a) in respect of any Distribution declared or announced, the condition set out in Article 201(1) is satisfied in respect of any shares in the Company in relation to that Distribution; or
(b) a notice given by the Board pursuant to Article 200(2) in relation to any shares in the Company has not been complied with to the satisfaction of the Board within the period specified in such notice; or
(c) any information, certificate or declaration provided by a person in relation to any shares in the Company for the purposes of this Article 203(1) was materially inaccurate or misleading,
the Board may give notice in writing (a “Disposal Notice”) to any persons they believe are Relevant Registered Shareholders in respect of the relevant shares requiring such Relevant Registered Shareholders within 21 days of the date of service of the notice (or such longer or shorter time as the Board considers to be appropriate in the circumstances) to dispose of such number of shares the Board may in such notice specify or to take such other steps as will cause the condition set out in Article 201(1) no longer to be satisfied. The Board may, if they think fit, withdraw a Disposal Notice.
(2) If:
(a) the requirements of a Disposal Notice are not complied with to the satisfaction of the Board within the period specified in the relevant notice and the relevant Disposal Notice is not withdrawn; or
(b) a Distribution is paid on a Substantial Shareholding and an Excess Charge becomes payable,
146 the Board may arrange for the Company to sell all or some of the shares to which the Disposal Notice relates or, as the case may be, that form part of the Substantial Shareholding concerned. For this purpose, the Board may make such arrangements as they deem appropriate. In particular, without limitation, they may authorise any officer or employee of the Company to execute any transfer or other document on behalf of the holder or holders of the relevant shares and, in the case of a share in uncertificated form, may make such arrangements as they think fit on behalf of the relevant holder or holders to transfer title to the relevant share through a relevant system.
(3) Any sale pursuant to Article 203(2) above shall be at the price which the Board considers is the best price reasonably obtainable and the Board shall not be liable to the holder or holders of the relevant share for any alleged deficiency in the amount of the sale proceeds or any other matter relating to the sale.
(4) The net proceeds of the sale of any share under Article 203(2) (less any amount to be retained pursuant to Article 201(5) and the expenses of sale) shall be paid over by the Company to the former holder or holders of the relevant share upon surrender of any certificate or other evidence of title relating to it, without interest. The receipt of the Company shall be a good discharge for the purchase money.
(5) The title of any transferee of shares shall not be affected by an irregularity or invalidity of any actions purportedly taken pursuant to this Article 203.
204 General
(1) the Board shall be entitled to presume without enquiry, unless any Director has reason to believe otherwise, that a person is not a Substantial Shareholder or a Relevant Registered Shareholder.
(2) the Board shall not be required to give any reasons for any decision or determination (including any decision or determination not to take action in respect of a particular person) pursuant to Articles 199 to 204 and any such determination or decision shall be at the absolute discretion of the Board and shall be final and binding on all persons unless and until it is revoked or changed by the Board. Any disposal or transfer made or other thing done by or on behalf of the Board or any Director pursuant to Articles 200 to 204 shall be binding on all persons and shall not be open to challenge on any ground whatsoever.
(3) Without limiting their liability to the Company, the Board shall be under no liability to any other person, and the Company shall be under no liability to any member or any other person, for identifying or failing to identify any person as a Substantial Shareholder or a Relevant Registered Shareholder.
(4) the Board shall not be obliged to serve any notice required under Articles 200 to 204 upon any person if they do not know either his identity or his address. The absence of service of such a notice in such circumstances or any accidental error in or failure to give any notice to any person upon whom notice is required to be served under Articles 199 to 204 shall not prevent the implementation of or invalidate any procedure under Articles 199 to 204.
(5) The provisions of Articles 170 to 183 shall apply to the service upon any person of any notice required by Articles 199 to 204. Any notice required by Articles 199 to 204 to be served upon a person who is not a member or upon a person who is a member but whose address is not within the United Kingdom shall be deemed validly served if such notice is sent through the post in a pre-paid cover addressed to that person
147 or member at the address if any, at which the Board believes him to be resident or carrying on business or, in the case of a holder of depositary receipts or similar securities, to the address, if any, in the register of holders of the relevant securities Service shall, in such a case be deemed to be effected on the day of posting and it shall be sufficient proof of service if that notice was properly addressed, stamped and posted.
(6) Any notice required or permitted to be given pursuant to Articles 199 to 204 may relate to more than one share and shall specify the share or shares to which it relates.
(7) The Company may withhold amounts on account of tax from any amount payable in connection with these Articles where so required by law or FATCA or where it believes it is so required by law or FATCA. The Board may require from time to time any person who is or claims to be a person to whom a Distribution may be paid without deduction of tax under Regulation 7 of the Real Estate Investment Trusts (Assessment and Recovery of Tax) Regulations 2006 to provide such certificates or declarations as they may require from time to time.
(8) Any of Articles 199 to 204 may be amended by special resolution from time to time, including to give powers to the Board to take such steps as they may require in order to ensure that the Company can satisfy Condition D of Section 528 of the CTA 2010 which relates to close company status, which powers may include the ability to arrange for the sale of shares on behalf of members.
(9) Where any certificate or declaration may be or is required to be provided by any person (including, without limitation, a Distribution Transfer Certificate) pursuant to any of Articles 199 to 204, such certificate or declaration may be required by the Board (without limitation):
(a) to be addressed to the Company, the Board or such other persons as the Board may determine (including HMRC);
(b) to include such information as the Board considers is required for the Company to comply with any Reporting Obligation;
(c) to contain such legally binding representations and obligations as the Board may determine;
(d) to include an undertaking to notify the Company if the information in the certificate or declaration becomes incorrect, including prior to such change;
(e) to be copied or provided to such persons as the Board may determine (including HMRC); and
(f) to be executed in such form (including as a deed or deed poll) as the Board may determine.
The provisions of Articles 199 to 204 shall apply notwithstanding any provisions to the contrary in any other Article (including, without limitation, 155 to 169).”
148 PART 9
ADDITIONAL INFORMATION
1. The Company and the Investment Manager
1.1 The Company’s name is M7 Multi-Let REIT plc and the Company has an indefinite life.
1.2 The Company was incorporated in England and Wales on 9 August 2017 with registered number 10907965 as a private company limited by shares under the Companies Act and re-registered as a public company limited by shares under the Companies Act on 6 September 2017.
1.3 The Company has given notice to the Registrar of Companies of its intention to carry on business as an investment company pursuant to Section 833 of the Companies Act.
1.4 The principal place of business and registered office of the Company is 5 Old Bailey, London EC4M 7BA and its telephone number is +44 (0)20 3597 7900.
1.5 The principal legislation under which the Company operates is the Companies Act. The Company will not be regulated as a collective investment scheme by the FCA. However, from Admission, the Ordinary Shares will be admitted to the premium listing segment of the Official List and to trading on the premium segment of the main market for listed securities of the London Stock Exchange. The Company will be subject to the Listing Rules, the Prospectus Rules, the Disclosure Guidance and Transparency Rules, the Market Abuse Regulation and to the rules of the London Stock Exchange.
1.6 The Company has not commenced operations since incorporation and, as at the date of this Prospectus, no financial statements have been made up and no dividends have been declared by the Company.
1.7 The Company’s accounting period will end on 31 December of each year. The annual report and accounts will be prepared in sterling according to the accounting standards laid out under IFRS.
1.8 The Company is domiciled in England and Wales and, as at the date of this Prospectus does not have any employees.
1.9 The only subsidiary of the Company as at the date of this Prospectus is Holdco. Holdco is a wholly owned subsidiary of the Company and its name is M7 Multi-Let REIT Holdco 1 Limited. Holdco has an indefinite life. Holdco was incorporated as a private company limited by shares under the Companies Act on 7 September 2017 with registered number 10951774. The principal place of business and registered office of Holdco is 5 Old Bailey, London EC4M 7BA and its telephone number is +44 (0)20 3597 7900. The principal legislation under which Holdco operates is the Companies Act. Holdco has not commenced operations since incorporation and, as at the date of this Prospectus, no financial statements have been made up and no dividends have been declared by Holdco. Holdco’s accounting period will end on 31 December of each year. The annual report and accounts will be prepared in sterling according to the accounting standards laid out under IFRS. Holdco is domiciled in England and Wales and, as at the date of this Prospectus, does not have any employees.
1.10 The Company and the Directors, whose names appear on page 52 of this Prospectus, accept responsibility for the information contained in this Prospectus. To the best of the knowledge and belief of the Company and the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information.
149 1.11 The Investment Manager, M7 Real Estate Financial Services Ltd, is a limited liability company incorporated in England and Wales on 17 January 2014 under the Companies Act with company number 8850690. The address of the registered office of the Investment Manager is 26 Red Lion Square, London WC1R 4AG and its telephone number is +44 (0)20 3657 5500. The Investment Manager, as the Company’s AIFM, will cover potential professional liability risks resulting from its activities as AIFM by holding professional indemnity insurance against liability arising from professional negligence which is appropriate to the risks covered, in accordance with the AIFMD Rules.
1.12 The Asset Manager, M7 Real Estate Ltd, is a limited liability company incorporated in England and Wales on 18 July 2013 under the Companies Act with company number 8614287. The address of the registered office of the Asset Manager is 26 Red Lion Square, London WC1R 4AG and its telephone number is +44 (0)20 3657 5500.
2. Share Capital
2.1 On incorporation, one Ordinary Share was issued (fully paid) for the purposes of incorporation to M7 Real Estate. On 4 September 2017, 50,000 Redeemable Preference Shares were issued to M7 Real Estate and are fully paid up as to their nominal value.
2.2 Set out below is the issued share capital of the Company: (i) as at the date of this Prospectus; and (ii) immediately following the Issue (assuming the Issue is in respect of 300 million Ordinary Shares):
Redeemable Ordinary Shares Preference Shares ––––––––––––––––––––– ––––––––––––––––––––– Aggregate Aggregate Nominal Nominal Value (£) Number Value (£) Number ––––––––– ––––––––– ––––––––– ––––––––– (i) As at the date of this Prospectus 0.01 1 50,000 50,000 (ii) Immediately following the Issue* 3,000,000.01 300,000,001 – –
* All Ordinary Shares will be fully paid at Admission. The Redeemable Preference Shares will be redeemed immediately following Admission out of the proceeds of the Issue and cancelled. The Ordinary Shares are not redeemable.
2.3 Assuming that Gross Issue Proceeds of £300 million are raised under the Issue, the net assets of the Company will increase by approximately £294 million with no debt on Admission, and on completion of the Initial Acquisitions, the net assets of the Company would amount to approximately £286.9 million. Assuming that the Minimum Net Proceeds of £147 million are raised under the Issue the net assets of the Company will increase by approximately £147 million with no debt on Admission, and on completion of the Initial Acquisitions, the net assets of the Company would amount to approximately £139.9 million. Because of its nature, the pro forma financial information included in this paragraph addresses a hypothetical situation and, therefore, does not represent the Company’s actual financial position or results.
2.4 By special resolutions passed on 4 September 2017:
2.4.1 it was resolved that the Company be re-registered as a public company in accordance with the Companies Act;
2.4.2 the Articles were adopted as the new articles of association of the Company;
2.4.3 the Directors were generally and unconditionally authorised in accordance with Section 551 of the Companies Act to exercise all the powers of the Company to allot
150 Ordinary Shares up to an aggregate nominal amount of £3,000,000 in connection with the Issue, such authority to expire immediately following Admission, save that the Company may, at any time prior to the expiry of such authority, make an offer or enter into an agreement which would or might require the allotment of Ordinary Shares in pursuance of such an offer or agreement as if such authority had not expired;
2.4.4 the Directors were generally empowered (pursuant to Section 570 of the Companies Act) to allot Ordinary Shares for cash pursuant to the authority referred to in paragraph 2.4.3 above as if Section 561 of the Companies Act did not apply to any such allotment, such power to expire immediately following Admission, save that the Company may, at any time prior to the expiry of such authority, make an offer or enter into an agreement which would or might require the Ordinary Shares to be allotted after such expiry and the Directors may allot equity securities in pursuance of such an offer or agreement as if such power had not expired;
2.4.5 the Directors were generally and unconditionally authorised in accordance with Section 551 of the Companies Act to exercise all the powers of the Company to allot Ordinary Shares up to an aggregate nominal amount of £600,000, such authority to expire at the conclusion of the first annual general meeting of the Company, save that the Company may, at any time prior to the expiry of such authority, make an offer or enter into an agreement which would or might require the allotment of Ordinary Shares in pursuance of such an offer or agreement as if such authority had not expired;
2.4.6 the Directors were generally empowered (pursuant to Section 570 of the Companies Act) to allot Ordinary Shares and to sell Ordinary Shares from treasury for cash pursuant to the authority referred to in paragraph 2.4.5 above as if Section 561 of the Companies Act did not apply to any such allotment, such power to expire at the conclusion of the first annual general meeting of the Company, save that the Company may, at any time prior to the expiry of such authority, make an offer or enter into an agreement which would or might require the Ordinary Shares to be allotted and/or transferred after such expiry and the Directors may allot and/or transfer equity securities in pursuance of such an offer or agreement as if such power had not expired;
2.4.7 conditionally upon Admission and the approval of the Court, it was resolved that the amount standing to the credit of the share premium account of the Company immediately following completion of the Issue be cancelled and transferred to a special reserve which may be treated as distributable profits;
2.4.8 the Company was authorised in accordance with Section 701 of the Companies Act to make market purchases (within the meaning of Section 693(4) of the Companies Act) of Ordinary Shares provided that the maximum number of Ordinary Shares authorised to be purchased is 14.99 per cent. of the Ordinary Shares in issue immediately following completion of the Issue. The minimum price which may be paid for an Ordinary Share is £0.01. The maximum price which may be paid for an Ordinary Share must not be more than the higher of (i) five per cent. above the average of the mid-market value of the Ordinary Shares for the five Business Days before the purchase is made or (ii) that stipulated by the regulatory technical standards adopted by the EU pursuant to the Market Abuse Regulation from time to time. Such authority will expire on the conclusion of the first annual general meeting of the Company and, save that the Company may contract to purchase Ordinary Shares under the authority thereby conferred prior to the expiry of such authority, which contract will or may be executed wholly or partly after the expiry of such authority and may purchase Ordinary Shares in pursuance of such contract; and
151 2.4.9 a general meeting of the Company other than an annual general meeting may be called on not less than 14 days’ notice.
2.5 The provisions of Section 561(1) of the Companies Act (which, to the extent not disapplied pursuant to Sections 570 and 573 of the Companies Act, confer on Shareholders rights of pre-emption in respect of the allotment of equity securities which are, or are to be, paid up in cash) apply to issues by the Company of equity securities save to the extent disapplied as mentioned in paragraphs 2.4.4 and 2.4.6 above.
2.6 The Companies Act abolished the requirement for companies incorporated in England and Wales to have an authorised share capital. Furthermore, the Articles do not contain a provision expressly limiting the number of Ordinary Shares that can be issued by the Company.
2.7 In accordance with the authority referred to in paragraph 2.4.3 above, it is expected that the Ordinary Shares to be issued pursuant to the Issue will be allotted (conditionally upon Admission) pursuant to a resolution of the Board to be passed shortly before Admission in accordance with the Companies Act.
2.8 Save as disclosed in this paragraph 2, no share or loan capital of the Company has since the date of incorporation of the Company been issued or been agreed to be issued, fully or partly paid, either for cash or for a consideration other than cash, and no such issue is now proposed.
2.9 The Company has not granted any options over its share or loan capital which remain outstanding and has not agreed, conditionally or unconditionally to grant any such options and no convertible securities, exchangeable securities or securities with warrants have been issued by the Company.
2.10 All of the Ordinary Shares will be in registered form and will be eligible for settlement in CREST. Temporary documents of title will not be issued.
2.11 Applicants who have signed and returned Application Forms in respect of the Offer for Subscription may not withdraw their applications for Ordinary Shares subject to their statutory rights of withdrawal in the event of the publication of a supplementary prospectus.
3. Interests of Major Shareholders, M7 Real Estate, Key Individuals and Directors 3.1 The following persons intend to subscribe for Ordinary Shares pursuant to the Issue in the amounts set out below: Percentage Number of of issued Ordinary Ordinary Shares Share Capital* ––––––––––– ––––––––––– M7 Real Estate(1) 7,000,000 2.33% Richard Croft(2) 100,000 0.033% Andrew Jenkins(3) 100,000 0.033% David Ebbrell(4) 50,000 0.017% Teresa Gilchrist(5) 30,000 0.01% Stephen Smith(6) 75,000 0.025% Robert Bould(7) 50,000 0.017% Peter Denton(8) 50,000 0.017% Gerald Parkes(9) 50,000 0.017%
* Assuming Gross Issue Proceeds of £300 million. (1) M7 Real Estate intends to subscribe for these Ordinary Shares at the Issue Price under the Offer for Subscription. M7 Real Estate has agreed to a lock-in period of two years. (2) Richard Croft, the Chief Executive Officer of M7 Real Estate, intends to subscribe for these Ordinary Shares under the Offer for Subscription. Richard Croft has agreed to a lock-in period of 365 days.
152 (3) Andrew Jenkins, the Chief Operating Officer of M7 Real Estate, intends to subscribe for these Ordinary Shares under the Offer for Subscription. Andrew Jenkins has agreed to a lock-in period of 365 days. (4) David Ebbrell, the Chief Investment Officer of M7 Real Estate, intends to subscribe for these Ordinary Shares under the Offer for Subscription. David Ebbrell has agreed to a lock-in period of 365 days. (5) Teresa Gilchrist, the Head of Investor Relations and New Business of M7 Real Estate, intends to subscribe for these Ordinary Shares under the Offer for Subscription. Teresa Gilchrist has agreed to a lock-in period of 365 days. (6) Stephen Smith, the independent non-executive chairman of the Board of the Company, intends to subscribe for these Ordinary Shares at the Issue Price under the Offer for Subscription. Stephen Smith has agreed to a lock-in period of 365 days. (7) Robert Bould, an independent non-executive director of the Company, intends to subscribe for these Ordinary Shares at the Issue Price under the Offer for Subscription. Robert Bould has agreed to a lock-in period of 365 days. (8) Peter Denton, an independent non-executive director of the Company, intends to subscribe for these Ordinary Shares at the Issue Price under the Offer for Subscription. Peter Denton has agreed to a lock-in period of 365 days. (9) Gerald Parkes, an independent non-executive director of the Company, intends to subscribe for these Ordinary Shares at the Issue Price under the Offer for Subscription. Gerald Parkes has agreed to a lock-in period of 365 days. Save as disclosed in this paragraph 3.1, immediately following Admission, no Director, member of the Investment Committee or other key individual at M7 listed in paragraph 2 of Part 5 will have any interest, whether beneficial or non-beneficial, in the share or loan capital of the Company.
3.2 No amount has been set aside or accrued by the Company to provide pensions, retirement or other similar benefits. 3.3 None of the Directors has, or has had, an interest in any transaction which is or was unusual in its nature or conditions or significant to the business of the Company or that has been effected by the Company since its incorporation. 3.4 The Company has not made any loans to the Directors which are outstanding, nor has it ever provided any guarantees for the benefit of any Director or the Directors collectively. 3.5 Over the five years preceding the date of this Prospectus, the Directors hold or have held the following directorships (apart from their directorships of the Company) or memberships of administrative, management or supervisory bodies and/or partnerships: Name Current Previous ––––––––––––––– ––––––––––––––––––––––––––– ––––––––––––––––––––––––––– Stephen Smith AEW UK Long Lease REIT plc 1 & 4 & 7 Triton Limited AEW Long Lease REIT 2017 10 Brock Street Limited Limited 10 Triton Street Limited Ever 1855 Limited 1-2 Logan Place Limited Gatehouse Bank plc 17-19 Bedford Street Limited Network Rail Property Limited 18-20 Craven Hill Gardens Limited North East Property Partnership 20 Brock Street Limited Limited 20 Triton Street Limited Rubicon Securities Limited 334 Ramsbury Oxford Limited Starwood European Real Estate 338 Euston Road Limited Finance Limited 350 Euston Road Limited The Norman Retail Park LLP 39 Victoria Street Limited The Pollen Estate Trustee 51 Lime Street Company Limited 8/10 Throgmorton Avenue Limited The PRS REIT plc Adshilta Limited UK Land Estates (Partnership) Apartpower Limited Limited B.L.Holdings Limited UK Land Estates Partnership Balsenia Limited (Holdings) Limited Bayeast Property Co Limited UKLEP (2003) Limited Bexile Limited
153 Name Current Previous ––––––––––––––– ––––––––––––––––––––––––––– ––––––––––––––––––––––––––– Stephen Smith BF Propco (No.1) Limited continued BF Propco (No.11) Limited BF Propco (No.12) Limited BF Propco (No.13) Limited BF Propco (No.14) Limited BF Propco (No.15) Limited BF Propco (No.16) Limited BF Propco (No.17) Limited BF Propco (No.18) Limited BF Propco (No.19) Limited BF Propco (No.2) Limited BF Propco (No.20) Limited BF Propco (No.21) Limited BF Propco (No.22) Limited BF Propco (No.23) Limited BF Propco (No.3) Limited BF Propco (No.4) Limited BF Propco (No.5) Limited BF Propco (No.6) Limited BF Propco (No.7) Limited BF Propco (No.8) Limited BF Propco (No.9) Limited BF Properties (No.4) Ltd BF Properties (No.5) Ltd BL (Maidenhead) Company Limited BL (SP) Cannon Street Limited BL (SP) Investment (1) Limited BL (SP) Investment (2) Limited BL (SP) Investment (3) Limited BL (SP) Investment (4) Limited BL Bradford Forster Limited BL City Offices Holding Company Limited BL Clifton Moor Limited BL Cwmbran Limited BL Davidson Limited BL Department Stores Holding Company Limited BL Doncaster Wheatley Limited BL Guaranteeco Limited BL HC (DSCH) Limited BL HC (DSCLI) Limited BL HC Dollview Limited BL HC Health And Fitness Holdings Limited BL HC INVIC Leisure Limited BL HC Property Holdings Limited BL Health Clubs PH No 1 Limited BL Health Clubs PH No 2 Limited BL High Street And Shopping Centres Holding Company Limited BL Intermediate Holding Company Limited
154 Name Current Previous ––––––––––––––– ––––––––––––––––––––––––––– ––––––––––––––––––––––––––– Stephen Smith BL Leisure And Industrial Holding continued Company Limited BL Meadowhall Holdings Limited BL Meadowhall Limited BL Meadowhall No 4 Limited BL Office (Non-City) Holding Company Limited BL Office Holding Company Limited BL Osnaburgh St Residential Ltd BL Residual Holding Company Limited BL Retail Holding Company Limited BL Retail Warehousing Holding Company Limited BL Superstores Holding Company Limited BL Triton Building Residential Limited BL Universal Limited BL West (Watling House) Limited Blackglen Limited Blaxmill (Thirty) Limited Blaxmill (Twenty-Nine) Limited BLD (A) Limited BLD (Ebury Gate) Limited BLD (SJ) Investments Limited BLD (SJ) Limited BLD Land Limited BLD Properties Limited BLD Property Holdings Limited BLSSP (Funding) Limited Blu Estates Limited Blu Property Management Limited Blu Securities Limited Boldswitch (No 1) Limited Boldswitch Limited British Land (Joint Ventures) Limited British Land Acquisitions Limited British Land Aqua Partnership (2) Limited British Land Aqua Partnership Limited British Land City British Land City 2005 Limited British Land City Offices Limited British Land Company Public Limited Company British Land Construction Limited
155 Name Current Previous ––––––––––––––– ––––––––––––––––––––––––––– ––––––––––––––––––––––––––– Stephen Smith British Land Department Stores continued Limited British Land In Town Retail Limited British Land Industrial Limited British Land Leisure Limited British Land Offices (Non-City) Limited British Land Offices (Non-City) No.2 Limited British Land Property Management Limited British Land Regeneration Limited British Land Retail Warehouses Limited British Land Securitisation 1999 British Land Superstores (NonSecuritised) Number 2 Limited Broadgate (PHC 8) Limited Broadgate Adjoining Properties Limited Broadgate City Limited Broadgate Court Investments Limited Broadgate Estates Limited Broadgate Investment Holdings Limited Broadgate Properties Limited Broadgate Square Ltd Brunswick Park Limited Bustoni Limited BVP Developments Limited BVP Financing Limited BVP Holdings Limited Caseplane Limited Cavendish Geared II Limited Cavendish Geared Limited Caymall Limited Cheshine Properties Limited Chrisilu Nominees Limited City Wall (Holdings) Limited Clivara Limited Cornish Residential Properties Trading Limited Cornish Residential Property Investments Limited Crossbelt Limited Derby Investment Holdings Limited Drake Property Holdings Limited
156 Name Current Previous ––––––––––––––– ––––––––––––––––––––––––––– ––––––––––––––––––––––––––– Stephen Smith Drake Property Nominee (No. 1) continued Limited Drake Property Nominee (No. 2) Limited Dwyer Asset Management plc Eastern & Oriental Plc Eastgate Shopping Centre Basildon Limited Elementvirtue Limited Euston Tower Limited Exchange House Holdings Limited Finsbury Avenue Estates Limited Four Broadgate Limited Garamead Properties Limited Gardenray Limited Giltbrook Retail Park Nottingham Limited Glenway Limited Hyfleet Limited Industrial Real Estate Limited Insistmetal 2 Limited Kingsmere Productions Limited L & H Developments Limited Legal & General Grenfell Limited Legal & General Kingston Upon Hull Limited Linestair Limited Liverpool Exchange Company Limited (The) Lonebridge UK Limited LSL Holdco 1 Limited LSL Holdco 2 Limited Ludgate Investment Holdings Limited Ludgate West Limited Manbrig Properties Mayfair Properties Mayflower Retail Park Basildon Limited Meadowbank Retail Park Edinburgh Limited Meadowhall (MLP) Limited Meadowhall Contracts Limited Meadowhall Finance Plc Meadowhall Group (MLP) Limited Meadowhall Holdco Limited Meadowhall Nominee 1 Limited Meadowhall Nominee 2 Limited Meadowhall Shopping Centre Limited Meadowhall Shopping Centre Property Holdings Limited
157 Name Current Previous ––––––––––––––– ––––––––––––––––––––––––––– ––––––––––––––––––––––––––– Stephen Smith Meadowhall Subco Limited continued Mercari Holdings Limited Minhill Investments Limited Moorage (Property Developments) Limited MSC (Cash Management) Limited MSC Property Intermediate Holdings Limited Nugent Shopping Park Limited Orbital Shopping Park Swindon Limited Osnaburgh Street Limited Pillar Nugent Limited Plantation House Limited Project Sunrise Investments Limited Project Sunrise Limited Project Sunrise Properties Limited Rackhams Birmingham Limited Reboline Limited Rigphone Limited Salmax Properties Six Broadgate Limited Sprint 1118 Limited St James Retail Park Northampton Limited St. Stephens Shopping Centre Limited Stockton Retail Park Limited Sundridge Park Golf Club Limited Sydale Tailress Limited The Beehive Centre Cambridge Limited The Mary Street Estate Limited The Retail & Warehouse Company Limited TPP Investments Limited Tritax Big Box REIT plc Tritax Reit Acquisition 10 Limited Tritax Reit Acquisition 11 Limited Tritax Reit Acquisition 12 Limited Tritax Reit Acquisition 13 Limited Tritax Reit Acquisition 14 Limited Tritax Reit Acquisition 16 Limited Tritax Reit Acquisition 17 Limited Tritax Reit Acquisition 18 Limited Tritax Reit Acquisition 21 Limited Tritax Reit Acquisition 22 Limited Tritax Reit Acquisition 23 Limited Tritax Reit Acquisition 3 Limited
158 Name Current Previous ––––––––––––––– ––––––––––––––––––––––––––– ––––––––––––––––––––––––––– Stephen Smith Tritax Reit Acquisition 4 Limited continued Tritax Reit Acquisition 5 Limited Tritax Reit Acquisition 8 Limited Tritax Reit Acquisition 9 Limited Union Property Corporation Limited Union Property Holdings (London) Limited United Kingdom Property Company Limited Wardrobe Court Limited Wardrobe Holdings Limited Wardrobe Place Limited Westgate Retail Park Wakefield Limited York House W1 Limited Robert Bould Bould Consulting Limited Bruton property Services Limited BHT Energy Limited GVA Grimley Holdings Limited Coyote Group Ltd GVA Grimley Limited LandAid Charitable Trust Limited GVA Facilities Management London Real Estate Exchange Services Limited Limited GVA Acuity Holdings Limited Palmer Capital Income Fund GVA Acuity Limited PCIF GVA Global Limited Portland Fund GP Ltd GVA Gordon LLP Portland Fund Management Ltd GVA James Bar Limited GVA Worldwide Limited GVA Grimley No 2 Limited PF Capital Ltd Saxon Law (Investment) Limited Saxon Law (Investment One) Limited Saxon Law Group Limited Teesland Advantage Property Income Trust
Peter Denton Hyde Housing Association Ltd The Malt House (Broad Hyde Vale Limited Campden) Limited Hyde New Build Limited The Seagrave Arms Limited Hyde PRS Company Ltd Commercial Real Estate MPAC Management Limited Finance Council Europe
159 Name Current Previous ––––––––––––––– ––––––––––––––––––––––––––– ––––––––––––––––––––––––––– Gerald Parkes Art Icon Management Ltd – Kotka Kantasataman Outley Oy Kotka Kanatasataman Kehitys OY Mortegrove Limited North Row Capital LLP Old Port MDC Luxembourg S.A. Property Capital Partners Europe LLP Pacific Real Estate Capital Partners Platinum Skies Living Limited QTrim Design Limited Urban Innovation Network Ltd Urban Land Institute UK Charitable Foundation
3.6 Save as disclosed at paragraph 3.7 below, the Directors in the five years before the date of this Prospectus:
3.6.1 do not have any convictions in relation to fraudulent offences;
3.6.2 have not been associated with any bankruptcies, receiverships or liquidations of any partnership or company through acting in the capacity as a member of the administrative, management or supervisory body or as a partner, founder or senior manager of such partnership or company; and
3.6.3 do not have any official public incrimination and/or sanctions by statutory or regulatory authorities (including designated professional bodies) and have not been disqualified by a court from acting as a member of the administration, management or supervisory bodies of any issuer or from acting in the management or conduct of the affairs of any issuer.
3.7 Stephen Smith was a director of various companies which were liquidated as part of the Tritax Big Box REIT plc group reorganisation (being Tritax Reit Acquisition 4 Limited, Tritax Reit Acquisition 10 Limited, Tritax Reit Acquisition 11 Limited, Tritax Reit Acquisition 12 Limited, Tritax Reit Acquisition 13 Limited, Tritax Reit Acquisition 14 Limited, Tritax Reit Acquisition 17 Limited, Tritax Reit Acquisition 18 Limited, Tritax Reit Acquisition 21 Limited, Tritax Reit Acquisition 22 Limited and Tritax Reit Acquisition 23 Limited).
3.8 Stephen Smith, the independent non-executive chairman of the Board of the Company, intends to subscribe for 75,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Robert Bould, an independent non-executive director of the Company, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Peter Denton, an independent non-executive director of the Company, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription. Gerald Parkes, an independent non-executive director of the Company, intends to subscribe for 50,000 Ordinary Shares at the Issue Price under the Offer for Subscription.
3.9 Save as disclosed at paragraph 3.8 above, as at the date of this Prospectus, none of the Directors has any conflict of interest or potential conflict of interest between any duties to the Company and their private interests and/or other duties.
160 3.10 Members of the Investment Committee and certain other key individuals at M7 listed in paragraph 2 of Part 5 are employed by the Investment Manager and/or the Asset Manager. In addition to being asset manager to Marble and REIP II, M7 Real Estate also holds 0.89 per cent. of Marble’s issued share capital and 27.33 per cent. of REIP II’s issued share capital and is one of the sellers in the Initial Acquisitions. M7 Real Estate intends to subscribe for 7 million Ordinary Shares at the Issue Price under the Offer for Subscription. Richard Croft, the Chief Executive Officer of M7 Real Estate, intends to subscribe for 100,000 Ordinary Shares under the Offer for Subscription. Andrew Jenkins, the Chief Operating Officer of M7 Real Estate, intends to subscribe for 100,000 Ordinary Shares under the Offer for Subscription. David Ebbrell, the Chief Investment Officer of M7 Real Estate, intends to subscribe for 50,000 Ordinary Shares under the Offer for Subscription. Teresa Gilchrist, the Head of Investor Relations and New Business of M7 Real Estate, intends to subscribe for 30,000 Ordinary Shares under the Offer for Subscription.
3.11 The Company intends to maintain directors’ and officers’ liability insurance on behalf of the Directors at the expense of the Company.
3.12 As at the date of this Prospectus, insofar as is known to the Company, other than as shown in paragraph 3.1 of this Part 9, there are no parties known to have a notifiable interest under English law in the Company’s capital or voting rights.
3.13 All Shareholders have the same voting rights in respect of the share capital of the Company.
3.14 Pending the allotment of Ordinary Shares pursuant to the Issue, one Ordinary Share has been issued to M7 Real Estate. The Company and the Directors are not aware of any other person who, directly or indirectly, jointly or severally, exercises or could exercise control over the Company.
3.15 The Company and the Directors are not aware of any arrangements, the operation of which may at a subsequent date result in a change in control of the Company.
4. Directors’ Appointment Letters
4.1 No Director has a service contract with the Company, nor are any such contracts proposed.
4.2 Each Director has entered into a letter of appointment with the Company. The Directors’ appointments can be terminated in accordance with the Articles and their letters of appointment and without compensation. All Directors are subject to retirement by rotation in accordance with the Articles. Each letter of appointment may be terminated by either a Director or the Company giving to the other three months’ prior written notice. The Articles provide that the office of Director shall be terminated by, amongst other things: (i) written resignation; (ii) unauthorised absences from board meetings for six consecutive months or more; or (iii) written request of all of the other Directors.
4.3 Each of the Directors is entitled to receive a fee from the Company at such rate as may be determined in accordance with the Articles. Save for the Chairman, the initial fees will be £50,000 for each Director per annum. The Chairman’s initial fee will be £75,000 per annum. The Directors are also entitled to out-of-pocket expenses incurred in the proper performance of their duties.
161 5. The Articles
The Articles contain provisions, inter alia, to the following effect:
5.1 Objects
The Articles do not provide for any objects of the Company and accordingly the Company’s objects are unrestricted.
5.2 Variation of rights
Subject to the provisions of the Companies Act as amended and every other statute for the time being in force concerning companies and affecting the Company (the “Statutes”), if at any time the share capital of the Company is divided into different classes of shares, the rights attached to any class may be varied or abrogated either with the consent in writing of the holders of three-quarters in nominal value of the issued shares of that class or with the sanction of an extraordinary resolution passed at a separate meeting of the holders of the shares of that class (but not otherwise) and may be so varied either whilst the Company is a going concern or during or in contemplation of a winding-up. At every such separate general meeting the necessary quorum shall be at least two persons holding or representing by proxy at least one-third in nominal value of the issued shares of the class in question (but at any adjourned meeting any holder of shares of the class present in person or by proxy shall be a quorum), any holder of shares of the class present in person or by proxy may demand a poll and every such holder shall on a poll have one vote for every share of the class held by him. Where the rights of some only of the shares of any class are to be varied, the foregoing provisions apply as if each group of shares of the class differently treated formed a separate class whose rights are to be varied.
5.3 Alteration of share capital
The Company may by ordinary resolution:
(i) consolidate and divide all or any of its share capital into shares of larger nominal value than its existing shares;
(ii) sub-divide its shares, or any of them, into shares of smaller nominal value than its existing shares; and
(iii) determine that, as between the shares resulting from such a sub-division, one or more shares may, as compared with the others, have any such preferred, deferred or other rights or be subject to any such restrictions as the Company has power to attach to unissued or new shares.
5.4 Issue of shares
Subject to the provisions of the Companies Act and without prejudice to any rights attaching to any existing shares, any share may be issued with such rights or restrictions as the Company may by ordinary resolution determine (or if the Company has not so determined, as the Directors may determine).
5.5 Dividends
Subject to the provisions of the Act, the Company may by ordinary resolution declare dividends in accordance with the respective rights of the shareholders but no dividends shall exceed the amount recommended by the Directors. Subject to the provisions of the Act, the Directors may pay interim dividends, or dividends payable at a fixed rate, if it appears to them that they are justified by the profits of the Company available for distribution. If the Directors act in good faith they shall not incur any liability to the holders
162 of shares conferring preferred rights for any loss they may suffer by the lawful payment of an interim dividend on any shares having deferred or non-preferred rights.
Subject to the rights of persons (if any) entitled to shares with special rights as to dividend, all dividends shall be declared and paid according to the amounts paid up on the shares on which the dividend is paid. If any share is issued on terms that it ranks for dividend as from a particular date, it shall rank for dividend accordingly. In any other case, dividends shall be apportioned and paid proportionately to the amount paid up on the shares during any portion(s) of the period in respect of which the dividend is paid.
5.6 Voting rights
Subject to any rights or restrictions attached to any shares, on a show of hands every shareholder present in person has one vote, every proxy present who has been duly appointed by a shareholder entitled to vote has one vote and every corporate representative present who has been duly authorised by a corporation has the same voting rights as the corporation would be entitled to. On a poll every shareholder (whether present in person or by proxy or by corporate representative) has one vote for every share of which he is the holder. A shareholder entitled to more than one vote need not, if he votes, use all his votes or cast all the votes he uses the same way. In the case of joint holders, the vote of the senior who tenders a vote shall be accepted to the exclusion of the vote of the other joint holders, and seniority shall be determined by the order in which the names of the holders stand in the Register.
No shareholder shall have any right to vote at any general meeting or at any separate meeting of the holders of any class of shares, either in person or by proxy, in respect of any share held by him unless all amounts presently payable by him in respect of that share have been paid.
Where a shareholder vote is required to be taken in accordance with the Listing Rules, that vote must be decided by a resolution of the holders of the shares that have been admitted to the premium listing. Where the provisions of the Listing Rules require that any resolution must, in addition, be approved by the independent shareholders (as defined in the Listing Rules), only independent shareholders who hold shares that have a premium listing shall be entitled to vote on the relevant resolution.
5.7 Transfer of shares
A share in certificated form may be transferred by an instrument of transfer, which may be in any usual form or in any other form approved by the Directors, executed by or on behalf of the transferor and, where the share is not fully paid, by or on behalf of the transferee. A share in uncertificated form may be transferred by means of the relevant electronic system concerned. The Ordinary Shares are freely transferable although they are subject to the restrictions in the Articles described below.
In their absolute discretion, the Directors may refuse to register the transfer of a share in certificated form which is not fully paid provided that if the share is listed on the Official List such refusal does not prevent dealings in the shares from taking place on an open and proper basis. The Directors may also refuse to register a transfer of a share in certificated form unless the instrument of transfer:
(i) is lodged, duly stamped, at the registered office of the Company or such other place as the Directors may appoint and is accompanied by the certificate for the share to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer;
(ii) is in respect of only one class of share; and
163 (iii) is not in favour of more than four transferees.
The Directors may refuse to register a transfer of a share in uncertificated form in any case where the Company is entitled to refuse to register the transfer under the CREST Regulations, provided that such refusal does not prevent dealings in the shares from taking place on an open and proper basis.
If the Directors refuse to register a transfer of a share, they shall within two months after the date on which the transfer was lodged with the Company or, in the case of an uncertificated share, the date on which the appropriate instruction was received by or on behalf of the Company in accordance with the CREST Regulations send to the transferee notice of refusal.
No fee shall be charged for the registration of any instrument of transfer or other document or instruction relating to or affecting the title to any share.
If at any time the holding or beneficial ownership of any shares in the Company by any person (whether on its own or taken with other shares), in the opinion of the Directors: (i) would cause the assets of the Company to be treated as “plan assets” of any Benefit Plan Investor; (ii) would or might result in the Company and/or its shares and/or any of its appointed investment managers or investment advisers being required to be registered or qualified under the US Investment Company Act and/or the US Investment Advisers Act of 1940 and/or the US Securities Act of 1933 and/or the US Exchange Act of 1934 and/or any similar legislation (in any jurisdiction) that regulates the offering and sale of securities; (iii) may cause the Company not to be considered a “Foreign Private Issuer” under the US Exchange Act of 1934; (iv) may cause the Company to be a “controlled foreign corporation” for the purpose of the US Code; or (v) may cause the Company to become subject to any withholding tax or reporting obligation under FATCA or any similar legislation in any territory or jurisdiction (including the United Kingdom’s International Tax Compliance Regulations 2015 (SI 2015/878)), or to be unable to avoid or reduce any such tax or to be unable to comply with any such reporting obligation (including by reason of the failure of the shareholder concerned to provide promptly to the Company such information and documentation as the Company may have requested to enable the Company to avoid or minimise such withholding tax or to comply with such reporting obligation), then the Directors may declare the Shareholder in question a “Non-Qualified Holder” and the Directors may require that any shares held by such Shareholder (“Prohibited Shares”) shall (unless the Shareholder concerned satisfies the Directors that he is not a Non- Qualified Holder) be transferred to another person who is not a Non-Qualified Holder, failing which the Company may itself dispose of such Prohibited Shares at the best price reasonably obtainable and pay the net proceeds to the former holder.
5.8 Distribution of assets on a winding-up
If the Company is wound up, with the sanction of a special resolution and any other sanction required by law and subject to the Act, the liquidator may divide among the shareholders in specie the whole or any part of the assets of the Company and for that purpose may value any assets and determine how the division shall be carried out as between the shareholders or different classes of shareholders. With the like sanction, the liquidator may vest the whole or any part of the assets in trustees upon such trusts for the benefit of the shareholders as he may with the like sanction determine, but no shareholder shall be compelled to accept any shares or other securities upon which there is a liability.
164 5.9 Restrictions on rights: failure to respond to a Section 793 notice
If a shareholder, or any other person appearing to be interested in shares held by that shareholder, fails to provide the information requested in a notice given to him under section 793 of the Companies Act by the Company in relation his interest in shares (the “default shares”) within 28 days of the notice (or, where the default shares represent at least 0.25 per cent. of their class, 14 days of the notice), sanctions shall apply unless the Directors determine otherwise. The sanctions available are the suspension of the right to attend or vote (whether in person or by representative or proxy) at any general meeting or any separate meeting of the holders of any class or on any poll and, where the default shares represent at least 0.25 per cent. of their class (excluding treasury shares), the withholding of any dividend payable in respect of those shares and the restriction of the transfer of those shares (subject to certain exceptions).
5.10 Untraced shareholders
Subject to various notice requirements, the Company may sell any of a shareholder’s shares if, during a period of 12 years, at least three cash dividends (either interim or final) on such shares have become payable and no cheque for amounts payable in respect of such shares has been presented and no warrant or other method of payment has been effected and no communication has been received by the Company from the shareholder or person concerned.
5.11 Appointment and retirement of Directors
Unless the Company determines otherwise by ordinary resolution, the number of Directors (other than alternate Directors) shall not be subject to any maximum but shall not be less than two.
Subject to the Articles, the Company may by ordinary resolution appoint a person who is willing to act as, and is permitted by law to do so, to be a Director either to fill a vacancy or as an additional Director. The Directors may appoint a person who is willing to act, and is permitted by law to do so, to be a Director, either to fill a vacancy or as an additional Director. A person appointed as a Director by the other Directors is required to retire at the Company’s next annual general meeting and shall then be eligible for reappointment.
Each Director shall retire from office at the third Annual General Meeting after the Annual General Meeting or General Meeting (as the case may be) at which he was previously appointed or re-elected. A retiring Director shall be eligible for re-election. A Director retiring at a meeting shall, if he is not re-elected at such meeting, retain office until the conclusion of the meeting or adjourned meeting at which he is due to retire. Where a Director is (i) a non-executive director and has been in office for nine years or more; or (ii) a director, partner, other officer or employee of or professional advisor to the AIFM and/or the Investment Manager or any other company in the same group as the AIFM or the Investment Manager, he shall retire from office at every Annual General Meeting and shall be eligible for re-election.
5.12 Powers of Directors
The business of the Company shall be managed by the Directors who, subject to the provisions of the Articles and to any directions given by special resolution to take, or refrain from taking, specified action, may exercise all the powers of the Company.
Any Director may appoint any other Director, or any other person approved by resolution of the Directors and willing to act and permitted by law to do so, to be an alternate Director.
165 5.13 Borrowings
The Board on behalf of the Company may exercise all the powers of the Company to borrow money, to indemnify, to guarantee and to mortgage or charge its undertaking property and uncalled capital and (subject to the provisions of the Statutes regarding authority to allot debentures convertible into shares) to issue debentures and other securities whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.
5.14 Voting at board meetings
No business shall be transacted at any meeting of the Directors unless a quorum is present and the quorum may be fixed by the Directors; unless so fixed at any other number the quorum shall be two. A Director shall not be counted in the quorum present in relation to a matter or resolution on which he is not entitled to vote but shall be counted in the quorum present in relation to all other matters or resolutions considered or voted on at the meeting. An alternate Director who is not himself a Director shall, if his appointor is not present, be counted in the quorum.
Questions arising at a meeting of the Directors shall be decided by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have a second or casting vote.
5.15 Restrictions on voting
Subject to any other provision of the Articles, a Director shall not vote at a meeting of the Directors on any resolution concerning a matter in which he has, directly or indirectly, a material interest (other than an interest in shares, debentures or other securities of, or otherwise in or through, the Company) unless his interest arises only because the case falls within certain limited categories specified in the Articles.
5.16 Directors’ interests
Subject to the provisions of the Companies Act and provided that the Director has disclosed to the other Directors the nature and extent of any material interest of his, a Director, notwithstanding his office, may be a party to, or otherwise interested in, any transaction or arrangement with the Company or in which the Company is otherwise interested and may be a director or other officer of, or employed by, or a party to any transaction or arrangement with, or otherwise interested in, any body corporate in which the Company is interested.
5.17 Indemnity
Subject to the provisions of the Act, the Company may indemnify any person who is a Director, secretary or other officer (other than an auditor) of the Company, against (a) any liability whether in connection with any negligence, default, breach of duty or breach of trust by him in relation to the Company or any associated company or (b) any other liability incurred by or attaching to him in the actual or purported execution and/or discharge of his duties and/or the exercise or purported exercise of his powers and/or otherwise in relation to or in connection with his duties, powers or office; and purchase and maintain insurance for any person who is a Director, secretary, or other officer (other than an auditor) of the Company in relation to anything done or omitted to be done or alleged to have been done or omitted to be done as Director, secretary or officer.
166 5.18 General meetings
In the case of the annual general meeting, twenty-one clear days’ notice at the least shall be given to all the members and to the auditors. All other general meetings shall be convened by not less than fourteen clear days’ notice to all those members and to the auditors.
No business shall be transacted at any meeting unless a quorum is present. Two persons entitled to vote upon the business to be transacted, each being a shareholder or a proxy for a shareholder or a duly authorised representative of a corporation which is a shareholder (including for this purpose two persons who are proxies or corporate representatives of the same shareholder), shall be a quorum.
A shareholder is entitled to appoint another person as his proxy to exercise all or any of his rights to attend and to speak and vote at a meeting of the Company. A shareholder may appoint more than one proxy in relation to a meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by him. Subject to the provisions of the Act, any corporation (other than the Company itself) which is a shareholder may, by resolution of its directors or other governing body, authorise such person(s) to act as its representative(s) at any meeting of the Company, or at any separate meeting of the holders of any class of shares.
Delivery of an appointment of proxy shall not preclude a shareholder from attending and voting at the meeting or at any adjournment of it.
Directors may attend and speak at general meetings and at any separate meeting of the holders of any class of shares, whether or not they are shareholders.
A poll on a resolution may be demanded at a general meeting either before a vote on a show of hands on that resolution or immediately after the result of a show of hands on that resolution is declared. A poll may be demanded by the Chairman or by: (a) not less than two members having the right to vote at the meeting; or (b) a member or members representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or (c) a member or members holding shares conferring a right to vote at the meeting, being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.
5.19 REIT provisions
A summary of the REIT provisions included in the Articles is set out in paragraph 5 of Part 8 of this Prospectus.
6. City Code on Takeovers and Mergers
6.1 Mandatory bid
The Takeover Code applies to the Company. Under Rule 9 of the Takeover Code, if:
• a person acquires an interest in shares which, when taken together with shares already held by him or persons acting in concert with him, carry 30 per cent. or more of the voting rights in the Company; or
• a person who, together with persons acting in concert with him, is interested in not less than 30 per cent. and not more than 50 per cent. of the voting rights in the Company acquires additional interests in shares which increase the percentage of shares carrying voting rights in which that person is interested,
167 the acquirer and, depending on the circumstances, its concert parties, would be required (except with the consent of the Panel on Takeovers and Mergers) to make a cash offer for the outstanding shares at a price not less than the highest price paid for any interests in the shares by the acquirer or its concert parties during the previous 12 months.
6.2 Compulsory acquisition
Under Sections 974 to 991 of the Companies Act, if an offeror acquires or contracts to acquire (pursuant to a takeover offer) not less than 90 per cent. of the shares (in value and by voting rights) to which such offer relates it may then compulsorily acquire the outstanding shares not assented to the offer. It would do so by sending a notice to outstanding holders of shares telling them that it will compulsorily acquire their shares and then, six weeks later, it would execute a transfer of the outstanding shares in its favour and pay the consideration to the Company, which would hold the consideration on trust for the outstanding holders of shares. The consideration offered to the holders whose shares are compulsorily acquired under the Companies Act must, in general, be the same as the consideration that was available under the takeover offer.
In addition, pursuant to Section 983 of the Companies Act, if an offeror acquires or agrees to acquire not less than 90 per cent. of the shares (in value and by voting rights) to which the offer relates, any holder of shares to which the offer relates who has not accepted the offer may require the offeror to acquire his shares on the same terms as the takeover offer.
The offeror would be required to give any holder of shares notice of his right to be bought out within one month of that right arising. Sell-out rights cannot be exercised after the end of the period of three months from the last date on which the offer can be accepted or, if later, three months from the date on which the notice is served on the holder of shares notifying them of their sell-out rights. If a holder of shares exercises its rights, the offeror is bound to acquire those shares on the terms of the takeover offer or on such other terms as may be agreed.
7. Material Contracts of the Company
The following are all of the contracts, not being contracts entered into in the ordinary course of business, that have been entered into by the Company since incorporation and are, or may be, material or contain any provision under which the Company has any obligation or entitlement which is or may be material to it as at the date of this Prospectus:
7.1 Marble Conditional Acquisition Agreement
Pursuant to the Marble Conditional Acquisition Agreement dated 10 October 2017 between (1) ELQ Holdings (DEL) LLC, (2) M7 Real Estate Ltd (together, the “Marble Sellers”), (3) the Company, and (4) Holdco (as purchaser), the Company has agreed to acquire through Holdco as purchaser the entire issued share capital of Marble, which is the registered proprietor of 90 properties located in England, Wales and Scotland as described in further detail at Part 7 of this Prospectus (the “Marble Properties”).
Completion of the Marble Acquisition is conditional on Admission and is scheduled to take place on the date of the Admission. If Admission has not occurred prior to 5:00 pm on 30 November 2017 (the “Marble Longstop Date”), the Marble Conditional Acquisition Agreement will terminate at such time or the parties can agree to extend the Marble Longstop Date for consecutive periods of 15 business days (the “Marble Extended Longstop Date”). If Admission has not occurred prior to the expiry of the then current Marble Extended Longstop Date and no further extension has been agreed, the Marble Conditional Acquisition Agreement shall automatically terminate with immediate effect.
168 The acquisition of the shares in Marble is to be on a cash and debt free basis. The consideration for the Marble Acquisition is expected to be approximately £108.8 million (the “Marble Consideration”) excluding acquisition costs and expenses. The Marble Consideration will be apportioned between: (i) the purchase price of the shares in Marble based on the net asset value of Marble on the completion date; and (ii) an amount required to repay certain shareholder loans made by the Marble Sellers to Marble. The Marble Consideration is subject to adjustment following completion in accordance with completion accounts to be agreed between the Marble Sellers and Holdco or, in the absence of agreement, determined by an independent expert.
The Marble Consideration includes the value of the following three properties (and agreed valuations) which Marble is permitted to dispose of prior to completion of the Marble Acquisition: (i) Alltwen Industrial Estate, Pontardawe, Swansea - £400,000; (ii) Unit 1, High Post Business Park, Salisbury – £2,080,000; and (iii) Block 9, Vale of Leven Industrial Estate, Dumbarton - £45,000 (the “Marble Excluded Properties”). Following the disposal of Unit 1, High Post Business Park, Salisbury, Marble will continue to hold a nominal legal and economic interest in that property. If any of the Marble Excluded Properties are sold prior to completion of the Marble Acquisition, the relevant agreed valuations set out above (less any fees payable in relation to the intended disposal) shall be deducted from the Marble Consideration payable by Holdco on completion.
Marble is not permitted to dispose of any properties (other than the Marble Excluded Properties) without the prior written consent of Holdco. If any further disposals complete prior to completion of the Marble Acquisition, the net proceeds of such disposal and associated tax liabilities of Marble shall be deducted from the Marble Consideration.
Marble is currently pursuing dilapidations claims against the former tenants of Lockett Road, Ashton and Units 5-8, Selly Oak Industrial Estate, Birmingham. If these dilapidations claims are not concluded prior to completion of the Marble Acquisition with Marble receiving cash settlement in relation to the claims, the parties have agreed that the claims shall be recognised as assets of Marble in the completion accounts mechanism in the Marble Conditional Acquisition Agreement in the following amounts: (i) Lockett Road, Ashton - £694,650 and (ii) Units 5-8, Selly Oak Industrial Estate, Birmingham - £211,250.
The Company guarantees the due and punctual performance and observance by Holdco of all of its obligations, commitments, undertakings, warranties and indemnities under the Marble Conditional Acquisition Agreement and other transaction documents.
In the event that the Marble Acquisition does not complete, M7 Real Estate is responsible for the transaction costs incurred by Marble in respect of the Marble Acquisition including fees payable to Greenberg Traurig LLP, DWF LLP and Ambiente LLP in relation to Certificates of Title issued to Holdco and the Company and certain environmental due diligence (“Marble Transaction Costs”). In the event that the Marble Acquisition does complete Holdco is responsible for the Marble Transaction Costs.
The Company has obtained warranty and indemnity insurance in relation to breaches of the warranties given by the Marble Sellers in the Marble Conditional Acquisition Agreement and covenants under the associated tax deed (the “Marble W&I Insurance”). The maximum coverage by the insurer is capped at £15,900,000. Each claim (or series of related claims when aggregated together) must amount to at least £10,000 in order to become a qualifying claim under the policy.
The Company must make any claims for breach of warranty under the Marble W&I Insurance as soon as reasonably practicable (and in any event no later than 30 days) after becoming aware of the claim and in any event, regarding warranties relating to the Marble Sellers’ respective titles to the shares in Marble, capacity to enter into the Marble
169 Conditional Acquisition Agreement and real estate property owned by Marble Acquisitions Limited (the “Marble Fundamental Warranties”) and tax, by no later than the earlier of: (a) seven years from the date of completion of the Marble Acquisition and (b) 1 January 2025; and (ii) general warranties, by no later than the earlier of: (a) two years from the date of completion of the Marble Acquisition and (b) 1 January 2020. Coverage under the Marble W&I Policy is subject to customary exclusions.
The aggregate liability of the Marble Sellers is limited to £1 in aggregate except: (a) in relation to breaches of any Marble Fundamental Warranties, in which case their aggregate liability will be capped at the Marble Consideration; and (b) in the case of fraud or fraudulent misrepresentation, in which case their aggregate liability will be uncapped. In addition, M7 Real Estate provides warranties regarding its awareness of any environmental matters in respect of the Marble Properties (and properties previously disposed of by Marble) or matters affecting the state and condition of the Marble Properties (“M7 Marble Warranties”). In the event of a breach of the M7 Marble Warranties, M7 Real Estate is liable up to a maximum aggregate amount of £900,000.
In addition, Holdco has used appropriate risk transfer in the form of insurance in relation to certain title matters and searches.
The Marble Conditional Acquisition Agreement is governed by English law.
7.2 REIP II Conditional Acquisition Agreement
Pursuant to the REIP II Conditional Acquisition Agreement dated 10 October 2017 between (1) M7 Real Estate, (2) Brahma Finance (BVI) Ltd, (3) David Taylor, (4) Jasmine Trustees Limited acting in its capacity as trustee of Alan Hill, (5) Andrew Lampert-Zakiewicz, (6) Richard Biffa, (7) Arco International Group Limited, (8) Ian Erwin Pierre Sosso, (9) Crescent 3 Limited, (10) Mazy Hobbi-Moghadam, (11) Goldlog Inc, (12) William Martyn Peter Jenkins and (13) M7 Real Estate REIP II LLP (together, the “REIP II Sellers”), (14) the Company, and (15) Holdco (as purchaser), the Company has agreed to acquire through Holdco the entire issued share capital of REIP II, which is the registered proprietor of three properties located in England and described in further detail at Part 7 of this Prospectus (the “REIP II Properties”).
Completion of the REIP II Acquisition is conditional on Admission and is scheduled to take place on the date of Admission. If Admission has not occurred prior to 5:00 pm on 13 December 2017 (the “REIP II Longstop Date”), either Holdco or M7 Real Estate (on behalf of the REIP II Sellers) may terminate the REIP II Conditional Acquisition Agreement or, Holdco and M7 Real Estate (on behalf of the REIP II Sellers) can agree to extend the REIP II Longstop Date for consecutive periods of up to 15 business days (the “REIP II Extended Longstop Date”). If Admission has not occurred prior to the expiry of the then current REIP II Extended Longstop Date and no further extension has been agreed, the REIP II Conditional Acquisition Agreement shall automatically terminate with immediate effect.
The acquisition of the shares in REIP II is to be on a cash and debt free basis. The consideration for the REIP II Acquisition is expected to be approximately £11 million (the “REIP II Consideration”) excluding acquisition costs and expenses. The REIP II Consideration will be apportioned between: (i) the purchase price of the shares in REIP II based on the net asset value of REIP II on the completion date; (ii) an amount required to repay (on behalf of REIP II) the senior loan facility made by Lloyds Bank Plc to REIP II; and (iii) an amount required to repay bonds issued by REIP II to certain current shareholders or their affiliates. The REIP II Consideration is subject to adjustment following completion in accordance with completion accounts to be agreed between the REIP II Sellers and Holdco or, in the absence of agreement, determined by an independent expert.
170 Holdco has obtained warranty and indemnity insurance in relation to breaches of the warranties given by the REIP II Sellers in the REIP II Conditional Acquisition Agreement and covenants under the associated tax deed (the “REIP II W&I Insurance”). The maximum coverage by the insurer is capped at £5,500,000. Each claim (or series of related claims when aggregated together) must amount to at least £10,000 in order to become a qualifying claim under the policy.
The Company must make any claims regarding breaches of warranties as soon as reasonably practicable (and in any event no later than 30 days) after becoming aware of the claim and, in any event, regarding warranties relating to the REIP II Sellers’ respective titles to the shares in REIP II, capacity to enter into the REIP II Conditional Acquisition Agreement (the “REIP II Fundamental Warranties”), and tax, by no later than the earlier of: (a) seven years from the date of completion of the REIP II Acquisition and (b) 1 January 2025; and (ii) general warranties, by no later than the earlier of: (a) two years from the date of completion of the REIP II Acquisition and (b) 1 January 2020. Coverage under the REIP II W&I Policy is subject to customary exclusions.
The aggregate liability of the REIP II Sellers under the REIP II Conditional Acquisition Agreement is limited to £1 in aggregate except: (a) in relation to breaches of any REIP II Fundamental Warranties, in which case their aggregate liability will be capped at the actual consideration received by the relevant REIP II Seller for its shares in REIP II; and (b) in the case of fraud or fraudulent misrepresentation, in which case their aggregate liability will be uncapped.
In addition, Holdco has used appropriate risk transfer in the form of insurance in relation to certain title matters and searches.
The REIP II Conditional Acquisition Agreement is governed by English law.
7.3 Placing Agreement
The Placing Agreement was entered into on 10 October 2017 between the Company, Akur, Barclays, the Investment Manager and the Directors whereby Barclays has undertaken, as agent for the Company, to use its reasonable endeavours to procure subscribers under the Placing for Ordinary Shares at the Issue Price. In the event of oversubscription of the Issue, applications under the Placing, the Offer for Subscription and/or the Intermediaries Offer will be scaled back at the Company’s discretion (in consultation with Akur and Barclays).
The Placing Agreement is subject to, inter alia, the Ordinary Shares to be issued pursuant to the Issue being admitted to the premium segment of the Official List and to trading on the premium segment of the London Stock Exchange’s main market for listed securities by 13 November 2017 (or such later date as the Company, the Investment Manager and Barclays may agree, being no later than 30 November 2017). Conditional upon completion of the Issue, Barclays and Akur will be paid a commission by the Company in consideration for their services in relation to the Issue.
Under the Placing Agreement, which may be terminated by Barclays in certain circumstances prior to Admission, the Company and the Investment Manager have given certain warranties and indemnities to Barclays and Akur and the Directors have given certain warranties to Barclays and Akur. These warranties and indemnities are customary for an agreement of this nature.
The Company has agreed with Barclays and Akur not to issue any further Ordinary Shares in the Company (other than as consideration for an acquisition of properties or portfolios of properties in accordance with the Investment Guidelines) for a period of 365 days from the date of Admission without the prior written consent of Barclays and Akur (such consent not to be unreasonably withheld or delayed).
171 Each of the Directors has agreed, subject to certain customary exceptions, not to dispose of any Ordinary Shares or any interest in Ordinary Shares for a period of 365 days from the date of Admission without the prior written consent of Barclays and Akur (such consent not to be unreasonably withheld or delayed).
Barclays and Akur are also entitled under the Placing Agreement to retain agents.
The Placing Agreement is governed by the laws of England and Wales.
7.4 Lock-up Deed of Undertaking
On 10 October 2017, each of M7 Real Estate Ltd, Richard Croft, David Ebbrell, Andrew Jenkins and Teresa Gilchrist entered in the lock-up deed of undertaking (the “Lock-up Deed’) with the Company, Akur and Barclays. Pursuant to the Lock-up Deed: (i) M7 Real Estate Ltd has agreed, subject to certain customary exceptions, not to dispose of any Ordinary Shares or any interest in Ordinary Shares for a period of two years from the date of Admission without the prior written consent of Barclays and Akur (such consent not to be unreasonably withheld or delayed); and (ii) each of Richard Croft, David Ebbrell, Andrew Jenkins and Teresa Gilchrist has agreed, subject to certain customary exceptions, not to dispose of any Ordinary Shares or any interest in Ordinary Shares for a period of 365 days from the date of Admission without the prior written consent of Barclays and Akur (such consent not to be unreasonably withheld or delayed).
7.5 Investment Management Agreement
The Investment Management Agreement was entered into on 10 October 2017 between the Company, Holdco and the Investment Manager, pursuant to which the Company has appointed the Investment Manager as the investment manager and AIFM of the Company for a minimum term of two years from the date of Admission. Thereafter, the Investment Manager’s appointment shall continue unless the Company terminates such appointment by giving not less than 12 months’ written notice. The Company may also terminate the Investment Manager’s appointment following a Key Person Event or Change of Control Event that has not been resolved within 180 days, as further explained below. The Investment Manager will be responsible for the day-to-day discretionary management of the Group’s investments, and will provide portfolio management and risk management services to the Group, in all cases subject to the investment policy of the Company and the overall supervision of the Board. The Investment Manager must consult with the Board in the case of a Material Transaction.
The Investment Manager is entitled to a fee together with reimbursement of reasonable expenses incurred by it in the performance of its duties. The fee is payable quarterly in arrear and is at the rate of 3 per cent. per quarter of the Rent actually collected for that quarter. No performance fee will be payable to the Investment Manager. The Investment Manager shall bear its own day-to-day operating expenses and overheads. This includes, without limitation, compensation of its own professional staff, the cost of office space, office equipment, communications, utilities and other normal overhead expenses.
Pursuant to the Investment Management Agreement, the Investment Manager will allocate any potential investment in the regional light industrial and regional office sectors that falls within the Investment Guidelines and that, as determined by the Investment Manager acting reasonably and in accordance with its duties under the AIFMD Rules, is suitable for the Company, to the Company in priority to any other clients of M7, except to the extent that such potential investment is subject to the Onyx Right of First Refusal described at paragraph 5 of Part 1 of this Prospectus. If the Investment Manager determines that a potential investment that falls within the Investment Guidelines is not suitable for the Company, the Investment Manager shall not, and shall procure that its Affiliates shall not,
172 allocate such potential investment to any other client of M7 without first consulting with the Board and providing to the Board an explanation for the Investment Manager’s determination. The Investment Manager has also agreed that, for the duration of the Investment Management Agreement, it shall not act as the primary source of transactions on behalf of any pooled investment fund or managed account with an investment policy that is substantially the same as the Company, excluding any pooled investment fund or managed account established prior to Admission.
The Investment Manager may delegate certain of its obligations provided that: (a) it has obtained the prior written consent of the Company; (b) the Investment Manager may not delegate both portfolio management and risk management to another person; and (c) notwithstanding any delegation, the Investment Manager will remain liable to the Company for the performance of services as provided by the Investment Management Agreement.
The Investment Manager will provide certain risk management services to the Company, including establishing, implementing and reviewing a risk management system in order to identify, measure, manage and monitor all risks which are relevant to the Investment Guidelines and to which the Company is or may be exposed.
The Investment Management Agreement may be terminated with immediate effect on the occurrence of certain events, including insolvency or in the event of a fraudulent, wilful or material breach of the Investment Management Agreement. The Investment Management Agreement may be terminated with immediate effect by the Company if a Key Person Event or Change of Control Event occurs and is not subsequently resolved within a 180 day period commencing on the occurrence of such event. A Key Person Event will occur if two Key Persons permanently cease to be involved in the provision of Services to the Company and the Property Holding Companies for any reason. The Key Persons are each of Richard Croft, David Ebbrell, David Simmonds, John Murnaghan and Euan Burns. A Change of Control Event will occur if the current shareholders of M7 Real Estate (as at the date of Admission) cease to hold a majority of the shares of M7 Real Estate, without the prior written consent of the Company, such consent not to be unreasonably withheld or delayed.
The Company has agreed to indemnify and hold the Investment Manager (and its directors, officers, partners, employees, affiliates, agents and assigns) harmless, to the maximum extent permitted by law, against any liabilities, claims and related expenses incurred by reason of any action performed or omitted in connection with the activities of the Company or in dealing with third parties on behalf of the Company, provided that such action does not constitute fraud, wilful default or gross negligence of the Investment Manager, or any material breach of the Investment Management Agreement by the Investment Manager, or a material breach of a FCA rule by the Investment Manager.
The Investment Management Agreement is governed by the laws of England and Wales.
7.6 Asset Management Agreement
The Asset Management Agreement was entered into on 10 October 2017 between the Company, the Investment Manager and the Asset Manager, pursuant to which the Company and the Investment Manager have appointed the Asset Manager as the Asset Manager of the Company for a minimum term of two years from the date of Admission. Thereafter, the Asset Manager’s appointment shall continue unless the Company terminates such appointment by giving not less than 12 months’ written notice. The Asset Manager will be responsible for the day-to-day discretionary management of the Group’s properties, and will provide certain administration services to the Group, in each case subject to the overall supervision of the Board.
173 The Asset Manager is entitled to a fee together with reimbursement of reasonable expenses incurred by it in the performance of its duties. The fee is payable quarterly in arrear and is at the rate of 4 per cent. per quarter of the Rent actually collected for that quarter. No performance fee will be payable to the Asset Manager.
The Asset Manager may not delegate its obligations without the prior written consent of the Company and, notwithstanding any delegation, the Asset Manager will remain liable to the Company for the performance of services as provided by the Asset Management Agreement.
The Asset Management Agreement may be terminated with immediate effect on the occurrence of certain events, including insolvency or in the event of a fraudulent, wilful or material breach of the Asset Management Agreement. The Asset Management Agreement will also automatically terminate if the Investment Manager ceases to act as the Company’s investment manager.
The Company has agreed to indemnify and hold the Asset Manager (and its directors, officers, partners, employees, affiliates, agents and assigns) harmless, to the maximum extent permitted by law, against any liabilities, claims and related expenses incurred by reason of any action performed or omitted in connection with the activities of the Company or in dealing with third parties on behalf of the Company, provided that such action does not constitute fraud, wilful default or gross negligence of the Asset Manager, or any material breach of the Asset Management Agreement by the Asset Manager, or a material breach of a FCA rule by the Asset Manager.
The Asset Management Agreement is governed by the laws of England and Wales.
7.7 Administration and Company Secretary Agreement
The Administration and Company Secretary Agreement was entered into on 10 October 2017 between the Company and the Administrator and Company Secretary, pursuant to which the Administrator and Company Secretary is appointed to perform certain company secretarial services and to provide certain accounting, administration and related support to the Asset Manager.
The Administrator and Company Secretary is permitted under the Administration and Company Secretary Agreement to delegate any of its duties to: (i) an associate of the Administrator and Company Secretary; or (ii) subject to the prior written consent of the Company (such consent not to be unreasonably withheld) any other person, provided that the Administrator and Company Secretary remains liable for the acts and/or omissions of such person as if they were its own acts and/or omissions.
The Administration and Company Secretary Agreement is terminable by either party on six months’ notice in writing, and may be terminated immediately by either party in certain situations, including in the event of insolvency of the other party.
In consideration for its administration and company secretarial services, the Administrator and Company Secretary is entitled to receive a fee of £60,000 per annum. Any additional services provided by the Administrator and Company Secretary will incur additional charges.
The Administrator and Company Secretary’s total liability in relation to the provision of the administration services or otherwise in relation to the operation of the Administration and Company Secretary Agreement, whether in contract, tort, or for misrepresentation or otherwise shall be limited to three times the fees payable to it under the agreement.
174 The Administration and Company Secretary Agreement contains certain customary covenants, undertakings and indemnities by the Company in favour of the Administrator and Company Secretary.
The Administration and Company Secretary Agreement is governed by the laws of England and Wales.
7.8 Registrar Agreement
The Registrar Agreement was entered into on 10 October 2017 between the Company and the Registrar, pursuant to which the Registrar has been appointed as registrar to the Company.
The Registrar Agreement is for an initial period of one year and thereafter shall automatically renew for successive periods of 12 months unless and until terminated by either party on not less than six months’ notice, such notice to expire at the end of the initial period or any successive 12 month period. The agreement is also subject to immediate termination on the occurrence of certain events, including material and continuing breach or insolvency.
The Registrar Agreement limits the Registrar’s liability thereunder to an amount equal to a multiple of the annual fee payable to the Registrar pursuant to the Registrar Agreement.
The Registrar Agreement contains a provision whereby the Company indemnifies the Registrar and its affiliates against any and all losses, damages, liabilities, professional fees, court costs and expenses resulting or arising from the Company’s breach of the agreement and, in addition, any third-party claims, actions, proceedings, investigations or litigation relating to or arising from or in connection with the agreement or the services provided thereunder, except to the extent such losses are determined to have resulted solely from fraud, wilful default or negligence on the Registrar’s (or its affiliate’s) part. The indemnity is customary for an agreement of this nature.
Under the terms of the Registrar Agreement, the Registrar is entitled to customary fees. The Registrar Agreement is governed by the laws of England and Wales.
7.9 Receiving Agent Agreement
The Receiving Agent Agreement was entered into on 10 October 2017 between the Company and the Receiving Agent, pursuant to which the Receiving Agent has agreed to provide receiving agent duties and services to the Company in respect of the Issue.
The Receiving Agent Agreement limits the Receiving Agent’s liability thereunder to an amount equal to a multiple of the fee payable to the Receiving Agent pursuant to the Receiving Agent Agreement.
The Receiving Agent Agreement contains a provision whereby the Company indemnifies the Receiving Agent and its affiliates against any and all losses, damages, liabilities, professional fees, court costs and reasonable expenses resulting or arising from the Company’s breach of the agreement and, in addition, any third-party claims, actions, proceedings, investigations or litigation relating to or arising from or in connection with the agreement or the services provided thereunder, except to the extent such losses are determined to have resulted from fraud, wilful default or negligence on the Receiving Agent’s (or its affiliate’s) part. The indemnity is customary for an agreement of this nature.
Under the terms of the Receiving Agent Agreement, the Receiving Agent is entitled to customary fees.
The Receiving Agent Agreement is governed by the laws of England and Wales.
175 7.10 Depositary Agreement
The Depositary Agreement was entered into on 10 October 2017 between the Depositary, the Company and the Investment Manager, pursuant to which the safekeeping of the Company’s assets will be entrusted to the Depositary who will be required to provide depositary services to the Company in fulfilment of the requirements of the AIFM Directive. The Depositary shall also be responsible for ensuring that the Company’s cash flows are properly monitored.
The Depositary may delegate some of its custody functions to a custodian, who in turn may further sub delegate to a sub-custodian, wherever permissible, in accordance with applicable law. There is no current expectation that any conflicts of interest should arise as a result of such delegation by the Depositary. The Depositary Agreement provides that, by delegating its duties to a custodian, such custodian, and not the Depositary, will have possession and control of “custody assets” (for example, transferable securities and other similar financial instruments). As a result, the Depositary will be entitled to transfer to such custodian, its liability for the safekeeping of custody assets. For the avoidance of doubt, custody assets will not include the properties acquired directly or indirectly by the Company or the shares or other interests in any company or other vehicle owned directly or indirectly by the Company for the purposes of holding one or more properties.
In consideration for its services, the Depositary is entitled to receive a fee of £40,000 per annum plus an additional fee of 0.4 basis points per annum on any capital raised by the Company in excess of £250 million. In addition, the Depositary may also be entitled to additional annual fees if the Company undertakes more than eight acquisitions in any year or if the Company undertakes more than four share placings in any year.
The Depositary Agreement contains provisions to allow for its termination by any party on not less than six months’ prior written notice to each other party, or immediately in the case of certain specified circumstances, including material and continuing breach or insolvency.
The Depositary Agreement contains certain customary undertakings and indemnities by the Company and the Investment Manager in favour of the Depositary.
The Depositary Agreement is governed by the laws of England and Wales.
8. AIFMD Disclosures
The Company is an AIF for the purposes of the AIFMD and has appointed the Investment Manager as its AIFM. This Prospectus contains, to the extent applicable, the information required by Article 23 of the AIFMD to be made available to investors before they invest in the Company. The table below has been included to indicate to investors the relevant parts of the Prospectus which contain this information.
INFORMATION OR CROSS AIFMD REFERENCE REFERENCE Art. 23(1) (a) & (b) INVESTMENT STRATEGY AND POLICY 1. Description of the investment Please refer to: the Summary, strategy and objectives of the Fund. Element B.34 “Investment Policy” on page 10; Part 1, paragraph 2 “Investment Objective” and paragraph 3 “Investment Policy” on page 55.
176 INFORMATION OR CROSS AIFMD REFERENCE REFERENCE 2. A description of the types of assets Please refer to: the Summary, in which the Fund may invest, the Element B.34 “Investment Policy” on techniques it may employ and all page 10; Element B.45 “Portfolio” on associated risks. page 18; Part 1, paragraph 3 “Investment Policy”, paragraph 5 “Investment Process”, and paragraph 6 “Pipeline” on pages 55, 58 and 61; and the Risk Factors on page 28. 3. Description of any applicable Please refer to Part 1, paragraph 3 investment restrictions. “Investment Policy – Investment Restrictions” on page 56. 4. A description of the procedures by Please refer to Part 1, paragraph 3 which the Fund may change its “Investment Policy” on page 55. investment strategy or investment policy or both. Art. 23 (1) (a) INFORMATION ABOUT MASTER FUNDS 5. Information on where any master fund Not applicable – the Company has is established and where the no master fund and is not a fund underlying funds are established if the of funds. Fund is a fund of funds. Art. 23 (1) (a) LEVERAGE 6. Please refer to: the Summary, Element B.35 “Borrowing Limits” on page 13; the Risk Factors on page 28; and Part 1, paragraph 3 “Investment Policy – Leverage policy” on page 57.
Art. 23 (1) (c) LEGAL IMPLICATIONS 7. Description of the main legal Please refer to: the Summary, implications of the contractual Element B.2 “Domicile and Legal relationship entered into for the Form” on page 5; Part 1, purpose of investment, providing the paragraph 1 “Introduction” on following information: page 54; Part 9, paragraph 1 “The Company and the Investment • information on jurisdiction; Manager” on page 149; and Part • information on the applicable law; 9, paragraph 16 “Enforcement of and Judgments” on page 183. • information on the existence or not of any legal instruments providing for the recognition and enforcement of judgments in the territory where the Fund is established.
177 INFORMATION OR CROSS AIFMD REFERENCE REFERENCE Art. 23 (1) (d) INFORMATION ABOUT THE IDENTITY OF THE AIFM AND OF OTHER SERVICE PROVIDERS 8. Identity of the AIFM and description Please refer to: the Summary, of its duties. Element B.40 “Applicant’s service providers”, on page 15; Part 2 – “M7 Real Estate” on page 66; Part 5, paragraph 2 “Investment Manager and the Asset Manager” on page 90; Part 9, paragraph 7.5 “Investment Management Agreement” on page 172.
9. Identity of the depositary and Please refer to: the Summary, description of its duties. Element B.40 “Applicant’s service providers”, on page 15; Part 5, paragraph 4 “Depositary” on page 93; Part 9, paragraph 7.10 “Depositary Agreement” on page 176. 10. Identity of the auditor and Please refer to Part 9, paragraph description of its duties. 14.8 on page 182. 11. Identity of any other service Please refer to: the Summary, providers and description of their Element B.40 “Applicant’s service duties. providers”, on page 15; Part 5, paragraph 5 “Registrar” on page 94; and Part 9, paragraph 7.7 “Administration and Company Secretary Agreement”, paragraph 7.8 “Registrar Agreement” and paragraph 7.9 “Receiving Agent Agreement” on pages 174-175. 12. Description of the investors’ rights. Please refer to Risk Factors, “Risks Relating to Service Providers” on page 35.
Art. 23 (1) (e) COMPLIANCE OF THE AIFM WITH PROFESSIONAL RISK 13. Description of how the AIFM is Please refer to Part 9, paragraph complying with the requirements 1.11 on page 150. relating to professional liability risk by either: • having additional own funds which are appropriate to cover potential liability risks arising from professional negligence; or • holding a professional indemnity insurance against liability arising from professional negligence which is appropriate to the risks covered.
178 INFORMATION OR CROSS AIFMD REFERENCE REFERENCE Art. 23 (1) (f) DELEGATION BY THE AIFM AND BY THE DEPOSITARY 14. A description of any delegation of Please refer to Part 9, paragraph management function by the AIFM, 7.5 “Investment Management including the identity of the Agreement” on page 172. delegate. 15. Please refer to Part 9, paragraph 7.10 “Depositary Agreement” on page 176.
Art. 23 (1) (g) VALUATION 16. Description of the Fund’s: Please refer to: the Summary, Element B.42 “Calculation of Net • valuation procedure; and Asset Value” on page 17; Part 1, • pricing methodology for valuing paragraph 6 “Valuation Policy” and assets, including the methods paragraph 7 “Calculation of Net Asset used in valuing hard-to-value Value” on pages 61-62; and Part 7, assets. “Valuation Report” on page 105. Art. 23 (1) (h) LIQUIDITY RISK MANAGEMENT 17. Description of the Fund’s liquidity Please refer to: Risk Factors – risk management, including: “Risks Relating to the Ordinary Shares” on page 39; Part 1, • the redemption rights both in paragraph 3 “Investment Policy – normal and in exceptional Leverage Policy” on page 57; and circumstances; and Part 9, paragraph 2.2 on page 150. • the existing redemption arrangements with investors. Art. 23 (1) (i) FEES, CHARGES AND EXPENSES 18. A description of all fees, charges Please refer to: the Summary, and expenses and of the maximum Element B.40 “Applicant’s service amounts thereof which are directly providers”, on page 15; and Part 5, or indirectly borne by investors. paragraph 6 “Fees and Expenses” on page 94. Art. 23 (1) (j) FAIR TREATMENT OF INVESTORS 19. Description of how the AIFM Please refer to Part 5, paragraph 8 ensures a fair treatment of investors “Corporate Governance” on page and, in case an investor obtains 97. preferential treatment or the right to obtain preferential treatment: • a description of that preferential treatment; • a description of the type of investors with such preferential treatment; and • a description of the legal or economic links of investors with preferential treatment to the Fund or AIFM.
179 INFORMATION OR CROSS AIFMD REFERENCE REFERENCE Art. 23 (1) (k) FINANCIAL INFORMATION 20. Latest annual report. Please refer to Part 1, paragraph 8 “Meetings, Reports and Accounts” on page 62. Art. 23 (1) (l) INFORMATION ABOUT THE ISSUE AND THE SALE OF SHARES 21. Procedure and conditions for the Please refer to: the Summary, issue and sale of shares. Section E on page 24; Expected Issue Timetable on page 50; Part 10 “Terms and Conditions of Application under the Placing” on page 184; and Part 11 “Terms and Conditions of Application under the Offer for Subscription” on page 195; Art. 23 (1) (m) NET ASSET VALUE OF THE FUND 22. Latest net asset value of the Sub- Please refer to the Summary, Fund or the latest market price of Element B.42 “Calculation of Net the shares of the Fund. Asset Value” on page 17 and Part 1, paragraph 7 “Calculation of Net Asset Value” on page 62. Art. 23 (1) (n) PERFORMANCE OF THE FUND 23. Historical performance of the Fund. Not applicable – the Company is a newly established entity. Please refer to the Summary, Element B.7 on page 5. Art. 23 (1) (o) INFORMATION ABOUT THE PRIME BROKER 24. Identity of the prime broker. Not applicable – the Company has not appointed a prime broker. 25. Description of any material arrangements of the Fund with its prime brokers. 26. Description of the way the conflicts of interest in relation thereto are managed. 27. Description of any provisions in the contract with the Depositary on the possibility of transfer and reuse of Sub-Fund assets. 28. Information about any transfer of liability to the prime broker that may exist. Art. 23 (1) (p) ADDITIONAL AIFM DISCLOSURES 29. Description of manner and frequency of specific disclosures relating to the following: • percentage of the Fund’s assets Not applicable – the Investment which are subject to special Manager does not intend to utilise arrangements arising from their such special arrangements. illiquid nature;
180 INFORMATION OR CROSS AIFMD REFERENCE REFERENCE • new arrangements for managing Not applicable – the Investment the liquidity of the Fund; and Manager does not intend to utilise new arrangements. • current risk profile of the Fund Please refer to Part 9, paragraph and the risk management 7.5 “Investment Management systems employed by the AIFM Agreement” on page 172. to manage the above risks. In case of leverage employed by the Fund: • changes to the maximum level of Please refer to: the Summary, leverage which the AIFM may Element B.35 “Borrowing Limits” on employ on behalf of the Fund as page 13; the Risk Factors on page well as any right of the reuse of 28; and Part 1, paragraph 3 collateral or any guarantee “Investment Policy – Leverage granted under the leveraging policy” on page 57. arrangement; and • total amount of leverage employed by the Fund. Art. 23 (2) INFORMATION ON DISCHARGE OF LIABILITY 30. Description of any arrangement Please refer to Part 9, paragraph made by the Depositary to 7.10 “Depositary Agreement” on contractually discharge itself of page 176. liability.
9. Related Party Transactions
Save for the Conditional Acquisition Agreements, the Company has not entered into any related party transaction at any time during the period from incorporation to the date of this Prospectus.
10. Litigation
There are no governmental, legal or arbitration proceedings, and the Company is not aware of any governmental, legal or arbitration proceedings pending or threatened, nor of any such proceedings having been pending or threatened at any time preceding the date of this Prospectus which may have, or have had in the recent past, a significant effect on the financial position or profitability of the Company.
11. Working Capital
The Company is of the opinion that, based on the Minimum Net Proceeds, the working capital available to it is sufficient for its present requirements, that is for at least the next 12 months from the date of this Prospectus.
12. No Significant Change
There has been no significant change in the financial or trading position of the Company since 9 August 2017, being the date of the Company’s incorporation.
181 13. Capitalisation and Indebtedness
As at the date of this Prospectus, the Company has no guaranteed, secured, unguaranteed or unsecured debt and no indirect or contingent indebtedness, and has not entered into any mortgage, charge or security interest, and the Company’s issued share capital consists of 50,000 Redeemable Preference Shares of 100 pence each (fully paid), and one Ordinary Share of one penny (fully paid).
14. General
14.1 Save as disclosed at paragraph 3.8 of Part 9 above, no Director has any interest in the promotion of, or in any property acquired or proposed to be acquired by, the Company.
14.2 The Ordinary Shares being issued in connection with the Issue are being issued at 100 pence per Ordinary Share of which 99 pence per Ordinary Share constitutes share premium.
14.3 No application is being made for the Ordinary Shares to be dealt with in or on any stock exchange or investment exchange other than the premium segment of the main market of the London Stock Exchange.
14.4 Each of Barclays, Akur, the Investment Manager, the Asset Manager, the Intermediaries Offer Advisers, the Valuer and the Depositary has given and not withdrawn its written consent to the issue of this Prospectus with references to its name in the form and context in which such references appear.
14.5 M7 Real Estate accepts responsibility for and has authorised the inclusion (in the form and context in which it is included) of the information contained in Part 2 of this Prospectus and the M7 Statements for the purposes of Rule 5.5.3R(2)(f) of the Prospectus Rules, and declares that, having taken all reasonable care to ensure that such is the case, the information contained in Part 2 of this Prospectus and the M7 Statements are, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import.
14.6 The Valuer accepts responsibility for and has authorised the reproduction of the Valuation Report at Part 7 of this Prospectus (in the form and context in which it is included) for the purposes of Rule 5.5.3R(2)(f) of the Prospectus Rules, and declares that, having taken all reasonable care to ensure that such is the case, the information contained in the Valuation Report at Part 7 of this Prospectus is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import.
14.7 The Auditor is KPMG LLP. KPMG LLP is registered to carry out audit work by the Institute of Chartered Accountants in England and Wales. KPMG LLP has given and has not withdrawn its written consent to the inclusion of its report on the audited historical financial information of Marble which is set out in Section B of Appendix 1 of this Prospectus in the form and context in which it is included and has authorised the contents of the part of this Prospectus which comprise its report for the purposes of Rule 5.5.3R(2)(f) of the Prospectus Rules. KPMG LLP has not audited or reviewed the financial information for the six months ended 30 June 2016, which has been included for comparative purposes only, and accordingly, does not express an opinion thereon. As Ordinary Shares have not been and will not be registered under the US Securities Act, KPMG LLP has not filed and will not be required to file a consent under the US Securities Act.
14.8 The Depositary is Langham Hall UK Depositary LLP. The Depositary is a limited liability partnership incorporated in England and Wales with registration number OC388007. The Depositary’s registered office is at 5th Floor, 5 Old Bailey, London EC4M 7BA, United Kingdom and its phone number is +44 (0) 20 3597 7900. The Depositary is authorised and regulated by the Financial Conduct Authority.
182 14.9 Shareholders are obliged to comply, from Admission, with the shareholding notification and disclosure requirements set out in Chapter 5 of the DTRs. A Shareholder is required pursuant to Chapter 5 of the DTRs to notify the Company if, as a result of an acquisition or disposal of shares or financial instruments, the Shareholder’s percentage of voting rights of the Company reaches, exceeds or falls below, three per cent. of the Company’s voting rights or any one per cent. threshold above that.
15. Intermediaries
The Intermediaries authorised at the date of this Prospectus to use the Prospectus in connection with the Intermediaries Offer are:
• Alliance Trust Savings;
• AJ Bell Securities;
• Barclays Smart Investor;
• Equiniti; and
• Hargreaves Lansdown Asset Management.
16. Enforcement of Judgments
There are a number of legal instruments providing for the recognition and enforcement of foreign judgments in England, depending on the nature and jurisdiction of the original judgment. Such instruments include: EU Regulation 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters; Regulation (EC) No 805/2004 of the European Parliament and of the Council of 21 April 2004 creating a European Enforcement Order for uncontested claims; the Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters done at Lugano on 30 October 2007; the Hague Convention on Choice of Court Agreements of 30 June 2005; the Administration of Justice Act 1920; and the Foreign Judgment (Reciprocal Enforcement) Act 1933. Where no such legal instrument is applicable, a foreign judgment may still be enforceable at common law.
17. Documents Available for Inspection
Copies of the Articles and this Prospectus will be available for inspection at the registered office of the Company during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) from the date of this Prospectus.
183 PART 10
TERMS AND CONDITIONS OF APPLICATION UNDER THE PLACING
1. Introduction
1.1 Ordinary Shares are available under the Placing at a price of 100 pence per Ordinary Share. The Ordinary Shares will, when issued and fully paid, include the right to receive all dividends or other distributions made, paid or declared, if any, by reference to a record date after the date of their issue.
1.2 Each Placee which confirms its agreement to Barclays to subscribe for Ordinary Shares under the Placing will be bound by these terms and conditions and will be deemed to have accepted them.
1.3 The Company, Barclays and/or Akur may require any Placee to agree to such further terms and/or conditions and/or give such additional warranties and/or representations as it/they (in its/their absolute discretion) see(s) fit.
1.4 The commitment to acquire Ordinary Shares under the Placing will be agreed orally with Barclays for the Company and further evidenced in a contract note (“Contract Note”) or placing confirmation (“Placing Confirmation”).
2. Agreement to subscribe for Ordinary Shares and conditions
2.1 A Placee agrees to become a member of the Company and agrees to subscribe for those Ordinary Shares allocated to it by Barclays at the Issue Price, conditional on:
2.1.1 the Conditional Acquisition Agreements becoming wholly unconditional (save as to Admission);
2.1.2 the Placing Agreement becoming unconditional in respect of the relevant placing (save for any condition relating to Admission) and not having been terminated on or before the date of Admission of the relevant Ordinary Shares being issued;
2.1.3 Admission of the relevant Ordinary Shares being issued in the case of Admission by no later than 13 November 2017 (or such later date as the Company, the Investment Manager and Barclays may agree, being no later than 30 November 2017); and
2.1.4 the Minimum Net Proceeds being raised.
Shares may be allotted pursuant to the Issue if the Minimum Net Proceeds are raised and the offer conditions above are satisfied.
In the event that the Company, in consultation with Barclays and Akur, wishes to waive condition 2.1.4 referred to above, the Company will be required to publish a supplementary prospectus (including a working capital statement based on a revised Minimum Net Proceeds figure).
2.2 To the fullest extent permitted by law, each Placee acknowledges and agrees that it will not be entitled to exercise any remedy of rescission at any time. This does not affect any other rights the Placee may have.
184 3. Payment for Ordinary Shares
3.1 Each Placee must pay the Issue Price for the Ordinary Shares issued to the Placee in the manner and by the time directed by Barclays. If any Placee fails to pay as so directed and/or by the time required, the relevant Placee’s application for Ordinary Shares may, at the discretion of Barclays, either be rejected or accepted and, in the latter case, paragraph 3.2 of these terms and conditions shall apply.
3.2 Each Placee is deemed to agree that if it does not comply with its obligation to pay the Issue Price for the Ordinary Shares allocated to it in accordance with paragraph 3.1 of these terms and conditions and Barclays elects to accept that Placee’s application, Barclays may sell all or any of the Ordinary Shares allocated to the Placee on such Placee’s behalf and retain from the proceeds, for Barclays’ own account and profit, an amount equal to the aggregate amount owed by the Placee plus any interest due. The Placee will, however, remain liable for any shortfall below the aggregate amount owed by such Placee and it may be required to bear any tax or other charges (together with any interest or penalties) which may arise upon the sale of such Ordinary Shares on such Placee’s behalf.
4. Representations and Warranties
By agreeing to subscribe for Ordinary Shares, each Placee which enters into a commitment to subscribe for Ordinary Shares will (for itself and any person(s) procured by it to subscribe for Ordinary Shares and any nominee(s) for any such person(s)) be deemed to represent, warrant and acknowledge to each of the Company, the Investment Manager, the Registrar, Akur and Barclays that:
4.1 in agreeing to subscribe for Ordinary Shares under the Placing, it is relying solely on this Prospectus and any supplementary prospectus issued by the Company and not on any other information given, or representation or statement made at any time, by any person concerning the Company, the Placing. It agrees that none of the Company, the Investment Manager, Akur, Barclays or the Registrar, nor any of their respective officers, agents, or employees, will have any liability for any other information or representation. It irrevocably and unconditionally waives any rights it may have in respect of any other information or representation;
4.2 if the laws of any territory or jurisdiction outside the United Kingdom are applicable to its agreement to subscribe for Ordinary Shares under the Placing, it warrants that it has complied with all such laws, obtained all governmental and other consents which may be required, complied with all requisite formalities and paid any issue, transfer or other taxes due in connection with its application in any territory and that it has not taken any action or omitted to take any action which will result in the Company, the Investment Manager, Akur, Barclays or the Registrar or any of their respective officers, agents or employees acting in breach of the regulatory or legal requirements, directly or indirectly, of any territory or jurisdiction outside the United Kingdom in connection with the Placing;
4.3 it has carefully read and understands this Prospectus in its entirety and acknowledges that it is acquiring Ordinary Shares on the terms and subject to the conditions set out in this Part 10 and the Articles as in force at the date of Admission of the relevant Ordinary Shares;
4.4 it has not relied on Akur or Barclays or any person affiliated with Akur or Barclays in connection with any investigation of the accuracy of any information contained in this Prospectus;
4.5 the content of this Prospectus is exclusively the responsibility of the Company and its Directors and neither Akur, Barclays nor any person acting on their respective behalf nor
185 any of its respective affiliates are responsible for or shall have any liability for any information, representation or statement contained in this Prospectus or any information published by or on behalf of the Company and will not be liable for any decision by a Placee to participate in the Placing based on any information, representation or statement contained in this Prospectus or otherwise;
4.6 it acknowledges that no person is authorised in connection with the Placing to give any information or make any representation other than as contained in this Prospectus and, if given or made, any information or representation must not be relied upon as having been authorised by the Company, the Investment Manager, Akur or Barclays;
4.7 it is not applying as, nor is it applying as nominee or agent for, a person who is or may be liable to notify and account for tax under the Stamp Duty Reserve Tax Regulations 1986 at any of the increased rates referred to in section 67, 70, 93 or 96 of the Finance Act 1986 (depositary receipts and clearance services);
4.8 if it is within the United Kingdom, it is a person who falls within Articles 49(2)(a) to (d) or 19(5) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (the “Order”) or it is a person to whom the Ordinary Shares may otherwise lawfully be offered under such Order and/or is a person who is a “professional client” or an “eligible counterparty” within the meaning of Chapter 3 of the FCA’s Conduct of Business Sourcebook or, if it is receiving the offer in circumstances under which the laws or regulations of a jurisdiction other than the United Kingdom would apply, it is a person to whom the Ordinary Shares may be lawfully offered under that other jurisdiction’s laws and regulations;
4.9 if it is a resident in the EEA (other than the United Kingdom): (a) it is a qualified investor within the meaning of the law in the relevant Member State implementing Article 2(1)(e)(i), (ii) or (iii) of the Prospectus Directive; and (b) if that relevant Member State has implemented the AIFMD, that it is a person to whom the Ordinary Shares may lawfully be marketed under the AIFMD or under the applicable implementing legislation (if any) of that relevant Member State;
4.10 in the case of any Ordinary Shares acquired by a Placee as a financial intermediary within the EEA (other than the United Kingdom) as that term is used in Article 3(2) of the Prospectus Directive: (a) the Ordinary Shares acquired by it in the Placing have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any relevant Member State other than qualified investors, as that term is defined in the Prospectus Directive, or in circumstances in which the prior consent of Barclays has been given to the offer or resale; or (b) where Ordinary Shares have been acquired by it on behalf of persons in any relevant Member State other than qualified investors, the offer of those Ordinary Shares to it is not treated under the Prospectus Directive as having been made to such persons;
4.11 it does not have a registered address in, and is not a citizen, resident or national of, any jurisdiction in which it is unlawful to make or accept an offer of the Ordinary Shares and it is not acting on a non-discretionary basis for any such person;
4.12 if it is outside the United Kingdom, neither the Prospectus nor any other offering, marketing or other material in connection with the Placing constitutes an invitation, offer or promotion to, or arrangement with, it or any person whom it is procuring to subscribe for Ordinary Shares pursuant to the Placing unless, in the relevant territory, such offer, invitation or other course of conduct could lawfully be made to it or such person and such documents or material could lawfully be provided to it or such person and Ordinary Shares could lawfully be distributed to and subscribed and held by it or such person without compliance with any unfulfilled approval, registration or other regulatory or legal requirements;
186 4.13 if the Placee is a natural person, such Placee is not under the age of majority (18 years of age in the United Kingdom) on the date of such Placee’s agreement to subscribe for Ordinary Shares under the Placing and will not be any such person on the date any such agreement to subscribe under the Placing is accepted;
4.14 it has not, directly or indirectly, distributed, forwarded, transferred or otherwise transmitted this Prospectus or any other offering materials concerning the Placing or the Ordinary Shares to any persons within the United States or to any US Persons, nor will it do any of the foregoing;
4.15 it represents, acknowledges and agrees to the representations, warranties and agreements as set out under the heading “United States purchase and transfer restrictions” in paragraph 7 below;
4.16 it acknowledges that neither Akur, Barclays nor any of its affiliates, nor any person acting on its or their behalf is making any recommendations to it, advising it regarding the suitability of any transactions it may enter into in connection with the Placing or providing any advice in relation to the Placing and participation in the Placing is on the basis that it is not and will not be a client of Akur or Barclays and that Akur and Barclays do not have any duties or responsibilities to it for providing the protections afforded to its clients or for providing advice in relation to the Placing nor in respect of any representations, warranties, undertakings or indemnities otherwise required to be given by it in connection with its application under the Placing;
4.17 it acknowledges that where it is subscribing for Ordinary Shares for one or more managed, discretionary or advisory accounts, it is authorised in writing for each such account: (a) to subscribe for the Ordinary Shares for each such account; (b) to make on each such account’s behalf the representations, warranties and agreements set out in this Prospectus; and (c) to receive on behalf of each such account any documentation relating to the Placing in the form provided by the Company and/or Barclays. It agrees that the provisions of this paragraph shall survive any resale of the Ordinary Shares by or on behalf of any such account;
4.18 it irrevocably appoints any director of the Company and any director of Barclays to be its agent and on its behalf (without any obligation or duty to do so), to sign, execute and deliver any documents and do all acts, matters and things as may be necessary for, or incidental to, its subscription for all or any of the Ordinary Shares for which it has given a commitment under the Placing, in the event of its own failure to do so;
4.19 it accepts that if the Placing does not proceed or the conditions to the Placing Agreement are not satisfied or the Ordinary Shares for which valid applications are received and accepted are not admitted to the Official List and to trading on the London Stock Exchange’s main market for listed securities for any reason whatsoever then neither of Akur, Barclays nor the Company, nor persons controlling, controlled by or under common control with any of them nor any of their respective employees, agents, officers, members, stockholders, partners or representatives, shall have any liability whatsoever to it or any other person;
4.20 in connection with its participation in the Placing it has observed all relevant legislation and regulations;
4.21 it acknowledges that Barclays, Akur and the Company (and any agent on their behalf) are entitled to exercise any of their rights under the Placing Agreement or any other right in their absolute discretion without any liability whatsoever to them (or any agent acting on their behalf);
187 4.22 it agrees that, having had the opportunity to read this Prospectus, it shall be deemed to have had notice of all information and representations contained in this Prospectus, that it is acquiring Ordinary Shares solely on the basis of this Prospectus and no other information and that in accepting a participation in the Placing it has had access to all information it believes necessary or appropriate in connection with its decision to subscribe for Ordinary Shares;
4.23 the representations, undertakings and warranties contained in this Prospectus are irrevocable. It acknowledges that Akur, Barclays and the Company and their respective affiliates will rely upon the truth and accuracy of the foregoing representations and warranties and it agrees that if any of the representations or warranties made or deemed to have been made by its subscription of the Ordinary Shares are no longer accurate, it shall promptly notify Akur, Barclays and the Company;
4.24 where it or any person acting on behalf of it is dealing with Barclays, any money held in an account with Barclays on behalf of it and/or any person acting on behalf of it will not be treated as client money within the meaning of the relevant rules and regulations of the FCA which therefore will not require Barclays to segregate such money, as that money will be held by Barclays under a banking relationship and not as trustee;
4.25 any of its clients, whether or not identified to Akur or Barclays, will remain its sole responsibility and will not become clients of Akur or Barclays for the purposes of the rules of the FCA or for the purposes of any other statutory or regulatory provision;
4.26 it accepts that the allocation of Ordinary Shares shall be determined by the Company in its absolute discretion (in consultation with Akur and Barclays) and that the Company may scale down any commitments for this purpose on such basis as it may (in consultation with Akur and Barclays) determine;
4.27 time shall be of the essence as regards its obligations to settle payment for the Ordinary Shares and to comply with its other obligations under the Placing;
4.28 its commitment to acquire Ordinary Shares will be agreed orally with Barclays as agent for the Company and that a Contract Note or Placing Confirmation will be issued by Barclays as soon as possible thereafter. That oral confirmation will constitute an irrevocable, legally binding commitment upon that person (who at that point will become a Placee) in favour of the Company and Barclays to subscribe for the number of Ordinary Shares allocated to it at the Issue Price on the terms and conditions set out in this Part 10 and, as applicable, in the Contract Note or Placing Confirmation. Except with the consent of Barclays, such oral commitment will not be capable of variation or revocation after the time at which it is made; and
4.29 its allocation of Ordinary Shares under the Placing will be evidenced by the Contract Note or Placing Confirmation, as applicable, confirming: (i) the number of Ordinary Shares that such Placee has agreed to subscribe for; (ii) the aggregate amount that such Placee will be required to pay for such Ordinary Shares; and (iii) settlement instructions to pay Barclays as agent for the Company. The terms of this Part 10 will be deemed to be incorporated into that Contract Note or Placing Confirmation.
The Company reserves the right to reject all or part of any offer to purchase Ordinary Shares for any reason. The Company also reserves the right to sell fewer than all of the Ordinary Shares offered by this Prospectus or to sell to any purchaser fewer than all of the Ordinary Shares a purchaser has offered to purchase.
188 5. Money Laundering
Each Placee acknowledges and agrees that:
5.1 its application is only made on the basis that it accepts full responsibility for any requirement to verify the identity of its clients and other persons in respect of whom it has applied. In addition, it warrants that it is a person: (a) subject to the Money Laundering Regulations; or (c) acting in the course of a business in relation to which an overseas regulatory authority exercises regulatory functions and is based or incorporated in, or formed under the law of, a country in which there are in force provisions at least equivalent to those required by the Money Laundering Regulations; and
5.2 due to anti-money laundering requirements and the countering of terrorist financing requirements, Barclays and the Company may require proof of identity and verification of the source of the payment before the application can be processed and that, in the event of delay or failure by the applicant to produce any information required for verification purposes, Barclays and the Company may refuse to accept the application and the subscription moneys relating thereto. It holds harmless and will indemnify Barclays, Akur and the Company against any liability, loss or cost ensuing due to the failure to process such application, if such information as has been required has not been provided by it.
6. The Data Protection Act
6.1 Each Placee acknowledges and agrees that, pursuant to The Data Protection Act 1998 (the “DP Act”) the Company and/or the Registrar and/or the Administrator and Company Secretary, may hold personal data (as defined in the DP Act) relating to past and present Shareholders. Personal data may be retained on record for a period exceeding six years after it is no longer used. The Registrar and the Administrator and Company Secretary will only process such information for the purposes set out below (collectively, the “Purposes”), being to:
6.1.1 process its personal data (including sensitive personal data as defined in the DP Act) to the extent and in such manner as is necessary for the performance of their obligations under their respective service contracts, including as required by or in connection with its holding of Ordinary Shares, including processing personal data in connection with credit and money laundering checks on it;
6.1.2 communicate with it as necessary in connection with its affairs and generally in connection with its holding of Ordinary Shares;
6.1.3 provide personal data to such third parties as the Registrar and/or the Administrator and Company Secretary may consider necessary in connection with its affairs and generally in connection with its holding of Ordinary Shares or as the DP Act may require, including to third parties outside the European Economic Area;
6.1.4 without limitation, provide such personal data to their affiliates, the Company or the Investment Manager and their respective associates for processing, notwithstanding that any such party may be outside the European Economic Area; and
6.1.5 process its personal data for the Registrar’s and/or the Administrator and Company Secretary’s internal administration.
6.2 By becoming registered as a holder of Ordinary Shares a person becomes a data subject (as defined in the DP Act) and is deemed to have consented to the processing by the Company, the Registrar or the Administrator and Company Secretary of any personal data
189 relating to them in the manner described above. In providing the Registrar and the Administrator and Company Secretary with information, it hereby represents and warrants to the Registrar and the Administrator and Company Secretary that it has obtained the consent of any data subject to the Registrar and the Administrator and Company Secretary, and their respective affiliates and group companies, holding and using their personal data for the Purposes (including the explicit consent of the data subjects for the processing of any sensitive personal data for the Purposes set out above in this paragraph 6).
7. United States Purchase and Transfer Restrictions
7.1 By participating in the Placing, each Placee acknowledges and agrees that it will (for itself and any person(s) procured by it to subscribe for Ordinary Shares and any nominee(s) for any such person(s)) be further deemed to represent and warrant to each of the Company, Akur, Barclays, the Investment Manager and the Registrar that:
7.1.1 it is not located within the United States, is not (and is not acting for the account or benefit of) a US Person, and is acquiring the Ordinary Shares in an offshore transaction meeting the requirements of Regulation S;
7.1.2 it acknowledges that the Ordinary Shares have not been and will not be registered under the US Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered, sold, pledged or otherwise transferred except: (a) within the United States, pursuant to any available exemption from the registration requirements of the US Securities Act to a person that it and any person acting on its behalf reasonably believes is a “qualified purchaser” (as defined under Section 2(a)(51) of the US Investment Company Act (a “QP”)) purchasing for its own account or for the account of one or more QPs; or (b) outside of the United States, in an offshore transaction (as defined in Regulation S) in accordance with Rule 903 or 904 of Regulation S;
7.1.3 it acknowledges that the Company has not and will not be registered under the US Investment Company Act and that the Company has put in place restrictions for transactions not involving any public offering in the United States, and to ensure that the Company is not and will not be required to register under the US Investment Company Act;
7.1.4 unless the Company expressly consents otherwise in writing, no portion of the assets used to purchase, and no portion of the assets used to hold, the Ordinary Shares or any beneficial interest therein constitutes or will constitute the assets of: (a) an “employee benefit plan” as defined in Section 3(3) of ERISA that is subject to Title I of ERISA; (b) a “plan” as defined in Section 4975 of the US Code, including an individual retirement account or other arrangement that is subject to Section 4975 of the US Code; or (c) an entity which is deemed to hold the assets of any of the foregoing types of plans, accounts or arrangements that is subject to Title I of ERISA or Section 4975 of the US Code. In addition, if a Placee is a governmental, church, non-US or other employee benefit plan that is subject to any federal, state, local or non-US law that is substantially similar to the provisions of Title I of ERISA or Section 4975 of the US Code, its purchase, holding, and disposition of the Ordinary Shares must not constitute or result in a non-exempt violation of any such substantially similar law;
190 7.1.5 if any Ordinary Shares are issued to it in certificated form, then such certificates evidencing ownership will contain a legend substantially to the following effect, unless otherwise determined by the Company in accordance with applicable law:
“THE ISSUER OF THIS SECURITY HAS NOT BEEN REGISTERED AS AN INVESTMENT COMPANY UNDER THE US INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE “INVESTMENT COMPANY ACT”), AND THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “US SECURITIES ACT”) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES, AND THIS SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVES IS A “QUALIFIED PURCHASER” (AS DEFINED UNDER SECTION 2(A)(51) OF THE US INVESTMENT COMPANY ACT (A “QP”)) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ONE OR MORE QPS; OR (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE US SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
IN ADDITION, THIS SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED TO ANY PERSON USING THE ASSETS OF (I) (A) AN “EMPLOYEE BENEFIT PLAN” AS DEFINED IN SECTION 3(3) OF ERISA THAT IS SUBJECT TO TITLE I OF ERISA; (B) A “PLAN” AS DEFINED IN SECTION 4975 OF THE US CODE, INCLUDING AN INDIVIDUAL RETIREMENT ACCOUNT OR OTHER ARRANGEMENT THAT IS SUBJECT TO SECTION 4975 OF THE US CODE; OR (C) AN ENTITY WHICH IS DEEMED TO HOLD THE ASSETS OF ANY OF THE FOREGOING TYPES OF PLANS, ACCOUNTS OR ARRANGEMENTS THAT IS SUBJECT TO TITLE I OF ERISA OR SECTION 4975 OF THE US CODE OR (II) A GOVERNMENTAL, CHURCH, NON-US OR OTHER EMPLOYEE BENEFIT PLAN THAT IS SUBJECT TO ANY FEDERAL, STATE, LOCAL OR NON-US LAW THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF TITLE I OF ERISA OR SECTION 4975 OF THE US CODE UNLESS THE PURCHASE, HOLDING OR DISPOSITION OF THE SECURITIES BY A PLAN DESCRIBED IN (B) WILL NOT RESULT IN A VIOLATION OF APPLICABLE LAW AND/OR CONSTITUTE A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 503 OF THE US CODE OR ANY SUBSTANTIALLY SIMILAR LAW.
THE ISSUER AND ITS AGENTS SHALL NOT BE OBLIGATED TO RECOGNIZE ANY RESALE OR OTHER TRANSFER OF THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN MADE OTHER THAN IN COMPLIANCE WITH THESE RESTRICTIONS.
TRANSFERS OF THIS SECURITY OR ANY INTEREST HEREIN TO A PERSON USING ASSETS OF A PLAN TO PURCHASE OR HOLD THIS SECURITY OR ANY INTEREST HEREIN WILL BE VOID AND OF NO FORCE AND EFFECT AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO SUCH PERSON NOTWITHSTANDING ANY INSTRUCTION TO THE CONTRARY TO THE ISSUER OR ANY OF ITS AGENTS.
191 THE ISSUER HAS THE RIGHT TO COMPEL ANY SECURITY HOLDER OR BENEFICIAL HOLDER TO SELL ITS SECURITIES OR INTEREST THEREIN, OR MAY SELL SUCH COMMON SHARES OR INTEREST THEREIN ON BEHALF OF SUCH PERSON, WHERE SUCH PERSON DOES NOT SATISFY THE REQUIREMENTS IN THE PARAGRAPH ABOVE.”;
7.1.6 if in the future the Placee decides to offer, sell, transfer, assign or otherwise dispose of its Ordinary Shares, it will do so only in compliance with an exemption from the registration requirements of the US Securities Act and under circumstances which will not require the Company to register under the US Investment Company Act. It acknowledges that any sale, transfer, assignment, pledge or other disposal made other than in compliance with such laws and the above stated restrictions will be subject to the compulsory transfer provisions as provided in the Articles;
7.1.7 it is purchasing the Ordinary Shares for its own account or for one or more investment accounts for which it is acting as a fiduciary or agent, in each case for investment only, and not with a view to or for sale or other transfer in connection with any distribution of the Ordinary Shares in any manner that would violate the US Securities Act, the US Investment Company Act or any other applicable securities laws;
7.1.8 it acknowledges that the Company reserves the right to make inquiries of any holder of the Ordinary Shares or interests therein at any time as to such person’s status under US federal securities laws and to require any such person that has not satisfied the Company that holding by such person will not violate or require registration under US securities laws to transfer such Ordinary Shares or interests in accordance with the Articles;
7.1.9 it acknowledges and understands that the Company is required to comply with FATCA and agrees to furnish any information and documents the Company may from time to time request, including but not limited to information required under FATCA;
7.1.10 it is entitled to acquire the Ordinary Shares under the laws of all relevant jurisdictions which apply to it, it has fully observed all such laws and obtained all governmental and other consents which may be required thereunder and complied with all necessary formalities and it has paid all issue, transfer or other taxes due in connection with its acceptance in any jurisdiction of the Ordinary Shares and that it has not taken any action, or omitted to take any action, which may result in the Company, Akur, Barclays, the Investment Manager, the Registrar, or their respective directors, officers, agents, employees and advisers being in breach of the laws of any jurisdiction in connection with the Placing or its acceptance of participation in the Placing;
7.1.11 it has received, carefully read and understands this Prospectus, and has not, directly or indirectly, distributed, forwarded, transferred or otherwise transmitted this Prospectus or any other presentation or offering materials concerning the Ordinary Shares to within the United States or to any US Persons, nor will it do any of the foregoing; and
7.1.12 if it is acquiring any Ordinary Shares as a fiduciary or agent for one or more accounts, the Placee has sole investment discretion with respect to each such account and full power and authority to make such foregoing representations, warranties, acknowledgements and agreements on behalf of each such account.
192 7.2 The Company, the Investment Manager, the Registrar, Akur, Barclays and their respective directors, officers, agents, employees, advisers and others will rely upon the truth and accuracy of the foregoing representations, warranties, acknowledgments and agreements.
7.3 If any of the representations, warranties, acknowledgments or agreements made by the Placee are no longer accurate or have not been complied with, the Placee will immediately notify the Company, Akur and Barclays.
8. Supply and Disclosure of Information
If Barclays, Akur, the Registrar or the Company or any of their agents request any information about a Placee’s agreement to subscribe for Ordinary Shares under the Placing, such Placee must promptly disclose it to them.
9. Non United Kingdom Investors
9.1 If the Placee is outside the United Kingdom, neither this Prospectus nor any other offering, marketing or other material in connection with the Placing constitutes an invitation, offer or promotion to, or arrangement with, it or any person whom it is procuring to subscribe for Ordinary Shares pursuant to the Placing unless, in the relevant territory, such offer, invitation or other course of conduct could lawfully be made to it or such person and such documents or materials could lawfully be provided to it or such person and Ordinary Shares could lawfully be distributed to and subscribed and held by it or such person without compliance with any unfulfilled approval, registration or other regulatory or legal requirements.
9.2 None of the Ordinary Shares has been or will be registered under the laws of the United States, Canada, Australia, the Republic of South Africa or Japan. Accordingly, the Ordinary Shares may not be offered, sold, issued or delivered, directly or indirectly, within any of the United States, Canada, Australia, the Republic of South Africa or Japan or to any US Person or to any national, resident or citizen of Canada, Australia, the Republic of South Africa or Japan unless an exemption from any registration requirement is available.
10. Miscellaneous
10.1 The rights and remedies of the Company, the Investment Manager, Akur, Barclays and the Registrar under these terms and conditions are in addition to any rights and remedies which would otherwise be available to each of them and the exercise or partial exercise of one will not prevent the exercise of others.
10.2 On application, if a Placee is a discretionary fund manager, that Placee may be asked to disclose in writing or orally the jurisdiction in which its funds are managed or owned. All documents provided in connection with the Placing will be sent at the Placee’s risk. They may be returned by post to such Placee at the address notified by such Placee.
10.3 Each Placee agrees to be bound by the Articles (as amended from time to time) once the Ordinary Shares, which the Placee has agreed to subscribe for pursuant to the Placing, have been acquired by the Placee. The contract to subscribe for Ordinary Shares under the Placing and the appointments and authorities mentioned in this Prospectus and all disputes and claims arising out of or in connection with its subject matter or formation (including non- contractual disputes or claims) will be governed by, and construed in accordance with, the laws of England and Wales. For the exclusive benefit of the Company, the Investment Manager, Akur, Barclays and the Registrar, each Placee irrevocably submits to the jurisdiction of the courts of England and Wales and waives any objection to proceedings in any such court on the ground of venue or on the ground that proceedings have been brought in an inconvenient forum. This does not prevent an action being taken against the Placee in any other jurisdiction.
193 10.4 In the case of a joint agreement to subscribe for Ordinary Shares under the Placing references to a “Placee” in these terms and conditions are to each of the Placees who are a party to that joint agreement and their liability is joint and several.
10.5 Barclays, Akur and the Company expressly reserve the right to modify the Placing (including, without limitation, the timetable and settlement) at any time before allocations are determined. The Placing is subject to the satisfaction of the conditions contained in the Placing Agreement and the Placing Agreement not having been terminated. Further details of the terms of the Placing Agreement are contained in paragraph 7 of Part 9 of this Prospectus.
194 PART 11
TERMS AND CONDITIONS OF APPLICATION UNDER THE OFFER FOR SUBSCRIPTION
1. Introduction
1.1 Ordinary Shares are available under the Offer for Subscription at a price of 100 pence per Ordinary Share. The Ordinary Shares will, when issued and fully paid, include the right to receive all dividends or other distributions made, paid or declared, if any, by reference to a record date after the date of their issue.
1.2 Applications to acquire Ordinary Shares must be made on the Application Form attached as Appendix 2 to this Prospectus or otherwise published by the Company.
1.3 If you are a new investor and you wish your Ordinary Shares to be issued in certificated form you will also need to complete and return a tax residency self-certification form (“CRS Form”). The CRS Form will be sent to investors with the investor’s share certificate. Further copies of this form and the relevant form for joint holdings or corporate entity holdings can be requested from Computershare Investor Services PLC on +44 (0)370 707 1564. Calls are charged at the standard geographic rate and will vary by provider. Calls outside of the United Kingdom will be charged at the applicable international rate. The helpline is open between 8.30 a.m. to 5.30 p.m., Monday to Friday excluding public holidays in England and Wales. Please note that Computershare Investor Services PLC cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes.
2. Offer for Subscription to Acquire Shares
2.1 By completing and delivering an Application Form, you, as the applicant, and, if you sign the Application Form on behalf of another person or a corporation, that person or corporation:
2.1.1 offer to subscribe for the amount specified in Box 1 on your Application Form, or any smaller amount for which such application is accepted, on the terms, and subject to the conditions, set out in this Prospectus, including these terms and conditions of application and the Articles;
2.1.2 agree that, in consideration for the Company agreeing that it will not offer any Ordinary Shares to any person other than by means of the procedures referred to in this Prospectus, your application may not be revoked, subject to your statutory right of withdrawal in the event of publication of a supplementary prospectus by the Company, and that this paragraph shall constitute a collateral contract between you and the Company which will become binding upon despatch by post to or, in the case of delivery by hand, on receipt by the Receiving Agent of your Application Form;
2.1.3 undertake to pay the subscription amount specified in Box 1 on your Application Form in full on application and warrant that the remittance accompanying your Application Form will be honoured on first presentation and agree that if such remittance is not so honoured you will not be entitled to receive a share certificate for the Ordinary Shares applied for in certificated form or be entitled to commence dealing in Ordinary Shares applied for in uncertificated form or to enjoy or receive any rights in respect of such Ordinary Shares unless and until you make payment in cleared funds for such Ordinary Shares and such payment is accepted by the
195 Receiving Agent (which acceptance shall be in its absolute discretion and on the basis that you indemnify the Receiving Agent, the Company, Akur and Barclays against all costs, damages, losses, expenses and liabilities arising out of, or in connection with, the failure of your remittance to be honoured on first presentation) and the Company may (without prejudice to any other rights it may have) avoid the agreement to allot the Ordinary Shares and may allot them to some other person, in which case you will not be entitled to any refund or payment in respect thereof (other than the refund by a cheque drawn on a branch of a UK clearing bank to the bank account name from which they were first received at your risk of any proceeds of the remittance which accompanied your Application Form, without interest);
2.1.4 agree that, where on your Application Form a request is made for Ordinary Shares to be deposited into a CREST account: (a) the Receiving Agent may in its absolute discretion amend the form so that such Ordinary Shares may be issued in certificated form registered in the name(s) of the holder(s) specified in your Application Form (and recognise that the Receiving Agent will so amend the form if there is any delay in satisfying the identity of the applicant or the owner of the CREST account or in receiving your remittance in cleared funds); and (b) the Receiving Agent, the Company, Akur or Barclays may authorise your financial adviser or whoever he or she may direct to send a document of title for or credit your CREST account in respect of, the number of Ordinary Shares for which your application is accepted, and/or a crossed cheque for any monies returnable, by post at your risk to your address set out on your Application Form;
2.1.5 agree, in respect of applications for Ordinary Shares in certificated form (or where the Receiving Agent exercises its discretion pursuant to paragraph 2.1.4 above to issue Ordinary Shares in certificated form), that any share certificate to which you or, in the case of joint applicants, any of the persons specified by you in your Application Form may become entitled (and any monies returnable to you) may be retained by the Receiving Agent:
(a) pending clearance of your remittance;
(b) pending investigation of any suspected breach of the warranties contained in paragraphs 6.1, 6.2, 6.6, 6.8, 6.13, 6.15 or 6.16 below or any other suspected breach of these terms and conditions of application; or
(c) pending any verification of identity which is, or which the Receiving Agent considers may be, required for the purpose of the Money Laundering Regulations and any other regulations applicable thereto, and any interest accruing on such retained monies shall accrue to and for the benefit of the Company;
2.1.6 agree, on the request of the Receiving Agent, to disclose promptly in writing to it such information as the Receiving Agent may request in connection with your application and authorise the Receiving Agent to disclose any information relating to your application which it may consider appropriate;
2.1.7 agree that if evidence of identity satisfactory to the Receiving Agent is not provided to the Receiving Agent within a reasonable time (in the opinion of the Receiving Agent) following a request therefor, the Receiving Agent or the Company may terminate the agreement with you to allot Ordinary Shares and, in such case, the Ordinary Shares which would otherwise have been allotted to you may be re- allotted or sold to some other party and the lesser of your application monies or such proceeds of sale (as the case may be, with the proceeds of any gain derived from a sale accruing to the Company) will be returned by a cheque drawn on a
196 branch of a UK clearing bank to the bank account name on which the payment accompanying the application was first drawn without interest and at your risk;
2.1.8 agree that you are not applying on behalf of a person engaged in money laundering;
2.1.9 undertake to ensure that, in the case of an Application Form signed by someone else on your behalf, the original of the relevant power of attorney (or a complete copy certified by a solicitor or notary) is enclosed with your Application Form together with full identity documents for the person so signing;
2.1.10 undertake to pay interest at the rate described in paragraph 3.3 below if the remittance accompanying your Application Form is not honoured on first presentation;
2.1.11 authorise the Receiving Agent to procure that there be sent to you definitive certificates in respect of the number of Ordinary Shares for which your application is accepted or, subject to paragraph 2.1.4 above, to deliver the number of Ordinary Shares for which your application is accepted into CREST, and/or to return any monies returnable by a cheque drawn on a branch of a UK clearing bank to the bank account name from which such monies were first received without interest and at your risk;
2.1.12 confirm that you have read and complied with paragraph 8 below;
2.1.13 agree that all subscription cheques and payments will be processed through a bank account (the “Acceptance Account”) in the name of CIS PLC re: M7 Multi-Let REIT plc Offer for Subscription A/C opened by the Receiving Agent;
2.1.14 agree that your Application Form is addressed to the Company and the Receiving Agent; and
2.1.15 agree that any application may be rejected in whole or in part at the sole discretion of the Company.
3. Acceptance of your Offer
3.1 The Company may accept your offer to subscribe (if your application is received, valid (or treated as valid), processed and not rejected) by notifying the UK Listing Authority through a Regulatory Information Service of the basis of allocation (in which case the acceptance will be on that basis).
3.2 The basis of allocation will be determined by the Company in consultation with Akur and Barclays. The right is reserved, notwithstanding the basis as so determined, to reject in whole or in part and/or scale back any application. The Company does not intend to scale back the applications for subscription received from M7 Real Estate, Richard Croft, David Ebbrell, Andrew Jenkins, Teresa Gilchrist and the Directors that are described at Paragraph 13 of Part 6 of this Prospectus. The right is reserved to treat as valid any application not complying fully with these terms and conditions of application or not in all respects completed or delivered in accordance with the instructions accompanying the Application Form. In particular, but without limitation, the Company may accept an application made otherwise than by completion of an Application Form where you have agreed with the Company in some other manner to apply in accordance with these terms and conditions of application.
3.3 The Receiving Agent will present all cheques and bankers’ drafts for payment on receipt and will retain documents of title and surplus monies pending clearance of successful
197 applicants’ payment. The Receiving Agent may, as agent of the Company, require you to pay interest or its other resulting costs (or both) if the payment accompanying your application is not honoured on first presentation. If you are required to pay interest you will be obliged to pay the amount determined by the Company to be the interest on the amount of the payment from the date on which all payments in cleared funds are due to be received until the date of receipt of cleared funds. The rate of interest will be the then published bank base rate of a clearing bank selected by the Company plus 4 per cent. per annum.
3.4 Payments made by cheque or banker’s draft in pounds sterling should be drawn on a branch in the United Kingdom of a bank or building society that is either a member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or that has arranged for its cheques or bankers’ drafts to be cleared through the facilities provided for members of either of those companies. Such cheques or bankers’ drafts must bear the appropriate sort code in the top right hand corner. Cheques, which must be drawn on the personal account of an individual applicant where they have sole or joint title to the funds, should be made payable to CIS PLC re: M7 Multi-Let REIT plc Offer for Subscription A/C and crossed “A/C payee only”. Third party cheques may not be accepted with the exception of building society cheques or bankers’ drafts where the building society or bank has inserted the full name of the building society or bank account holder and has added the building society or bank branch stamp. The name of the building society or bank account holder must be the same as that shown on the Application Form.
4. Conditions
4.1 The contracts created by the acceptance of applications (in whole or in part) under the Offer for Subscription will be conditional upon:
(a) the Conditional Acquisition Agreements becoming wholly unconditional (save as to Admission);
(b) Admission occurring by 8.00 a.m. on 13 November 2017 (or such later time or date as the Company the Investment Manager and Barclays may agree, being no later than 30 November 2017);
(c) the Placing Agreement becoming otherwise unconditional in all respects, and not being terminated in accordance with its terms before Admission; and
(d) the Minimum Net Proceeds being raised.
Shares may be allotted pursuant to the Issue if the Minimum Net Proceeds are raised and the offer conditions above are satisfied.
In the event that the Company, in consultation with Barclays and Akur, wishes to waive condition (d) referred to above, the Company will be required to publish a supplementary prospectus (including a working capital statement based on a revised Minimum Net Proceeds figure).
4.2 You will not be entitled to exercise any remedy of rescission for innocent misrepresentation (including pre-contractual representations) at any time after acceptance. This does not affect any other right you may have.
5. Return of Application Monies
Where application monies have been banked and/or received, if any application is not accepted in whole, or is accepted in part only, or if any contract created by acceptance does not become unconditional, the application monies or, as the case may be, the balance of the amount paid on
198 application will be returned without interest by returning your cheque, or by crossed cheque in your favour, by post at the risk of the person(s) entitled thereto, without interest. In the meantime, application monies will be retained by the Receiving Agent in a separate account.
6. Warranties
By completing an Application Form, you acknowledge and agree that you will be deemed to have represented and warranted to each of the Company, Akur, Barclays, the Investment Manager, the Receiving Agent and the Registrar that you:
6.1 undertake and warrant that, if you sign the Application Form on behalf of somebody else or on behalf of a corporation, you have due authority to do so on behalf of that other person and that such other person will be bound accordingly and will be deemed also to have given the confirmations, warranties and undertakings contained in these terms and conditions of application and undertake to enclose your power of attorney or other authority or a complete copy thereof duly certified by a solicitor or notary;
6.2 warrant, if the laws of any territory or jurisdiction outside the UK are applicable to your application, that you have complied with all such laws, obtained all governmental and other consents which may be required, complied with all requisite formalities and paid any issue, transfer or other taxes due in connection with your application in any territory and that you have not taken any action or omitted to take any action which will result in the Company or the Receiving Agent or any of their respective officers, agents or employees acting in breach of the regulatory or legal requirements, directly or indirectly, of any territory or jurisdiction outside of the UK in connection with the Offer for Subscription in respect of your application;
6.3 confirm that in making an application you are not relying on any information or representations in relation to the Company other than those contained in this Prospectus (on the basis of which alone your application is made) and accordingly you agree that no person responsible solely or jointly for this Prospectus or any part thereof shall have any liability for any such other information or representation;
6.4 agree that, having had the opportunity to read this Prospectus, you shall be deemed to have had notice of all information and representations contained therein;
6.5 acknowledge that no person is authorised in connection with the Offer for Subscription to give any information or make any representation other than as contained in this Prospectus and, if given or made, any information or representation must not be relied upon as having been authorised by the Company, Akur, Barclays, the Investment Manager or the Receiving Agent;
6.6 warrant that you are not under the age of 18 on the date of your application;
6.7 agree that all documents and monies sent by post to, by or on behalf of the Company or the Receiving Agent, will be sent at your risk and, in the case of documents and returned application cheques and payments to be sent to you, may be sent to you at your address (or, in the case of joint holders, the address of the first-named holder) as set out in your Application Form;
6.8 confirm that you have reviewed the restrictions contained in paragraph 8 below and warrant, to the extent relevant, that you (and any person on whose behalf you apply) comply or complied with the provisions therein;
199 6.9 agree that, in respect of those Ordinary Shares for which your Application Form has been received and processed and not rejected, acceptance of your Application Form shall be constituted by the Company instructing the Registrar to enter your name on the Register;
6.10 agree that all applications, acceptances of applications and contracts resulting therefrom under the Offer for Subscription and any non-contractual obligations existing under or in connection therewith shall be governed by and construed in accordance with the laws of England and Wales and that you submit to the jurisdiction of the English Courts and agree that nothing shall limit the right of the Company to bring any action, suit or proceedings arising out of or in connection with any such applications, acceptances of applications and contracts in any other manner permitted by law or in any court of competent jurisdiction;
6.11 irrevocably authorise the Company, Akur, Barclays or the Receiving Agent or any other person authorised by any of them, as your agent, to do all things necessary to effect registration of any Ordinary Shares subscribed by or issued to you into your name and authorise any representatives of the Company and/or Akur and/or Barclays and/or the Receiving Agent to execute any documents required therefor and to enter your name on the Register;
6.12 agree to provide the Company with any information which it, Akur, Barclays or the Receiving Agent may request in connection with your application or to comply with any other relevant legislation (as the same may be amended from time to time) including without limitation satisfactory evidence of identity to ensure compliance with the Money Laundering Regulations;
6.13 warrant that, in connection with your application, you have observed the laws of all requisite territories, obtained any requisite governmental or other consents, complied with all requisite formalities and paid any issue, transfer or other taxes due in connection with your application in any territory and that you have not taken any action which will or may result in the Company, Akur, Barclays, the Investment Manager or the Receiving Agent acting in breach of the regulatory or legal requirements of any territory in connection with the Offer for Subscription or your application;
6.14 agree that Akur, Barclays and the Receiving Agent are acting for the Company in connection with the Offer for Subscription and for no-one else and that they will not treat you as their client by virtue of such application being accepted or owe you any duties or responsibilities concerning the price of the Ordinary Shares or concerning the suitability of the Ordinary Shares for you or be responsible to you for the protections afforded to their clients;
6.15 warrant that the information contained in the Application Form is true and accurate; and
6.16 agree that if you request that Ordinary Shares are issued to you on a date other than Admission and such Ordinary Shares are not issued on such date that the Company and its agents and Directors, Akur and Barclays will have no liability to you arising from the issue of such Ordinary Shares on a different date.
7. Money Laundering
7.1 You agree that, in order to ensure compliance with the Money Laundering Regulations, the Receiving Agent may at its absolute discretion require verification of identity of you as the applicant lodging an Application Form and further may request from you and you will assist in providing identification of:
7.1.1 the owner(s) and/or controller(s) (the “payor”) of any bank account not in the name of the holder(s) on which is drawn a payment by way of banker’s draft or cheque; or
200 7.1.2 where it appears to the Receiving Agent that a holder or the payor is acting on behalf of some other person or persons, such person or persons.
7.2 Failure to provide the necessary evidence of identity may result in your application being rejected or delays in the despatch of documents or CREST account being credited.
7.3 Without prejudice to the generality of this paragraph 7, verification of the identity of holders and payors will be required if the value of the Ordinary Shares applied for, whether in one or more applications considered to be connected, exceeds €15,000 (approximately £13,000). If, in such circumstances, you use a building society cheque or banker’s draft you should ensure that the bank or building society issuing the payment enters the name, address and account number of the person whose account is being debited on the reverse of the cheque or banker’s draft and adds its stamp. If, in such circumstances, the person whose account is being debited is not a holder you will be required to provide for both the holder and payor an original or copy of that person’s passport or driving licence certified by a solicitor and an original or certified copy of two of the following documents, no more than 3 months old, a gas, electricity, water or telephone (not mobile) bill, a recent bank statement or a council tax bill, in their name and showing their current address (which originals will be returned by post at the addressee’s risk) together with a signed declaration as to the relationship between the payor and you, the applicant.
7.4 For the purpose of the Money Laundering Regulations, a person making an application for Ordinary Shares will not be considered as forming a business relationship with either the Company or with the Receiving Agent but will be considered as effecting a one-off transaction with either the Company or with the Receiving Agent.
7.5 The person(s) submitting an application for Ordinary Shares will ordinarily be considered to be acting as principal in the transaction unless the Receiving Agent determines otherwise, whereupon you may be required to provide the necessary evidence of identity of the underlying beneficial owner(s).
7.6 If the amount being subscribed exceeds €15,000 (approximately £13,000) you should endeavour to have the declaration contained in Box 6 of the Application Form signed by an appropriate firm as described in that box.
8. Non United Kingdom Investors
8.1 If you receive a copy of this Prospectus or an Application Form in any territory other than the United Kingdom, you may not treat it as constituting an invitation or offer to you, nor should you, in any event, use an Application Form unless, in the relevant territory, such an invitation or offer could lawfully be made to you or an Application Form could lawfully be used without contravention of any registration or other legal requirements. It is your responsibility, if you are outside the UK, and wish to make an application for Ordinary Shares under the Offer for Subscription, to satisfy yourself as to full observance of the laws of any relevant territory or jurisdiction in connection with your application, including obtaining any requisite governmental or other consents, observing any other formalities requiring to be observed in such territory and paying any issue, transfer or other taxes required to be paid in such territory.
8.2 None of the Ordinary Shares has been or will be registered under the laws of Canada, Japan, the Republic of South Africa, Australia or under the US Securities Act or with any securities regulatory authority of any state or other political subdivision of the United States, Canada, Japan, the Republic of South Africa or Australia. Accordingly, unless an exemption under such act or laws is applicable, the Ordinary Shares may not be offered, sold or delivered, directly or indirectly, within Canada, Japan, the Republic of South Africa, Australia or the United States (as the case may be). If you subscribe for Ordinary Shares
201 you will, unless the Company and the Registrar agree otherwise in writing, be deemed to represent and warrant to the Company, Akur and Barclays that you are not a US Person or a resident of Canada, Japan, the Republic of South Africa, Australia or a corporation, partnership or other entity organised under the laws of the US or Canada (or any political subdivision of either) or Japan, the Republic of South Africa or Australia and that you are not subscribing for such Ordinary Shares for the account of any US Person or resident of Canada, Japan, the Republic of South Africa or Australia and will not offer, sell, renounce, transfer or deliver, directly or indirectly, any of the Ordinary Shares in or into the United States, Canada, Japan, or Australia or to any US Person or resident of Canada, Japan, the Republic of South Africa or Australia. No application will be accepted if it shows the applicant or a payor having an address in the United States, Canada, Japan, the Republic of South Africa or Australia.
9. The Data Protection Act
Each applicant acknowledges and agrees that, pursuant to The Data Protection Act 1998 (the “DP Act”) the Company and/or the Registrar and/or the Administrator and Company Secretary, may hold personal data (as defined in the DP Act) relating to past and present Shareholders. Personal data may be retained on record for a period exceeding six years after it is no longer used. The Registrar and the Administrator and Company Secretary will only process such information for the purposes set out below (collectively, the “Purposes”), being to:
(a) process its personal data (including sensitive personal data as defined in the DP Act) to the extent and in such manner as is necessary for the performance of their obligations under their respective service contracts, including as required by or in connection with its holding of Ordinary Shares, including processing personal data in connection with credit and money laundering checks on it;
(b) communicate with it as necessary in connection with its affairs and generally in connection with its holding of Ordinary Shares;
(c) provide personal data to such third parties as the Registrar and/or the Administrator and Company Secretary may consider necessary in connection with its affairs and generally in connection with its holding of Ordinary Shares or as the DP Act may require, including to third parties outside the European Economic Area;
(d) without limitation, provide such personal data to their affiliates, the Company or the Investment Manager and their respective associates for processing, notwithstanding that any such party may be outside the European Economic Area; and
(e) process its personal data for the Registrar’s and/or the Administrator and Company Secretary’s internal administration.
By becoming registered as a holder of Ordinary Shares a person becomes a data subject (as defined in the DP Act) and is deemed to have consented to the processing by the Company, the Registrar or the Administrator and Company Secretary of any personal data relating to them in the manner described above. In providing the Registrar and the Administrator and Company Secretary with information, it hereby represents and warrants to the Registrar and the Administrator and Company Secretary that it has obtained the consent of any data subject to the Registrar and the Administrator and Company Secretary, and their respective affiliates and group companies, holding and using their personal data for the Purposes (including the explicit consent of the data subjects for the processing of any sensitive personal data for the Purposes set out above in this paragraph 9).
202 10. United States Purchase and Transfer Restrictions
10.1 By participating in the Offer for Subscription, each applicant acknowledges and agrees that it will be further deemed to represent and warrant to each of the Company, Akur, Barclays, the Investment Manager, the Receiving Agent and the Registrar that:
10.1.1 it is not located within the United States, is not (and is not acting for the account or benefit of) a US Person, and is acquiring the Ordinary Shares in an offshore transaction meeting the requirements of Regulation S;
10.1.2 it acknowledges that the Ordinary Shares have not been and will not be registered under the US Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered, sold, pledged or otherwise transferred except: (a) within the United States, pursuant to any available exemption from the registration requirements of the US Securities Act to a person that it and any person acting on its behalf reasonably believes is a “qualified purchaser” (as defined under Section 2(a)(51) of the US Investment Company Act (a “QP”)) purchasing for its own account or for the account of one or more QPs; or (b) outside of the United States, in an offshore transaction (as defined in Regulation S) in accordance with Rule 903 or 904 of Regulation S;
10.1.3 it acknowledges that the Company has not and will not be registered under the US Investment Company Act and that the Company has put in place restrictions for transactions not involving any public offering in the United States, and to ensure that the Company is not and will not be required to register under the US Investment Company Act;
10.1.4 unless the Company expressly consents otherwise in writing, no portion of the assets used to purchase, and no portion of the assets used to hold, the Ordinary Shares or any beneficial interest therein constitutes or will constitute the assets of: (a) an “employee benefit plan” as defined in Section 3(3) of ERISA that is subject to Title I of ERISA; (b) a “plan” as defined in Section 4975 of the US Code, including an individual retirement account or other arrangement that is subject to Section 4975 of the US Code; or (c) an entity which is deemed to hold the assets of any of the foregoing types of plans, accounts or arrangements that is subject to Title I of ERISA or Section 4975 of the US Code. In addition, if an applicant is a governmental, church, non-US or other employee benefit plan that is subject to any federal, state, local or non-US law that is substantially similar to the provisions of Title I of ERISA or Section 4975 of the US Code, its purchase, holding, and disposition of the Ordinary Shares must not constitute or result in a non-exempt violation of any such substantially similar law;
10.1.5 if any Ordinary Shares offered and sold pursuant to Regulation S are issued in certificated form, then such certificates evidencing ownership will contain a legend substantially to the following effect, unless otherwise determined by the Company in accordance with applicable law:
“THE ISSUER OF THIS SECURITY HAS NOT BEEN REGISTERED AS AN INVESTMENT COMPANY UNDER THE US INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE “INVESTMENT COMPANY ACT”), AND THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT OF 1933 (THE “US SECURITIES ACT”) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES, AND THIS SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF
203 REASONABLY BELIEVES IS A “QUALIFIED PURCHASER” (AS DEFINED UNDER SECTION 2(A)(51) OF THE US INVESTMENT COMPANY ACT (A “QP”)) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ONE OR MORE QPS; OR (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S UNDER THE US SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
IN ADDITION, THIS SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED TO ANY PERSON USING THE ASSETS OF (I) (A) AN “EMPLOYEE BENEFIT PLAN” AS DEFINED IN SECTION 3(3) OF ERISA THAT IS SUBJECT TO TITLE I OF ERISA; (B) A “PLAN” AS DEFINED IN SECTION 4975 OF THE US CODE, INCLUDING AN INDIVIDUAL RETIREMENT ACCOUNT OR OTHER ARRANGEMENT THAT IS SUBJECT TO SECTION 4975 OF THE US CODE; OR (C) AN ENTITY WHICH IS DEEMED TO HOLD THE ASSETS OF ANY OF THE FOREGOING TYPES OF PLANS, ACCOUNTS OR ARRANGEMENTS THAT IS SUBJECT TO TITLE I OF ERISA OR SECTION 4975 OF THE US CODE OR (II) A GOVERNMENTAL, CHURCH, NON-US OR OTHER EMPLOYEE BENEFIT PLAN THAT IS SUBJECT TO ANY FEDERAL, STATE, LOCAL OR NON-US LAW THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF TITLE I OF ERISA OR SECTION 4975 OF THE US CODE UNLESS THE PURCHASE, HOLDING OR DISPOSITION OF THE SECURITIES BY A PLAN DESCRIBED IN (B) WILL NOT RESULT IN A VIOLATION OF APPLICABLE LAW AND/OR CONSTITUTE A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 503 OF THE US CODE OR ANY SUBSTANTIALLY SIMILAR LAW.
THE ISSUER AND ITS AGENTS SHALL NOT BE OBLIGATED TO RECOGNIZE ANY RESALE OR OTHER TRANSFER OF THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN MADE OTHER THAN IN COMPLIANCE WITH THESE RESTRICTIONS.
TRANSFERS OF THIS SECURITY OR ANY INTEREST HEREIN TO A PERSON USING ASSETS OF A PLAN TO PURCHASE OR HOLD THIS SECURITY OR ANY INTEREST HEREIN WILL BE VOID AND OF NO FORCE AND EFFECT AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO SUCH PERSON NOTWITHSTANDING ANY INSTRUCTION TO THE CONTRARY TO THE ISSUER OR ANY OF ITS AGENTS.
THE ISSUER HAS THE RIGHT TO COMPEL ANY SECURITY HOLDER OR BENEFICIAL HOLDER TO SELL ITS SECURITIES OR INTEREST THEREIN, OR MAY SELL SUCH COMMON SHARES OR INTEREST THEREIN ON BEHALF OF SUCH PERSON, WHERE SUCH PERSON DOES NOT SATISFY THE REQUIREMENTS IN THE PARAGRAPH ABOVE.”;
10.1.6 if in the future the applicant decides to offer, sell, transfer, assign or otherwise dispose of its Ordinary Shares, it will do so only in compliance with an exemption from the registration requirements of the US Securities Act and under circumstances which will not require the Company to register under the US Investment Company Act. It acknowledges that any sale, transfer, assignment, pledge or other disposal made other than in compliance with such laws and the above stated restrictions will be subject to the compulsory transfer provisions as provided in the Articles;
204 10.1.7 it is purchasing the Ordinary Shares for its own account for investment only, and not with a view to or for sale or other transfer in connection with any distribution of the Ordinary Shares in any manner that would violate the US Securities Act, the US Investment Company Act or any other applicable securities laws;
10.1.8 it acknowledges that the Company reserves the right to make inquiries of any holder of the Ordinary Shares or interests therein at any time as to such person’s status under US federal securities laws and to require any such person that has not satisfied the Company that holding by such person will not violate or require registration under US securities laws to transfer such Ordinary Shares or interests in accordance with the Articles;
10.1.9 it acknowledges and understands that the Company is required to comply with FATCA and agrees to furnish any information and documents the Company may from time to time request, including but not limited to information required under FATCA;
10.1.10 it is entitled to acquire the Ordinary Shares under the laws of all relevant jurisdictions which apply to it, it has fully observed all such laws and obtained all governmental and other consents which may be required thereunder and complied with all necessary formalities and it has paid all issue, transfer or other taxes due in connection with its acceptance in any jurisdiction of the Ordinary Shares and that it has not taken any action, or omitted to take any action, which may result in Akur, Barclays, the Company, the Investment Manager or their respective directors, officers, agents, employees and advisers being in breach of the laws of any jurisdiction in connection with the Offer for Subscription or its acceptance of participation in the Offer for Subscription; and
10.1.11 it has received, carefully read and understands this Prospectus, and has not, directly or indirectly, distributed, forwarded, transferred or otherwise transmitted this Prospectus or any other presentation or offering materials concerning the Ordinary Shares to within the United States or to any US Persons, nor will it do any of the foregoing.
10.2 The Company, Akur, Barclays, the Investment Manager, the Registrar and their respective directors, officers, agents, employees, advisers and others will rely upon the truth and accuracy of the foregoing representations, warranties, acknowledgments and agreements.
10.3 If any of the representations, warranties, acknowledgments or agreements made by the applicant are no longer accurate or have not been complied with, the applicant will immediately notify the Company.
11. Miscellaneous
11.1 To the extent permitted by law, all representations, warranties and conditions, express or implied and whether statutory or otherwise (including, without limitation, pre-contractual representations but excluding any fraudulent representations), are expressly excluded in relation to the Ordinary Shares and the Offer for Subscription.
11.2 The rights and remedies of the Company and the Receiving Agent under these terms and conditions of application are in addition to any rights and remedies which would otherwise be available to any of them and the exercise or partial exercise of one will not prevent the exercise of others.
205 11.3 The Company reserves the right to extend the closing time and/or date of the Offer for Subscription from 11.00 a.m. on 7 November 2017. In that event, the new closing time and/or date will be notified through a Regulatory Information Service.
11.4 The Company may terminate the Offer for Subscription in its absolute discretion at any time prior to Admission. If such right is exercised, the Offer for Subscription will lapse and any monies will be returned as indicated without interest at the risk of the applicant.
11.5 You agree that Akur, Barclays and the Receiving Agent are acting for the Company in connection with the Issue and no-one else and that none of Akur, Barclays and the Receiving Agent will treat you as its client by virtue of such application being accepted or owe you any duties concerning the price of the Ordinary Shares or concerning the suitability of the Ordinary Shares for you or otherwise in relation to the Offer for Subscription or for providing the protections afforded to their clients.
11.6 Save where the context requires otherwise, terms used in these terms and conditions of application bear the same meaning as where used elsewhere in this Prospectus.
206 PART 12
DEFINITIONS
The following definitions apply throughout this Prospectus unless the context requires otherwise:
“2015 Acquisition” the acquisition as described in paragraph 12.1 of Section A of Appendix 1
“2015 Acquisition Agreement” the agreement as described in paragraph 12.1 of Section A of Appendix 1
“2015 Sellers” the sellers as described in paragraph 12.1 of Section A of Appendix 1
“Administrator and Company Langham Hall UK Services LLP Secretary”
“Administration and Company the administration and company secretary agreement Secretary Agreement” between the Company and the Administrator and Company Secretary, a summary of which is set out in paragraph 7 of Part 9 of this Prospectus
“Admission” admission of the Ordinary Shares to be issued pursuant to the Issue: (i) to trading on the premium segment of the London Stock Exchange’s main market becoming effective in accordance with the LSE Admission Standards; and (ii) to the premium listing of the Official List becoming effective in accordance with the Listing Rules
“AIC” the Association of Investment Companies
“AIC Code” the AIC Code of Corporate Governance
“AIF” an alternative investment fund
“AIFM” an alternative investment fund manager for the purposes of the AIFMD and the FCA Handbook
“AIFMD” or “AIFM Directive” the European Union’s Alternative Investment Fund Managers Directive (No. 2071/61/EU) and all legislation made pursuant thereto, including, where applicable, the applicable implementing legislation and regulations in each member state of the European Union
“AIFMD Rules” the AIFMD, all delegated legislation made under the AIFMD, and all applicable laws, rules and regulations implementing the AIFMD in the UK
“Akur” Akur Limited
“Application Form” or “Offer for the application form attached as Appendix 2 to this Subscription Application Form” Prospectus for use in connection with the Offer for Subscription
“Articles” the articles of association of the Company
207 “Asset Management Agreement” the asset management agreement between the Company, the Investment Manager and the Asset Manager, a summary of which is set out in paragraph 7 of Part 9 of this Prospectus
“Asset Manager” M7 Real Estate Ltd
“Audit Committee” the audit committee of the Board
“Auditor” KPMG LLP
“Barclays” Barclays Bank PLC
“Business Day” a day (excluding Saturdays and Sundays, or public holidays in England and Wales) on which banks generally are open for business in London for the transaction of normal business
“certificated” or “in certificated not in uncertificated form form”
“Change of Control Event” an event which results in the Existing Shareholders ceasing to hold a majority of the shares of M7 Real Estate, without the prior written consent of the Company, such consent not to be unreasonably withheld or delayed
“CISA” the Swiss Federal Act on Collective Investment Schemes of 23 June 2006, as amended from time to time
“Companies Act” the Companies Act 2006 and any statutory modification or re- enactment thereof for the time being in force
“Company” M7 Multi-Let REIT plc
“Conditional Acquisition the Marble Conditional Acquisition Agreement and the REIP II Agreements” Conditional Acquisition Agreement
“Contracted Rent” the annualised gross rent after adjusting for the inclusion of rent subject to rent free periods
“Court” the courts of England and Wales
“CREST” the computerised settlement system operated by Euroclear which facilitates the transfer of title to shares in uncertificated form
“CTA 2009” Corporation Tax Act 2009 and any statutory modification or re-enactment thereof for the time being in force
“CTA 2010” Corporation Tax Act 2010 and any statutory modification or re-enactment thereof for the time being in force
“Depositary” Langham Hall UK Depositary LLP
“Depositary Agreement” the depositary agreement between the Company, the Depositary and the Investment Manager, a summary of which is set out in paragraph 7 of Part 9 of this Prospectus
“Directors” or “Board” the board of directors of the Company
208 “Disposal Agreements” the agreements as described in paragraph 12.2 of Section A of Appendix 1
“Disposed Properties” the properties as described in paragraph 12.2 of Section A of Appendix 1
“Disclosure Guidance and the disclosure guidance and transparency rules contained Transparency Rules” or “DTRs” within the FCA Handbook
“Distribution” any dividend or other distribution on or in respect of the shares of the Company and references to a Distribution being paid include a distribution not involving a cash payment being made
“Distribution Transfer” a disposal or transfer (however effected) by a person of his rights to a Distribution from the Company such that he is not beneficially entitled (directly or indirectly) to such a Distribution and no person who is so entitled subsequent to such disposal or transfer (whether the immediate transferee or not) is (whether as a result of the transfer or not) a Substantial Shareholder
“Distribution Transfer Certificate” a certificate in such form as the Directors may specify from time to time to the effect that the relevant person has made a Distribution Transfer, which certificate may be required by the Directors to satisfy them that a Substantial Shareholder is not beneficially entitled (directly or indirectly) to a Distribution
“ELQ Loan” the loan agreement as described in paragraph 8.1 of Section A of Appendix 1
“ERISA” US Employee Retirement Income Security Act of 1976, as amended
“Estimated Rental Value” the estimated rental value at which space would be let in the market conditions prevailing at the date of valuation
“EU” the European Union
“Euroclear” Euroclear UK & Ireland Limited, being the operator of CREST
“Excess Charge” in relation to a Distribution which is paid or payable to a person, all tax or other amounts which the Directors consider may become payable by the Company under Section 551 of the CTA 2010 and any interest, penalties, fines or surcharge attributable to such tax as a result of such Distribution being paid to or in respect of that person
“Existing Shareholders” the existing shareholders of M7 Real Estate as at Admission
“FCA” the Financial Conduct Authority
“FCA Handbook” the FCA handbook of rules and guidance as amended from time to time
“FINMA” the Swiss Financial Market Supervisory Authority FINMA
209 “FSMA” the Financial Services and Markets Act 2000 and any statutory modification or re-enactment thereof for the time being in force
“Gross Asset Value” the aggregate value of the total consolidated assets of the Group as determined in accordance with the accounting principles adopted by the Company from time to time
“Gross Issue Proceeds” the gross proceeds of the Issue
“Group” the Company and its subsidiary undertakings from time to time
“HMRC” Her Majesty’s Revenue and Customs
“Holdco” M7 Multi-Let REIT Holdco 1 Limited
“IFRS” international financial reporting standards as adopted by the European Union
“Initial Acquisitions” the Marble Acquisition and the REIP II Acquisition
“Intermediaries” the entitles listed in paragraph 15 of Part 9 of this Prospectus, together with any other intermediary (if any) that is appointed by the Company in connection with the Intermediaries Offer after the date of this Prospectus and “Intermediary” shall mean any one of them
“Intermediaries Booklet” the booklet entitled “M7 Multi-Let REIT plc: Information for Intermediaries” and containing, among other things, the Intermediaries Terms and Conditions
“Intermediaries Offer” the offer of Ordinary Shares by the Intermediaries to retail investors
“Intermediaries Offer Advisers” Barclays Bank PLC and Scott Harris UK Ltd
“Initial Portfolio” the properties owned by Marble and REIP II described in Part 3 and Part 7 of this Prospectus
“Intermediaries Terms and the terms and conditions agreed between the Intermediaries Conditions” Offer Advisers, the Company, the Investment Manager and the Intermediaries in relation to the Intermediaries Offer and contained in the Intermediaries Booklet
“Investment Committee” the investment committee of the Investment Manager, as further described in Part 5 of this Prospectus
“Investment Guidelines” the Investment Objective, the Investment Policy, the Investment Restrictions and the Leverage Policy of the Company as described in Part 1 of this Prospectus
“Investment Management the investment management agreement between the Agreement” Company, Holdco and the Investment Manager, a summary of which is set out in paragraph 7 of Part 9 of this Prospectus
“Investment Manager” M7 Real Estate Financial Services Ltd
210 “Issue” the Placing, the Offer for Subscription and the Intermediaries Offer
“Issue Price” 100 pence per Ordinary Share
“Key Person Event” an event where any two Key Persons permanently cease to be involved in the provision of Services to the Company and the Property Holding Companies for any reason (which shall, in relation to any termination or resignation, be deemed to take effect from the end of any notice period served in relation to such termination or resignation)
“Key Persons” each of Richard Croft, David Ebbrell, David Simmonds, John Murnaghan and Euan Burns, or any replacement or additional Key Person nominated or approved by the Company, such approval not to be unreasonably withheld or delayed
“Listing Rules” the listing rules made by the UK Listing Authority pursuant to Part VI of the FSMA
“London Stock Exchange” London Stock Exchange pic
“LSE Admission Standards” the admission and disclosure standards published by the London Stock Exchange
“M7” M7 Real Estate and its subsidiaries (including the Investment Manager)
“M7 Loan” the loan agreement as described in paragraph 8.2 of Section A of Appendix 1
“M7 Power of Attorney” the power of attorney as described in paragraph 12.6 of Section A of Appendix 1
“M7 Real Estate” M7 Real Estate Ltd
“M7 Statements” the statements contained in this Prospectus which begin or contain the words “the Investment Manager believes”, “the Investment Manager anticipates”, “the Investment Manager expects”, “the Investment Manager’s belief”, “the Investment Manager’s view”, “the Investment Manager intends”, “the belief of the Investment Manager”, “the opinion of the Investment Manager”, “the Investment Manager’s opinion”, “the intention of the Investment Manager” or other similar terminology, and other statements to the same effect by M7
“Marble” Marble Acquisitions Ltd
“Marble Acquisition” the acquisition of Marble by the Company through its wholly owned subsidiary Holdco
“Marble Conditional the agreement between the Company, Holdco and ELQ Acquisition Agreement” Holdings (DEL) LLC, a summary of which is set out in paragraph 7 of Part 9 of this Prospectus
211 “Marble Consideration” the consideration as described in paragraph 7.1 of Part 9 of this Prospectus
“Marble Excluded Properties” the excluded properties as described in paragraph 7.1 of Part 9 of this Prospectus
“Marble Extended Longstop the extended longstop date as described in paragraph 7.1 of Date” Part 9 of this Prospectus
“Marble Final Longstop Date” the final longstop date as described in paragraph 7.1 of Part 9 of this Prospectus
“Marble Fundamental the fundamental warranties as described in paragraph 7.1 of Warranties” Part 9 of this Prospectus
“Marble Longstop Date” the long stop date as described in paragraph 7.1 of Part 9 of this Prospectus
“Marble PMA” the agreement as described in paragraph 12.5 of Section A of Appendix 1
“Marble Properties” the properties as described in described in Part 3, Part 7 and paragraph 7.1 of Part 9 of this Prospectus
“Marble Sellers” the sellers as described in paragraph 7.1 of Part 9 of this Prospectus
“Marble SHA” the agreement as described in paragraph 12.3 of Section A of Appendix 1
“Management Engagement the management engagement committee of the Board Committee”
“Market Abuse Regulation” regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse
“Material Transaction” (a) any acquisition by the Company or any of its subsidiaries of a property, or portfolio of properties (including through one or more holding companies), with a consideration of £4 million or more;
(b) any disposal by the Company or any of its subsidiaries of a property, or portfolio of properties (including through one or more holding companies), with a consideration of £4 million or more;
(c) entry into, or approval, by the Company, or any of its subsidiaries, of any contract or series of contracts in relation to a property or portfolio of properties (other than in respect of an acquisition or disposal) with an aggregate revenue to the Company or any of its subsidiaries in excess of £400,000 per annum; or
(d) incurrence of any borrowing, debt or other leverage by the Company or any Property Holding Company
212 “Minimum Net Proceeds” the minimum net proceeds of the Issue that the Company is seeking to raise, being £147 million
“Money Laundering the Money Laundering, Terrorist Financing and Transfer of Regulations” Funds (Information on the Payer) Regulations 2017
“Net Asset Value” the value, as at any date, of the total consolidated assets of the Group after deduction of all liabilities determined in accordance with the accounting policies adopted by the Company from time to time
“Net Asset Value per Ordinary at any time the Net Asset Value attributable to the Ordinary Share” Shares divided by the number of Ordinary Shares in issue (other than Ordinary Shares held in treasury) at the date of calculation
“Net Issue Proceeds” the Gross Issue Proceeds less applicable fees and expenses of the Issue
“NISA” a UK new individual savings account
“Non-PID Dividend” a distribution by the Company which is not a PID
“Occupational Lease” any present or future lease, underlease, sub-lease, licence agreement, option, tenancy or right to occupy any Property in each case howsoever described, whether for a fixed term or on a periodic basis governing the use or occupation of any Property or any part of it to which the Company’s indirect interest may be subject from time to time
“Offer for Subscription” the offer for subscription of Ordinary Shares at the Issue Price on the terms set out in this Prospectus
“Official List” the Official List of the UK Listing Authority
“Order” Financial Services and Markets Act 2000 (Financial Promotions) Order 2005
“Ordinary Shares” ordinary shares of £0.01 each in the capital of the Company
“Passing Rent” the amount of rent which is receivable on the valuation date, which may be different from the amount of contracted rent as a result of current tenant incentives
“PDMR” a person discharging managerial responsibility, as defined in the FCA Handbook
“Placee” a person subscribing for Ordinary Shares under the Placing
“Placing” the conditional placing of Ordinary Shares by Barclays at the Issue Price as described in this Prospectus
“Placing Agreement” the sponsor and placing agreement between the Company, the Investment Manager, the Directors, Akur and Barclays, a summary of which is set out in paragraph 7 of Part 9 of this Prospectus
213 “PID” or “Property Income the distribution by the Company of the profits of its Property Distribution” Rental Business, including distributions received by it from other UK REITs, by way of a dividend in cash or the issue of share capital in lieu of a cash dividend in accordance with Section 530 of the CTA 2010
“Property” any property which is or has been acquired directly or indirectly by the Company
“Property Holding Company” any company or other vehicle owned directly or indirectly by the Company for the purposes of holding one or more Properties
“Property Rental Business” the qualifying property rental business in the UK and elsewhere of UK resident companies within a REIT and non- UK resident companies within a REIT with a UK qualifying property rental business, as defined in Part 4 of CTA 2009
“Prospectus” this document which is a prospectus prepared in accordance with the Prospectus Rules
“Prospectus Directive” the EU Prospectus Directive 2003/71/EC (as amended)
“Prospectus Rules” the prospectus rules made by the Financial Conduct Authority under Section 73A of FSMA
“Receiving Agent” Computershare Investor Services PLC
“Receiving Agent Agreement” the receiving agent agreement between the Company and the Receiving Agent, a summary of which is set out in paragraph 7 of Part 9 of this Prospectus
“Redeemable Preference redeemable preference shares of £1.00 each in the capital of Shares” the Company held, at the date of this Prospectus, by M7 Real Estate
“Register” the register of members of the Company
“Registrar” Computershare Investor Services PLC
“Registrar Agreement” the registrar agreement between the Company and the Registrar, a summary of which is set out in paragraph 7 of Part 9 of this Prospectus
“Regulation S” Regulation S promulgated under the US Securities Act
“Regulatory Information a service authorised by the UKLA to release regulatory Service” announcements to the London Stock Exchange
“REIP II” M7 Real Estate Investment Partners II Limited
“REIP II Acquisition” the acquisition of REIP II by the Company through its wholly owned subsidiary Holdco
“REIP II Conditional the agreement between the Company, Holdco, M7 Real Acquisition Agreement” Estate, Brahma Finance (BVI) Ltd, David Taylor, Jasmine Trustees Limited, Andrew Lampert-Zakiewicz, Richard Biffa,
214 Arco International Group Limited, Ian Erwin Pierre Sosso, Crescent 3 Limited, Mazy Hobbi-Moghadam, Goldlog Inc, William Martyn Peter Jenkins and M7 Real Estate REIP II LLP, a summary of which is set out in paragraph 7 of Part 9 of this Prospectus
“REIP II Consideration” the consideration as described in paragraph 7.2 of Part 9 of this Prospectus
“REIP II Extended Longstop the extended long stop date as described in paragraph 7.2 of Date” Part 9 of this Prospectus
“REIP II Final Longstop Date” the final long stop date as described in paragraph 7.2 of Part 9 of this Prospectus
“REIP II Fundamental the fundamental warranties as described in paragraph 7.2 of Warranties” Part 9 of this Prospectus
“REIP II Longstop Date” the long stop date as described in paragraph 7.2 of Part 9 of this Prospectus
“REIP II Properties” the properties as described in described in Part 3, Part 7 and paragraph 7.2 of Part 9 of this Prospectus
“REIP II Sellers” the sellers as described in paragraph 7.2 of Part 9 of this Prospectus
“REIT” a UK REIT (Real Estate Investment Trust) as defined in Part 12 of the CTA 2010
“REIT Group” a group UK REIT within the meaning of Part 12 CTA 2010
“Relevant Member State” a member state of the European Economic Area which has implemented the Prospectus Directive
“Relevant Registered a Shareholder who holds all or some of the shares in the Shareholder” Company that comprise a Substantial Shareholding (whether or not a Substantial Shareholder)
“Replacement Value” the cost to replace a property asset if completely destroyed
“Reporting Obligation” any obligation from time to time of the Company to provide information or reports to HMRC as a result of or in connection with the Company’s status, or the Company’s status as a REIT
“Rent” all Rental Income excluding any Service Charge Proceeds, ground rent payable, other non-recoverable property operating expenses, VAT and any other Taxes, charges or costs of a similar nature
“Rental Income” all amounts paid or payable to the relevant Property Holding Company in connection with the letting, use or occupation of all or any part of a Property, after taking account of the net
215 effects of straight-lining for lease incentives, including rent- free periods, including:
(a) rents, licence fees and equivalent amounts in respect of all or any part of a Property;
(b) any amount received from any deposit held as security for performance of any tenant’s obligations;
(c) any other moneys paid or payable in respect of use and/or occupation of all or any part of a Property;
(d) any insurance proceeds in respect of loss of rent in respect of all or any part of a Property;
(e) any amount paid or payable in respect of the grant, surrender or variation of any Occupational Lease or an agreement to grant an Occupational Lease;
(f) any amount paid or payable to reimburse expenses incurred in the management, maintenance and repair of all or any part of a Property;
(g) any amount paid or payable by way of reimbursement of or contribution to insurance premia incurred in respect of all or any part of a Property;
(h) any amount paid or payable in respect of a breach of covenant under any Occupational Lease and any related costs and expenses;
(i) any amount equal to any apportionment of rent allowed in favour of the relevant Property Holding Company under a contract for the purchase of all or any part of a Property;
(j) any contribution to a sinking fund paid or payable pursuant to an Occupational Lease;
(k) any contribution made pursuant to an Occupational Lease to ground rent due under any head lease;
(l) any amount paid or payable by a guarantor in respect of any item set out in paragraphs (a) to (k) above;
(m) any interest, damages or compensation in respect of any item set out in paragraphs (a) to (k) above;
(n) any surrender premiums, car parking income, key money received, and interest receivable on finance leases; and
(o) any VAT on any amount falling within paragraphs (a) to (n) above
“Residual Business” that part of the business of companies within a REIT that is not part of the Property Rental Business
216 “RICS” Royal Institution of Chartered Surveyors
“SDRT” stamp duty reserve tax
“Service Charge Proceeds” such amount of Rental Income as constitutes:
(a) any amount paid or payable to reimburse expenses incurred in the management, maintenance and repair of all or any part of a Property;
(b) any amount paid or payable by way of reimbursement of or contribution to insurance premia in relation to all or any part of a Property;
(c) any contribution to a sinking fund paid or payable by a tenant of all or any part of a Property;
(d) any amount paid or payable in respect of a breach of covenant in relation to paragraphs (a) to (c) above or paragraph (e) below under any Occupational Lease and any related costs and expenses; or
(e) any VAT on any amount falling within paragraphs (a) to (d) above
“Shareholder” a holder of Ordinary Shares
“SIPP” a self-invested personal pension as defined in Regulation 3 of the UK Retirement Benefits Schemes (Restriction on Discretion to Approve) (Permitted Investments) Regulations 2001
“SME” small and medium sized enterprises
“SPV” special purpose vehicle
“Substantial Shareholder” any person whose interest in the Company, whether legal or beneficial, direct or indirect, may cause the Company to be liable to pay tax under Section 551 of CTA 2010 (as such legislation may be modified, supplemented or replaced from time to time) on or in connection with the making of a Distribution to or in respect of such person including, at the date of adoption of the Articles, any holder of excessive rights as defined in Section 553 of CTA 2010
“Substantial Shareholding” the shares in relation to which or by virtue of which (in whole or in part) a person is a Substantial Shareholder
“Takeover Code” the UK City Code on Takeovers and Mergers
“Tax” any form of taxation (including VAT) and any statutory, governmental, state, federal, provincial, local governmental or municipal levy, duty, charge, fee, contribution, withholding or impost of whatever nature and wherever arising (including any related fine, penalty, surcharge or interest), and any fees, costs and expenses associated with any such claims
217 “Total Shareholder Return” the rate of return of all profits generated to a Shareholder during the holding period of an investment (including capital gains, dividends and other distributions)
“UK Corporate Governance the UK Corporate Governance Code as published by the Code” Financial Reporting Council from time to time
“UK Listing Authority” or “UKLA” the FCA acting in its capacity as the competent authority for the purposes of Part VI of FSMA
“Underlying Applicants” investors who wish to acquire Ordinary Shares under the Intermediaries Offer who are clients of any Intermediary
“United Kingdom” or “UK” the United Kingdom of Great Britain and Northern Ireland
“United States” or “US” the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia
“US Code” US Internal Revenue Code, as amended
“US Investment Company Act” US Investment Company Act of 1940, as amended
“US Person” any person who is a US person within the meaning of Regulation S
“US Securities Act” US Securities Act of 1933, as amended
“Valuation Report” the valuation report set out in Part 7 of this Prospectus
“Valuer” or “GVA” GVA Grimley Limited
“VAT” (a) any Tax imposed in compliance with the European council directive of 28 November 2006 on the common system of value added tax (EC Directive 2006/112); and
(b) any other Tax of a similar nature, whether imposed in a member state of the European Union in substitution for, or levied in addition to, such Tax referred to in (a), or elsewhere
“Vine” Vine Property Management LLP
“Weighted Average Unexpired the average lease term remaining to first break, or expiry, Lease Term” across the portfolio weighted by contracted rental income (including rent-frees). The calculation excludes short term lettings, residential leases and properties allocated as developments
218 APPENDIX 1
INFORMATION ABOUT MARBLE ACQUISITIONS LTD
Section A – General Information
1. Corporate Information
1.1 Marble Acquisitions Ltd (“Marble”) was incorporated in England as a private limited company on 3 November 2014 under the Companies Act, with company registration number 09293070. Its registered office is at Peterborough Court, 133 Fleet Street, London, EC4A 2BB. It has an unlimited life. Marble is domiciled in England and Wales and has no subsidiaries.
1.2 The principal activity of Marble is to hold investment properties in the UK.
1.3 Marble has two classes of ordinary shares. As at the date of this Prospectus, 27,743,857 Class A ordinary shares with a nominal value of £1 each have been issued and fully paid up; and 250,000 Class B ordinary shares with a nominal value of £1 each have been issued and fully paid up. The history of Marble’s share capital is as follows:
(a) on 3 November 2014, Marble issued 1 ordinary share of £1 to ELQ Holdings (DEL) LLC (“ELQ”);
(b) on 28 January 2015, Marble issued 23,595,773 ordinary shares of £1 each to ELQ;
(c) on 20 February 2015, an additional 3,098,083 ordinary shares of £1 each were issued to ELQ;
(d) on 14 May 2015, the existing 26,693,857 ordinary shares of £1 each were converted into Class A ordinary shares of £1 each, having the same rights in all material aspects except for the distribution rights attached to them as set out in the Marble Articles (as defined in paragraph 9 below); and
(e) on 15 May 2015, an additional 1,050,000 Class A ordinary shares of £1 each were issued to ELQ and 250,000 Class B ordinary shares were issued to M7 Real Estate.
As a result of the above events, ELQ and M7 Real Estate own 99.11 per cent. and 0.89 per cent., respectively, of the share capital of Marble as at the date of this Prospectus.
No. GBP –––––––––– –––––––––– Allotted, called up and fully paid Class A ordinary shares of £1 each 27,743,857 27,743,857 Class B ordinary shares of £1 each 250,000 250,000 –––––––––– –––– 27,993,857–––––– 1.4 ELQ is the registered holder of all of the Class A ordinary shares. The ultimate parent undertaking and controlling entity of ELQ is The Goldman Sachs Group, Inc., a bank holding company and a financial holding company regulated by the Board of Governors of the US Federal Reserve System. M7 Real Estate is the registered holder of all of the Class B ordinary shares.
219 1.5 Save as set out in paragraph 1.4 above, as at the date of this Prospectus, the Company is not aware of any person who is directly or indirectly interested in 3 per cent. or more of Marble’s issued share capital, and the Company is not aware of any person who is directly or indirectly, jointly or severally, able to exercise control over Marble. Following completion of the Marble Acquisition, the Company will hold 100 per cent. of the Class A ordinary shares and the Class B ordinary shares issued by Marble.
1.6 The Class A ordinary shares and the Class B ordinary shares have the same rights in all material aspects except for the distribution rights attached to them as set out in the Marble Articles.
1.7 The Marble Acquisition will result in a change of control of Marble as a result of the transfer of the entire issued share capital of Marble to the Company. Save for the Marble Acquisition, the Company knows of no arrangements, the operation of which may result in a change of control of Marble.
1.8 Marble has not granted any options over its share capital which remain outstanding and has not agreed, conditionally or unconditionally, to grant any such options and no convertible securities, exchangeable securities or securities with warrants have been issued by Marble.
2. Statutory Auditor
The auditor of Marble for the period ended 31 December 2015 (from its date of incorporation on 3 November 2014), the year ended 31 December 2016 and the six months ended 30 June 2017 have been PwC LLP of Hay’s Galleria, 1 Hay’s Lane, London SE1 2RD.
3. Marble Financial Information
The historical financials for Marble for the period ended 31 December 2015 (from its date of incorporation on 3 November 2014), the year ended 31 December 2016 and the six months ended 30 June 2017 (together with a comparison against the unaudited historical financial information for Marble in respect of the six months ended 30 June 2016) is included in Section B of this Appendix I.
The Marble historical financial statements were originally prepared by the Marble directors under UK GAAP and audited by PwC LLP. The Marble historical financial information included in Section B of this Appendix I was restated by M7 Real Estate in accordance with IFRS (as adopted by the EU) for such financial information to be on a basis consistent with the accounting policies to be adopted by the Company. KPMG LLP has performed procedures and formed an opinion on the restated IFRS financial information, with the exception of the information provided for the period to 30 June 2016 which is presented for comparative purposes only and is not subject to either a review or an audit.
4. Risk Factors
The business of Marble is to hold investment properties, including 90 of the 93 properties that form the Initial Portfolio. As such, the risk factors applicable to the Group as set out in the Risk Factors section of this Prospectus are also applicable to Marble.
5. Summary of Operations and Material Assets
Marble holds 90 investment properties and its material tangible assets are these properties, as more fully described in the Valuation Report set out in Part 7 of this Prospectus. Marble’s revenue comprises income from its investment properties, which includes rental income, realised gains and losses on the sale of properties, and impairments to its investment properties. Further information
220 about Marble’s revenues is included in the operating and financial review in paragraph 6 of Section A of this Appendix I.
6. Operating and Financial Review
6.1 The following discussion of the results of operations and financial condition of Marble should be read in conjunction with the historical financial information set out in Section B of this Appendix I and with the information relating to Marble included elsewhere in this Prospectus.
6.2 The financial information referred to in this paragraph 6 has been extracted from the historical financial information set out in Section B of this Appendix I.
6.3 This discussion contains forward-looking statements based on current expectation and assumptions about Marble. Marble’s actual results could differ materially from those contained in any forward-looking statements as a result of a number of factors, including, but not limited to, the risk factors set out in the section headed “Risk Factors” and the factors stated in the paragraph entitled “Forward-looking Statements” in the section of this Prospectus headed “Important Information”.
Overview
6.4 The principal activity of Marble is to hold investment properties in the UK.
6.5 Marble reports revenue instead of turnover as the Marble directors believe that this more meaningfully reflects the nature and results of Marble’s activities. Revenue comprises rental income from Marble’s investment properties.
6.6 The management of Marble’s investment properties to date has been managed by M7. Following the completion of the Marble Acquisition by the Company, day-to-day management of Marble’s investment properties will continue to be performed by M7.
Factors affecting financial performance and results of operations
6.7 Marble is exposed to financial risks through its assets and liabilities. Due to the nature of Marble’s business and the assets and liabilities contained within Marble’s balance sheet, the most important components of financial risks that the directors of Marble consider relevant to Marble are market risk, credit risk and liquidity risk.
(a) Market risk
Marble’s business is materially affected by conditions in the financial markets and economic conditions and these conditions may change suddenly and adversely affect Marble’s business and profitability. The key factor that affects Marble’s operational performance relates to the rental income generated, impacted by the level of voids and rent per square foot. Marble mitigates these risks with targeted asset management initiatives and by routinely monitoring key management information to ensure decisions are taken as appropriate to Marble’s circumstances.
(b) Credit risk
Credit risk represents the potential loss that Marble would incur if a counterparty fails to meet its contractual obligations. Credit risk is monitored by reviewing the credit profile of Marble’s significant counterparties on a regular basis. Marble’s maximum exposure to credit risk is equivalent to the carrying value of its financial assets as at 31 December 2016.
221 (c) Liquidity risk
Liquidity risk is the risk that Marble does not have sufficient cash or collateral to make payments to its counterparties as they fall due. Accordingly, Marble has in place a conservative set of liquidity and funding policies to address market liquidity events.
Results of operations
6.8 Marble’s revenue comprises rental income from Marble’s investment properties.
6.9 Property operating expenses comprise property maintenance expenses, property and asset management fees and other direct property expenses.
6.10 Administrative expenses comprise legal and professional fees, auditor’s remuneration, provision for doubtful debt and other expenses.
Comparison of the year ended 31 December 2016 and period ended 31 December 2015
6.11 Total gross revenue amounted to £10.4 million for the year ended 31 December 2016, compared to £10.2 million for the period ended 31 December 2015, representing an increase of £0.2 million, or 2.2 per cent. This increase is primarily attributable to the staggered acquisitions during 2015 which were deployed for the full year in 2016, net of disposals during both accounting periods.
6.12 Property operating expenses amounted to £2.8 million for the year ended 31 December 2016, compared to £2.9 million for the period ended 31 December 2015, representing a decrease of £0.1 million, or 4.3 per cent. This decrease is primarily due to the savings in property maintenance costs.
6.13 Administrative expenses amounted to £1.1 million for the year ended 31 December 2016, compared to £0.9 million for the period ended 31 December 2015, representing an increase of £0.1 million, or 14.5 per cent. This increase is primarily attributable to an increase in legal and professional fees as a result of the acquisitions and disposals of investment properties.
6.14 Interest payable in respect of the ELQ Loan (as defined in paragraph 8 below) for the year ended 31 December 2016 was £1.7 million compared to £2.1 million for the period ended 31 December 2015, representing a decrease of £0.4 million, or 18.3 per cent. This decrease is primarily attributable to the partial repayments of the ELQ loan resulting from the disposal of investment properties which commenced in September 2015.
6.15 Gain on sale of investment properties amounted to £1.6 million for the year ended 31 December 2016, compared to £3.8 million for the period to 31 December 2015, representing a reduction of £2.3 million.
6.16 Change in fair value of investment properties amounted to an increase of £2.7 million for the year ended 31 December 2016, compared to a decrease of £0.7 million for the period to 31 December 2015.
6.17 As a result of the factors discussed above, profit on ordinary activities before taxation amounted to £9.2 million for the year ended 31 December 2016, compared to £7.4 million for the period ended 31 December 2015, representing an increase of £1.7 million, or 23.2 per cent.
222 6.18 The corporation tax charge for the year ended 31 December 2016 was £1.6 million, compared to £1.7 million for the period ended 31 December 2015, representing a decrease of £0.1 million or 3.2 per cent.
Comparison of the six months ended 30 June 2017 and the six months ended 30 June 2016
6.19 Total gross revenues amounted to £4.8 million for the six months ended 30 June 2017, compared to £5.3 million for the six months ended 30 June 2016, a decrease of £0.4 million, or 8.2 per cent. This decrease is primarily attributable to the disposal of investment properties in March 2016, June 2016, November 2016 and May 2017, which adversely impacted the rental income for the six months ended 30 June 2017.
6.20 Property operating expenses amounted to £1.5 million for the six months ended 30 June 2017, compared to £1.4 million for the six months ended 30 June 2016, an increase of £0.1 million, or 6.6 per cent. This increase is primarily attributable to the increase in property maintenance costs.
6.21 Administrative expenses amounted to £0.2 million for the six months ended 30 June 2017, compared to £0.4 million for the six months ended 30 June 2016, a decrease of £0.2 million, or 51.2 per cent. This decrease is primarily attributable to the reversal of a provision for doubtful debt of £0.3 million negated by an increase in legal and professional fees of £0.1 million.
6.22 Interest payable in respect of the ELQ Loan (as defined in paragraph 8 below) for the six months ended 30 June 2017 was £0.6 million, compared to £0.9 million for the six months ended 30 June 2016 representing a decrease of £0.2 million, or 26.2 per cent. This decrease is primarily attributable to the partial repayments of the ELQ loan resulting from the disposal of investment properties which commenced in September 2015.
6.23 Gain on sale of investment properties amounted to £1.5 million for the six months ended 30 June 2017, compared to £1.1 million for the six months ended 30 June 2016, representing an increase of £0.4 million.
6.24 Change in fair value of investment properties amounted to an increase of £7.1 million for the six months ended 30 June 2017, compared to an increase of £0.3 million for the six months ended 30 June 2016.
6.25 As a result of the factors discussed above, profit on ordinary activities before taxation amounted to £11.1 million for the six months ended 30 June 2017, compared to £4.0 million for the six months ended 30 June 2016, representing an increase of £7.1 million.
6.26 The total taxation charge for the six months ended 30 June 2017 was £2.0 million, comprising corporation tax charge of £0.8 million and deferred tax charge of £1.2 million, compared to total taxation charge of £0.8 million for the six months ended 30 June 2016 comprising corporation tax charge of £0.8 million, resulting in an increase of £1.2 million. The increase in the total tax charge is due to the increase in the deferred tax charge which relates to the unrealised valuation gains on investment properties.
223 Trend information
6.27 The relevant factors that have an effect on Marble’s operational performance for the current financial year relate to rental income and the management of voids. Due to hard asset management initiatives, voids have been on the decline, whilst rental rate per square foot has either remained flat or reported only a marginal increase. No significant change in Marble’s business activities or financial position is expected.
Liquidity and capital resources
6.28 To date Marble has been funded by equity and loans from ELQ and M7 and cashflow generated from ongoing operations.
Borrowing requirements and funding structure
6.29 As at 30 June 2017, Marble’s borrowings comprised £47,530,662 owed to ELQ and £461,424 owed to M7. These loans will be repaid as part of the Initial Acquisitions.
Environmental
6.30 To the best of the knowledge of the Company, no environmental issues exist in relation to any of Marble’s investment properties.
7. Administration and Management
7.1 Upon completion of the Marble Acquisition by the Company, the directors of Marble will be Tom Pearman, Teresa Gilchrist, David Simmonds, Euan Burns and John Murnaghan.
7.2 In addition to their proposed directorships of Marble, the proposed directors of Marble are or have been members of the administrative, management or supervisory bodies or partners of the following companies or partnerships, in the five years before the date of this Prospectus:
Tom Pearman Present directorships and partnerships Past directorships and partnerships M7 Real Estate CEREF I LLP M7 Multi-Let REIT plc M7 Real Estate EREIP IV LLP Oaktree Business Park Limited M7 Real Estate MBAY DK LLP 2LF Sports Stars Management Ltd M7 Come On Bear LLP Berkshire Business Centre Management M7 Real Estate Tunstall LLP Company Limited M7 Real Estate REIP VI LLP Blood & Claret Limited M7 Real Estate Onyx LLP Rippleside Road Management Company M7 Real Estate Tunstall DPO I LLP Limited M7 Real Estate Tunstall Pinnacle LLP Coyote Group Ltd M7 Real Estate CEREF I GP Holdco Ltd M7 Real Estate EREIP IV GP Holdco Ltd M7 Real Estate (FVF) Ltd M7 Credit Ltd M7 Real Estate Co-Investment Finco Ltd M7 Real Estate Co-Investment Finco Ltd M7 Alternative Investments LLP M7 LIPP LLP M7 Barley LLP M7 Eastburn LLP
224 Tom Pearman (continued) Present directorships and partnerships Past directorships and partnerships Verne Industrial Investments LLP M7 Empire LLP M7 Mstar LLP M7 Real Estate Plutus LLP M7 Real Estate Mstar Europe LLP M7 Real Estate Archimedes LLP M7 Real Estate REIP II LLP M7 Real Estate EREIP LLP M7 Real Estate Port Unna LLP M7 Real Estate EREIP II LLP M7 Real Estate EREIP III LLP VBR Investments Limited M7 Real Estate (Hawksley) Ltd M7 Real Estate Europe Limited M7 Real Estate Ltd M7 Real Estate Finco Limited M7 Real Estate Financial Services Ltd M7 Real Estate (CNBE) Ltd Ace (Four) Limited Ace Peterborough Limited Ace (One) Tramlink Limited Ace (Three) Stubby Lane Limited Ace Hartlepool Retail Limited Ace Reading Limited Fairdos Edelman Limited Lavitone Investments Ltd M7 Real Estate MStar German Holdco Ltd M7 Real Estate GP Holdco Ltd Eastburn Estates Limited Eastburn Holdings Limited Eastburn Thame Limited M7 Real Estate Investment Partners I Limited M7 Real Estate Finco Holdco Ltd M7 Real Estate Shelfco No.1 Ltd M7 Real Estate Investment Partners IV Holdco Ltd M7 Real Estate Investment Partners IV Propco Ltd M7 Real Estate EREIP III GP Holdco Ltd The Green (Solihull) Management Company Limited M7 REIP Holdco Limited M7 Real Estate Mstar Pinnacle LLP Hudson Capital (Retail) Ltd Lear Investments Limited M7 Multi-Let REIT Holdco 1 Limited M7 Real Estate Bacchus LLP
225 Teresa Gilchrist Present directorships and partnerships Past directorships and partnerships M7 Alternative Investments LLP Solo Insurance Services Limited M7 LIPP LLP M7 Multi-Let REIT Plc M7 Barley LLP Neli Germany Holdco LLP Verne Industrial Investments LLP Lear Group Limited M7 Eastburn LLP Southwest Properties Limited M7 Empire LLP VBR Investments Unitholder (No.1) Limited M7 MStar LLP VBR Investments Unitholder (No.2) Limited M7 Real Estate Plutus LLP M7 Real Estate Bacchus LLP M7 Real Estate MStar Europe LLP M7 Real Estate Archimedes LLP M7 Real Estate MStar Pineapple LLP M7 Real Estate REIP II LLP M7 Real Estate EREIP LLP M7 Real Estate Port Unna LLP M7 Real Estate EREIP II LLP M7 Real Estate EREIP III LLP M7 Real Estate CEREF I LLP M7 Real Estate EREIP IV LLP M7 Real Estate MBAY DK LLP M7 Come On Bear LLP M7 Real Estate Onyx LLP M7 Real Estate Tunstall LLP M7 Real Estate REIP VI LLP Industrial Realisation PLC Lear Investments Limited M7 Real Estate (Hawksley) Ltd M7 Real Estate Europe Limited M7 Real Estate Ltd M7 Real Estate Finco Limited M7 Real Estate Financial Services Ltd M7 Real Estate (CNBE) Ltd M7 Real Estate MStar German Holdco Ltd M7 Real Estate GP Holdco Ltd M7 Real Estate Finco Holdco Ltd M7 Real Estate Investment Partners IV Holdco Ltd M7 Real Estate Investment Partners IV Propco Ltd Coyote Group Ltd – M7 Real Estate CEREF I GP Holdco Ltd M7 Real Estate EREIP IV GP Holdco Ltd M7 Real Estate Co-Investment Finco Ltd M7 Multi-Let REIT Holdco 1 Limited M7 Real Estate Germany GmbH M7 Real Estate ApS M7 Real Estate Netherlands BV M7 Real Estate Poland SP z.o.o. M7RE Portugal, Unipessoal LDA. M7 Real Estate Croatia d.o.o M7 Real Estate Czech Republic s.r.o
226 Teresa Gilchrist (continued) Present directorships and partnerships Past directorships and partnerships M7 Real Estate Hungary Korlάtolt Felelősségű Tάrsasάg M7RE Asset Management (Rom) SRL M7 Real Estate Slovakia s.r.o M7 Real Estate Finland Oy M7 Real Estate Shelfco No. 1 Ltd M7 Real Estate EREIP III GP Holdco Ltd
David Simmonds Present directorships and partnerships Past directorships and partnerships M7 Real Estate Tunstall LLP M7 Multi-Let REIT PLC M7 Real Estate REIP VI LLP APN Funds Management (UK) Limited M7 Real Estate Onyx LLP APN (UK) Limited M7 Real Estate MStar Europe LLP APN Portfolio Management Limited M7 Credit Ltd M7 Real Estate Ltd M7 Real Estate Co-Investment Finco Ltd M7 Real Estate Financial Services Ltd M7 Multi-Let REIT Holdco 1 Limited M7 Real Estate Finland Oy
John Murnaghan Present directorships and partnerships Past directorships and partnerships M7 Real Estate REIP VI LLP – M7 Real Estate ONYX LLP M7 Real Estate MStar Europe LLP Mitre Court (Sutton Coldfield) Management Company Limited M7 Real Estate Ltd M7 Real Estate Tunstall LLP M7 EREIP IV Irish Propco Limited M7 Multi-Let REIT Holdco 1 Limited
Euan Burns Present directorships and partnerships Past directorships and partnerships M7 Multi-Let REIT Holdco 1 Limited –
7.3 As at the date of this Prospectus, none of the proposed directors of Marble:
(a) has any convictions in relation to fraudulent offences for at least the previous five years;
(b) has been bankrupt or been a director of any company or been a member of the administrative, management or supervisory body of an issuer or a senior manager of an issuer at the time of any receivership or compulsory or creditors’ voluntary liquidation for at least the previous five years; or
227 (c) has been subject to any official public incrimination or sanction of him by any statutory or regulatory authority (including designated professional bodies) nor has he been disqualified by a court from acting as a director of a company or from acting as a member of the administrative, management or supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer, for at least the previous five years.
7.4 There are currently no potential conflicts of interest between any of the duties of the proposed directors of Marble to Marble and their private interests or other duties.
7.5 No loan has been or will be granted by Marble to, nor any guarantee has been or will be provided by Marble for the benefit of, any proposed director of Marble.
7.6 None of the proposed directors of Marble has, or has had, or will have, any interest in any transaction which is or was unusual in its nature or conditions or significant to the business of Marble and which has been effected by Marble since its incorporation.
7.7 Marble neither pays nor will pay any amount of remuneration (including any contingent or deferred compensation) nor grants or will grant any benefits in kind to any proposed directors of Marble.
7.8 Marble has not set aside or accrued amounts and will not set aside or accrue amounts to provide pension, retirement or similar benefits for the proposed directors of Marble.
7.9 No proposed director of Marble has or will have a service contract or letter of appointment with Marble, nor are any such contracts or letters proposed.
7.10 Marble has no employees.
7.11 None of the proposed directors of Marble has or will have any shareholding in Marble or any options over any such shares.
8. Related Party Transactions
Related party transactions of Marble for the period from 3 November 2014 to 30 June 2017 are summarised below.
8.1 ELQ Loan Agreement
On 27 January 2015, ELQ and Marble entered into a loan facility pursuant to which ELQ agreed to make a long term loan facility available to Marble (the “ELQ Loan”). There is no maximum loan amount set out in the ELQ Loan. Following a request by Marble to borrow funds, the amount of and terms of each drawdown would be agreed between the parties. Any advances made under the ELQ Loan are repayable on the earliest of: (i) such date as agreed between the parties; (ii) the date on which ELQ ceases to hold any shares in Marble and (iii) the 49th anniversary of the date of the ELQ Loan. The ELQ Loan is governed by English law.
The Marble Conditional Acquisition Agreement envisages that all outstanding amounts under the ELQ Loan will be repaid and the ELQ Loan will be terminated upon completion of the Marble Acquisition.
8.2 M7 Loan Agreement
On 15 May 2015, M7 Real Estate and Marble entered into a loan facility pursuant to which M7 Real Estate agreed to make a long term loan facility available to Marble (the “M7 Loan”). There is no maximum loan amount set out in the M7 Loan. Following a request
228 by Marble to borrow funds, the amount of and terms of each drawdown would be agreed between the parties. Any advances made under the M7 Loan are repayable on the earliest of: (i) such date as agreed between the parties; (ii) the date on which M7 Real Estate ceases to hold any shares in Marble; and (iii) the 49th anniversary of the date of the M7 Loan. The M7 Loan is governed by English law.
The Marble Conditional Acquisition Agreement envisages that all outstanding amounts under the M7 Loan will be repaid and the M7 Loan terminated upon completion of the Marble Acquisition.
9. Articles of Association
9.1 The Articles of Association of Marble (the “Marble Articles”) are summarised below.
Objects/purposes
9.2 The Marble Articles do not provide for any objects of Marble and accordingly Marble’s objects are unrestricted.
Share Capital
9.3 Marble has two classes of ordinary shares. As at the date of this Prospectus, 27,743,857 Class A ordinary shares with a nominal value of £1 each have been issued and fully paid up; and 250,000 Class B ordinary shares with a nominal value of £1 each have been issued and fully paid up. ELQ is the registered holder of all of the Class A ordinary shares. The ultimate parent undertaking and controlling entity of ELQ is The Goldman Sachs Group, Inc., a bank holding company and a financial holding company regulated by the Board of Governors of the US Federal Reserve System. M7 Real Estate is the registered holder of all of the Class B ordinary shares. Upon completion of the Marble Acquisition, the Company will be the holder of all the issued Class A ordinary shares and Class B ordinary shares.
Issue of Shares
9.4 Shares may be issued as nil, partly or fully paid. All shares shall be under the control of the directors who may allot, grant options over or otherwise dispose of the same, to such persons, on such terms and in such manner as they think fit. In accordance with section 567 of the Companies Act, sections 561 and 562 of the Companies Act are excluded.
Variation of Class Rights
9.5 Subject to the provisions of the Companies Act, if at any time the share capital of Marble is divided into shares of different classes, any of the rights for the time being attached to any shares may be varied or abrogated in such manner (if any) as may be provided in the Marble Articles by such rights or, in the absence of any such provision, either with the consent in writing of the holders of not less than three-quarters in nominal value of the issued shares of the relevant class (excluding any shares of that class held as treasury shares) or with the sanction of a special resolution passed at a separate general meeting of the holders of the class. The quorum at any such meeting or adjourned meeting shall be not less than two persons present (in person or by proxy).
Dividends and distributions
9.6 Marble may by ordinary resolution declare dividends, and the directors may decide to pay interim dividends. A dividend must not be declared unless the directors have made a recommendation as to its amount. Such a dividend must not exceed the amount
229 recommended by the directors. No dividend may be declared or paid unless it is in accordance with shareholders respective rights. Unless the shareholders’ resolution to declare or directors’ decision to pay a dividend, or the terms on which shares are issued, specify otherwise, it must be paid by reference to each shareholder’s holding of shares on the date of the resolution or decision to declare or pay it. If Marble’s share capital is divided into different classes, except with the written consent of the holders of a majority of each class of shares carrying preferential rights to a dividend, no interim dividend may be paid on shares carrying deferred or non-preferred rights if, at the time of payment, any preferential dividend is in arrears. The directors may pay at intervals any dividend payable at a fixed rate if it appears to them that the profits available for distribution justify the payment. If the directors act in good faith, they do not incur any liability to the holders of shares conferring preferred rights for any loss they may suffer by the lawful payment of an interim dividend on shares with deferred or non-preferred rights.
9.7 Where a dividend or other sum which is a distribution is payable in respect of a share, it must be paid by one or more of the following means:
(a) transfer to a bank or building society account specified by the distribution recipient either in writing or as the directors may otherwise decide;
(b) sending a cheque made payable to the distribution recipient by post to the distribution recipient at the distribution recipient’s registered address (if the distribution recipient is a holder of the share), or (in any other case) to an address specified by the distribution recipient either in writing or as the directors may otherwise decide;
(c) sending a cheque made payable to such person by post to such person at such address as the distribution recipient has specified either in writing or as the directors may otherwise decide; or
(d) any other means of payment as the directors agree with the distribution recipient either in writing or by such other means as the directors decide.
Marble shall be entitled to deduct from any amount payable to the distribution recipient in respect of a dividend or other distribution, and set off against such amount, any amount owed and due for payment to Marble by any member(s) in respect of whose shares the payment is to be made.
9.8 Marble may not pay interest on any dividend or other sum payable in respect of a share unless otherwise provided by:
(a) the terms on which the share was issued; or
(b) the provisions of another agreement between the holder of that share and Marble.
9.9 All dividends or other sums which are:
(a) payable in respect of shares; and
(b) unclaimed after having been declared or become payable,
may be invested or otherwise made use of by the directors for the benefit of Marble until claimed.
9.10 The payment of any such dividend or other sum into a separate account does not make Marble a trustee in respect of it.
230 9.11 If:
(a) 12 years have passed from the date on which a dividend or other sum became due for payment; and
(b) the distribution recipient has not claimed it,
the distribution recipient is no longer entitled to that dividend or other sum and it ceases to remain owing by Marble.
9.12 Subject to the terms of issue of the share in question, Marble may, by ordinary resolution on the recommendation of the directors, decide to pay all or part of a dividend or other distribution payable in respect of a share by transferring non-cash assets of equivalent value (including, without limitation, shares or other securities in any company). For the purposes of paying a non-cash distribution, the directors may make whatever arrangements they think fit, including, where any difficulty arises regarding the distribution:
(a) fixing the value of any assets;
(b) paying cash to any distribution recipient on the basis of that value in order to adjust the rights of recipients; and
(c) vesting any assets in trustees.
9.13 Distribution recipients may waive their entitlement to a dividend or other distribution payable in respect of a share by giving the company notice in writing to that effect, but if:
(a) the share has more than one holder; or
(b) more than one person is entitled to the share, whether by reason of the death or bankruptcy of one or more joint holders, or otherwise,
the notice is not effective unless it is expressed to be given, and signed, by all the holders or persons otherwise entitled to the share.
Transfer of Shares
9.14 Shares may be transferred by means of an instrument of transfer in any usual form or any other form approved by the directors, which is executed by or on behalf of the transferor.
9.15 No fee may be charged for registering any instrument of transfer or other document relating to or affecting the title to any share.
9.16 Marble may retain any instrument of transfer which is registered.
9.17 The transferor remains the holder of a share until the transferee’s name is entered in the register of members as holder of it.
9.18 The directors may refuse to register the transfer of a share whether or not it is a fully paid share or a share on which Marble has a lien (but subject always to any other provisions of the Marble Articles), and if they do so, the instrument of transfer must be returned to the transferee with the notice of refusal unless they suspect that the proposed transfer may be fraudulent.
9.19 No transfer of Class B ordinary shares or any interest therein shall be made or registered except with the prior written consent of each Class A ordinary shareholder.
231 Meetings and voting
9.20 No business other than the appointment of the chairman of the meeting is to be transacted at a general meeting if the persons attending it do not constitute a quorum. The presence of any one qualifying person when Marble has only one member shall constitute a quorum, otherwise, the quorum shall be any two qualifying persons; “qualifying person” has the meaning given to it in section 318(3) of the Companies Act. If at any adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, or if during an adjourned meeting such a quorum ceased to be present, the meeting shall stand dissolved.
9.21 A resolution put to the vote of a general meeting must be decided on a show of hands unless a poll is duly demanded in accordance with Marble Articles.
9.22 A poll may be demanded at any general meeting by
(a) any qualifying person present and entitled to vote at the meeting;
(b) any director; or
(c) the chairman.
9.23 A poll on a resolution may be demanded: (a) in advance of the general meeting where it is to be put to the vote; or (b) at a general meeting, either before a show of hands on that resolution or immediately after the result of a show of hands on that resolution is declared.
9.24 A poll may be demanded by: (a) the chairman of the meeting; (b) the directors; (c) two or more persons having the right to vote on the resolution; or (d) a person or persons representing not less than one tenth of the total voting rights of all the shareholders having the right to vote on the resolution.
9.25 A demand for a poll may be withdrawn if: (a) the poll has not yet been taken; and (b) the chairman of the meeting consents to the withdrawal. A demand withdrawn shall not invalidate the result of a show of hands declared before the demand was made.
9.26 Polls must be taken at the general meeting at which they are demanded and in such manner as the chairman directs.
Conflicts of interest
9.27 The Board may resolve in accordance with sections 175(5)(a) and 175(6) of the Companies Act (as if it applied irrespective of the date of incorporation of Marble) to authorise a director to enter into a specific situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of Marble, as described in section 175(1) of the Companies Act (a “Conflict Situation”).
9.28 Any authorisation will be effective only if:
(a) any requirement as to the quorum at the meeting of the directors at which the matter is considered is met without counting the director in question; and
(b) the matter was agreed to without his voting or would have been agreed to if his vote had not been counted.
232 9.29 Any authorisation of a Conflict Situation may (whether at the time of giving the authorisation or subsequently):
(a) extend to any actual or potential conflict of interest which may reasonably be expected to arise out of the matter so authorised;
(b) be subject to such terms and for such duration, or impose such limits or conditions as the directors may determine; and
(c) be terminated or varied by the directors at any time.
This will not affect anything done by the director prior to such termination or variation in accordance with the terms of the authorisation.
9.30 In authorising a Conflict Situation the directors may decide (whether at the time of giving the authorisation or subsequently) that if a director has obtained any information through his involvement in the Conflict Situation otherwise than as a director of Marble and in respect of which he owes a duty of confidentiality to another person, the director is under no obligation to:
(a) disclose such information to the directors or to any director or other officer or employee of the company; or
(b) use or apply any such information in performing his duties as a director,
where to do so would amount to a breach of that confidence.
9.31 Where the directors authorise a Conflict Situation, they may (whether at the time of giving the authorisation or subsequently) provide, without limitation, that the director:
(a) is excluded from discussions (whether at meetings of directors or otherwise) related to the Conflict Situation;
(b) is not given any documents or other information relating to the Conflict Situation; and
(c) may or may not vote (or may or may not be counted in the quorum) at any future meeting of directors in relation to any resolution relating to the Conflict Situation.
9.32 Where the directors authorise a Conflict Situation, the director the subject of such Conflict Situation will:
(a) be obliged to conduct himself in accordance with any terms imposed by the directors in relation to the Conflict Situation; and
(b) pursuant to section 180(4)(b) of the Companies Act, not have breached his general duties as set out in sections 171 to 177 of the Companies Act to the extent that he complies with such terms and the other provisions of these Articles relating to Conflict Situations.
9.33 For the purposes of sections 175 and 180(4) of the Companies Act, it is acknowledged that a director may be or become subject to a Conflict Situation or Conflict Situations as a result of his also being or having been, or being party to an agreement or arrangement or understanding or circumstances under which he may become, an employee, director, trustee, member, partner, officer or representative of, or a consultant to, or a direct or indirect investor in and/or otherwise commercially involved with or economically interested in, any associated company of Marble and/or any pension or similar retirement benefits
233 scheme operated for the benefit of the employees and/or directors of any associated company of Marble. Any such Conflict Situation of a director shall be deemed authorised by the Marble Articles.
9.34 Any director the subject of a Conflict Situation shall be entitled to receive notice (including any relevant board papers) of attend, count in the quorum towards and vote at board meetings relating in any way to, and deal generally with, matters concerning, connected with or arising from the Conflict Situation concerned.
Appointment and termination of director’s appointment
9.35 Unless and until otherwise determined by ordinary resolution, the number of directors (other than alternate directors) shall be not less than one in number. Marble may from time to time by ordinary resolution fix a maximum number of directors and from time to time vary that maximum number.
9.36 Any person who is willing to act as a director, and is permitted by law to do so, may be appointed to be a director:
(a) by ordinary resolution; or
(b) by a decision of the directors.
9.37 In any case where, as a result of death, Marble has no shareholders and no directors, the personal representatives of the last shareholder to have died have the right, by notice in writing, to appoint a person to be a director. Where two or more shareholders die in circumstances rendering it uncertain who was the last to die, a younger shareholder is deemed to have survived an older shareholder.
9.38 The holder or holders for the time being of a majority in number of the issued shares of Marble entitled at the time to vote at general meetings may at any time and from time to time, by written notice (including by electronic communication) given to Marble at its registered office for the time being (such notice to take effect on delivery), appoint any person as a director and/or secretary of Marble and/or remove any person as a director and/or secretary of Marble, howsoever appointed.
Remuneration
9.39 The directors may undertake any services for Marble that the directors decide.
9.40 The directors are entitled to such remuneration as the directors determine:
(a) for their services to Marble as directors; and
(b) for any other service which they undertake for Marble.
9.41 Subject to the Marble Articles, a director’s remuneration may:
(a) take any form; and
(b) include any arrangements in connection with the payment of a pension, allowance or gratuity, or any death, sickness or disability benefits, to or in respect of that director.
9.42 Unless the directors decide otherwise, director’s remuneration accrues from day to day.
234 9.43 Unless the directors decide otherwise, directors are not accountable to Marble for any remuneration which they receive as directors or other officers or employees of the company’s subsidiaries or of any other body corporate in which the company is interested.
Disqualification and retirement of directors
9.44 A person ceases to be a director as soon as:
(a) that person ceases to be a director by virtue of any provision of the Companies Act or is prohibited from being a director by law;
(b) a bankruptcy order is made against that person;
(c) a composition is made with that person’s creditors generally in satisfaction of that person’s debts;
(d) a registered medical practitioner who is treating that person gives a written opinion to the company stating that that person has become physically or mentally incapable of acting as a director and may remain so for more than three months; or
(e) notification is received by Marble from the director that the director is resigning from office, and such resignation has taken effect in accordance with its terms.
Proceedings of directors
9.45 The general rule about decision-making by directors is that any decision of the directors must be either a majority decision at a meeting or a decision taken in accordance with paragraph 9.46 below. If:
(a) Marble only has one director for the time being; and
(b) no provision of the Marble Articles requires it to have more than one director,
the general rule does not apply, and the director may (for so long as he remains the sole director) take decisions without regard to any of the provisions of Marble Articles relating to directors’ decision making.
9.46 A decision of the directors is taken in accordance with this paragraph 9.46 when all eligible directors indicate to each other by any means that they share a common view on a matter. Such a decision may take the form of a resolution in writing, copies of which have been signed by each eligible director or to which each eligible director has otherwise indicated agreement in writing. References in this paragraph 9.46 to eligible directors are to directors who would have been entitled to vote on the matter had it been proposed as a resolution at a directors’ meeting. A decision may not be taken in accordance with this paragraph 9.46 if the eligible directors would not have formed a quorum at such a meeting.
9.47 The quorum for the transaction of business at a meeting of directors is any two directors who would be eligible to vote on the matter at the meeting (but excluding any director whose vote is not to be counted in respect of a particular matter) or in the event of there being a single director, that director.
9.48 For the purposes of any meeting (or part of a meeting) to authorise a director’s conflict, if there is only one director in office other than the conflicted director(s), the quorum for such meeting (or part of a meeting) shall be one director.
9.49 At a directors’ meeting, unless a quorum is present, no proposal is to be voted on, except a proposal to call another meeting. The quorum for directors’ meetings may be fixed from
235 time to time by a decision of the directors, but it must never be less than two, and unless otherwise fixed it is two.
9.50 The directors may appoint a director to chair their meetings.
9.51 If the numbers of votes for and against a proposal are equal, the chairman or other director chairing the meeting has a casting vote.
9.52 Subject to the Marble Articles, the directors may make any rule which they think fit about how they take decisions, and about how such rules are to be recorded or communicated to directors.
Indemnity
9.53 Subject to and to the fullest extent permitted by the Companies Act, but without prejudice to any indemnity to which he may be otherwise entitled,
(a) every director and alternate director (and every director or alternate director of any associated company of Marble) (each a “Relevant Officer”) shall be indemnified out of the assets of Marble against all costs and liabilities incurred by him in relation to any proceedings (whether civil or criminal) or any regulatory investigation or action which relate to anything done or omitted or alleged to have been done or omitted by him in his capacity as such save that no such person shall be indemnified (whether directly or indirectly):
(i) for any liability incurred by him in connection with any negligence, default, breach of duty or breach of trust in relation to Marble or any associated company of Marble (as defined in section 256 of the Companies Act for these purposes);
(ii) for any fine imposed in criminal proceedings which have become final;
(iii) for any sum payable to a regulatory authority by way of a penalty in respect of non-compliance with any requirement of a regulatory nature howsoever arising;
(iv) for any liability incurred by him in defending any criminal proceedings in which he is convicted and such conviction has become final;
(v) for any liability incurred by him in defending any civil proceedings brought by Marble or an associated company of Marble in which a final judgment has been given against him; and
(vi) for any liability incurred by him in connection with any application under sections 661(3) or (4) or 1157 of the Companies Act in which the court refuses to grant him relief and such refusal has become final;
(b) every Relevant Officer shall be entitled (1) to have funds provided to him by Marble to meet expenditure incurred or to be incurred by him in defending himself in any proceedings (whether civil or criminal) or in connection with an application for relief (as defined in section 205(5) of the Companies Act) or in an investigation, or against action proposed to be taken, by a regulatory authority or (2) to receive assistance from Marble as will enable any such person to avoid incurring such expenditure, where such proceedings, application, investigation or action are in connection with any alleged negligence, default, breach of duty or breach of trust by him in relation
236 to Marble or any associated company of Marble, provided that he will be obliged to repay any funds provided to him no later than:
(i) in the event he is convicted in such proceedings the date when the conviction becomes final;
(ii) in the event of judgment being given against him in such proceedings, the date when the judgment becomes final;
(iii) in the event of the court refusing to grant him such relief, the date when the refusal becomes final; or
(iv) in the event he becomes liable for any sum payable to a regulatory authority by way of penalty in respect of non-compliance with any requirement of a regulatory nature howsoever arising, the date on which any appeal relating to such sum becomes final (within the meaning of section 205(3) of the Companies Act); and
(c) every Relevant Officer shall be indemnified out of the assets of Marble against all costs and liabilities incurred by him in relation to any of Marble’s activities as trustee of an occupational pension scheme (as defined in section 235(6) of the Companies Act) save that no Relevant Officer shall be indemnified:
(i) for any fine imposed in criminal proceedings which have become final;
(ii) for any sum payable to a regulatory authority by way of a penalty in respect of non-compliance with any requirement of a regulatory nature howsoever arising; and
(iii) for any costs for which he has become liable in defending any criminal proceedings in which he is convicted and such conviction has become final.
Insurance
9.54 Subject to the Companies Act, the directors may exercise all the powers of Marble to purchase and maintain insurance at the expense of Marble for the benefit of any person who is or was at any time a director or other officer or employee of Marble or any associated company of Marble or in which Marble has or had an interest (whether direct or indirect) or who is or was at any time a trustee of any pension fund or employee benefits trust in which any employee of any such body corporate is or has been interested indemnifying such person against any liability which may attach to him or loss or expenditure which he may incur in relation to anything done or alleged to have been done or omitted to be done as a director, officer, employee or trustee.
Borrowing powers
9.55 The Marble Articles do not set out borrowing powers of the Marble board and accordingly subject to the relevant provisions of the Companies Act the borrowing powers of the Marble board are unrestricted.
10. Legal and Arbitration Proceedings
There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened) of which the Company is aware, which may have or have had during the 12 months immediately preceding the date of this Prospectus a significant effect on the financial position or profitability of Marble.
237 11. Significant Change
There has been no significant change in the financial or trading position of Marble since 30 June 2017, being the date to which the last audited interim financial information has been prepared.
12. Material Contracts
12.1 2015 Acquisition Agreement
Pursuant to a sale and purchase agreement dated 14 January 2015 between (1) Lear Investments Limited, VBR Investments Trustee Limited and VBR Investments Nominee Limited (the “2015 Sellers”) and (2) Marble (as purchaser) (the “2015 Acquisition Agreement”), Marble agreed to acquire 112 properties located in England, Wales and Scotland (the “2015 Acquisition”). The purchase price for the 2015 Acquisition was approximately £106.8 million (plus VAT where applicable).
Completion of the 2015 Acquisition was conditional on the 2015 Sellers and Marble satisfying certain conditions including, inter alia, obtaining superior landlord consent where applicable. The 2015 Sellers were not permitted to dispose of a property prior to completion without obtaining the prior written consent of Marble. Marble acquired all 112 properties and completion of the 2015 Acquisition took place in three tranches (rather than the four tranches set out in the Acquisition Agreement). The first tranche completed on 28 January 2015, the second on 20 February 2015 and the last on 15 May 2015.
The parties agreed that Marble had the opportunity to inspect, survey and carry out its own environmental audits and investigations of the properties. As a result, Marble agreed that it would be liable for all costs of any remediation works in relation to any environmental liabilities at the properties (even where the liability by statute remained with the 2015 Sellers). Marble provided an indemnity to the 2015 Sellers in relation to this obligation.
The 2015 Acquisition Agreement is governed by English law.
12.2 Disposal Agreements
Since completion of the 2015 Acquisition, Marble has disposed of certain properties (the “Disposed Properties”) to various purchasers under separate sale agreements (and related transfer documents and deeds of assignment regarding arrears, rent deposits and contracts where applicable) (the “Disposal Agreements”). The Disposal Agreements and transfers are on usual market terms including the buyers indemnifying Marble for any failure to observe and perform the obligations of Marble either: (i) contained in the registered title of the properties; or (ii) as landlord under any occupational lease in relation to the Disposed Properties located in England or Wales.
The buyers acknowledged that they have had the opportunity to carry out their own surveys and investigations in relation to the state and condition of the Disposed Properties and the presence or otherwise of any pollutants and contaminating substances but did not expressly accept under the Disposal Agreements that they will be liable to Marble for any statutory liability of Marble in relation to remediation costs in connection with any contamination at the Disposed Properties caused during Marble’s period of ownership save in relation to the Disposed Properties located in Scotland and one in England. One Disposal Agreement does not contain either provision.
Marble agreed under certain Disposal Agreements to obtain title insurance on completion in relation to defects in title in respect of the Disposed Properties.
238 The Disposal Agreements are governed by English, Welsh or Scottish law depending on the jurisdiction in which the relevant property is located.
12.3 Shareholders Agreement
On 15 May 2015, ELQ, M7 Real Estate and Marble entered into a shareholders agreement governing the terms on which the shares in Marble were to be held (the “Marble SHA”), including, inter alia, provisions regarding the funding of Marble, distributions of proceeds and restrictions on the transfer of shares. It was agreed that the business of Marble would be the direct or indirect acquisition, owning, leasing, managing, financing, operating, improving and disposition of properties (and any ancillary matters thereto). The Marble SHA terminates immediately upon the earlier of: (i) all of the shares and any shareholder loans being held by one person; (ii) the express agreement of the shareholders; and (iii) completion of the dissolution and winding up of Marble.
The Marble SHA is governed by English law.
The Marble Conditional Acquisition Agreement envisages that the Marble SHA will be terminated effective upon completion of the Marble Acquisition.
12.4 Asset Management Agreement
On 28 January 2015, Marble entered into an asset management agreement with the Asset Manager, pursuant to which Marble retained the Asset Manager as an independent contractor for the purpose of performing certain asset management services in respect of Marble’s investment properties. The agreement commenced on the date of its execution and shall continue in force until terminated. Marble may terminate the agreement without cause upon six months’ prior written notice. The Asset Manager is responsible for advising Marble on exercising Marble’s rights as owner of its investment properties to maximise results and to protect Marble’s interests in the investment properties. The Asset Manager may not take any action with respect to certain reserved matters without the prior written consent of Marble.
The Asset Manager is entitled to an asset management fee. The asset management fee is payable quarterly in arrear in an amount equal to 6 per cent. of the total rent actually collected in respect of Marble’s investment properties for that quarter. The Asset Manager is entitled to an additional disposition fee in certain circumstances upon the sale of any of Marble’s investment properties to a third party, and an acquisition fee payable upon Marble’s acquisition from a third party of a property introduced by the Asset Manager.
The Asset Manager may act through an agent or attorney provided that the Asset Manager will remain liable to Marble for the performance of services as provided under the agreement.
The agreement may be terminated with immediate effect on the occurrence of certain events, including insolvency, fraud, a breach of certain key man provisions or any other material breach of the agreement (after the expiration of applicable grace periods).
The agreement is governed by the laws of England and Wales.
The Marble Conditional Acquisition Agreement provides for the termination of the agreement upon completion of the Marble Acquisition.
239 12.5 Property Management Agreement
On 28 January 2015, Marble and Vine Property Management LLP (the “Vine”) entered into a property management agreement which was subsequently amended on 4 August 2016 (the “Marble PMA”), pursuant to which Marble retained Vine as an independent contractor for the purpose of performing certain property management services in respect of the Marble properties listed therein. The Marble PMA is automatically renewed for successive periods of one year each unless terminated in accordance with its terms. Marble may terminate the Marble PMA at any time with or without cause upon prior written notice but without prejudice to the fees payable to Vine.
Under the Marble PMA, Marble agreed to indemnify Vine against all costs and losses and liabilities relating to the properties subject to the Marble PMA, and the proper performance by Vine of its duties under the Marble PMA, save to the extent Vine can recover any loss from any insurance policy it has or is required to obtain.
Vine is entitled to a property management fee. The property management fee is payable quarterly in arrear in an amount equal to 1 per cent. of the total rent actually collected in respect of the properties subject to the Marble PMA. Vine must procure that, to the extent the management fee is capable of being paid by tenants either through the service charge or otherwise, it shall be paid in such manner without recourse to Marble. Vine is entitled to an additional service charge management fee and client management fee from tenants of the properties in varying amounts dependent on the tenant and payable through the service charge provisions in the relevant leases. In relation to the client management fee only, in the event that a lease does not include any service charge provisions, the relevant fee is payable by Marble.
The Marble PMA may be terminated with immediate effect on the occurrence of certain events, including, inter alia, the insolvency of Vine or Marble ceasing to be directly or indirectly controlled by The Goldman Sachs Group, Inc.
The Marble PMA is governed by English law.
The Marble Conditional Acquisition Agreement envisages that the Marble PMA will be terminated effective upon completion of the Marble Acquisition and replaced with a new agreement between the same parties.
12.6 Power of Attorney
On 21 April 2017, Marble granted M7 Real Estate a power of attorney valid for a period of one year pursuant to which, subject to certain restrictions, M7 Real Estate is authorised to execute any document and take all steps which it in its absolute discretion it deems necessary or advisable in connection with the properties owned by Marble (“M7 Power of Attorney”).
The acts which M7 are not permitted to undertake include, inter alia: (i) the acquisition, disposal or encumbrance of real property; (ii) entering, modifying or terminating any tenancy at any property owned by Marble: (a) where the area demised exceeds 6,000 square feet; or (b) where, in relation to a grant of a lease, the lease is to enjoy security of tenure under the Landlord and Tenant Act 1954 and is for a term of less than 10 years; (iii) appointing tax or legal advisers of Marble; or (iv) expending or committing to expend more than £50,000 of capital expenditure in relation to any one property owned by Marble.
Certain leases were executed on the basis of the M7 Power of Attorney and the status and enforceability of the relevant leases are subject to that.The M7 Power of Attorney was
240 incorrectly executed but Marble entered into a deed of ratification in order to ratify the entry into of the relevant leases on behalf of Marble by M7 Real Estate. In addition, (i) the directors of Marble have confirmed with Marble’s solicitors, Greenberg Traurig LLP and Marble’s asset manager that the relevant tenants are in occupation and paying rent; and (ii) if the tenants were to vacate, the directors of Marble believe that the affected units would be capable of being re-let within a reasonable period of time on similar or superior terms. The M7 Power of Attorney is governed by English law.
The Marble Conditional Acquisition Agreement envisages that the M7 Power of Attorney will be terminated effective upon completion of the Marble Acquisition.
13. Documents on Display
Copies of the following documents will be available for inspection at the registered office of the Company during business hours on any Business Day from the date of this Prospectus until Admission:
(a) the memorandum of association of Marble;
(b) the Marble Articles; and
(c) the historical financial information set out in Section B of this Appendix I.
241 Section B – Historical Financial Information
The following pages set out Marble’s audited financial information for the period ended 31 December 2015 (from its date of incorporation on 3 November 2014), the year ended 31 December 2016 and the six months ended 30 June 2017 (together with a comparison against Marble’s unaudited historical financial information for the six months ended 30 June 2016). These have been prepared in accordance with IFRS (as adopted by the EU) and are on a basis consistent with the accounting policies to be adopted by the Company.
242 KPMG KPMG LLP 15 Canada Square London E14 5GL
The Directors M7 Multi-Let REIT plc 5th Floor 5 Old Bailey London EC4M 7BA
10 October 2017
Ladies and Gentlemen
Marble Acquisitions Ltd
We report on the financial information set out on pages 245 to 268 for the period ended 31 December 2015, the year ended 31 December 2016 and the six months ended 30 June 2017. This financial information has been prepared for inclusion in this Prospectus dated 10 October 2017 of M7 Multi-Let REIT plc on the basis of the accounting policies set out in Note 1. This report is required by paragraph 20.1 of Annex I of European Commission Regulation No.809/2004 (the “Prospectus Directive Regulation”) and is given for the purpose of complying with that paragraph and for no other purpose. We have not audited or reviewed the financial information for the six months ended 30 June 2016, which has been included for comparative purposes only, and accordingly do not express an opinion thereon.
Responsibilities
The Directors of M7 Multi-Let REIT plc are responsible for preparing the financial information on the basis of preparation set out in Note 1 to the financial information and in accordance with International Financial Reporting Standards as adopted by the European Union.
It is our responsibility to form an opinion on the financial information and to report our opinion to you.
Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with paragraph 23.1 of Annex I of the Prospectus Directive Regulation, consenting to its inclusion in the prospectus.
Basis of opinion
We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of significant estimates and judgements made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entity’s circumstances, consistently applied and adequately disclosed.
243 We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error.
Opinion on financial information
In our opinion, the financial information gives, for the purposes of this Prospectus dated 10 October 2017, a true and fair view of the state of affairs of Marble Acquisitions Ltd as at 31 December 2015, 31 December 2016 and 30 June 2017 and of its profits and losses, cash flows and recognised gains and losses for the period ended 31 December 2015, the year ended 31 December 2016 and the six months ended 30 June 2017, in accordance with International Financial Reporting Standards as adopted by the European Union as described in Note 1.
Declaration
For the purposes of Prospectus Rule 5.5.3R(2)(f) we are responsible for this report as part of this Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the prospectus in compliance with item 1.2 of Annex 1 of the Prospectus Directive Regulation.
Yours faithfully
KPMG LLP
244 STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIODS ENDED 31 DECEMBER 2015, 31 DECEMBER 2016, 30 JUNE 2016 AND 30 JUNE 2017
61 week period Year Six months Six months ended ended ended ended 31 December 31 December 30 June 30 June 2015 2016 2016 2017 (unaudited) ––––––––– ––––––––– ––––––––– ––––––––– Note £ £ £ £ Rental income 10,217,379 10,446,075 5,267,184 4,834,141 Property operating expenses 4 (2,924,350) (2,799,489) (1,396,740) (1,488,661) ––––––––– ––––––––– ––––––––– ––––––––– Net rental income 7,293,029 7,646,586 3,870,444 3,345,480 Administrative expenses 5 (920,420) (1,053,543) (399,222) (194,705) Profit on disposal of investment properties 6 3,833,786 1,569,629 1,072,373 1,507,339 Change in fair value of investment properties 11 (710,947) 2,684,576 338,689 7,107,816 ––––––––– ––––––––– ––––––––– ––––––––– Operating profit 9,495,448 10,847,248 4,882,284 11,765,930 Finance costs 8 (2,054,776) (1,678,755) (868,739) (640,970) ––––––––– ––––––––– ––––––––– ––––––––– Profit before tax 7,440,672 9,168,493 4,013,545 11,124,960 Taxation 10 (1,658,854) (1,606,157) (811,504) (1,973,442) ––––––––– ––––––––– ––––––––– ––––––––– Profit for the period 5,781,818 7,562,336 3,202,041 9,151,518 ––––––––– ––––––––– ––––––––– ––––––––– Other comprehensive income – – – – ––––––––– ––––––––– ––––––––– ––––––––– Total comprehensive income for the period attributable to owners of the Company ––––––––– 5,781,818 ––––––––– 7,562,336 ––––––––– 3,202,041 ––––––––– 9,151,518 Earnings per share Comprehensive income for the period attributable to ordinary equity holders of the Company 5,781,818 7,562,336 3,202,041 9,151,518 Number of shares 27,993,857 27,993,857 27,993,857 27,993,857 ––––––––– –––––––– –––––––– –––––––– Basic and diluted earnings per share for profit attributable to the equity holders of the Company during the period ––––––––– 0.21 ––––––––– 0.27 ––––––––– 0.11 ––––––––– 0.33
245 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2015, 31 DECEMBER 2016 AND 30 JUNE 2017
As at As at As at 31 December 31 December 30 June 2015 2016 2017 ––––––––– ––––––––– ––––––––– Note £ £ £ ASSETS Non-current assets Investment properties 11 100,430,705 99,686,859 94,589,903 –––––––––– –––––––––– –––––––––– Total non-current assets 100,430,705 99,686,859 94,589,903 Current assets Trade and other receivables 12 2,238,866 3,421,393 3,002,587 Cash and cash equivalents 6,464,825 2,905,588 4,067,164 Investment properties held for sale 11(b) 857,000 – 6,553,750 –––––––––– –––––––––– –––––––––– Total current assets 9,560,691 6,326,981 13,623,501 –––––––––– –––––––––– –––––––––– TOTAL ASSETS 109,991,396 106,013,840 108,213,404 –––––––––– –––––––––– –––––––––– LIABILITIES Current liabilities Trade and other payables 13 6,940,827 8,654,558 8,186,105 –––––––––– –––––––––– –––––––––– Total current liabilities 6,940,827 8,654,558 8,186,105 Non-current liabilities Borrowings 14 69,274,894 55,685,754 47,992,086 Deferred tax liabilities 10 – 335,517 1,545,684 –––––––––– –––––––––– –––––––––– Total non-current liabilities 69,274,894 56,021,271 49,537,770 –––––––––– –––––––––– –––––––––– TOTAL LIABILITIES 76,215,721 64,675,829 57,723,875 –––––––––– –––––––––– –––––––––– NET ASSETS 33,775,675 41,338,011 50,489,529 –––––––––– –––––––––– –––––––––– EQUITY Share capital 15 27,993,857 27,993,857 27,993,857 Retained earnings 5,781,818 13,344,154 22,495,672 –––––––––– –––––––––– –––––––––– TOTAL EQUITY –––––––––– 33,775,675 –––––––––– 41,388,011 –––––––––– 50,489,529
246 STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2015 THROUGH TO 30 JUNE 2017
Share Retained Total capital earnings equity ––––––––– ––––––––– ––––––––– £ £ £ At 03 November 2014 – – – Issue of shares 27,993,857 – 27,993,857 Total comprehensive income for the period – 5,781,818 5,781,818 ––––––––– ––––––––– ––––––––– As at 31 December 2015 27,993,857––––––––– ––––––––– 5,781,818 33,775,675––––––––– Total unaudited comprehensive income for the period – 3,202,041 3,202,041 ––––––––– ––––––––– ––––––––– Unaudited Balance at 30 June 2016 27,993,857––––––––– ––––––––– 8,983,859 36,977,716––––––––– Total comprehensive income for the period – 4,360,295 4,360,295 ––––––––– ––––––––– ––––––––– Balance at 31 December 2016 27,993,857––––––––– 13,344,154––––––––– –––––––––41,338,011 Total comprehensive income for the period 9,151,518 9,151,518 ––––––––– ––––––––– ––––––––– Balance at 30 June 2017 27,993,857––––––––– 22,495,672––––––––– 50,489,529–––––––––
247 STATEMENT OF CASHFLOWS FOR THE PERIODS ENDED 31 DECEMBER 2015, 31 DECEMBER 2016, 30 JUNE 2016 AND 30 JUNE 2017
61 week period Six months Six months ended Year ended ended ended 31 December 31 December 30 June 30 June 2015 2016 2016 2017 (unaudited) ––––––––– ––––––––– ––––––––– ––––––––– £ £ £ £ Operating activities Profit before tax 7,440,672 9,168,492 4,013,545 11,124,960 Change in fair value of investment properties 710,947 (2,684,576) (338,689) (7,107,816) Profit on disposal of investment properties (3,833,786) (1,569,629) (1,072,373) (1,507,339) (Increase)/decrease in receivables (2,238,865) (1,182,527) (1,032,044) 418,806 Increase/(decrease) in payables 4,923,855 886,191 (717,567) (913,772) Finance costs 2,054,776 1,678,755 868,739 640,970 Tax paid – (340,271) – (265,919) ––––––––– ––––––––– ––––––––– ––––––––– Net cash flow from operating activities 9,057,599 5,956,435 1,721,611 2,389,890 ––––––––– ––––––––– ––––––––– ––––––––– Investing activities Purchase of investment properties (113,449,019) (929,191) (472,065) (1,501,053) Disposal of investment properties 15,284,153 6,784,241 3,614,863 8,659,414 ––––––––– ––––––––– ––––––––– ––––––––– Net cash flow (used in)/from investing activities (98,164,866) 5,855,050 3,142,798 7,158,361 ––––––––– ––––––––– ––––––––– ––––––––– Financing activities Proceeds from issue of share capital 27,993,857 – – – Proceeds from borrowings 83,981,573 – – – Repayment of borrowings (14,706,679) (13,589,140) (7,699,654) (7,693,668) Finance costs paid (1,696,659) (1,781,582) (1,111,473) (693,007) ––––––––– ––––––––– ––––––––– ––––––––– Net cash flow from/(used in) financing activities 95,572,092 (15,370,722) (8,811,127) (8,386,675) ––––––––– ––––––––– ––––––––– ––––––––– Net increase/(decrease) in cash and cash equivalents 6,464,825 (3,559,237) (3,946,718) 1,161,576 ––––––––– ––––––––– ––––––––– ––––––––– Cash and cash equivalents at the beginning of the period – 6,464,825 6,464,825 2,905,588 ––––––––– ––––––––– ––––––––– ––––––––– Cash and cash equivalents at the end of the period 6,464,825 2,905,588 2,518,107 4,067,164 ––––––––– ––––––––– ––––––––– –––––––––
248 NOTES TO FINANCIAL STATEMENTS
1. Principal accounting policies a. Overview
Marble Acquisitions Ltd (the “Company”) was incorporated in England and Wales under the Companies Act 2006 with company number 09293070. The Company is registered as an investment company under section 833 of the Companies Act 2006 and is domiciled in the England and Wales. The address of its registered office is Peterborough Court, 133 Fleet Street, London EC4A 2BB, United Kingdom.
The Company’s immediate parent undertaking was ELQ Holdings (Delaware) LLC, a Delaware limited liability company throughout the period. The ultimate parent undertaking and the parent company of the largest group for which consolidated financial statements are prepared is The Goldman Sachs Group, Inc., a company incorporated in the United States of America. Copies of its consolidated financial statements can be obtained from Investor Relations, 200 West Street, New York, NY 10282, United States of America, or at www.goldmansachs.com/shareholders. b. Basis of preparation
The financial information has been prepared in accordance with the disclosure requirements of the Prospectus Directive Regulation and the Listing Rules for the purposes of the Prospectus dated 10 October 2017 and represents historical financial information for the Company subject to the information provided below. The Company was incorporated on 3 November 2014 and has provided information for the period ended 31 December 2015, the year ended 31 December 2016, and the six months ended 30 June 2017, with unaudited comparative information for its profits, cash flows and recognised gains and losses for the six months ended 30 June 2016.
The financial information has been prepared on a historical cost basis, except for investment properties which are held at fair value, and in accordance with International Financial Reporting Standards as adopted by the European Union (“Adopted IFRS”), which comprise standards and interpretations approved by the International Accounting Standards Board (“IASB”), and International Accounting Standards and IFRS Interpretations Committee (“IFRIC”) interpretations approved by the International Accounting Standards Committee (“IASC”) that remain in effect. The financial information has also been prepared in accordance with the Companies Act 2006 as applicable to companies using Adopted IFRS.
The figures shown for the period to 31 December 2015 and the year ended 31 December 2016 are based on the Company statutory accounts for those periods and do not constitute the Company’s statutory accounts as defined in Section 434 of the Companies Act 2006. These statutory accounts, which were prepared under FRS 101 Reduced Disclosure Framework, have been filed with the Registrar of Companies. The audit reports on the 31 December 2015 and 31 December 2016 financial statements were not qualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying the report, and did not contain statements under Sections 498 (2) or (3) of the Companies Act 2006.
The Company is preparing its financial information in accordance with Adopted IFRS for the first time and has consequently applied IFRS 1. An explanation of how the transition has affected the reported financial position, financial performance and cash flows of the Company is provided in note 20.
249 Future changes to accounting standards
At the date of the authorisation of this financial information certain new standards, amendments and interpretations to existing standards applicable to Marble Acquisitions Ltd have been published but are not yet effective, and have not been adopted early by Marble Acquisitions Ltd. The impact of these standards is not expected to be material. These are listed below:
IFRS 9 Financial instruments – effective for periods beginning on or after 1 January 2018
IFRS 15 Revenue from Contracts with Customers – effective for periods beginning on or after 1 January 2018
IFRS 16 Leases – effective for periods beginning on or after 1 January 2019 c. Statement of compliance
The Company has prepared the financial information in accordance with EU endorsed International Financial Reporting Standards, IFRICs interpretations and Companies Act 2006. d. Statement of going concern
Having reviewed the Company’s current trading and cash flow forecasts, together with sensitivities and mitigating factors and available facilities, the directors have formed a judgement at the time of approving the financial information that there is a reasonable expectation of the Company having adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors have prepared the financial information on a going concern basis. e. Revenue recognition
Rental income
Rental income receivable under operating leases is recognised on a straight-line basis over the term of the lease, except for contingent rental income, which is recognised when it arises. Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if the payments are not made on such a basis. The lease term is the non- cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the directors are reasonably certain that the tenant will exercise that option.
Deferred income
Deferred income is rental income received in advance during the accounting period. f. Functional currency
Transactions denominated in foreign currencies are translated into British pounds at rates of exchange ruling on the date the transaction occurred. Monetary assets and liabilities denominated in foreign currencies are translated into British pounds at rates of exchange ruling at the statement of financial position date. Foreign exchange gains and losses are recognised in profit or loss.
250 g. Expenses
All expenses are recognised in profit or loss on an accruals basis. Expenses relating to the set-up and organisation of the Company are expensed as incurred. h. Investment properties
Property is classified as investment property when it is held to earn rentals or for capital appreciation or both. Investment property is measured initially at cost, including transaction costs.
Transaction costs include transfer taxes and professional fees to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met.
Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included in profit or loss.
Investment properties are valued by GVA Grimley Limited in accordance with the current issue of RICS Valuation – Professional Standards (the ‘Red Book’).
The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings, future revenue streams, capital values of fixtures and fittings, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets.
Accrued income arising from the spreading of lease incentives and stepped rents are deducted from the carrying value of investment property and separately disclosed within trade and other receivables.
Investment property is derecognised when it has been disposed of or permanently withdrawn from use and no future economic benefit is expected after its disposal or withdrawal.
Gains or losses on the disposal of investment property are determined as the difference between net disposal proceeds and the carrying value of the asset in the previous full period financial statements.
Any gains or losses on the retirement or disposal of investment property are recognised in profit or loss in the year of retirement or disposal. i. Assets held for sale
Assets are classified as held for sale if they are available for immediate sale in their present condition, the sale is probable and management is committed to the sale within one year from the date of classification.
Investment properties held for sale are measured at fair value.
251 j. Financial assets and financial liabilities
(i) Recognition and de-recognition
Financial assets and financial liabilities are recognised when the Company becomes party to the contractual provisions of the instrument. A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire or if the Company transfers the financial asset and substantially all the risks and rewards of ownership of that financial asset. A financial liability is derecognised only when it is extinguished (i.e. when the obligation specified in the contract is discharged or cancelled or expires).
(ii) Classification and measurement
Financial assets comprise all of the Company’s current assets (with the exception of investment properties held for sale) and financial liabilities comprise all the Company’s creditors. The financial assets and financial liabilities are initially recognised at fair value. Financial assets are subsequently recognised at amortised cost less impairment and financial liabilities are recognised at amortised cost, with finance income and expense recognised on an accruals basis. All finance income and expense is recognised in profit or loss.
A provision for impairment of trade receivables is established when there is objective evidence the Company will not be able to collect all amounts due according to the original terms of the receivables. k. Current and deferred tax
The tax expense for the year comprises current and deferred tax. Tax is recognised in profit or loss unless it relates to an item recognised in other comprehensive income or equity, in which case it is recognised in other comprehensive income or equity.
Current tax is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company operates and generates taxable income.
Deferred tax is recognised in respect of all temporary differences that have originated, but not reversed at the statement of financial position date, where transactions or events have occurred by that date that will result in an obligation to pay more tax or a right to pay less tax in the future with the following exception: deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which future reversal of the underlying temporary differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which temporary differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the statement of financial position date. l. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.
252 m. Dividends
Final equity dividends are recognised as a liability and deducted from equity in the period in which the dividends are approved by the Company’s directors. Interim equity dividends are recognised and deducted from equity when paid. n. Share capital
Ordinary shares are recognised at proceeds received net of direct issue costs, and are classified as equity. o. Capital management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital.
2. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company’s accounting policies, which are described in note 1, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. In the opinion of directors, the following judgements had the most significant effect on amounts recognised in the financial statements:
(i) Fair value estimation of investment properties – Note 11(d)
The valuation is based upon assumptions including future rental income, anticipated maintenance costs and an appropriate discount rate.
(ii) Deferred tax – Note 10
Deferred tax is measured at rates prevailing at the balance sheet date. Such rates are subject to governmental changes that are outside the control of the entity. Additionally, the directors have assessed the recoverability of deferred tax assets.
3. Segment reporting
The directors are of the opinion the Company is engaged in one single segment of business, being investing in property, in one geographical area, being the UK. The properties are managed together and their operating results and performance are regularly reviewed by the Company’s directors, who are considered collectively be the chief operating decision makers.
4. Property operating expenses
61 week Six months Six months period ended Year ended ended ended 31 December 31 December 30 June 30 June 2015 2016 2016 2017 (unaudited) –––––––– –––––––– –––––––– –––––––– £ £ £ £ Property maintenance 2,188,232 2,109,237 1,052,446 1,125,301 Property and asset management fees 736,118 690,252 344,294 363,360 –––––––– –––––––– –––––––– –––––––– ––––––––2,924,350 ––––––––2,799,489 ––––––––1,396,740 ––––––––1,488,661
253 5. Administrative expenses
61 week Six months Six months period ended Year ended ended ended 31 December 31 December 30 June 30 June 2015 2016 2016 2017 (unaudited) ––––––––––– ––––––––––– ––––––––––– ––––––––––– £ £ £ £ Legal and professional fees 384,500 575,355 197,600 311,769 Auditor’s remuneration – audit services 18,000 35,000 15,000 42,030 Movement in bad debt provision 425,508 358,758 168,611 (166,224) Other expenses 92,412 84,430 18,011 7,130 ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– 920,420 ––––––––––– 1,053,543 ––––––––––– 399,222 ––––––––––– 194,705 6. Profit on disposal of investment properties
61 week Six months Six months period ended Year ended ended ended 31 December 31 December 30 June 30 June 2015 2016 2016 2017 (unaudited) ––––––––––– ––––––––––– ––––––––––– ––––––––––– £ £ £ £ Net sales proceeds 15,673,040 6,936,350 3,267,000 8,854,558 Disposal costs (388,887) (152,108) (77,495) (195,144) Cost of sales (11,450,367) (5,214,613) (2,117,132) (7,152,075) ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– 3,833,786 ––––––––––– 1,569,629 ––––––––––– 1,072,373 ––––––––––– 1,507,339 7. Staff costs
The Company has no employees other than the directors. All persons involved in the Company’s operations are employed by a The Goldman Sachs Group Inc. undertaking and no costs are borne by the Company.
8. Finance costs
61 week Six months Six months period ended Year ended ended ended 31 December 31 December 30 June 30 June 2015 2016 2016 2017 (unaudited) ––––––––––– ––––––––––– ––––––––––– ––––––––––– £ £ £ £ Interest expense on loan payable to parent 2,042,885 1,631,926 860,367 635,267 Interest expense on loan payable to third party 13,064 15,740 8,372 5,703 Other interest (income)/expense (1,173) 31,089 – – ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– 2,054,776 ––––––––––– 1,678,755 ––––––––––– 868,739 ––––––––––– 640,970
254 9. Directors’ remuneration
61 week Six months Six months period ended Year ended ended ended 31 December 31 December 30 June 30 June 2015 2016 2016 2017 (unaudited) –––––––––– –––––––––– –––––––––– –––––––––– £ £ £ £ Aggregate remuneration 1,716 7,580 3,790 3,790 Company pension contributions to money purchase schemes 15 67 34 34 Share based payment expense 1,310 1,575 788 745 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– 3,041 –––––––––– 9,222 –––––––––– 4,612 –––––––––– 4,569 In accordance with the Companies Act 2006, directors’ remuneration above represents the proportion of total remuneration paid or payable in respect of qualifying services only.
All directors have been granted The Goldman Sachs Group, Inc. shares in respect of long-term incentive schemes during the year. No Directors have exercised options during the year.
All directors are members of a defined contribution pension plan and 2 directors are members of a defined benefit pension plan.
No costs have been recharged to the Company.
10. Taxation
61 week Six months Six months period ended Year ended ended ended 31 December 31 December 30 June 30 June 2015 2016 2016 2017 (unaudited) –––––––––– –––––––––– –––––––––– –––––––––– £ £ £ £ Current tax: UK corporation tax 1,658,854 1,296,783 811,504 763,275 Adjustments in respect of prior period – (26,143) – – –––––––––– –––––––––– –––––––––– –––––––––– 1,658,854 1,270,640 811,504 763,275 Deferred tax – 335,517 – 1,210,167 –––––––––– –––––––––– –––––––––– –––––––––– Total tax on profit –––––––––– 1,658,854 –––––––––– 1,606,157 –––––––––– 811,504 –––––––––– 1,973,442
255 The table below shows the reconciliation of tax on profit on ordinary activities.
61 week Six months Six months period ended Year ended ended ended 31 December 31 December 30 June 30 June 2015 2016 2016 2017 (unaudited) ––––––––––– ––––––––––– ––––––––––– ––––––––––– £ £ £ £ Profit before taxation 7,440,672 9,168,492 4,013,545 11,124,960 ––––––––––– ––––––––––– ––––––––––– ––––––––––– Profit multiplied by the UK corporate tax rate 1,514,177 1,833,698 802,709 2,113,742 Difference in tax rates on deferred tax 16,707 (73,428) 8,795 (140,300) Current year losses for which no deferred tax asset recognised 127,970 (127,970) – – Adjustments in respect of prior period – (26,143) – – ––––––––––– ––––––––––– ––––––––––– ––––––––––– Total tax on profit ––––––––––– 1,658,854 ––––––––––– 1,606,157 ––––––––––– 811,504 ––––––––––– 1,973,442 Deferred tax is recognised in respect of timings differences originating from the changes in fair value of investment properties.
61 week Six months period ended Year ended ended 31 December 31 December 30 June 2015 2016 2017 ––––––––––– ––––––––––– ––––––––––– £ £ £ Deferred tax opening balance – – 335,517 Charge for the period – 335,517 1,210,167 ––––––––––– ––––––––––– ––––––––––– Deferred tax closing balance ––––––––––– – ––––––––––– 335,517 ––––––––––– 1,545,684 A valuation allowance has been made against deferred tax assets at 31 December 2015 of £127,970 owing to uncertainty of future taxable profits.
A reduction in the UK corporation tax rate from 21% to 20% (effective from 1 April 2015) was substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the Company’s future current tax charge accordingly. The deferred tax asset or liability at each period end has been calculated based on these rates.
11. Investment property
(a) Investment properties
As at As at As at 31 December 31 December 30 June 2015 2016 2017 ––––––––––– ––––––––––– ––––––––––– £ £ £ At beginning of period – 100,430,705 99,686,859 Additions 113,449,019 929,191 1,501,053 Disposals (11,450,367) (4,357,613) (7,152,075) Fair value adjustment (710,947) 2,684,576 7,107,816 Reclassification as held for sale (857,000) – (6,553,750) ––––––––––– ––––––––––– ––––––––––– At end of period –––––––––––100,430,705 ––––––––––– 99,686,859 ––––––––––– 94,589,903
256 The fair value of the investment properties as at 30 June 2017 was £102,257,500 (31 December 2016 £100,647,000; 31 December 2015: £101,714,500).
The differences to the table above are due to lease incentives and stepped rent amounts, included in trade and other receivables as set out in note 12, and amounts included in assets held for sale.
(b) Assets held for sale
As at As at As at 31 December 31 December 30 June 2015 2016 2017 ––––––––– ––––––––– ––––––––– £ £ £ Assets held for sale 857,000 – 6,553,750 ––––––––– ––––––––– ––––––––– ––––––––– 857,000 ––––––––– – ––––––––– 6,553,750 Since 30 June 2017, net sales proceeds of £4,389,722 have been received, resulting in a gain of £334,942 against 30 June 2017 valuations. Assets held for sale with a carrying value of £2,280,920 remain on the balance sheet as at date of signing.
(c) Leasing arrangements
The investment properties are leased to tenants under long-term operating leases with rentals payable monthly/quarterly. Minimum lease payments receivable on leases of investment properties are as follows:
As at As at As at 31 December 31 December 30 June 2015 2016 2017 ––––––––– ––––––––– ––––––––– £ £ £ Within 1 year 8,609,587 8,816,434 8,479,431 Later than 1 year but not later than 5 years 14,331,518 17,111,984 16,051,869 Later than 5 years 7,279,979 7,964,918 6,664,336 ––––––––– ––––––––– ––––––––– –––––––––30,221,084 –––––––––33,893,336 –––––––––31,195,636 (d) Fair value
Valuation of investment property is performed by GVA Grimley Limited, an accredited external valuer with recognised and relevant professional qualifications and recent experience of the location and category of the investment property being valued.
The valuation of the Company’s investment property at fair value is determined by the external valuer on the basis of market value in accordance with the internationally accepted RICS Valuation – Professional Standards (incorporating the International Valuation Standards).
The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings, tenants’ profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those flows.
257 The following table provides the fair value measurement hierarchy for investment properties:
At 31 December 2015 Level 1 Level 2 Level 3 –––––––––– –––––––––– –––––––––– £ £ £ Investment properties – – 101,714,500 –––––––––– –––––––––– –––––––––– –––––––––– – –––––––––– – 101,714,500–––––––––– At 31 December 2016 Level 1 Level 2 Level 3 –––––––––– –––––––––– –––––––––– £ £ £ Investment properties – – 100,647,000 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– 100,647,000–––––––––– At 30 June 2017 Level 1 Level 2 Level 3 –––––––––– –––––––––– –––––––––– £ £ £ Investment properties – – 102,257,500 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– 102,257,500–––––––––– Explanation of the fair value hierarchy:
Level 1 – Quoted prices for an identical instrument in active markets;
Level 2 – Prices of recent transactions for identical instruments and valuation techniques using observable market data; and
Level 3 – Valuation techniques using non-observable data.
(e) Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy
The Company has considered sensitivity analysis for assets measured at fair value and recognises the significant unobservable inputs relating to investment property and investments.
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the Company’s portfolio of investment properties are:
1) Estimated Rental Value (‘ERV’)
2) Equivalent yield
Increases (decreases) in the ERV (per sq ft p.a.) in isolation would result in a higher (lower) fair value measurement. Increases (decreases) in the discount rate/yield (and exit or yield) in isolation would result in a lower (higher) fair value measurement.
258 12. Trade and other receivables
As at As at As at 31 December 31 December 30 June 2015 2016 2017 –––––––––– –––––––––– –––––––––– £ £ £ Rent receivables 1,403,292 1,935,313 1,334,132 Provision for impairment of rent receivables (425,508) (507,504) (339,532) –––––––––– –––––––––– –––––––––– Net rent receivables 977,784 1,427,809 994,600 Other debtors 834,287 1,033,443 894,140 Lease incentives 426,795 960,141 1,113,847 –––––––––– –––––––––– –––––––––– –––––––––– 2,238,866 –––––––––– 3,421,393 ––––––––– 3,002,587– Movements in the provision for impairment of rent receivables are as follows:
As at As at As at 31 December 31 December 30 June 2015 2016 2017 –––––––––– –––––––––– –––––––––– £ £ £ Opening balance – (425,508) (507,504) Movement in provision for receivables impairment (425,508) (358,758) 166,224 Receivables written off during the period as uncollected – 276,762 1,748 –––––––––– –––––––––– –––––––––– Ending balance –––––––––– (425,508) –––––––––– (507,504) ––––––––– (339,532)– 13. Trade and other payables
As at As at As at 31 December 31 December 30 June 2015 2016 2017 –––––––––– –––––––––– –––––––––– £ £ £ Corporation tax payable 1,658,854 1,350,421 1,151,234 Trade creditors 1,287,150 2,031,484 1,844,155 Amounts due to group undertaking (note 16) – 1,307,637 2,004,180 Deferred income 1,940,079 2,093,168 1,689,643 Accrued interest 358,117 255,290 203,253 Other creditors and accruals 1,696,627 1,616,558 1,293,640 –––––––––– –––––––––– –––––––––– –––––––––– 6,940,827 –––––––––– 8,654,558 ––––––––– 8,186,105– 14. Borrowings
As at As at As at 31 December 31 December 30 June 2015 2016 2017 –––––––––– –––––––––– –––––––––– £ £ £ Loan payable to group undertaking 68,599,731 55,190,088 47,530,662 Loan payable to other related party 675,163 495,666 461,424 –––––––––– –––––––––– –––––––––– ––––––––––69,274,894 ––––––––––55,685,754 –––––––––47,992,086–
259 The loan payable to group undertaking represents amounts advanced by ELQ Holdings (Delaware) LLC under a long-term uncommitted, unsecured loan facility with a final maturity of 2063. The initial funding was provided at a 75% loan to value, but has been partly paid down over the period following disposals of property.
Interest rates are variable as determined on the date of each advance of the facility, in accordance with policy of The Goldman Sachs Group, Inc on the intercompany loans.
The policy benchmarks the loan to third party debt issued by Goldman Sachs (“the Firm”) in the market and consists of the two factors:
– The Firm’s cost of funds for Sterling, which is reset on a daily basis; plus
– The Firm’s weighted average cost of debt (spread), which is reset on a monthly basis.
Interest has been accrued during the period within a range of 0.08% and 3.07%.
The loan is repayable on the earlier of:
– 27 January 2063; or
– An event of default; or
– A date as agreed between the Company and ELQ Holdings (Delaware) LLC
The intercompany funding is held at amortised cost in the financial information and the directors do not consider there to be a material difference between the fair value of the loan and the consideration received at its initial recognition.
The loan payable to other related party represents amounts advanced by M7 Real Estate Ltd under a long-term uncommitted, unsecured facility which has the same terms as the loan payable to group undertaking, as detailed above.
15. Share capital
As at As at As at 31 December 31 December 30 June 2015 2016 2017 –––––––––– –––––––––– –––––––––– £ £ £ Allotted, called up and fully paid A Shares of £1 each 27,743,857 27,743,857 27,743,857 B Shares of £1 each 250,000 250,000 250,000 –––––––––– –––––––––– –––––––––– ––––––––––27,993,857 ––––––––––27,993,857 –––––––27,993,857––– ELQ Holdings (Delaware) LLC and M7 Real Estate Ltd own 99.11% and 0.89% respectively of the equity of the Company.
A and B shares have a par value of £1 each. Both A and B Shares entitle the holder to participate in distributions of available cash in accordance with particulars outlined in the Articles of Association.
16. Related party disclosure
Goldman Sachs International and ELQ Holdings (Delaware) LLC, along with the Company, are subject to common control by The Goldman Sachs Group, Inc., and entered into the following transactions with the Company during the period:
260 ELQ Holdings (Delaware) LLC, the immediate parent undertaking, provided the company with a long term loan. Interest expense charged in the period to 30 June 2017 was £635,267 (31 December 2016: £1,631,926, 31 December 2015: £2,042,884). The outstanding principal and interest balance at 30 June 2017 was £47,732,038 (31 December 2016: £55,445,378, 31 December 2015: £68,599,731). Disclosures on the terms of the loan are included in note 14.
Goldman Sachs International made certain payments in connection with tax payable on behalf of the Company. The amount outstanding to be paid by the Company to The Goldman Sachs Group, Inc. and its subsidiaries was £2,004,180 at 30 June 2017 (31 December 2016: £1,307,637; 31 December 2015: £nil).
Disclosures on transactions with key management personnel are included in note 9.
17. Contingent liabilities
The Company had no financial commitments and contingencies outstanding at 30 June 2017, 31 December 2016 and 31 December 2015.
18. Financial risk management
The Company is exposed to market risk, interest rate risk, credit risk and liquidity risk. The Board of Directors oversees the management of these risks. The Board of Directors reviews and agrees policies for managing each of these risks that are summarised below.
(a) Market risk
The Company’s activities expose it primarily to the market risks associated with changes in property values.
(b) Risk relating to investment in property
Investment in property is subject to varying degrees of risk. Some factors that affect the value of the investment in property include:
• changes in the general economic climate;
• competition from available properties;
• obsolescence; and
• government regulations, including planning, environmental and tax laws.
Variations in the above factors can affect the valuation of assets held by the Company and as a result can influence the financial performance of the Company.
(c) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
(d) Credit risk
Credit risk represents the potential loss the Company would incur if a counterparty fails to meet its contractual obligations. Credit risk is monitored by reviewing the credit profile of the Company’s significant counterparties on a regular basis.
261 The Company’s maximum exposure to credit risk is equivalent to the carrying value of the financial assets as at each period end.
(e) Liquidity risk
Liquidity risk is the risk that the Company does not have sufficient cash or collateral to make payments to its counterparties or customers as they fall due.
The following table details the Company’s liquidity analysis in respect of its liabilities:
Carrying As at 30 June 2017 amount < 3 months 3-12 months 1-5 years > 5 years ––––––––– ––––––––– ––––––––– ––––––––– ––––––––– £ £ £ £ £ Liabilities Corporation tax payable 1,151,234 – 1,151,234 – – Trade creditors 1,844,155 1,844,155 – – – Amounts due to group undertaking 2,004,180 – 2,004,180 – – Deferred income 1,689,643 – 1,689,643 – – Accrued interest due to group undertaking 203,253 – 203,253 – – Other creditors and accruals 1,293,640 – 1,293,640 – – Borrowings 47,992,086 – – – 47,992,086 ––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––56,178,191 ––––––––– 1,844,155 ––––––––– 6,341,950 ––––––––– – –––––––––47,992,086 Carrying As at 31 December 2016 amount < 3 months 3-12 months 1-5 years > 5 years ––––––––– ––––––––– ––––––––– ––––––––– ––––––––– £ £ £ £ £ Liabilities Corporation tax payable 1,350,421 – 1,350,421 – – Trade creditors 2,031,484 2,031,484 – – – Amounts due to group undertaking 1,307,637 – 1,307,637 – – Deferred income 2,093,168 – 2,093,168 – – Accrued interest due to group undertaking 255,290 – 255,290 – – Other creditors and accruals 1,616,558 – 1,616,558 – – Borrowings 55,685,754 – – – 55,685,754 ––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––64,340,312 ––––––––– 2,031,484 ––––––––– 6,623,074 ––––––––– – –––––––––55,685,754
262 Carrying As at 31 December 2015 amount < 3 months 3-12 months 1-5 years > 5 years ––––––––– ––––––––– ––––––––– ––––––––– ––––––––– £ £ £ £ £ Liabilities – Corporation tax payable 1,658,854 – 1,658,854 – – Trade creditors 1,287,150 1,287,150 – – – Amounts due to group undertaking – – – – – Deferred income 1,940,079 – 1,940,079 – – Accrued interest due to group undertaking 358,117 – 358,117 – – Other creditors and accruals 1,696,627 – 1,696,627 – – Borrowings 69,274,894 – – – 69,274,894 ––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––76,215,721 ––––––––– 1,287,150 ––––––––– 5,653,677 ––––––––– – –––––––––69,274,894 (e) Fair values
The directors consider the fair value of financial assets and liabilities to be materially equal their carrying value.
19. Post balance sheet events
Since 30 June 2017 four estates and a number of individual units have been sold. The net proceeds of these sales are £4,389,722.
20. Conversion from UK GAAP to IFRS
As stated in note 1, these are the Company’s first financial statements prepared in accordance with Adopted IFRS.
The accounting policies set out in note 1 have been applied in preparing the financial statements for the periods ended 31 December 2015, 31 December 2016, 30 June 2016 and 30 June 2017.
The date of transition is 3 November 2014, the incorporation date of the Company. There are no differences requiring reconciliation at this date and therefore no statement of financial position has been presented.
No cash flow statements were prepared in the statutory accounts, so no reconciliation is provided.
263 UK GAAP Corrected Reclas- Effect Adopted IFRS errors (a) sifications (b) of transition to adopted IFRS (c) 61 week 61 week 61 week 61 week 61 week period ended period ended period ended period ended period ended 31 December 31 December 31 December 31 December 31 December 2015 2015 2015 2015 2015 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– £ £ £ £ £ Net revenues 11,898,629 (184,943) (11,713,686) – – Rental income – – 10,217,379 – 10,217,379 Property operating expenses – – (2,924,350) – (2,924,350) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Net rental income 11,898,629 (184,943) (4,420,657) – 7,293,029 Administrative expenses (7,286,652) – 6,366,232 – (920,420) Gain on sale of investment properties – – 4,407,750 (573,964) 3,833,786 Change in fair value of investment properties – – (6,354,497) 5,643,550 (710,947) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Operating profit 4,611,977 (184,943) (1,172) 5,069,586 9,495,448 Finance costs (2,055,948) – 1,172 – (2,054,776) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Profit before tax 2,556,029 (184,943) – 5,069,586 7,440,672 Taxation (1,506,529) 37,636 – (189,961) (1,658,854) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Profit for the period 1,049,500 (147,307) – 4,879,625 5,781,818 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Other comprehensive income – – – – – –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Total comprehensive income for the period attributable to owners of the Company –––––––––– 1,049,500 –––––––––– (147,307) –––––––––– – –––––––––– 4,879,625 –––––––––– 5,781,818
264 UK GAAP Corrected Reclas- Effect Adopted IFRS errors (a) sifications (b) of transition to adopted Year ended Year ended IFRS (c) Year ended 31 December 31 December 31 December 31 December 31 December 2015 2015 2015 2015 2015 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– £ £ £ £ £ ASSETS Non-current assets Investment properties 95,786,477 – – 4,644,228 100,430,705 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Total non-current assets 95,786,477 – – 4,644,228 100,430,705 Current assets Trade and other receivables 1,812,071 – 426,795 – 2,238,866 Cash and cash equivalents 6,464,825 – – – 6,464,825 Investment properties held for sale 431,643 – – 425,357 857,000 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Total current assets 8,708,539 – 426,795 425,357 9,560,691 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– TOTAL ASSETS 104,495,016 – 426,795 5,069,585 109,991,396
LIABILITIES –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Current liabilities Trade and other payables 6,176,765 147,307 426,795 189,960 6,940,827 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Total current liabilities 6,176,765 147,307 426,795 189,960 6,940,827 Non-current liabilities Borrowings 69,274,894 – – – 69,274,894 Deferred tax liabilities – – – – – –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Total non-current liabilities 69,274,894 – – – 69,274,894 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– TOTAL LIABILITIES –––––––––– 75,451,659 –––––––––– 147,307 –––––––––– 426,795 –––––––––– 189,960 –––––––––– 76,215,721 NET ASSETS 29,043,357 (147,307) – 4,879,625 33,775,675
EQUITY –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Share capital 27,993,857 – – – 27,993,857 Retained earnings 1,049,500 (147,307) – 4,879,625 5,781,818 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– TOTAL EQUITY –––––––––– 29,043,357 –––––––––– (147,307) –––––––––– – –––––––––– 4,879,625 –––––––––– 33,775,675
265 UK GAAP Corrected Reclas- Effect Adopted IFRS errors (a) sifications (b) of transition to adopted Year ended Year ended IFRS (c) Year ended 31 December 31 December 31 December 31 December 31 December 2016 2016 2016 2016 2016 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– £ £ £ £ £ Net revenues 12,046,291 (137,316) (11,908,975) – – Rental income – – 10,446,075 – 10,446,075 Property operating expenses – – (2,799,489) – (2,799,489) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Net rental income 12,046,291 (137,316) (4,262,389) – 7,646,586 Administrative expenses (5,943,378) – 4,889,835 – (1,053,543)
Gain on sale of investment properties – – 2,606,479 (1,036,850) 1,569,629 Change in fair value of investment properties – – (3,233,925) 5,918,501 2,684,576 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Operating profit 6,102,913 (137,316) – 4,881,651 10,847,248 Finance costs (1,677,357) (1,398) – – (1,678,755) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Profit before tax 4,425,556 (138,714) – 4,881,651 9,168,493 Taxation (1,505,752) 27,743 – (128,148) (1,606,157) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Profit for the period 2,919,804 (110,971) – 4,753,503 7,562,336 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Other comprehensive income – – – – – –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Total comprehensive income for the period attributable to owners of the Company –––––––––– 2,919,804 –––––––––– (110,971) –––––––––– – –––––––––– 4,753,503 –––––––––– 7,562,336
266 UK GAAP Corrected Reclas- Effect Adopted IFRS errors (a) sifications (b) of transition to adopted IFRS (c) 31 December 31 December 31 December 31 December 31 December 2016 2016 2016 2016 2016 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– £ £ £ £ £ ASSETS Non-current assets Investment properties 89,735,624 – – 9,951,235 99,686,859 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Total non-current assets 89,735,624 9,951,235 99,686,859 Current assets Trade and other receivables 2,461,252 – 960,141 – 3,421,393 Cash and cash equivalents 2,905,588 – – – 2,905,588 Investment properties held for sale – – – – – –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Total current assets 5,366,840 – 960,141 – 6,326,981 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– TOTAL ASSETS 95,102,464 – 960,141 9,951,235 106,013,840
LIABILITIES –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Current liabilities Trade and other payables 7,453,549 110,971 960,141 129,897 8,654,558 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Total current liabilities 7,453,549 110,971 960,141 129,897 8,654,558 Non-current liabilities Borrowings 55,685,754 – – – 55,685,754 Deferred tax liabilities – – – 335,517 335,517 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Total non-current liabilities 55,685,754 – – 335,517 56,021,271 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– TOTAL LIABILITIES –––––––––– 63,139,303 –––––––––– 110,971 –––––––––– 960,141 –––––––––– 465,414 –––––––––– 64,675,829 NET ASSETS 31,963,161 (110,971) – 9,485,821 41,338,011
EQUITY –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Share capital 27,993,857 – – – 27,993,857 Retained earnings 3,969,304 (110,971) – 9,485,821 13,344,154 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– TOTAL EQUITY –––––––––– 31,963,161 –––––––––– (110,971) –––––––––– – –––––––––– 9,485,821 –––––––––– 41,338,011
267 UK GAAP Corrected Reclas- Effect Adopted IFRS errors (a) sifications (b) of transition to adopted IFRS (c) Unaudited Unaudited Unaudited Unaudited Unaudited Period ended Period ended Period ended Period ended Period ended 30 June 30 June 30 June 30 June 30 June 2016 2016 2016 2016 2016 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– £ £ £ £ £ Net revenues 6,420,450 (81,081) (6,339,369) – – Rental income – – 5,267,184 – 5,267,184 Property operating expenses – – (1,396,740) – (1,396,740) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Net rental income 6,420,450 (81,081) (2,468,925) – 3,870,444 Administrative expenses (2,778,082) 2,378,860 (399,222) Gain on sale of investment properties – – 1,072,373 – 1,072,373 Change in fair value of investment properties – – (982,308) 1,320,997 338,689 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Operating profit 3,642,368 (81,081) – 1,320,997 4,882,284 Finance costs (868,739) – – – (868,739) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Profit before tax 2,773,629 (81,081) – 1,320,997 4,013,545 Taxation (751,187) 15,405 – (75,722) (811,504) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Profit for the period 2,022,442 (65,676) – 1,245,275 3,202,041 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Other comprehensive income – – – – – –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Total comprehensive income for the period attributable to owners of the Company –––––––––– 2,022,442 –––––––––– (65,676) –––––––––– – –––––––––– 1,245,275 –––––––––– 3,202,041 (a) The UK GAAP accounts included an overstatement of revenue in respect of service charge billing, which has been corrected in the financial information, with an associated tax impact.
(b) Reclassifications include:
Statement of comprehensive income:
– Gain on sale of investment properties from net revenues to gain on sale of investment properties
– Impairment of investment properties from net revenues to change in fair value of investment properties
– Depreciation of investment properties and professional fees on acquisition of investment properties from administrative expenses to change in fair value of investment properties
– Property related expenses from administrative expenses to property operating expenses
268 Statement of financial position:
– Lease incentives and stepped rental income accrual from trade and other payables to trade and other receivables
(c) Effect of transition to Adopted IFRS includes adjustments to hold investment properties and investment properties held for sale at fair value as opposed to cost less depreciation and impairment, including associated tax impact. This requires the impairment and depreciation of investment properties and the expensing of professional fees on the acquisition of investment properties to be reversed and for a fair valuation to be applied, impacting both recognised gains on disposal and the change in fair value of investment properties in the statement of comprehensive income, as well as their carrying value.
269 (This page has intentionally been left blank)
270 APPENDIX 2
APPLICATION FORM FOR THE OFFER FOR SUBSCRIPTION
Please send this completed form by post to Computershare Investor Services PLC, Corporate Actions Projects, Bristol BS99 6AH, or by hand (during normal business hours only) to, Computershare Investor Services PLC at The Pavilions, Bridgwater Road, Bristol BS13 8AE so as to be received by no later than 11.00 a.m. (London time) on 7 November 2017. The Company may (with the prior approval of the Barclays and Akur) alter such date and thereby shorten or lengthen the offer period. In the event that the offer period is altered, the Company will notify investors of such change through a Regulatory Information Service.
Important: Before completing this form, you should read the Box 1 (minimum subscription prospectus dated 10 October 2017 (the “Prospectus”) and of £1,000 and in multiples of the Terms and Conditions of Application under the Offer for £100 thereafter) Subscription set out in Part 11 of the Prospectus and the accompanying notes to this form. £
To: M7 Multi-Let REIT plc and Computershare Investor Services PLC
1. APPLICATION
I/We the person(s) detailed in Section 2A below offer to subscribe the amount shown in Box 1 for Ordinary Shares subject to the Terms and Conditions of Application under the Offer for Subscription set out in the Prospectus and subject to the articles of association of the Company in force from time-to-time.
Payment Method: (Please tick the relevant box)
CHEQUE ELECTRONIC PAYMENT DVP (CREST ONLY)
2A. DETAILS OF HOLDER(S) IN WHOSE NAME(S) SHARES WILL BE ISSUED IN CERTIFICATED FORM ONLY
1. (BLOCK CAPITALS)
Title:
Forenames (in full):
Surname:
Company Name:
Address (in full):
Postcode: ✂
271 2. (BLOCK CAPITALS)
Title:
Forenames (in full):
Surname:
Company Name:
Address (in full):
Postcode:
3. (BLOCK CAPITALS)
Title:
Forenames (in full):
Surname:
Company Name:
Address (in full):
Postcode:
4. (BLOCK CAPITALS)
Title:
Forenames (in full):
Surname:
Company Name:
Address (in full):
Postcode:
272 2B. CREST ACCOUNT DETAILS INTO WHICH SHARES ARE TO BE DEPOSITED (IF APPLICABLE)
Only complete this Section if Ordinary Shares allotted are to be deposited into a CREST Account.
(BLOCK CAPITALS)
CREST Participant ID:
CREST Member Account ID:
CREST Participant Name:
3. SIGNATURE(S): ALL HOLDERS MUST SIGN
By completing the signature/execution boxes below you are deemed to have read the Prospectus and agreed to the terms and conditions in Part 11 of the Prospectus and to have given the warranties, representations and undertakings set out therein.
First Applicant Signature: Date:
Second Applicant Signature: Date:
Third Applicant Signature: Date:
Fourth Applicant Signature: Date:
Execution by a Company
Executed by (Name of Date: Company): Signature: Name of Director: Date:
Signature: Name of Director/ Date: Secretary:
If you are affixing Affix Company Seal here: a company seal, please mark a cross: ✂
273 4. SETTLEMENT
(a) Cheque/Banker’s Draft
If you are subscribing for Ordinary Shares and paying by cheque or banker’s draft, pin or staple to this form your cheque or banker’s draft for the exact amount shown in Box 1 (being the Issue Price of £1.00 per Ordinary Share multiplied by the number of Ordinary Shares you wish to subscribe for).
Payment by cheque or banker’s draft must be in pounds sterling and drawn on a branch in the United Kingdom of a bank or building society that is either a member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or that has arranged for its cheques or bankers’ drafts to be cleared through the facilities provided for members of either of those companies.
Such cheques or banker’s drafts much bear the appropriate sort code in the top right hand corner. Cheques, which must be drawn on the personal account of an individual applicant where they have sole or joint title to the funds, should be made payable to “CIS PLC RE: (M7 Multi-Let REIT plc) – OFS Application” and crossed “A/C payee only”. Third party cheques may not be accepted with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping/endorsing the cheque or banker’s draft to that effect. The account name should be the same as that shown on the Offer for Subscription Application Form. Please note, cheques will be presented for payment upon receipt and post-dated cheques will not be accepted.
(b) Electronic Bank Transfer
For applicants sending subscription monies by electronic bank transfer (CHAPS/WIRE), payment must be made for value by 11.00 a.m. on 7 November 2017. Computershare must receive full remittance of the amount you are applying for and you must therefore ensure that all charges have been taken into account. For full bank details, please contact Computershare by email at [email protected] or telephone the Shareholder Helpline at +44 (0370) 707 1564 for further information. Computershare will then provide you with a unique reference which must be used on the original application form and payment. The account that payment is made from must be the same as that shown on the Offer for Subscription Application Form
(c) CREST Settlement
If you so choose to settle your commitment within CREST, that is DVP, you or your settlement agent/custodian’s CREST account must allow for the delivery and acceptance of Ordinary Shares to be made against payment of the Issue Price per Ordinary Share, following the CREST matching criteria set out below:
Trade Date: 8 November 2017
Settlement Date: 13 November 2017
Company: M7 Multi-Let REIT plc
Security Description: Ordinary Shares
SEDOL: BF04B03
ISIN: GB00BF04B031
274 Should you wish to settle DVP, you will need to match your instructions to Computershare Investor Services PLC’s Participant ID 3RA13 by no later than 11.00 a.m. on 7 November 2017.
You must also ensure that you or your settlement agent/custodian has a sufficient “debit cap” within the CREST system to facilitate settlement in addition to your/its own daily trading and settlement requirements.
5. RELIABLE INTRODUCER DECLARATION
Completion and signing of this declaration by a suitable person or institution may avoid presentation being requested of the identity documents detailed in Section 6 of this form.
The declaration below may only be signed by a person or institution (such as a governmental approved bank, stockbroker or investment firm, financial services firm or an established law firm or accountancy firm) (the “firm”) which is itself subject in its own country to operation of “know your customer” and anti-money laundering regulations no less stringent than those which prevail in the United Kingdom.
DECLARATION:
To the Company and Computershare Investor Services PLC
With reference to the holder(s) detailed in Section 2A, all persons signing at Section 3 and the payor identified in Section 6 if not also a holder (collectively the “subjects”) WE HEREBY DECLARE:
• we operate in the United Kingdom, or in a country where money laundering regulations under the laws of that country are, to the best of our knowledge, no less stringent than those which prevail in the United Kingdom and our firm is subject to such regulations;
• we are regulated in the conduct of our business and in the prevention of money laundering by the regulatory authority identified below;
• each of the subjects is known to us in a business capacity and we hold valid identity documentation on each of them and we undertake to immediately provide to you copies thereof on demand;
• we confirm the accuracy of the names and residential business address(es) of the holder(s) given at Section 2A and if a CREST Account is cited at Section 2B that the owner thereof is named in Section 2A;
• having regard to all local money laundering regulations we are, after enquiry, satisfied as to the source and legitimacy of the monies being used to subscribe for the Ordinary Shares mentioned; and
• where the payor and holder(s) are different persons we are satisfied as to the relationship between them and reason for the payor being different to the holder(s). ✂
275 The above information is given in strict confidence for your own use only and without any guarantee, responsibility or liability on the part of this firm or its officials.
Signed: ______
Name: ______
Position: ______
Name of Regulatory Authority: ______
Firm’s License Number: ______
Website address or telephone number of regulatory authority: ______
STAMP of firm, giving full name and business address: ______
6. IDENTITY INFORMATION
If the declaration in Section 5 cannot be signed and the value of your application is greater than €15,000 (or the sterling equivalent), please enclose with that Application Form the documents mentioned below, as appropriate. Please also tick the relevant box to indicate which documents you have enclosed, all of which will be returned by the Computershare Investor Services PLC to the first named Applicant.
In accordance with internationally recognised standards for the prevention of money laundering, the documents and information set out below must be provided:
A. For each holder being an individual enclose:
1. an original or a certified clear photocopy of one of the following identification documents which bear both a photograph and the signature of the person: current passport – Government or Armed Forces identity card – driving licence; and
2. an original or certified copies of at least two of the following documents no more than 3 months old which purport to confirm that the address given in Section 2A is that person’s residential address: a recent gas, electricity, water or telephone (not mobile) bill – a recent bank statement – a council rates bill – or similar document issued by a recognised authority; and
3. if none of the above documents show their date and place of birth, enclose a note of such information; and
4. details of the name and address of their personal bankers from which the Computershare Investor Services PLC may request a reference, if necessary.
B. For each holder being a company (a “holder company”) enclose:
1. a certified copy of the certificate of incorporation of the holder company; and
2. the name and address of the holder company’s principal bankers from which the Computershare Investor Services PLC may request a reference, if necessary; and
3. a statement as to the nature of the holder company’s business, signed by a director; and
4. a list of the names and residential addresses of each director of the holder company; and
276 5. for each director provide documents and information similar to that mentioned in A above; and
6. a copy of the authorised signatory list for the holder company; and
7. a list of the names and residential/registered address of each ultimate beneficial owner interested in more than 5 per cent. of the issued share capital of the holder company and, where a person is named, also complete C below and, if another company is named (hereinafter a “beneficiary company”), also complete D below. If the beneficial owner(s) named do not directly own the holder company but do so indirectly via nominee(s) or intermediary entities, provide details of the relationship between the beneficial owner(s) and the holder company.
C. For each person named in B(7) as a beneficial owner of a holder company enclose for each such person documents and information similar to that mentioned in A(1) to (4).
D. For each beneficiary company named in B(7) as a beneficial owner of a holder company enclose:
1. a certified copy of the certificate of incorporation of that beneficiary company;
2. a statement as to the nature of that beneficiary company’s business signed by a director; and
3. the name and address of that beneficiary company’s principal bankers from which the Computershare Investor Services PLC may request a reference, if necessary; and
4. a list of the names and residential/registered address of each beneficial owner owning more than 5 per cent. of the issued share capital of that beneficiary company.
E. If the payor is not a holder and is not a bank providing its own cheque or banker’s payment on the reverse of which is shown details of the account being debited with such payment (see note 5 on how to complete this form) enclose:
1. if the payor is a person, for that person the documents mentioned in A(1) to (4); or
2. if the payor is a company, for that company the documents mentioned in B(1) to (7); and
3. an explanation of the relationship between the payor and the holder(s). ✂
277 7. CONTACT DETAILS
To ensure the efficient and timely processing of this application please enter below the contact details of a person Computershare Investor Services PLC may contact with all enquiries concerning this application. Ordinarily this contact person should be the person signing in Section 3 on behalf of the first named holder. If no details are provided here but a regulated person is identified in Section 5, Computershare Investor Services PLC will contact the regulated person. If no details are entered here and no regulated person is named in Section 5 and Computershare Investor Services PLC requires further information, any delay in obtaining that additional information may result in your application being rejected or revoked.
Contact name: ______
E-mail address: ______
Contact address:______
Postcode: ______
Telephone No:______
Fax No: ______
278 NOTES ON HOW TO COMPLETE THE APPLICATION FORM
Applications should be returned so as to be received by Computershare Investor Services PLC, Corporate Actions, no later than 11.00 a.m. on 7 November 2017.
If you are a new investor in the Company and you wish to receive Ordinary Shares in certificated form you will need to complete and return a CRS Form. The CRS Form will be included with the share certificates, further copies of this form and the relevant form for joint holdings or corporate entity holdings can be requested from Computershare on +44 (0370) 707 1564.
HELPLINE: If you have a query concerning the completion of this Application Form, please telephone Computershare Investor Services PLC on +44 (0370) 707 1564. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. The helpline is open between 9.00 a.m. and 5.30 p.m., Monday to Friday excluding public holidays in England and Wales. Please note that Computershare Investor Services PLC cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes.
1. Application
Fill in (in figures) in Box 1 the number of Ordinary Shares being subscribed for. The number being subscribed for must be a minimum of 1,000 Ordinary Shares and then in multiples of 100 Ordinary Shares thereafter.
2. Amount payable
Fill in (in figures) the total amount payable for the Ordinary Shares for which your application is made which is the number inserted in Box 1 of the Offer for Subscription Application Form, multiplied by the Issue Price, being 100 pence per Ordinary Share. You should also mark in the relevant box to confirm your payment method, i.e. cheque, banker’s draft, electronic bank transfer or settlement via CREST.
3A. Holder details
Fill in (in block capitals) the full name(s) of each holder and the address of the first named holder. Applications may only be made by persons aged 18 or over. In the case of joint holders only the first named may bear a designation reference. A maximum of four joint holders is permitted. All holders named must sign the Offer for Subscription Application Form in section 4.
3B. CREST
If you wish your Ordinary Shares to be deposited in a CREST account, enter in section 3B the details of that CREST account. Where it is requested that Ordinary Shares be deposited into a CREST account please note that payment for such Ordinary Shares must be made prior to the day such Ordinary Shares might be allotted and issued.
4. Signature
All holders named in section 3A must sign section 4 and insert the date. The Offer for Subscription Application Form may be signed by another person on behalf of each holder if that person is duly authorised to do so under a power of attorney. The power of attorney (or a copy duly certified by a solicitor or a bank) must be enclosed for inspection (which originals will be returned by post at the addressee’s risk). A corporation should sign under the hand of a duly authorised official whose representative capacity should be stated and a copy of a notice issued by the corporation authorising such person to sign should accompany the Offer for Subscription Application Form.
279 5. Settlement details
(a) Cheque/Banker’s draft
All payments by cheque or banker’s draft must accompany your application and be for the exact amount inserted in Box 1 of the Offer for Subscription Application Form. Your cheque or banker’s draft must be made payable to “CIS PLC Re: M7 Multi-Let REIT plc – Offer for Subscription A/C” in respect of an Application and crossed “A/C Payee Only”. Applications accompanied by a post-dated cheque will not be accepted.
Cheques or banker’s drafts must be drawn on an account where the applicant has sole or joint-title to the funds and on an account at a branch of a bank or building society in the United Kingdom, the Channel Islands or the Isle of Man which is either a settlement member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which is a member of either of the Committees of Scottish or Belfast clearing houses or which has arranged for its cheques and banker’s drafts to be cleared through the facilities provided by any of those companies or committees and must bear the appropriate sort code in the top right hand corner.
Third party cheques may not be accepted, with the exception of building society cheques or banker’s drafts where the building society or bank has inserted the full name of the building society or bank account holder and have added the building society or bank branch stamp. The name of the building society or bank account holder must be the same as the name of the current shareholder or prospective investor. Please do not send cash. Cheques or banker’s drafts will be presented for payment upon receipt. The Company reserves the right to instruct the Receiving Agent to seek special clearance of cheques and banker’s drafts to allow the Company to obtain value for remittances at the earliest opportunity.
(b) Electronic Bank Transfer
For applicants sending subscription monies by electronic bank transfer (CHAPS/WIRE), payment must be made for value by 11.00 a.m. on 7 November 2017. Computershare must receive full remittance of the amount you are applying for and you must therefore ensure that all charges have been taken into account. For full bank details, please contact Computershare by email at: [email protected] or telephone the Shareholder Helpline at +44 (0370) 707 1564 for further information. Computershare will then provide you with a unique reference which must be used on the original application form and payment. The account that payment is made from must be the same as that shown on the Offer for Subscription Application Form
(c) CREST settlement
The Company will apply for the Ordinary Shares issued pursuant to the Offer for Subscription in uncertificated form to be enabled for CREST transfer and settlement with effect from Admission (the “Relevant Settlement Date”). Accordingly, settlement of transactions in the Ordinary Shares will normally take place within the CREST system.
The Offer for Subscription Application Form contains details of the information which the Company’s registrars, Computershare Investor Services PLC, will require from you in order to settle your application within CREST, if you so choose. If you do not provide any CREST details or if you provide insufficient CREST details for Computershare Investor Services PLC to match to your CREST account, Computershare Investor Services PLC will deliver your Ordinary Shares in certificated form provided payment has been made in terms satisfactory to the Company.
280 The right is reserved to issue your Ordinary Shares in certificated form should the Company, having consulted with Computershare Investor Services PLC, consider this to be necessary or desirable. This right is only likely to be exercised in the event of any interruption, failure or breakdown of CREST or any part of CREST or on the part of the facilities and/or system operated by Computershare Investor Services PLC in connection with CREST.
The person named for registration purposes in your Offer for Subscription Application Form must be: (a) the person procured by you to subscribe for or acquire the Ordinary Shares; or (b) yourself; or (c) a nominee of any such person or yourself, as the case may be. Neither Computershare Investor Services PLC nor the Company will be responsible for any liability to stamp duty or stamp duty reserve tax resulting from a failure to observe this requirement. You will need to input the delivery versus payment (“DVP”) instructions into the CREST system in accordance with your application. The input returned by Computershare Investor Services PLC of a matching or acceptance instruction to our CREST input will then allow the delivery of your Ordinary Shares to your CREST account against payment of the Issue Price through the CREST system upon the Relevant Settlement Date.
By returning your Offer for Subscription Application Form you agree that you will do all things necessary to ensure that you or your settlement agent/custodian’s CREST account allows for the delivery and acceptance of Ordinary Shares to be made prior to 11.00 a.m. on 7 November 2017 against payment of the Issue Price. Failure by you to do so will result in you being charged interest at the rate of two percentage points above the then published bank base rate of a clearing bank selected by Computershare Investor Services PLC.
To ensure that you fulfil this requirement it is essential that you or your settlement agent/custodian follow the CREST matching criteria set out below:
Trade Date: 8 November 2017
Settlement Date: 13 November 2017
Company: M7 Multi-Let REIT plc
Security Description: Ordinary Shares
SEDOL: BF04B03
ISIN: GB00BF04B031
Should you wish to settle DVP, you will need to input your instructions to Computershare Investor Services PLC’s Participant account 3RA13 by no later than 11.00 a.m. on 7 November 2017.
You must also ensure that you or your settlement agent/custodian has a sufficient “debit cap” within the CREST system to facilitate settlement in addition to your/its own daily trading and settlement requirements.
In the event of late CREST settlement, the Company, after having consulted with Computershare Investor Services PLC, reserves the right to deliver Ordinary Shares outside CREST in certificated form provided payment has been made in terms satisfactory to the Company and all other conditions in relation to the Offer for Subscription have been satisfied.
281 6. Reliable introducer declaration
Applications with a value greater than €15,000 (approximately £13,000) will be subject to verification of identity requirements. This will involve you providing the verification of identity documents listed below UNLESS you can have the declaration provided at section 5 of the Offer for Subscription Application Form given and signed by a firm acceptable to the Company (or any of its agents). In order to ensure your Application is processed in a timely and efficient manner all Applicants are strongly advised to have the declaration provided in section 5 of the Offer for Subscription Application Form completed and signed by a suitable firm.
If the declaration in section 5 cannot be completed and the value of the application is greater than €15,000 (approximately £13,000) the documents listed below must be provided with the completed Offer for Subscription Application Form, as appropriate, in accordance with internationally recognised standards for the prevention of money laundering. Notwithstanding that the declaration in section 5 has been completed and signed, the Company (or any of its agents) reserves the right to request of you the identity documents listed below and/or to seek verification of identity of each holder and payor (if necessary) from you or their bankers or from another reputable institution, agency or professional adviser in the applicable country of residence. If satisfactory evidence of identity has not been obtained within a reasonable time your application may be rejected or revoked. Where certified copies of documents are requested below, such copy documents should be certified by a senior signatory of a firm which is either a governmental approved bank, stockbroker or investment firm, financial services firm or an established law firm or accountancy firm which is itself subject to regulation in the conduct of its business in its own country of operation and the name of the firm should be clearly identified on each document certified.
6A. For each holder being an individual enclose:
1. a certified clear photocopy of one of the following identification documents which bears both a photograph and the signature of the person: current passport, government or Armed Forces identity card, or driving licence; and
2. certified copies of at least two of the following documents which purport to confirm that the address given in section 3A is that person’s residential address: a recent gas, electricity, water or telephone (not mobile) bill, a recent bank statement, a council rates bill or similar document issued by a recognised authority; and
3. if none of the above documents show the Applicant’s date and place of birth, enclose a note of such information; and
4. details of the name and address of the Applicant’s personal bankers from which the Company (or any of its agents) may request a reference, if necessary.
6B. For each holder being a company (a “holder company”) enclose:
1. a certified copy of the certificate of incorporation of the holder company; and
2. the name and address of the holder company’s principal bankers from which the Company (or any of its agents) may request a reference, if necessary; and
3. a statement as to the nature of the holder company’s business, signed by a director; and
4. a list of the names and residential addresses of each director of the holder company; and
5. for each director provide documents and information similar to that mentioned in 6A above; and
282 6. a copy of the authorised signatory list for the holder company; and
7. a list of the names and residential/registered address of each ultimate beneficial owner interested in more than five per cent. of the issued share capital of the holder company and, where a person is named, also complete 6C below and, if another company is named (hereinafter a “beneficiary company”), also complete 6D below. If the beneficial owner(s) named do not directly own the holder company but do so indirectly via nominee(s) or intermediary entities, provide details of the relationship between the beneficial owner(s) and the holder company.
6C. For each person named in 6B(7) as a beneficial owner of a holder company enclose for each such person documents and information similar to that mentioned in 6B(1) to 6B(4).
6D. For each beneficiary company named in 6B(7) as a beneficial owner of a holder company enclose:
1. a certified copy of the certificate of incorporation of that beneficiary company; and
2. a statement as to the nature of that beneficiary company’s business signed by a director; and
3. the name and address of that beneficiary company’s principal bankers from which the Company (or any of its agents) may request a reference, if necessary; and
4. enclose a list of the names and residential/registered address of each beneficial owner owning more than five per cent. of the issued share capital of that beneficiary company.
The Company (or any of its agents) reserves the right to ask for additional documents and information.
7. Contact details
To ensure the efficient and timely processing of your Offer for Subscription Application Form, please provide contact details of a person the Company (or any of its agents) may contact with all enquiries concerning your Application. Ordinarily this contact person should be the person signing in section 3 on behalf of the first named holder. If no details are entered here and the Company (or any of its agents) requires further information, any delay in obtaining that additional information may result in your application being rejected or revoked.
283
sterling 169894