Hotel : Hyena Announcement 15th January

Microsoft Word - Hyena - Announcement draft 9 (track)

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The Hotel Corporation plc (the "Company" or "HCP")

Proposed Capital Reorganisation

Placing and Open Offer of 12,454,765 New Ordinary Shares at 20 pence per share and issue of up to 4,151,485 Warrants

Proposed change of name to Specialist Investment Properties plc and

Notice of Extraordinary General Meeting

HCP is pleased to announce a proposed capital reorganisation together with a placing and open offer to raise up to £2.5 million gross for the Company (and a minimum of gross £2.0 million). A circular is being sent to Shareholders today (the "Circular") containing details of the Capital Raising and other associated matters. The Circular will shortly be available on the Company's website at www.thehotelcorporation.co.im.

Capitalised terms used but not defined in this announcement bear the meanings ascribed to them in the Circular.

1. Introduction

   In September 2015, following more than a year in which your Board had been actively seeking an opportunity to deploy its public company status and remaining cash to enhance shareholder value, Shareholders approved a new investment strategy. This was based on proposals from one of the Company's major Shareholders that the Company adopt the Investing Policy and deploy the Company's cash in a specialised segment of the investment property market in the United Kingdom.

   
   

   The Company currently holds approximately £300,000 in cash. In order to increase the cash resources available to the Board, the Company is proposing to issue new equity through an Open Offer to Shareholders to seek to raise up to £2.5 million. Under the Open Offer the Company will offer up to 5 of the New Ordinary Shares to Qualifying Shareholders for every 20 Existing Ordinary Shares held on the Record Date at the Issue Price.

   
   

   In light of the fact that the Open Offer represents a significant multiple of capital relative to the existing market capitalisation of the Company, the Company has conditionally placed an aggregate of 10,000,000 New Ordinary Shares with Placees at the Issue Price, thereby providing assurance that the Capital Raising will provide minimum gross proceeds of approximately £2.0 million for the Company. To the extent that the Open Offer is subscribed by Qualifying Shareholders by amounts in excess of the difference between the Open Offer amount (£2.5 million) and the Placing (£2.0 million) the Placing will be reduced accordingly. In the event that the Open Offer is subscribed in full, there will be no New Ordinary Shares available for the Placing. In addition, on Admission of the New Ordinary Shares,

   Shareholders will also receive one Warrant for every three New Ordinary Shares subscribed by them pursuant to the Capital Raising. The Warrants will give Shareholders the ability to subscribe for new Ordinary Shares in the future at the closing mid-market price of the Ordinary Shares on the last dealing day prior to Admission. The Warrants will be unlisted and will not be admitted to trading on AIM.

   
   

   Qualifying Shareholders may subscribe for Open Offer Shares on the basis of 5 Open Offer Shares for every 20 Existing Ordinary Shares held on the Record Date. Shareholders subscribing for their full entitlement under the First Round of the Open Offer may also apply for additional New Ordinary Shares through the Excess Application Facility in the Second Round of the Open Offer.

   
   

   In order to facilitate the Capital Raising, the Company proposes to undertake a Capital Reorganisation involving a Consolidation and Subdivision.

   
   

   The Capital Raising and Capital Reorganisation are conditional, inter alia, on the passing of Resolution 1 by Shareholders at the Extraordinary General Meeting, notice of which is set out in the Circular. Should Shareholders' approval not be obtained at the Extraordinary General Meeting, the Capital Raising and Capital Reorganisation will not proceed. Admission of the New Ordinary Shares, upon which the Capital Raising is conditional, is expected to occur at

   8.00 a.m. on 25 February 2016.

   
   

   The net proceeds of the Capital Raising will be used to fund the acquisition of investment properties in line with the Company's Investing Policy (described below) and to provide further working capital for the Company.

   
   

2. Background to and reasons for the Capital Raising

3. Investing Policy

   At an Extraordinary General Meeting held on 16 September 2015 the Company adopted a new Investing Policy. The Investing Policy adopted is for the Company to become an investment property company, acquiring and holding freehold properties (and, in rare cases, long lease-hold properties) in specialised sectors of the property market. The initial and primary focus is to make investments in purpose-built homes for adults with learning difficulties requiring support from carers (for example adults with autism), purpose-built care homes for the elderly and infirm and converted dwellings accommodating young adults/late teens requiring extensive support from social services. The Investing Policy for the Company will also allow it to invest in other specialist areas such as wedding and conference centres, other leisure facilities and, if sufficiently non-mainstream, residential or commercial property.

   
   

4. Specialised Investment Property Sectors

   The areas listed above are outside of the classic investment property mainstream of commercial buildings let to businesses of good covenant on full repairing and insuring leases with five yearly upward only rent reviews. However, in many cases they can offer strong long-term security of income streams and, because they are more complex and specialised, offer higher initial yields. In many cases they also offer inflation indexed rents.

   
   

   The specialist children's homes sector, which will be the initial investment focus of the Company, is underpinned by the Children and Families Act, which places legal responsibility on local authorities to look after those young people. Local authorities are generally unable to

   place those with emotional or behavioural difficulties or complex care needs into foster homes and consequently they are placed in care facilities. These facilities are often run by outsourced specialist care providers who require leased residential accommodation. To execute this initial investment focus, the Company has entered into a Joint Venture with a children's care specialist who will work with the Company to identify assets to purchase, develop relationships with operators and provide expert industry knowledge. Details of the joint venture agreement are set out in the Circular.

   
   

   The Board believes that it can acquire and provide as landlord leased properties to these care providers. If acquired on prudent debt/equity gearing ratios, these properties can offer attractive returns on equity and the prospect of medium term capital growth as the chosen specific property category grows and becomes better appreciated by mainstream property investors. The Company intends to limit its leverage to approximately 70 per cent. of the total asset value in normal circumstances.

   
   

5. Initial Programme

   The Property Investment Adviser has initially identified four properties for the Company to look to acquire. The acquisitions would comprise a combined investment of around £1.3 million, of which it is expected that around 70 per cent. can be financed by debt. The Company would seek to raise the debt initially from Heritage Square a specialist property lender advised by Puma Investments as the Company believes this offers faster execution at competitive pricing. As the Company acquires more properties and builds up a portfolio of income producing properties, it will look to refinance this initial debt with a longer term facility. Two of the properties are already in operation as care facilities for children and available as sale-and-leaseback opportunities while the two other properties would be open market purchases of standard homes for conversion. The adaptation work required is modest with a subsequent local authority compliance check prior to receipt of a designated change of use.

   
   

   The Company would endeavour to acquire each home with an existing lease in place and with an established care operator. In relation to the two open market purchases leases would be entered into with the care operator on acquisition which would be subject only to approval of the change of use. The Company will target such leases to be for a minimum term of 20 years (25 years on properties initially identified) on full repair and insuring (FRI) basis, with annual rent increases linked to the consumer price index (CPI). The care operator for the four properties has recently secured a substantial, term care placement contract with Birmingham City Council and needs additional space. This contract will support the care provider's ability to meet the lease payments. The care provider is a well-established operator with over 10 years' experience, already operates a network of 19 residential care units, one specialist school and has 36 young people in its care. It is a substantial enterprise with 250 staff based within five local authorities and also undertakes ad hoc work nationwide.

   
   

   The Property Investment Adviser has additionally identified a pipeline of similar transactions which it will introduce to the Company for the Company to seek to execute within two to three months of the close of the Capital Raising. The Property Investment Adviser would then aim to identify further acquisitions which would be part financed through raising further equity in a larger fundraising or raisings.

   
   

6. Corporate Structure

   The Company is an ideal vehicle for such investments as it is an offshore investment company, largely avoiding double taxation for underlying Shareholders. The Company is resident for tax purposes in the Isle of Man. It is managed and controlled outside of the United Kingdom and generally is not expected to be subject to United Kingdom taxation, but this status could be subject to changes in taxation legislation in the future. In any event the Company and or its subsidiaries intends to register as a non-resident landlord under the HMRC scheme. As such the registered company or companies will be subject to United Kingdom taxation on profits at the current rate being 20 per cent. of its taxable profit. It is not expected that registration will give rise to a material liability to UK taxation in the Company's first year of implementing its new investing policy. Furthermore, it is expected that any liability to United Kingdom capital gains tax (in the event of any future property disposals) will be de minimis based on current taxation legislation.

   
   

7. Property Investment and Management

   The Company intends to adopt a conventional offshore real estate investment trust REIT like structure. The Board will be responsible for approving the investment strategy, making investments, monitoring performance, determining dividends, organising accounting, company administration and reporting to Shareholders. The sourcing, evaluating, structuring and negotiation of the investments will be delegated to the Property Investment Adviser under a property investment advisory agreement. The Property Investment Adviser will also be responsible for monitoring of the investments, organising property administration and rent collection.

   
   

8. Property Investment Adviser

The Company announced today that it had entered into a property investment advisory agreement with Puma Investments. Puma Investments is a subsidiary of the Shore Capital group of companies. This agreement is summarised in the Circular.




The asset management division of Shore Capital, including Puma Investments, has a long and successful track record of investing in property and property-related schemes, dating back to the launch of Puma Property in 2002 which achieved an IRR of close to 40 per cent. per annum. Its track record in smaller companies is now nearly 20 years. It currently manages six Venture Capital Trusts ("VCTs") which specialise in property and construction related deals. Each VCT is a five year life vehicle and the first five Puma VCTs launched, the last of which liquidated in 2014, were each rated the top performer in their peer group by the independent research house Martin Churchill's Tax Efficient Review (September 2014). The VCTs have raised close to £200 million to date.




Puma Investments also manages a discretionary portfolio service invested in four specialised EIS companies (two focused on construction and two on pubs) and advises Heritage Square, a specialist property lender. An affiliate within the group is the property adviser to two investment property funds in Germany, Puma Brandenburg and Brandenburg Realty. In total the fund management group has around £800 million under management and has a large dedicated group of around 45 investment and property professionals.




Puma Investments has demonstrated that it has strong fund-raising capability. The latest VCT, VCT 11, listed in May 2015 having raised over £30 million, making it the largest limited life VCT raising in that tax year (2014/5). Brandenburg Realty also closed in 2015, raising €150 million in equity. The EIS companies have raised £28 million since inception in 2014.