BWP REIT PLC has raised £35m and will list on the IPSX, the world’s first regulated exchange for single asset real estate companies.

The listing also shows how IPSX as a public market can be used as a force for good and a new capital markets option – in this case solving a cladding issue on the residential elements of a building, Bridgewater Place in Leeds – at no cost to the owner/tenants – which the previous ownership structure would not have resolved.

The capital raised will be used to address this and refurbish the office elements of the building to deliver a product that meets the high demand for sustainably developed and amenity rich offices, where there is low supply.

Bridgewater Place is a large office, retail, and residential mixed-use property completed in April 2007 that sits on a three-acre freehold site in a prime location in central Leeds. At 30 above ground storeys, it was the tallest property in Yorkshire until 2021. The internal demise of the residential accommodation was sold under a 250-year lease in 2007 and therefore is not owned by the Company. The Property has been independently valued as at 30 August 2022 at £63 million by Avison Young.

The Property generates an annual contracted rental income of £5.97 million, with a weighted average unexpired lease term (“WAULT”) of 3.74 years to break and 3.93 years to expiry. Approximately 8% of the total floor area is currently vacant (as at 30 August 2022). Assuming 100% occupancy and completion of the capital expenditure programme referred to below, the Property would have an independently assessed market rental of £7.68 million per annum. Approximately 77% of the total floor area is occupied by the Property’s three largest tenants, who are classified as either ‘very low risk’ or ‘low risk’, with global multinational law firm Eversheds Sutherland accounting for approximately 48% of the total floor area.

The Property comprises two separate but inter-connecting structures either side of a central atrium, with 15,587 sq. ft. of retail units on the ground and first floors and 234,711 sq. ft. of commercial office space from floors one to nine. A 20-storey residential tower of 198 apartments sits above the offices on the west wing spanning floors 11 to 30, with floor 10 used to house the mechanical plant. There are two levels of parking offering 268 spaces in the basement and at ground level.

Certain elements of the Property require substantial investment and this is reflected in the approximately £63 million acquisition price. The funds raised, along with the debt facility being novated on Acquisition, will be used to fund the acquisition of the Property. £23 million of Loan Notes have also been issued which will enable the Company to undertake a comprehensive asset management plan for the Property. Until such works are completed, the Company does not intend to pay a dividend and will focus resources on achieving capital growth.

The Property benefits from excellent transport links by occupying a high-profile position fronting Victoria Road (the main arterial link between Leeds city centre and the M621 motorway) and close to Leeds Railway Station.

Use of Funds and Asset management strategy

The £35 million raised and the Loan Notes will be used to carry out a wholesale repositioning of the Property. While the Company is not responsible for the residential accommodation this also includes a comprehensive remediation of the entire Property’s cladding, which also benefits the residential occupiers and creates an up to date, energy efficient building. The costs of the remediation of the cladding at £14.5 million includes a £3 million allowance for inflation and the improvements to the Property are estimated at £9 million. Costs of acquisition of the building, issue expenses and working capital represent the balance of the funds raised.

The asset management strategy for the Property aims to create a clear path to capital growth through sustainability improvements (including a pathway to net zero), increasing space utilisation, capturing rent reversion and-letting vacant space. A comprehensive upgrade programme will be carried out in phases over the next two to three years allowing current occupiers to remain in situ. The programme aims to significantly improve how the Property is positioned within the Leeds office market to both occupiers and ultimately future buyers or long-term investors.

A key element of the asset management strategy will be to lease c.18,000 sq. ft. of currently vacant space on floor 9 (following completion of certain works by mid-2023), resulting in an expected c.£0.6 million per annum increase in rental income and reducing service charge leakage.

M7 believes that with careful branding, marketing and proactive management, the physical qualities of the Property, its energy performance credentials, new amenities, inherent affordability relative to newly constructed buildings together with regional connectivity, will all serve to position the Property for the next generation of tenants.

Upon completion of the remedial works and repositioning of the Property, the Board will seek to optimise shareholder returns either through an outright sale of the Company or by listing the Company on the IPSX Prime market if the Directors are advised that the increased liquidity will provide shareholders with a choice to exit or retain their investment at an appropriate valuation.