TIDMLMS
RNS Number : 5386X
LMS Capital PLC
21 December 2023
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulation (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
21 December 2023
LMS Capital plc
LMS Capital plc (the "Company") acquires Castle View Retirement
Village, Windsor as first step in establishing a retirement living
investment platform
Summary
The Board of LMS Capital PLC ("LMS"), the listed investment
company, is pleased to announce the acquisition of Castle View
Retirement Village, Windsor (" Castle View ").
-- The acquisition price is GBP11.9 million, of which GBP6.0
million is being provided by LMS equity and the remaining GBP5.9
million by a loan from the existing lenders to the scheme.
-- Castle View is a purpose built retirement village, completed
in 2018 and comprising 64 individual 1 and 2 bedroom apartments, of
which 15 remain to be sold.
-- As set out in our 2022 Annual Report and again at the June
2023 half year, one of our objectives, as part of our real estate
investment activity, has been to deploy capital in the retirement
living sector which we believe offers the prospect of strong growth
in the coming years.
-- The investment in Castle View provides a foundation for our activity in the sector.
Integrated Retirement Communities
Underlying demand for retirement housing options in the UK is
driven by the ageing population. The number of households of 75+
years is expected to increase by 77% in the 25 years to 2043.
This older population owns in excess of 40% of all residential
housing equity, which can be used to finance retirement options and
release equity, in addition to releasing family housing stock to
the wider housing market.
The retirement living market is currently undersupplied, with
relatively few developers of scale and an increasing interest from
institutional capital.
The sector covers a wide spectrum of different housing options
for older people, ranging from full provision care homes at one end
to traditional housebuilding aimed at older people, but without any
facilities, at the other end.
Integrated Retirement Communities ("IRCs"), of which Castle View
is one, along with other established schemes around the country,
sit broadly in the middle of this range. Residents have their own
property and live independently in their own self-contained home,
with access to communal facilities and amenities and the
availability of optional support and care services, if needed,
arranged between the resident and the providers.
Castle View
Castle View has been acquired from the two entrepreneurs, Robin
Hughes and James Sarmecanic, who developed the site, and from their
funding partner which provided equity funding for the
development.
Castle View comprises a purpose-built retirement village,
completed in 2018 including 64 individual 1 and 2 bedroom
apartments. The communal facilities include 24-hour reception,
library, private dining room, landscaped gardens, bars, lounges and
a roof terrace.
Residents acquire individual apartments on 250-year leases and
pay an annual service charge and a deferred fee. The deferred fee
is payable only when an apartment is resold and is linked to a
percentage of the resale price.
To date 49 apartments have been sold to residents on 250-year
leases, leaving 15 apartments remaining to be sold. LMS has
acquired the companies that employ the team responsible for running
the village, as well as the entity that owns the freehold interest
in both the sold and unsold apartments and which carries the right
to receive the deferred fee.
Acq u isition Terms
-- The companies that own Castle View are being acquired for a
price of GBP11.9 million on a debt-free and cash free basis.
-- The acquisition is being part financed by a loan of GBP5.9
million from the existing lenders to the scheme, plus a GBP6.0
million equity investment from LMS.
-- The acquisition includes:
o the freehold interest in all 64 units, entitling the
freeholder to the annual service charges and deferred fees;
o the leasehold interests on the 15 unsold units which have an
estimated sale value of GBP8.3 million;
-- LMS will in addition provide GBP400,000 of working capital for the business;
-- The loan is secured on the freehold interest and is for a
term of 3 years. The loan is required to be paid down from the
proceeds of apartment sales.
Returns
Sale of 15 unsold apartments
Construction was completed at the end of October 2018 and in the
year from November 2018 to November 2019, 19 apartments were sold.
The pandemic and lockdowns in 2020 and 2021 impacted the rate of
sales, but rates have increased again in 2022 and 2023.
Sale rates for new developments in the retirement living sector
are recognised to be slower than rates for regular market new build
apartments and houses. We have taken a conservative view of sale
rates for the remaining apartments in evaluating the acquisition
but expect to maintain or improve upon the historic rates.
Deferred fees on resale of apartments
The deferred fees are payable to Castle View, by the vendor, out
of the proceeds of resale as and when an apartment is resold. The
level of deferred fee depends on length of ownership starting at 4%
and increasing to a maximum of 20% from the beginning of the 5th
year of ownership. The deferred fee covers the capital costs of
constructing the communal facilities, the costs of updating the
facilities over the lifetime of the asset and provides a return on
the capital invested.
The timing and amount of the investment return from the deferred
fees will depend on the actual timing and value of resales and will
inevitably be uneven year to year. The average period of ownership
within IRC's is 8 years, and on this basis on average approximately
12.5% of units would expect to be resold each year, once village
occupancy has matured, meaning all units are sold and the pattern
of occupancy established. Allowing for the time for the village to
achieve maturity, our conservative base case appraisal model shows
overall income returns in excess of 11%.
The annual service charge is designed to recover the regular
costs of running the village, but not to give an operating surplus
that would provide a return on capital.
Future Plans
The investment in Castle View is intended to be a cornerstone in
the development of a retirement living investment platform.
LMS has established a subsidiary company, LMS Retirement Living
("LMSRL") as the acquisition vehicle for Castle View, to identify
further investments in the sector and to identify additional equity
and debt partners to coinvest alongside LMS.
The LMSRL Board will comprise individuals, all of whom LMS has
been working with for the last 12-18 months as it has built
knowledge and been evaluating opportunities to enter the
sector.
The Board will be chaired by Roger Davies. Roger is a senior
industry figure having been Chief Executive of MHA and
Non-Executive Chair and Director of several sector businesses and
has worked with LMS since early 2022. Other members of the team
include:
-- Karl Hallows - Karl has over twenty years experience in the
retirement living sector, in senior and non-executive director
roles and will join the LMSRL Board as an executive. Karl, in
conjunction with the rest of the team, will have responsibility for
the development of the investment platform.
-- Chris Dancer - Chris is part of LMS' real estate team and has
been instrumental during the last 2 years in establishing LMS'
knowledge and presence in the retirement living sector and has been
closely involved in evaluating potential investment
opportunities.
-- Caroline Howard - Caroline is part of LMS' finance team and will provide finance support.
Nick Friedlos, Managing Director of LMS, will oversee LMSRL on
behalf of the LMS Board and will provide support to the team.
Commenting on the Acquisition:
Robbie Rayne, Chairman of the Board of LMS, said:
"Over the last 2 years, LMS has been evaluating opportunities to
deploy capital in the retirement living sector as an extension to
its property background.
The goal, having now acquired Castle View, is to develop an
investment platform in the sector and deliver attractive returns to
our shareholders. The sector is currently fragmented with multiple
different business models and offers to residents. It offers the
prospects of strong growth and attractive investment returns,
underpinned by favourable demographics. I am confident in our team
and the long-term prospects for the sector."
The person responsible for arranging the release of this
announcement on behalf of the Company is IQ EQ Corporate Services
(UK) Limited, the Company Secretary.
Enquiries
LMS Capital PLC - Nick Friedlos, Managing Director
nfriedlos@lmscapital.com
0207 935 3555
Shore Capital - Robert Finlay/Rose Ramsden
0207 408 4050
Vico Partners - John Sunnucks
jsunnucks@vicopartners.com
07919 615222
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END
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