Caledonian Trust amends disposal plans for St Margaret's House

Edinburgh-based property investment holding and development company Caledonian Trust updated the market on the proposed sale of St Margaret's House at 151 London Road to Drum Property Group on Friday.

The AIM-traded firm had initially announced the proposed sale on 5 February 2018.

It said that, following recent discussions, the two companies had agreed to amend the missives originally entered into on 2 February 2018 in relation to the proposed disposal, in order to allow Drum sufficient time to progress with the disposal.

Drum had been “diligently pursuing” its proposals for its development, Caledonian Trust said, adding that “good progress” had been made, including completing the necessary investigation of the ground conditions and resolving a mixture of technical challenges, including designing a new and improved vehicular access to the site.

It explained that Drum was now in a position to finalise its proposals for submission of the requisite applications for detailed planning consent.

“Under the amended missives, Drum is required to submit all of the requisite planning applications for consent for its proposed development by a date which is three months from 23 May 2019, unless extended by mutual consent,” the board of Caledonian Trust said in its statement.

“Following the submission of planning applications, Drum will have a period of 12 months to secure such consent.

“Thereafter, Drum will have a period of three months in which to conclude a pre-letting of its proposed development.”

In order to facilitate completion of the proposed disposal, Caledonian Trust said it would then need to provide vacant possession of the property, which the directors estimated would take up to six months following the conclusion of the pre-let.

On the basis of that sequence of key events, Caledonian Trust said it expected that completion of the proposed disposal will take 24 months from now.

“The amended missives contain a variation to the mix of units to be sought within the planning consent for Drum's proposed development.

“Drum is now required to obtain planning consent for a proposed development comprising not less than 493 student bedrooms, which was previously 429 student bedrooms under the original missives, and 98 flats, unchanged from the original missives.

“Whilst the number of student bedrooms required in Drum's planning consent has increased, the total gross area for student accommodation is unchanged, due to the removal of larger studio flats overall and their replacement with more cluster units which accommodate more bedrooms in the same gross area.”

The board said the amendments to the missives would not affect the consideration for the proposed disposal, which remained as £15m exclusive of VAT, payable to the company on completion of the disposal in cash.

The use of proceeds in respect of the proposed transaction also remained unchanged, in that the company intended to use the net proceeds to provide funding to accelerate its existing property development programme, re-invest into new property developments, repay certain existing debt and provide general working capital.

“Under the amended missives, there is still the potential for the company to receive additional cash consideration should the planning permission process result in the development comprising additional student bedrooms or additional housing units.

“However, certain of the reference criteria to be used in the basis of calculation in respect of any additional consideration have been changed to reflect the changes to the proposed mix of units within the planning consent that Drum will seek, as detailed above.

“The directors remain of the view that it is unlikely that any additional consideration will be received over and above the consideration of £15m.”

Caledonian Trust explained that St Margaret's was its largest property, located approximately one mile from the Parliament and Princes Street and adjacent to Meadowbank Stadium in Edinburgh.

The existing building was a 92,000 square foot multi-storey building that was currently fully let, with the main tenants being registered charity Edinburgh Palette, and the Registrars of Scotland leasing 120 car parking spaces.

It had planning permission in principle at St Margaret's for a 231,000 square foot mixed-use development.

“A book value of £8m was attributed to St Margaret's as at 30 June in the last audited accounts published by the company,” Caledonian Trust confirmed.

“For the year ended 30 June, St Margaret's generated gross rental income of £191,375 for the company and an operating profit of £155,949.”