Tritax Big Box is in advanced talks to buy into Delancey and Barwood Development’s £400m logistics business db symmetry.
The listed logistics specialist has begun considering a capital markets exercise to raise new equity.
The db symmetry portfolio totals its 3,100 acres of land with 15m sq ft of consents in place and a further 32m sq ft that could be built out over a 10-year period. The land is concentrated in the Midlands’ “Golden Triangle” and the North West corridor.
Db symmetry’s management team, located in Northampton and Manchester and led by managing director Richard Bowen, is well respected in the logistics market and it is understood that Tritax would be keen to bring its staff and their development expertise on board in the event of a deal being concluded.
Any prospective deal would be transformational for the company, giving Tritax access to a land bank to draw down from and up to £3bn of assets to develop out.
By undertaking development itself, the company could squeeze out more profit, somewhat offsetting the record prices being paid for the long-let warehouses it focuses on.
A general meeting has been set by Tritax’s board for 23 November that would amend its investment policy in order to help accommodate an investment into dbs.
For Delancey and Barwood it would see them at least partially cash out of an investment in a market that has surged in popularity since they established the business in 2015.
It is understood that Tritax is the preferred party to buy the business but does not have an official exclusivity agreement.
The process has also attracted interest from US developer Hillwood, which formed a joint venture with Trebor Developments to develop £400m into the UK market within two years.
It has a major presence in Poland but thus far in the UK only has one 83,000 sq ft project in Dinnington, Yorkshire.
Schroders was close to agreeing an off-market deal to buy db symmetry at the start of the year before Delancey and Barwood decided to pursue a formal process but is no longer competing to acquire the company.
Myriad complications
Delancey and Barwood have been exploring a variety of options since Project Hurley formally kicked off in May.
While an outright sale is possible, so too is a joint venture agreement. An exact structure for the proposed deal has not yet been finalised and there are myriad complications.
The dbs portfolio is complex as much of its land is controlled through options. This can be perceived as an advantage as it is capital-efficient and the land does not have to be paid for in full upfront, although any buyer of the business would, in essence, be paying a premium for the options.
A major structural hurdle for Tritax is that its current investment policy caps exposure to land and options at 10% of net asset value. At its general meeting later this month it is looking to up this to 15% of gross asset value, of which 5% could be for speculative development and this would need to be approved in order to get any deal over the line. It is seeking to do so in order to “deliver enhanced returns” and “an attractive dividend yield for shareholders”.
Tritax currently owns only one development project in Littlebrook, Dartford. It has capacity for around 1.7m sq ft of development which it bought in July 2017 for £65m.
The move into development was met with resistance by a pocket of shareholders. It was their view that the company should not have been moving up the risk curve into development and should be concentrating solely on buying in assets with secure income streams, a view shared by non-executive director Steve Smith who resigned as a result.
It is understood the company received subsequent offers substantially in excess of the purchase price but has decided to push on with its development approach.
CBRE and Eastdil Secured are advising Delancey and Barwood. Savills is advising the management of db symmetry. DTRE is advising Tritax on the property element of the transaction and Tritax house broker Jefferies is in line to lead any equity raise.
All parties declined or were unavailable to comment.
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