UKCM acquires Midlands distribution warehouse portfolio for GBP85.4 million
UK Commercial Property REIT Limited (UKCM), which is managed and advised by Aberdeen Standard Investments and owns a diversified portfolio of high quality income-producing UK commercial property, has acquired a portfolio of five distribution warehouses in core locations across the Midlands from Clipstone Logistics REIT for a headline price of GBP85.4million, reflecting a headline net initial yield of 5.5 per cent.
The acquisition has been funded from existing cash resources and is a continuation of the management’s strategy to recycle capital from the sale of lower yielding assets into higher yielding opportunities with sustainable income.
The portfolio totals 909,030 sq ft and is 100 per cent let to a diverse mix of tenants with a low average headline rent of GBP5.52 per sq ft, and an attractive unexpired lease term of 7.4 years to break and 9.6 years to expiry. The reversionary portfolio provides secure, diversified income and attractive asset management opportunities to capture rental growth and extend lease terms. The acquisition is earnings accretive and, all other things being equal, will increase dividend cover by circa 10 per cent.
The assets are strategically located on established industrial parks across the East and West Midlands, close to the M1 and M6 motorways, at Cannock, Derbyshire, Leicester, Stoke-on-Trent and Newcastle-Under-Lyme; they offer good connections by road as well as access to strong local workforces, which is becoming an increasingly important factor for tenants in deciding where to locate. The diverse tenant base includes Clipper Logistics, Roca Limited, Bestway Pharmacy NDC Limited, Rhenus Logistics Limited and TJX UK (owner of TK Maxx).
The transaction increases UKCM’s industrial exposure to 45 per cent of the total portfolio value (with approximately 27 per cent now comprising South East and London urban industrial / logistics asset and 18 per cent in strategic regional locations). The acquisition was funded from existing cash resources, recycling capital from the strategic disposal in October 2018 of lower yielding assets: a high street retail asset in Exeter for GBP23.5 million and a London office at 15 Great Marlborough Street, for GBP73.2 million.
Will Fulton, Lead Manager of UKCM at Aberdeen Standard Investments, says: “We believe that this acquisition is an excellent use of the proceeds from previous disposals, boosting the Company’s property yield and balancing our exposure to the industrial sector, which has good prospects for rental growth, through the addition of more diverse and well located regional assets. It will be immediately earnings enhancing and provides income security from strong tenants, many of whom have invested significantly in the properties.
“As the structural changes from the widespread adoption of e-commerce in the UK pervade, a trend which has proven resilient against a backdrop of Brexit negotiations, we expect the outperformance of the logistics market to continue as occupier demand for space remains high.”