AEW UK REIT has announced the acquisition of industrial assets in Basildon, Essex and Runcorn, Cheshire, for a total of c GBP2.6 million.
Basildon comprises a 33,000 sq ft single-let industrial building located on the established Pipps Hill Industrial Estate, just off the A127, approximately five miles from Junction 29 of the M25. The purchase price of GBP2.0 million reflects an attractive net initial yield of 9.3%, a reversionary yield of 8.8% and a low capital value of GBP64 per sq ft. The building will be let on a new 10 year lease to Merson Signs Ltd, at a passing rent of GBP6 per sq ft.
The Runcorn asset, which shows an initial yield of 7.8%, completes the Company’s acquisition of the whole of the Sarus Court industrial estate, where the Company already owned five of the six units. The estate provides well specified, modern industrial units of between 11,000 and 17,000 sq ft, which are let to a number of light-industrial occupiers on a WAULT of over 4 years. The newly acquired unit, which is let to Dimension Data until 2020, offers significant reversionary potential, with a passing rent of GBP4.50 per sq ft which is more than 15% lower than a recent Sarus Court letting secured by AEW UK at GBP5.25 per sq ft.
Sarus Court forms part of the wider Manor Park industrial estate, strategically located to the west of Runcorn and five kilometers from the Mersey Gateway Project, a new six lane bridge over the River Mersey connecting the towns of Runcorn and Widnes and linking the M56 to M62. The project is due for completion in autumn 2017.
In order to complete the transactions, the Company utilised funds gained from the sale of its asset on the Equinox Business Park in Salisbury, which completed in February, together with an additional GBP1.5 million which has been drawn down from its existing loan arrangement with lender RBSi which has seen the Company’s gearing position increase from a loan to value ratio of 18.7%, to 19.8%.
Commenting on the acquisitions, Alex Short, the Company’s Portfolio Manager at AEW UK Investment Management LLP, said, “We are pleased to add two more high yielding acquisitions to the portfolio, in a defensive sector that has continued to out-perform other parts of the commercial real estate market.
Basildon is a very strong industrial location that has seen significant rental growth over the past 18 months. The unbroken 10 year lease will improve the Company’s overall income profile; furthermore we believe that the acquisition pricing is well supported by the asset’s underlying vacant possession value, limiting any downside risk.
The Runcorn purchase offers significant rental upside, whilst bringing the whole estate under the Company’s ownership, which will add value from an estate management perspective. The off-market acquisition demonstrates our continued origination capabilities across the UK.”
AEWU : AEW UK REIT buys industrial assets in Basildon and Runcorn