LONDON, UK: Schroder Real Estate Investment Trust, the actively managed UK-focused REIT, announces the acquisition of a portfolio of four industrial assets in the north west of England. The purchase price of £19.85 million reflects a net initial yield of 6.9% and a capital value of £53 per sq ft. 

Valley Road Industrial Estate, Birkenhead

Unconditional contracts have been exchanged to acquire Valley Road Industrial Estate in Birkenhead, for £11.4 million, reflecting a net initial yield of 6.8%, a reversionary yield of 7.8% and a low average capital value of £60 per sq ft. The 10 acre estate comprises 190,000 sq ft of warehouse space and ancillary offices across 15 units, of which 41% by area have been recently refurbished. 

The estate is located close to Junction 1 of the M53 and features a manned secure access, low site cover and good circulation. With an EPC rating of C, it offers the opportunity to improve sustainability credentials through initiatives including upgrades to LED lighting, installation of PIR sensors and improvements to insulation.

The estate is let to seven tenants generating a combined rent of £830,000 per annum, reflecting a low average rent of £4.36 per sq ft. This compares with an ERV of £950,000 per annum, or £4.99 per sq ft.

Tenants include KPFF Limited, a frozen food distribution production company, at £300,000 per annum or 36% of total income; Balfour Beatty, an international infrastructure company, at £247,200 per annum or 29% of total income; and Park Retail, a gift and voucher distribution company, at £85,910 per annum or 10% of total income.

The weighted average unexpired lease term is 4.3 years to earliest termination and approximately 10% of the estate is vacant, where the refurbishment has just been completed and where there is a 12 month rental guarantee. The majority of this space has good tenant interest. 

Coral Products, Haydock Industrial Estate, Haydock

Acquisition of a 98,551 sq ft manufacturing and recycling facility on Haydock Industrial Estate, which is leased to Coral Product (Mouldings) Limited (“Coral”). The purchase price of £4.9 million reflects a net initial yield of 6.6% and a low capital value of £49 per sq ft. Coral, who were recently acquired by a subsidiary of the Canada-based IPL Plastics Group, occupy the entire site on a lease expiring in January 2031, with a tenant break in 2026, at a rent of £340,000 per annum or £3.45 per sq ft. This compares with an ERV of £394,000 per annum or £4.00 per sq ft.

The asset is well located with direct access to the A580 (East Lancashire Road) and in turn the M6 motorway.

The unit benefits from a new roof across the majority of the buildings. The tenant is understood to be committed to the site due to recent investment and the recycling licence, but there may be potential to acquire adjoining sites and pursue a longer-term redevelopment strategy.

Newfield Fabrications, Sandbach, Cheshire

Acquisition of two assets let to Newfield Fabrications (“Newfield”), a steel fabricating business established in 1965, for a combined £3.6 million, which reflects a net initial yield of 7.4% and a low capital value of £42 per sq ft. Both assets are in an established industrial area in Sandbach, Cheshire, approximately three miles from junction 17 of the M6.

The first asset comprises a 77,880 sq ft manufacturing and distribution facility on a 4.1 acre site, let on a 13.9 year term at a rent of £247,000 per annum, or £3.17 per sq ft. The lease benefits from five yearly rent reviews linked to the retail price index (“RPI”), subject to a minimum increase of 2% per annum and a cap of 4% per annum. The facility has an EPC rating of C and features photo-voltaic panels. 

The second asset comprises an 8,000 sq ft industrial unit with main road frontage, also let for 13.9 years at a rent of £36,000 per annum, or £4.50 per sq ft. The lease also benefits from five yearly rent reviews linked to the RPI, subject to a minimum increase of 2% per annum and a cap of 4% per annum. The property has an EPC rating of C.

The portfolio acquisition, to be funded by drawing on the revolving credit facility, generates additional rent of £1.45 million per annum which is consistent with the stated strategy of growing net income, with the potential for this to be increased further through active management and the embedded reversion. The acquisition increases SREIT’s industrial weighting, based on the last published independent valuation as at 30 June 2021, from 40.2% to 42.7%, with the majority of this by value comprising good quality multi-let estates.

Following completion, SREIT’s net loan to value, adopting the last published independent valuation, will be 34.7%, with cash of £11.8 million and remaining undrawn loan facilities totalling £6.8 million.

SREIT announces its interim results for the six month period to 30 September 2021 on 23 November. www.schroders.com

NNR