UK Commercial buys Sheffield office from Ediston – UK Commercial Property Trust has acquired a single let, Grade A office building in Sheffield, from Ediston Property Investment Company for GBP20,165,000, reflecting a net initial yield of 5%.
The asset is let to Capita Business Services Limited, which is part of Capita plc, on a lease with annual indexed linked rent increases and 22 years to expiry. Delivering a current rent of GBP1,076,715 per annum, the transaction further increases UK Commercial Property’s exposure to long term, secure and growing income streams. Together with the purchase in February of a pre-let distribution warehouse development in Burton upon Trent, let on a 15 year lease with RPI inflation linked rent increases, for GBP22.2 million reflecting a yield on capital of 5.8% when completed in July 2017, the two acquisitions, at a combined GBP42.4 million, deliver a blended yield of 5.4%.
Hartshead House, at 2 Cutlers Gate in Sheffield’s city centre, is a prominent building comprising 61,638 sq ft of Grade A office space, which fits the Company’s strategy of acquiring good quality assets let to strong tenant covenants. The current availability of Grade A office space in Sheffield is limited, with a projection of less than five months’ supply in the market.
Will Fulton, Fund Manager at Standard Life Investments, said: “We have undertaken a significant amount of asset management activity during the course of 2017 and our strong focus throughout has been on further improving the income profile of our portfolio. To this end, the new asset in Sheffield meets our current preference for long term, secure and growing rents, while at the same time further enhancing our dividend cover.”
Ediston acquires in Sunderland
Eediston Property has simultaneously re-invested the sales proceeds by acquiring Pallion Retail Park in Sunderland. The company has acquired 100% of the units in a Jersey Property Unit Trust (JPUT) for GBP25,600,000. The sole asset in the JPUT is Pallion Retail Park, Sunderland. Taking into account the costs of acquisition and a rental guarantee on one vacant unit the net initial yield to the Company is 6.74%.
Buying the JPUT reduced the costs associated with the acquisition to a figure equivalent to approximately 0.2 per cent. of the Company’s net asset value as at 31 March 2017. The JPUT was acquired from a fund managed by Europa Capital LLP.
Pallion Retail Park, which occupies a prominent position to the North West of the city centre, extends to 131,349 sq. ft., across nine units. The immediate area is undergoing significant infrastructure change with the construction of the New Wear Bridge and the Sunderland Strategic Transport Corridor, both of which will benefit the asset.
The park has an open A1 (part food) planning consent, is let to tenants including B&M, Dunelm, Matalan, Iceland and Poundstretcher, and has a weighted average unexpired lease term (WAULT) in excess of eight years.
The asset, which is reversionary, offers a number of asset management opportunities including lease regears, lettings, and the potential to build a Costa Coffee ‘drive-thru’. These initiatives will enhance the tenant line-up, improve the already robust income stream and offers the potential for capital growth.
Pallion Retail Park was purchased with a combination of the proceeds received from the sale of the Company’s office property in Sheffield, a GBP4.5 million addition to the debt facilities provided by Aviva Commercial Finance Limited, which will be drawn shortly, and existing cash resources. The all-in interest rate on the additional borrowings, once drawn, is expected to be fixed at a rate below the Company’s current cost of borrowings. Following the completion of this acquisition, and the drawdown of the additional debt, the Company’s loan-to-value ratio will be 29.9%.
The transaction is accretive to the income position of the company. As a net result of both transactions, the contracted rental income has increased by 4.5%, equivalent to c. GBP0.6 million per annum. They now owns assets with a book value of GBP190.5 million (31 March 2017, GBP184.7 million).
Calum Bruce, Director of Investment at Ediston Properties Limited, the Company’s Investment Manager, said: “Sheffield is a good example of the Ediston style of asset management; unlocking value from a ‘dry’ asset through a proper understanding of the tenant’s needs, creating a robust and attractive income stream and selling on to the institutional market.
We are pleased to have quickly recycled the capital back into an ‘Ediston style’ asset which provides attractive asset management angles to exploit. This asset is well suited to our intensive approach to management, and allows us to recommence the value add process with a new property.”
UKCM / EPIC : UK Commercial buys Sheffield office from Ediston