LondonMetric has exchanged on two distribution warehouses in Bedford and Birmingham for a total consideration of £61.8 million (approx. €71.46 million) (net of acquisition costs) reflecting a combined net initial yield of 7.2%. The acquisitions will be funded from existing resources.
In Bedford, LondonMetric has exchanged on the Argos Distribution Warehouse for £51.65 million (approx. €59.7 million), reflecting a net initial yield of 7.0%. The 657,500 ft² (approx. 61,083 m²) scheme is Argos’ key distribution center in the UK handling its bulky goods home delivery operations. The unexpired lease term is 9.5 years with an open market rent review is due in December 2017. Nearby occupiers include Asda and Sainsbury’s.
In Birmingham, LondonMetric has exchanged contracts to acquire the WH Smith Distribution Unit for £10.1 million (approx. €11.7 million), reflecting a net initial yield of 7.9%. The scheme is 211,000 ft² (approx. 19,600 m²) and is let for 11 years to WH Smith. It is one of three WH Smith distribution warehouses across the UK that supplies its UK High Street and Travel Outlet business.
Simultaneously, LondonMetric has entered into agreements to surrender the existing lease and grant a new 21 year lease to WH Smith at £3.75/ft² with a fixed uplift in September 2014 to £4.75/ft², producing a yield on cost of 7.5%.
Following these acquisitions, the LondonMetric retail distribution portfolio comprises five distribution centers with a combined portfolio value of £164.8 million (approx. €190.6 million), representing 14% of the enlarged Group portfolio. The weighted average unexpired lease term is 14.9 years with no tenant break options and the portfolio is 100% occupied. Fixed rental uplifts across the distribution portfolio represent 40% of total distribution rental income, and 21% of the Group contracted rental income.
Andrew Jones, Chief Executive of LondonMetric, commented:
“The Argos and WH Smith Distribution Units represent the latest in a number of deals that we are working on within the retailer distribution sub-sector. These are assets that deliver not only a high income yield, but also high occupier contentment and demonstrate again the benefit of our strong occupier relationships which we believe provide us with a competitive advantage. We continue to successfully sell down our residential investment holdings and re-invest into retail and retailer distribution sectors where we can deliver more attractive income and capital returns.”
Dowley Turner Real Estate advised LondonMetric on Bedford and Burbage Realty advised LondonMetric on Birmingham.