Schroder acquires Manchester City Tower (UK)

Schroder Real Estate Investment Trust completed a Placing and Offer for Subscription that raised £40.2 million (approx. €49 million) from the issuance of 80 million shares at an issue price of 50.25 pence per share. The Placing was completed at a premium to the last reported Net Asset Value.

Following completion of the Placing the Company announces that it has exchanged contracts to acquire a 25% interest in City Tower, a landmark, mixed use investment in Central Manchester, for £33 million (approx. €40.2 million). The Company is acquiring the property alongside Schroder UK Property Fund and Immobilien Europa Direkt, both managed by Schroder Property Investment Management, for a total price of £132 million (approx. €160.9 million). The price reflects a headline net initial yield of 7%.

City Tower provides 615,429 ft² (approx. 57,175 m²) of office, retail, leisure and hotel accommodation on a three acre island site including 456 car parking spaces. It is located in a prime location within the Central Business District of Manchester with frontage to both Piccadilly Gardens and New York Street. The property is held on a long leasehold basis from Manchester City Council with 218 years unexpired at nil rent.

Completion of the acquisition is subject to freeholder and other consents that the Company expects to be cleared within four to six weeks. The acquisition satisfies the Company's investment criteria by offering:

• An above average income return with the Company receiving an initial rent of £2.4 million per annum on expiry of rent free periods and after non-recoverable property expenses;

• 115 tenancies and mix of uses provides significant diversification with offices representing 61% of rental income, retail and leisure 14%, hotel 15% and ancillary uses 10%. UK Government institutions represent 18% of current rental income;

• A spread of lease expiries with an average unexpired lease term, to the earlier of lease expiry or break, of 10.8 years;

• The offices are let at a low initial rent of £17/ft² with key tenants including the National Institute for Health and Care Excellence ('NICE'), the Ministry of Justice, The University of Law Limited and Aegis Outsourcing (UK) Limited;

• Simple co-ownership structure enables the Company to invest in a property it would otherwise not be able to access;

• The potential to add significant value through asset management; and

• Central to Manchester's public transport infrastructure, with the subject property adjacent to Manchester's central tram interchange and close to Manchester's main line rail station.

Following completion of the acquisition the Company will have total cash approximately £15 million and a net loan to value, based on the independent valuation as at 31 March 2014, of approximately 34%.

The Company is progressing further acquisition opportunities and continues to believe that there is potential to enhance future returns to shareholders through a further increase in the size of the Company.

Commenting on the acquisition, Duncan Owen, Head of Property at Schroder Property Investment Management said:

"This transaction demonstrates the effectiveness of our recent share placing, enabling us to quickly deploy capital into an accretive acquisition, whilst minimising cash drag.

"The purchase is consistent with our investment strategy of targeting assets offering good underlying fundamentals where we can add value through a variety of measures supported by a strong and convenient location. The vendor has already made significant improvements via an extensive refurbishment programme and we believe there is further opportunity to deliver rental growth for this element of the asset in the future, underpinned by improving occupational demand. There is also the potential to generate value from asset management of the property."


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