SEGRO and Moorfield Real Estate Fund II (MREF II) are pleased to announce that their recently established UK Logistics (Jersey) Limited Partnership joint venture has exchanged contracts to acquire the UK Logistics Fund (UKLF) for £314.7 million (approx. 375 million) in cash on a debt-free, cash-free basis from Hermes Real Estate Investment Management Limited, Legal & General and LaSalle Investment Management.
The UKLF portfolio comprises 14 prime logistic warehouse units plus one development site in 12 locations on or near main arterial roads in established distribution areas across the UK.
The portfolio has a total lettable floor space of 404,100 m² with 64% of the space by value located in the South of England. Current occupiers include Tesco, Sainsbury's, GKN Aerospace, Royal Mail, Booker and Exel UK.
The UKLF portfolio currently has a weighted average lease length to expiry of 13.3 years (11.7 years to first break options) and a vacancy rate of 16.0% by rental value. This vacancy comprises two grade-A warehouse units in Corby and Sheffield. In 2011, the portfolio will show a net income of around £18 million per annum and, at acquisition, the contracted rent is approximately £21 million per annum.
UK Logistics (Jersey) Limited Partnership is a 50/50 joint venture established by SEGRO and MREF II for the purpose of acquiring UKLF. Under the terms of the joint venture, both Moorfield and SEGRO will undertake strategic investment and asset management roles and SEGRO will become the property manager of the UKLF portfolio.
In order to finance the acquisition (including transaction costs), both partners will make a contribution to the UK Logistics (Jersey) Limited Partnership of around £65 million of equity investment.
In addition, the joint venture has agreed, subject to due diligence and completion of documentation, a five-year bank facility of up to £189 million with Metropolitan Life Insurance Company and DekaBank secured on the UKLF assets. Laxfield Capital acted as arranger to Metropolitan Life Insurance Company.
The purchase price represents a net initial yield of 6.3% on acquisition, rising to 7.7% when the two vacant units become occupied. The initial yield on each partners' equity investment in the joint venture is 9.4%, rising to 12.7% when the vacant units become occupied.
The acquisition is currently expected to complete by the end of January 2012.
Commenting David Sleath, SEGRO's Chief Executive, said: "This transaction represents a material step forward in the execution of our recently announced strategy to expand our logistics portfolio in partnership with third party investors.
"The purchase of the high quality UKLF portfolio, with its strong customer base and long lease maturity profile, significantly enhances our UK logistics presence and gives us critical mass in one of our core markets. The portfolio offers both a high quality current income stream and the potential to add further value through active asset management."
Marc Gilbard, Chief Executive of Moorfield, added: "Moorfield is the fund manager of opportunistic capital on behalf of blue chip investors and this acquisition will enable us to participate in an institutional grade real estate portfolio with a very experienced partner where opportunistic returns are possible.
"The UK market is materially undersupplied with good quality distribution property, yet this is currently one of the few sectors showing growth and rising demand. The UKLF portfolio offers us the opportunity to engage with high quality tenants, improve income profiles and enhance value by proactive asset management."