Tritax Big Box buys Tesco distribution unit in Southampton

Tritax Big Box has acquired a temperature controlled distribution unit in the Nursling Industrial Estate in Southampton for £44.2m, it announced on Friday, reflecting a net initial yield of 5.24%, in an off market transaction with a UK real estate fund.

The FTSE 250 real estate investment trust said the building was let to Tesco on a 25-year lease, expiring in January 2021.

It said that, through “extensive” due diligence, it believed the site provided a range of opportunities to deliver near-term value through asset management.

Those opportunities included increasing value through agreeing a lease regear or a new lease, growing income through capturing current market rental reversion, capturing future rental growth in a structurally undersupplied location, enhancing the configuration of the built area and yard, and increasing the asset's sustainability through green initiatives such as solar.

The acquisition was being financed through £24.2m of existing resources, and the issue to the seller of 12,166,930 new Tritax shares at a price of 164.38p each.

It said the issue price represented a 6.2% premium to the 30 June EPRA net asset value.

Operationally, Tritax said the acquisition secured an “attractive asset” in a prime logistics location, providing critical cold-store capabilities close to a key UK port.

It described it as a 325,000 square foot building with extensive cold-store capabilities on a 20 acre site.

The building was said to be “well-configured” and cross-docked, with 10 metre eaves and 53 dock levellers, together with an extensive parking and yard area.

Tritax described Nursling Industrial Estate as “the preeminent location” for logistics on the south coast, where Southampton represented the primary logistics hub for the region, with “excellent” road, port and rail connectivity, and proximity to a major population centre providing a deep employment market for occupiers.

There were also very low vacancy rates in the Southampton area due to high demand from a range of occupiers.

“This is a rare asset acquired off-market in a prime South Coast location next to the M27 motorway and close to the Port of Southampton,” said Tritax chief executive officer of fund management, Colin Godfrey.

“Benefitting from a strong existing tenant and a robust underlying occupational market, this building presents us with several attractive asset management opportunities which we expect will drive income and capital value growth.

“While the investment market for logistics assets continues to strengthen, there remain select attractive acquisition opportunities where significant value can be added through asset management.”

At 0922 GMT, shares in Tritax Big Box REIT were down 0.79% at 163.8p.