UK Commercial Property REIT buys five distribution warehouses for GBP85.4m

UK Commercial Property REIT has announced the acquisition of a portfolio of five distribution warehouses across the Midlands from Clipstone Logistics REIT for £85.4m, reflecting a headline net initial yield of 5.5%.

The acquisition has been funded from existing cash resources and is a continuation of the company’s strategy to recycle capital from the sale of lower yielding assets into higher yielding opportunities with sustainable income.

The portfolio totals 909,030 sq ft and is 100% let to a diverse mix of tenants with a low average headline rent of £5.52 per sq ft, and an unexpired lease term of 7.4 years to break and 9.6 years to expiry. The acquisition is earnings accretive and will increase dividend cover by around 10%.

The assets are strategically located on established industrial parks across the East and West Midlands, close to the M1 and M6 motorways, at Cannock, Derbyshire, Leicester, Stoke-on-Trent and Newcastle-Under-Lyme. UK Commercial Property REIT said the offer good connections by road as well as access to strong local workforces, which is becoming an increasingly important factor for tenants in deciding where to locate.

Tenants include Clipper Logistics, Roca Limited, Bestway Pharmacy NDC Limited, Rhenus Logistics Limited and TJX UK, the owner of TK Maxx.

Will Fulton, lead manager of UKCM at Aberdeen Standard Investments, said: "We believe that this acquisition is an excellent use of the proceeds from previous disposals, boosting the company's property yield and balancing our exposure to the industrial sector, which has good prospects for rental growth, through the addition of more diverse and well located regional assets. It will be immediately earnings enhancing and provides income security from strong tenants, many of whom have invested significantly in the properties.

"As the structural changes from the widespread adoption of e-commerce in the UK pervade, a trend which has proven resilient against a backdrop of Brexit negotiations, we expect the outperformance of the logistics market to continue as occupier demand for space remains high."