20th Jul 2015 08:33
LONDON (Alliance News) - Schroder Real Estate Investment Trust Ltd is acquiring Millshaw Industrial Estate in Leeds, England, for GBP22.7 million, a net initial yield of 7.25%, the company said on Monday, as it reported an increase in pretax profit in its last financial year.
News of the acquisition was disclosed as Schroder Real Estate Investment Trust reported results for the year ended March 31, which showed a jump in pretax profit jumped to GBP54.8 million from GBP20.9 million in the prior year. Its net asset value amounted to 59.1 pence per share at the end of June, an increase of 2.4% in the first quarter of the new financial year, mainly because of an increase in the value of larger assets the company has acquired. NAV per share was 48.6p at the end of March 2014.
"The company is well positioned in this environment with recent acquisitions and initiatives within the portfolio providing significant opportunities to grow income and generate attractive total returns. Whilst there may also be opportunities to further enhance returns from raising new equity, the board will ensure a disciplined approach to any further investment and remains vigilant to changing market conditions," Chairman Lorraine Baldry said in a statement.
The chairman said the prospect of higher interest rates, with both the US Federal Reserve and the UK's Bank of England looking to begin normalising monetary policy designed to stimulate the economy in the wake of the global financial crisis of 2007-09, as well as an in-out referendum on whether the UK should remain in the EU planned to occur by the end of 2017, present risks to returns in the long term.
"Against the backdrop of a growing UK economy, continued strong demand for commercial property and an improving occupational market, the potential returns available from the UK commercial property market remain attractive. The potential for tightening monetary policy and rising yields means that rental growth will be an increasingly important driver of property returns, requiring a strong focus on good stock selection and proactive asset management," Baldry said.
Millshaw Industrial Estate, which is comprised of a freehold, 463,400 square foot multi-let industrial estate constructed in the 1990s, is near key junctions of the motorway and two miles south of Leeds city centre. Four of the estate's 27 units are empty, the company said, equivalent to 4% of rental value. The acquisition's overall average unexpired lease term is 5.5 years, the company said.
It's let to 20 tenants and generates rental income of GBP1.7 million per annum. However, the company thinks the estate can generate about GBP2.2 million of rental income, which would give a yield of 8.4%.
"Restricted supply of new industrial and warehouse development in Leeds creates an opportunity to reposition the estate by refurbishing units as leases expire in order to achieve higher rents," the company said.
Royal Bank of Scotland, part of Royal Bank of Scotland Group PLC, provided a GBP20.5 million revolving credit facility with a margin of 1.6% per annum above three-month Libor to help fund the acquisition, with the remainder to be paid for with existing cash resources.
The loan will be secured against Millshaw Industrial Estate and two other properties with a combined value of GBP37.2 million, the company said.
Schroder Real Estate Investment Trust's net loan-to-value ratio will increase to 32% on completion of the acquisition.
Completion of contracts is expected by Wednesday, the company said.
Shares in the company were up 1.7% at 61.29 pence on Monday morning in London.
By Samuel Agini; [email protected]; @samuelagini
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