Custodian REIT (LSE: CREI), the UK property investment company, is pleased to announce the acquisition of a £24.65 million portfolio of properties (“the Portfolio”) via a sale and leaseback transaction with Menzies Distribution Limited (“MDL”).
The Portfolio comprises eight ‘last mile’ distribution units spread throughout the UK with a passing rent of £1.61 million, reflecting a net initial yield of 6.4%¹. The Portfolio’s weighted average unexpired lease term to first break or expiry (“WAULT”) is 8.8 years.
The Company acquired the Portfolio by purchasing the entire issued share capital of John Menzies Property 4 Limited which owns the Portfolio. All eight properties are let on new 10 year leases with only one unit having a second-year break option. The leases provide for a 13.1% fixed rental uplift at year five. The Portfolio is let to MDL, one of the UK’s leading print media logistics companies, servicing 1,700 routes per day from over 50 sites across the UK and Ireland. The acquisition was funded using the Company’s existing debt facilities, increasing the Company’s borrowings to 23.2% loan-to-value².
Commenting on the acquisition, Richard Shepherd-Cross, Managing Director of Custodian Capital Limited (the Company’s discretionary investment manager), said:
“The Portfolio is strongly aligned to Custodian REIT’s investment strategy and complementary to its existing property portfolio. The pricing advantage of pursuing a smaller lot size, regional strategy is evident when compared with pricing in the highly competitive market for logistics assets. This acquisition enhances the WAULT of the Company’s property portfolio, supplements regional diversification and additionally provides secure cash flow with the certainty of fixed rental uplifts in 2024.
“Following this transaction, MDL will become Custodian REIT’s largest tenant, but still representing only 3.9% of the rent roll. No one property in the Portfolio will account for more than 0.7% of the Company’s rent roll, supporting the continued drive to mitigate risk through diversification and stock selection. We are very pleased to enter into a long term relationship with MDL, a dynamic company offering a strong tenant covenant.
“The corporate transaction offered compelling economic benefits for the Company and the vendor, compared to the Company acquiring the properties directly, demonstrating our commitment to enhance shareholder value and secure economies of scale through growth in the fund.”
¹ Passing rent divided by purchase price plus purchaser’s costs.
² Gross borrowings less unrestricted cash divided by last published property portfolio valuation.