Custodian REIT acquires pair of DFS retail warehouse assets for £9 million

Custodian REIT (LSE: CREI), the UK property investment company focused on smaller lot-sizes, is pleased to announce two further property purchases.

The Company has acquired two retail warehouses in Measham, Leicestershire, and Droitwich, Worcestershire, occupying an aggregate 40,077 sq ft.  The units are both let to DFS Furniture with a weighted average unexpired term to first break or expiry of 8.0 years and an aggregate passing rent of £894,103 per annum, reflecting a net initial yield1 of 9.43%.

The agreed purchase price of £8.9 million was funded from the Company’s existing debt resources, increasing net gearing2 to 23.4% loan to value, which remains within the Company’s target range.

Following this acquisition the Company’s diversified portfolio’s weighting to retail warehouses has increased to 24%, with 38% industrial, 16% office, 11% high street retail and 11% other, comprising 164 properties located in strong economic areas across the UK.

Commenting on the acquisition, Richard Shepherd-Cross, Managing Director of Custodian Capital Limited (the Company’s discretionary investment manager), said:

“These high yielding assets let on long-term leases to a strong covenant are a great addition to our portfolio.  Retail warehouses continue to demonstrate their relevance and appeal alongside the continued rise of e-commerce, with one out of three sofas sold in the UK purchased in-store, while the ‘halo’ effect of a physical store supporting local online purchases is particularly strong for furniture.

“The attractive entry yield will be accretive to dividend capacity over the medium term. As bricks and mortar retail undergoes a renaissance, and retail parks continue to outperform, we anticipate future market rental growth which should mitigate some of the acknowledged over-rent, support valuations and protect long term income streams.”

1 Passing rent divided by valuation plus assumed purchaser’s costs.

2 Gross borrowings less unrestricted cash divided by last published property portfolio valuation.