Warehouse REIT buys eight assets from Aviva Investors

Specialist warehouse investor Warehouse REIT announced the purchase of an eight asset fully-let portfolio of reversionary warehouse and distribution assets from Aviva Investors on Wednesday, for £70m.

The AIM-traded firm said the assets produced an annual rent of £5.38m, with the purchase price reflecting a net initial yield of just over 7%.

An additional deferred payment of up to £5m would be due on or before September 2023.

The company said the portfolio comprised one multi-let and seven single let warehouses, providing a total floor area of 995,106 square feet, with individual units ranging from around 50,000 to 217,000 square feet.

It said the occupiers included the “strong covenants” of Iron Mountain, Direct Wines, the Sytner Group and Amazon.

The portfolio had a weighted average unexpired lease term of around 5.3 years, and a low average rent of £5.40 per square foot.

All of the assets are located close to major UK conurbations and on or near arterial routes, the firm explained, with the locations including Reading and Gloucester in the south; Coventry, Leicester and Nottingham in the Midlands; Grimsby and the Humber Docks in the north east; and Warrington in the north west.

The acquisition strengthened the Warehouse REIT portfolio from both a property and revenue perspective, with more than 60% of the income being produced by assets located in the Midlands and the south of England, the board said.

With the purchase of the Amazon Reading warehouse, the internet retail giant had become the REIT's second largest tenant, accounting for around 4.5% of the total rent.

The Gloucester warehouse, which was let to Direct Wines - the trading name of Laithwaites Wine - would become the firm’s third largest income stream.

Warehouse REIT said both examples “clearly” reflected the growth of e-commerce warehousing from superior strength covenants within the REIT's portfolio.

It said that, together with recent lettings such as the new 10-year lease to Alliance Healthcare at Daneshill in Basingstoke, the combined overall portfolio weighted average unexpired lease term to expiry would strengthen to five years, which it added demonstrated the positive effect of active asset management and strategic acquisitions.

Following the transaction, the company had now fully deployed the £120m of available firepower it had amassed since undertaking a £76.5m capital raise in March, in total acquiring 14 assets at an average net initial yield of 7.0%.

“This is a highly attractive portfolio with 100% of income secured against D&B rated ‘minimum risk’ covenants,” said Andrew Bird of the company’s investment adviser, Tilstone.

“The reversionary nature of the portfolio sits within some short leases and some below-market rents, however the quality of the assets and the strength of their locations give us confidence that we will be able to unlock value through active management.”

Bird said Tilstone was pleased that the company had utilised shareholders' funds “quickly but prudently”, and was “excited” about the quality of the assets that had been purchased, which were expected to deliver “good” operational performance.

“We continue to see attractive acquisition opportunities underpinned by solid occupation demand and remain focussed on the continued management of the company's portfolio to drive future shareholder returns.”