LONDON: AEW UK REIT plc (LSE: AEWU) has completed the purchase of a freehold solus retail warehousing unit in Bamber Bridge, Preston for £6,450,000, reflecting a low capital value of £110 per sq ft and an attractive net initial yield of 9.5%.
The 58,696 sq ft unit is single-let to Matalan Retail Limited and has another 9.2 years left on the lease. Matalan is known to trade strongly from the location, with the store being one of its top 10 performers, as well as being the retailer’s first ever store in the U.K. The lease benefits from a 2027 rent review to the higher of open market value, or 2.5% per annum compounded, resulting in a minimum reversionary yield of 10.7%.
The site totals 4.39 acres, providing a low site cover of 30%. It is well located on Cuerden Way which connects to the A6, half a mile from Junction 1 of the M65. Neighbouring tenants include Aldi and Sainsburys to the south, with predominantly industrial uses to the north. There is the potential to repurpose the unit for trade counter or industrial use, and to extend the accommodation, subject to planning, if required in future.
In January, Matalan announced the completion of a refinancing, reducing its gross debt by 43% from £593 million to £336 million. The new debt facility will mature in 2027. The refinancing also provides £100 million for business growth over the next three years, with a return to profitability anticipated in FY 2024.
Commenting on the purchase, Laura Elkin, Portfolio Manager of AEW UK REIT said: “We are pleased to have purchased this retail warehousing unit that provides a very attractive day one yield that is set to increase at review in the future. Our due diligence has shown that Matalan trades well from the location, giving us confidence in its continued occupation, and in the stability of the income stream. As we look to return the portfolio to full investment, we continue to analyse an interesting pipeline of potential acquisitions, and expect to make further purchase announcements in the coming months.”