Henderson Global Investors’ UK Retail Warehouse Fund has sold two retail warehouse assets in Newcastle for £50million and acquired the Universities Superannuation Scheme’s interest in Manchester Fort Shopping Park for £101million .
As part of the transaction, USS received approximately £51million of the consideration via the issuance of new units in the fund.
The acquisition price of £101million for the Manchester Fort Shopping Park reflects a net initial yield of approximately 7.1%, including rental guarantees. Totalling 325,000 sq ft, the 36 unit retail park dominates the north Manchester catchment area and benefits from a number of high profile tenants including Next, TK Maxx, B&Q and Boots.
The consideration paid for the shopping park comprises two key elements. Henderson has sold the Kingston and Belvedere Retail Parks in Newcastle to USS for £50million, each reflecting a net initial yield of 5.75%, subject to the settlement of the outstanding rent reviews. The balance of payment has been made up by the issuance of approximately £51million of new units by the fund to USS, which is already an existing investor in the fund.
This resulting equity injection of £51million enables the fund to reduce its LTV position, thus providing good protection from any future market volatility. The sale and acquisition further diversifies the fund’s portfolio of assets and will enhance unit holder distributions. Due to the fund’s competitive loan arrangements, the yield on the Manchester asset provides the fund with a cash on cash return at purchase of over ten%.
The fund’s gross asset value following this transaction totals £922million .
Graham Burnett of USS said: “This transaction has enabled us to diversify our retail warehouse holdings with the acquisition of two strong open A1 retail parks in Newcastle, together with an increased investment in the Henderson UK Retail Warehouse Fund. USS has acquired in excess of £450million during 2009 prior to this transaction and we continue to pursue other opportunities.”
Michael Neal, fund manager of the Henderson Retail Warehouse Fund, says: “This transaction is an excellent example of the growing confidence shown by investors in retail warehousing and of the fund. Valuations have been increasing every month since June 2009 and the last three months in particular have seen strong capital growth generating total returns for the fund of over 18% during that period.
“The injection of new equity resulting from the transaction, together with the recent valuation growth of the portfolio, now provides the fund with very significant headroom on its banking covenants. The Manchester Fort Shopping Park provides the fund with opportunities to add value through active asset management and we will continue with the excellent progress made by USS in strengthening the attractiveness of this dominant shopping park”.
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