AEW UK REIT plc has announced that it has unconditionally exchanged contracts for the sale of Sandford House, Homer Road, Solihull for the price of £10.5 million.
The sale price crystallises significant profit by exceeding both the valuation level immediately prior to the sale by over 9% and the acquisition price by 94%. The asset was acquired in August 2015 for £5.4 million and has been fully let to the Secretary of State for Communities and Local Government since this time producing a net income yield against the purchase price of 9.6%. The Company had invested no further capital in the asset during its hold period.
A new 15-year lease agreement was signed with the tenant in July 2020, which increased the rental income received from the asset by 30%. The lease also provides for five yearly open market rent reviews and a tenant break option at year 10. The tenant intends to carry out a major refurbishment of the property over the coming weeks.
The sale is due to complete on 1 February 2021 and the Company will receive income from the asset until this date. Subsequent to this, the Investment Manager intends to reinvest sale proceeds on behalf of the Company and has identified an attractive pipeline of suitable assets.
Commenting on the sale, Alex Short and Laura Elkin, Portfolio Managers of AEW UK REIT said, “The completion of the sale of this property will deliver to the Company an IRR in excess of 20% which, particularly at the current time, highlights the defensive nature of the Company’s strategy. Seeking mispriced assets has been a feature of the strategy since IPO and this example demonstrates well how shorter income assets in prime locations can be used to create value for shareholders over the long run.”