AEW UK REIT plc has announced that it has unconditionally exchanged on the purchase of a 67,020 sq ft mixed-use block located in Bath city centre at a price of £13,000,000, reflecting a low capital value of £194 per sq ft and an attractive net initial yield of 8.5%. Completion of the asset purchase is expected later this week. The Company has also completed the purchase of a freehold retail asset in the London Borough of Bromley for a price of £5,300,000, reflecting a low capital value of £101 per sq ft and an attractive net initial yield of 8.7%. Following these two acquisitions, the Company will have circa £7 million to deploy on other new purchases while retaining sufficient cash for working capital purposes.
The asset in Bath, known as Northgate House, provides 48,805 sq ft of retail accommodation fronting on to Bath’s High Street, Upper Borough Walls and Union Passage. The retail accommodation is let to 11 tenants anchored by TK Maxx which has recently renewed its commitment to the location by agreeing the removal of a tenant break option. Retail lettings provide a weighted unexpired lease term in excess of five years. The remaining 18,215 sq ft of accommodation comprises grade A specification offices recently refurbished by the vendor. The office accommodation is fully let to a wholly owned subsidiary of Regus Group until 2032, trading as co-working brand, Spaces.
The Bath office market is characterised by tight supply and Spaces provides the largest and only international brand of serviced office accommodation trading in the city. The office passing rent of £22 per sq ft provides a low base from which the Manager hopes to grow income due to a recent outstanding rent review.
Northgate House is centrally located in Bath between Union Street, Bath’s prime retail pitch, and High Street which links to the famous landmark of Pulteney Bridge. Bath is a designated UNESCO World Heritage Site and one of the UK’s top tourist destinations attracting some 6.25 million visitors per annum.
The asset is held leasehold from Bath and North East Somerset Council for an unexpired period of 178 years at a peppercorn rent.
The Bromley asset is located in a prominent position on the western side of the pedestrianised Bromley High Street and provides 54,215 sq ft of accommodation, let in its entirety to Next Holdings Limited. The accommodation comprises a four-storey retail unit with the ground, basement and first floor providing sales accommodation with ancillary accommodation on the second floor. The unit is known to trade strongly for the retailer.
Next Holdings Limited has occupied the property since 2000 and, in September 2021, renewed on a four-year lease at a rebased level of rent. A comprehensive store re-fit was undertaken by the tenant at this time, demonstrating the retailer’s commitment to the location.
Bromley is a well-connected Greater London borough, with direct train links to London Victoria and London Bridge in 16 and 20 minutes, respectively. The area is undergoing significant regeneration with numerous residential-led schemes, including the significant Churchill Quarter mixed-use development providing over 400 homes, situated just 50 metres to the south of the property.
Commenting on the purchase, Laura Elkin, Portfolio Manager of AEW UK REIT said, “Over recent weeks, we have taken time to carefully consider where best value can be found and we are delighted to have acquired these high yielding retail assets both located in strong locations. The purchase prices of both assets reflect low capital values which we believe will provide excellent value to our shareholders over the long term. We continue to analyse a very interesting pipeline of potential acquisitions for AEWU’s strategy and, following full investment of the remaining capital available for deployment, the Company’s earnings are expected to return to full cover of its dividend.”