Owning and building desirable real estate
LondonMetric developed a 1,062,000 sq ft distribution warehouse which it pre-let to Primark on a 25 year lease. It is Primark’s UK flagship warehouse, ideally located along the A14 between Felixtowe port and the M1. There are 3 mezzanine levels which increases the total capacity of the warehouse to 1.9m sq ft.
The BREEAM Very Good development took 11 months and completed in 2015 at a cost of £78m and a yield on cost of 6.9%. It was built on a former ironworks and involved 500,000m3 of earthworks, ensuring that no material was taken off site. 436kw of solar PV is installed. Primark took occupation in 2016 and the building now operates at near full capacity. The building generates rental income of c£5.6m pa with fixed annual rental uplifts.
LondonMetric developed a 357,000 sq ft distribution warehouse which it let to Amazon on a 15 year lease. It is located at Omega South in Warrington along the M62 connecting Liverpool with Manchester.
It is one of Amazon’s 20 fulfilment centres UK wide and principally serves the North West. Amazon has invested heavily in the building with additional mezzanine levels, a car park and full automation.
The BREEAM Very Good development took 12 months and completed in December 2016 at a cost of £40m and a yield on cost of 6.3%. The building generates income of c£2.1m pa with CPI linked rental uplifts.
LondonMetric acquired the 410,000 sq ft of distribution warehousing let to Eddie Stobart in 2015 for £56.5m at a NIY of 5.1%. It is exceptionally well located on the A13, 10 miles from central London and 8 miles from the M25.
After two years of working up a partial redevelopment with the occupier, we built a180,000 sq ft warehouse and a 147 space lorry park to replace two old buildings and a small yard.
The BREEAM Very Good warehouse scheme was completed in 2018 after 12 months of development at a cost of £17m and a marginal yield on cost of 5.7%. The lease was extended by 10 years to 26 years across the 454,000 sq ft estate with rent increasing by c30% to £4.1m pa.
The redevelopment created a modern, fit for purpose facility that significantly improves operational efficiencies and environmental credentials of the estate, including a 250 KW Solar PV installation, electric car charge points, LED lighting upgrade to the lorry park and an on site lorry cleaning servicing and fuel island which saves 3,900 lorry movements pa.
LondonMetric acquired A&J Mucklow Group in June 2019 for £415m. The transaction increased LondonMetric’s urban logistics portfolio from £0.5bn to £0.8bn and its urban weighting from 27% to 35% of the total portfolio.
The acquisition provided LondonMetric with access to an attractive portfolio that was predominantly located around Birmingham where strong occupier demand and a lack of warehouse supply is generating attractive rental growth.
The Mucklow assets were valued at a NIY of 5.4% and an equivalent yield of 6.1%. It generates £26m pa of rental income which is expected to grow as organic rental growth, upside from asset management initiatives and income from development activity is captured.
Improving and growing our income
LondonMetric acquired one of Argos’ key distribution warehouses in 2013 for £51.7m, reflecting a NIY of 7.0%. It is very well located on the A421 in Bedford, providing access to both the A1 and M1, with access into London in under an hour. Other key occupiers nearby include Asda, Aldi, B&M and Sainsbury’s.
The 656,000 sq ft warehouse handles bulky goods home delivery operations and had an unexpired lease term of 10 years at time of acquisition. In 2019, with four years remaining on the lease, we extended the lease by a further 11 years to 15 years without break. This demonstrated the strength of occupier’s contentment at the building and confidence in the outlook for their businesses.
The warehouse generates a rent of £4.1m pa with inflation linked uplifts.
LondonMetric acquired a 21,000 sq ft urban logistics warehouse in Leyton for £5.5m in 2018 at a NIY of 3.8%. The unit was let to Fedex for a further 4.5 years with an outstanding rent review.
Following discussions with the occupier, the rent review was settled and it was agreed to increase the rent by 67% from £9 psf to £15 psf. This increased the acquisition yield to 5.5%.
The review demonstrated the significant rental growth that certain urban locations are experiencing and the need for occupiers to be close to densely populated areas in order to maximise the efficiencies of their operations.
Improving our sustainability
LondonMetric acquired Dixons Carphone’s main UK distribution warehouse for £68.5m in 2014. The 726,000 sq ft asset was built for Dixons in 2006 and is situated in Newark.
Following extensive engagement with the occupier, LondonMetric funded and installed a 1,000KW Solar PV scheme at the warehouse in 2017. The installation was the largest landlord installed distribution roof top PV system at the time, covering 66,000 sq ft. The installation generates £85,000 pa of additional income for LondonMetric.
Dixons’ annual grid energy consumption at the warehouse is estimated to have reduced by c.15% which represents 500 tonnes of carbon dioxide emissions each year. Purchasing energy generated by the solar scheme from LondonMetric also protects Dixons from volatility in energy prices and provides operational cost savings.
Financing our property strategy
As part of our ongoing corporate debt refinancing and following our first private placement in 2016, we undertook a second private debt placement in 2018.
The appetite for the deal was such that our initial £100m target was significantly exceeded and we took the opportunity to raise £150m of unsecured debt at a blended rate of 3.5% and with a weighted average maturity of 12 years. There were four tranches placed with five institutions, three of which were new investors.
Together with our adviser Barclays, the deal was completed within six weeks. It materially increased the Company’s average debt maturity, further diversified our debt investor base, gave us additional firepower to acquire further urban logistics assets.
Since the deal closed we have arranged site visits for our debt investors, most recently at our warehouse in Thrapston let to Primark.