The Department for Communities and Local Government has renewed its lease at AEW UK REIT’s Sandford House in Solihull, West Midlands.
The new 15-year lease increases the rental income for the 33,954 sq ft property by 30%.
It is also subject to five-yearly open-market rent reviews and has a tenant break option after 10 years.
The government intends to carry out and pay for a major refurbishment of the property.
AEW UK REIT acquired Sandford House in July 2015 for £5.4m and has received a net income yield from the asset in excess of 9% against this so far.
It expects the lease renewal will result in a significant value increase for the property when its portfolio is revalued at the end of June.
Alex Short, portfolio manager of AEW UK REIT, said: “The conclusion of this business plan at the current time, following on from the sale of Corby announced in May, both highlight the durability of the company’s strategy in seeking to acquire assets whose pricing is misaligned with their long-term fundamental value.
“We continue to look for attractive purchasing opportunities that will deliver robust returns to our shareholders through the active management of our properties.”
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