Specialist retail REIT Metric Property Investment has formed a £150m joint venture with Universities Superannuation Scheme.
The Metric income Plus Limited Partnership will invest in small, higher yielding, income-focused retail parks and solus units ranging in value from £2m to £20m.
A statement from Metric said the target portfolio yield on cost, once established, would be in excess of 7% to deliver attractive post-leverage cash on cash returns.
USS has invested an initial £50m, with Metric putting in £25m for a one-third equity stake. The jv has a target LTV of 50% across its entire portfolio.
MIPP has already contracted to buy two properties, in Inverness and Swindon, from Metric for a total of £19.9m.
At Inverness MIPP will forward purchase Metric’s 30,000 sq ft retail park development upon completion for £9.7m, reflecting a net initial yield of 6.4%. The park is already fully prelet to DFS and Carpetright for an average of 17 years with rents reviewed to RPI. It is due for practical completion in January 2012.
At Swindon, MIPP has acquired the 57,700 sq ft Fleming Way Retail Park for £10.2m, a 7.2% yield. The park is adjacent to the town centre and is let to The Range and Halfords for a weighted unexpired lease term of more than 20 years, and commands average rents of £13.45 per sq ft.
MIPP will have an initial life of five years. Metric will be responsible for all acquisitions and asset management initiatives and will receive a management fee of 0.4% per annum of gross asset value of the portfolio.
Andrew Jones, Metric chief executive, said: “We are continually looking for ways to expand our business and we are therefore very excited to be entering into this new joint venture with USS, one of the UK’s leading pension funds. We will look to take advantage of opportunities to acquire operationally strong, well let, long-dated income at prices 250 basis points above the current cost of debt.
“Furthermore, this access to institutional and third-party equity allows Metric to leverage its strong asset management platform and increase the scale of our business without tying up significant investment capital, as well enhancing our recurring earnings stream.”
Graham Burnett, head of property at USS, added: “Our fund continues to be an active investor in the UK property market, with acquisitions totalling in excess of £1bn over the past three years. This joint venture enables us to access Metric’s market intelligence and asset management expertise to build a portfolio of smaller retail warehouse parks with an emphasis on higher income return.”
