Schroder Real Estate Investment Trust has ploughed the proceeds of its recent £17.2m share issue into the purchase of the Arndale Centre in Leeds.
The business has exchanged unconditional contracts to buy the mixed-use asset for £16.23m from joint fixed charge receivers.
The 125,834 sq ft multilet retail, leisure and office property is located in Headingley.
The property generates annual rent of £1.6m pa, increasing to £1.7m on expiry of rent-free periods, which results in a net initial yield of 9.14% pa, reducing to 8.73% after non-recoverable expenses.
It has a weighted average unexpired lease term of more than five years, with exposure to 23 tenants occupying the retail, office and leisure units.
Around 75% of the income is generated by 20 retail and leisure tenants, which include Sainsbury’s, Morrisons, Wilkinsons and Pizza Express.
SREIT said there is “scope to add value through asset management, including income from offices where there is longer-term potential for change of use, and the potential to benefit from local transport and infrastructure improvements.
Following completion of the acquisition, scheduled for 15 January 2014, the company will have cash of approximately £15m and a net loan to value of 40%, based on the independent valuation as at 30 September 2013.
It is eyeing further acquisitions and “continues to believe that there is potential to enhance future returns to shareholders through a gradual increase in the size of the company”.
The company raised the cash by issuing 35,592,128 new ordinary shares by way of a placing representing 10% of the company’s existing issued share capital on 9 January.
The placing was completed at 48.25p a share, raising gross proceeds of approximately £17.2m and reflecting a premium to the last reported NAV as at 30 September 2013 of 6.3%.
Duncan Owen, head of property at Schroder Property Investment Management, said: “This acquisition is consistent with our strategy of focusing on assets offering good underlying fundamentals which are capable of adding value through a variety of alternatives uses because of a strong and convenient location. This property already offers high quality retail units which are delivering an attractive initial income yield which is immediately accretive to dividend cover. There is also the potential to generate further income and capital growth from asset management of the upper parts of the property.”
