Location: Various, England
Description: Mixed Portfolio
Size: 690,500 sq ft (64,100 sq m)
Strategy: Problematic Situation
The Jeeves portfolio is a classic Mountgrange acquisition, offering an attractive risk-reward balance, with a defensive, well secured income profile, and the potential to create value through a variety of active asset management strategies. It was acquired for £139.3 million in September 2008 from PruPIM, in a joint venture with AEW Europe. Mountgrange is the asset manager for the joint venture.
The portfolio is the second acquisition on behalf of the fund. It is a highly diversified portfolio, currently with 27 assets located across the UK, including retail units in Chester, Guildford, Norwich, Birmingham and Bristol, and office locations including Thames Ditton, Manchester and Southampton. The properties benefit from 97% physical occupancy, with good quality tenants and an average lot size of approximately £5 million. The portfolio has a net initial yield of 7.31%, with reversionary potential.
The sale of the first two assets out of the portfolio completed in October 2009. North St, Chichester was sold to Royal London, following a letting to Boots on a 15 year lease at a rent £100,000 above the acquisition rent. The price of £9.75m reflected a net yield of 5.33%. The second sale was Eastgate, Chester, let to New Look for 12 years. A PruPIM managed retail fund paid £7.375m (5.45%) for this asset. Both sales achieved better than business plan returns.
Subsequent sales have taken place in the latter part of 2009 and early 2010 to take advantage of a buoyant UK property market. A B&Q Retail Warehouse in Nelson was sold to F&C Reit and a shop in Maidstone was sold to a fund managed by CBREi at prices that showed a £353,000 uplift above Business Plan. Furthermore an office building in Cheadle Royal Business Park was sold to M&G Retail Fund for £8.6m, reflecting a 7.34% initial yield. We also secured the sale of a Wickes retail warehouse unit in Southampton to Ignis UK Property Fund on an initial yield of 6.24%. Both of these showed a profit over business plan of just over £2m.
Mountgrange continues to add value to the portfolio through active management. Each asset is assessed on a regular basis to ensure that all opportunities are thought through and implemented effectively. Refurbishment and redevelopment work is underway on selected assets with a view to increasing rental levels. Cash flow is being enhanced where possible by letting the currently void space, taking back units and re-letting at higher rents, implementing outstanding rent reviews and by working with existing tenants to optimise their requirements for space on a mutually beneficial basis.
