Custodian Property Income REIT has purchased family property company Scorpion Properties for £8.5m.
Scorpion’s portfolio comprises five, fully occupied single-let industrial properties and generates an annual aggregate passing rent of £0.6m. The portfolio has a net initial yield of circa 6.8%, but with a reversionary yield of 9.7% expected to crystallise over the weighted average unexpired lease term to first break of 2.6 years.
Four of the properties are let an automotive repair business and one unit is let to a UK car-part distributor. The portfolio, which has an average lot size of £1.7m, is located in the South Midlands along the M40 corridor.
Richard Shepherd-Cross, managing director of Custodian Capital, Custodian Property Income REIT’s investment manager, said: “Following so shortly after our recent acquisition of Grove Court, the transaction is a further statement of our ambition to continue scaling the business using the strong blueprint we set in last year’s Merlin acquisition.
“It also provides further evidence of the solution we offer to family offices seeking to exit or simplify the ownership structure of their property holdings by utilising the benefits of our listed REIT status as well as our focus on high quality smaller-lot size investments, which offer an attractive yield premium over larger assets, with little or no more associated risk.
“We will continue to progress our pipeline of similar opportunities in line with our growth strategy and against a challenging but improving capital markets backdrop. Scorpion adds another high quality and complementary portfolio to our asset base and is a further demonstration our commitment to generating shareholder value through disciplined consolidation.
“We believe many other family property companies face similar succession and tax issues in the UK. The listed REIT structure offers a tax efficient solution for the sellers, extinguishing the latent chargeable gains and potentially deferring the crystallisation of a latent capital gain, whilst obtaining a more liquid and easily tradeable investment.”
David MacLellan, chairman of Custodian Property Income REIT, added: “The addition of the investment portfolio will provide further reversionary potential to drive future earnings. With three similar all-share or majority-share acquisitions now announced, this innovative strategy targeting family held property holdings is proving its worth as an effective way to achieve scale.
“The circa 20% increase in the company’s share price since October last year makes these types of transactions more appealing. Long-established family-owned businesses find the investment manager’s expertise in property, combined with the attractiveness and simplicity of owning property via listed shares which deliver a high, consistent quarterly dividend, very compelling.”
