This property was purchased in June 2002 for £3.7 million, reflecting a net initial yield of 7.5%. It comprises a small supermarket located on Eastwood Road, just off the High Street in Rayleigh, Essex, and was let to Somerfield on a 35-year lease from 1979, expiring in May 2014 at a rent of £294,000 per annum.
In 2010 (with only four years remaining) we commenced lease negotiations with Co-op, which subsequently signed a new 15-year lease (with a break option after 10 years) at an increased rent of £417,500 per annum – a 25.8% increase. No incentive was paid.
During its time with the Fund, the property has had three tenants, two asset management initiatives, two successful rent reviews and, finally, a sale. If we had held the asset passively, the original lease would have expired last summer; instead, it now benefits from a new 20-year term to an improved covenant.
In January 2025 the property was valued at £6.5 million, reflecting a yield of 6.1%, with five years remaining until the break option. We have since agreed to surrender the existing lease and re-let to M&S on a new 20-year term at an enhanced rent of £475,000 per annum (a 13.8% increase). M&S also agreed to five-yearly reviews to RPI, capped at 4% per annum and collared at 1% per annum. M&S was paid a premium to take this lease.
The Fund has benefited from capital growth of £5 million (after deducting the premium paid to M&S) and income of £4.74 million since purchase. This illustrates why commercial property can be such an important component of a portfolio – a strong income stream combined with capital growth enhanced through active management. The IRR over the hold period is 14% per annum.
The new lease completed in July 2015, and have now sold the asset to ICL Pension Trust for £10 million, reflecting a yield of 4.49%.
These two industrial units, totalling 220,000 sq ft, were acquired in April 2014 for £11.4 million reflecting a yield of 8.4%. One unit was let to Croda plc, a FTSE 250 chemicals company, and the other was vacant; the vendor provided a 24-month rental guarantee.
Fifteen months later, we successfully let the empty unit to Howdens Joinery on a new five-year lease at a rent of £618,650 per annum (£4.50 per sq ft), 6% above the rental guarantee. We were also able to distribute the remaining rental guarantee as a dividend.
Since purchase, we received £1.215 million from the rental guarantee and a further £650,000 in rent, as well as a £2.48 million capital profit after costs. Combined, this asset produced £4.35 million above its purchase price over the short 20-month hold period, generating an IRR of 20% per annum.
Although we generally invest for the long term, we also act opportunistically where we identify mispricing and can bring our asset management skills to good effect. After letting the empty unit, we reviewed the business plan and concluded that the new-build supply had increased significantly, meaning that the asset was no longer a suitable long-term hold. After a full marketing campaign, we sold the asset in November 2015 for £14 million, reflecting a yield of 6.9%.
We completed the development of a mixed-use hotel and leisure scheme in Poole town centre. The property is let to Travelodge (35 years), Costa Coffee (15 years), Anytime Fitness (15 years) and Subway (15 years). All leases, apart from excluding Costa Coffee’s, have rent reviews linked to RPI, ensuring future income growth.
The property occupies a prominent site overlooking Poole Harbour, opposite the train station and next to a large supermarket and residential development that help drive footfall.
This follows our successful funding of the Travelodge in Cambridge, which has seen a near-50% increase in capital value against the book cost. Rental growth prospects at Poole are strong, particularly for the Travelodge income, which is let off a low rental base and represents around 60% of total income. As with Cambridge, our involvement from the outset of construction has ensured excellent energy-efficiency and sustainability credentials and once again improved the built environment.
This property comprises a 48,000 sq ft office building located close to Farringdon Station in Central London. It was acquired in March 2011 for £23 million, reflecting a yield to the Fund of 7.06% and a capital value of £480 per sq ft. At the time, it was let to EHS Brann, a Franco-Spanish advertising company, for a further five years at a rent of £34 per sq ft. One of the main reasons for acquiring the building was the expected benefit of Crossrail delivery’s delivery in 2018.
Shortly before the lease expiry in 2016, we agreed a short extension with the existing tenant and a dilapidations payment, enabling us to refurbish the building in spring 2017.
Before completion we signed an agreement for lease to pre-let 80% of the building to Macmillan Publishers Ltd, a major international publishing house founded in 1843. Now wholly owned by German media giant Holtzbrinck Publishing Group, Macmillan signed a new 15-year lease (with a break at year 10 on payment of a penalty) at £2.36 million per annum – an average of £65 per sq ft.
Planning permission was granted for a full-height reception area, a new facade and new windows, new mechanical and electrical services, some added floorspace and maximised natural light. The project also focused strongly on sustainability, providing 70 bike racks and seven showers, and aiming to improve the EPC rating from D (95) to B. The existing structure was retained to reduce waste and unnecessary use of resources.
The remainder of the building has been let to a technology company, Airsorted, which occupies the ground and lower-ground floors as their head office. We secured a premium rent above target, marking the end of a comprehensive refurbishment and repositioning.
The project was tendered at £175 per sq ft, with works beginning in Autumn 2017. Completion took place on 8 August 2018 – on schedule and under budget. The EPC score has increased to B (36) , compared with 35 for new builds.
The building now produces a rent of in excess of £3 million per annum – 83% higher than the rent before refurbishment – and has delivered income of over £11 million and capital growth of nearly £25 million (after deducting refurbishment costs). The over the seven-year ownership period exceeds 20% per annum.
The property stands on the west side of Chancery Lane and comprises lower-ground, ground and four upper floors, with two self-contained retail units on part of the lower-ground and ground floors. The office accommodation totals 30,391 sq ft with an additional 1,643 sq ft of retail space.
Purchased in 2004, it was previously single-let to BNP Paribas, which paid a premium to surrender its lease. The building was fully refurbished in 2012 and achieved BREEAM Very Good rating. Bike racks and showers were added to encourage sustainable travel, and the building is DDA-compliant with full accessibility.
The pre-refurbishment value was £17 million; refurbishment cost £4.25 million; and the current value today is around £30 million. We regard this as a long-term hold, well placed to benefit from its improving micro-location and continued strong performance.
The Fund has since completed 12 lettings to eight tenants, the latest at £52 per sq ft – 30% above target. A focus on sustainability and modern workplace has helped increase rent by 50% and achieve 100% occupancy.
A freehold office building formed from a converted Victorian warehouse, arranged over lower-ground, ground and six upper floors, and occupied by LK Bennett as its UK HQ.
We partnered with a developer and structured the acquisition as a forward commitment, paying £16 million on completion of redevelopment works and the new lease. The property lies close to Old Street roundabout in a prominent location at the gateway to Shoreditch, at the junction of Great Eastern Street and Rivington Street.
The purchase completed in February 2015, and by June 2015 the valuation had risen to £19.25 million – a 20% capital growth in four months.
It is considered a local landmark, offering well configured floorplates, excellent natural light and a contemporary specification. The 15-year lease is at a low rent of £45 per sq ft, providing good prospects for growth.
One of the Fund’s most successful projects was the forward funding of a new Travelodge hotel in Cambridge, completed in July 2013. The Fund acquired the site and invested £16.3 million in construction, completing the landmark development shown on time and on budget.
The Fund therefore improved the built environment, providing a valuable public service. Further to this, the Fund insisted that the property was built to a BREEAM Very Good rating, demonstrating excellent sustainability features. Let on a 35-year lease to Travelodge with uncapped RPI-linked rent reviews, the completed development was valued at £18.8 million.
It is encouraging that the new owners of the Travelodge business have invested significant equity in the portfolio, refurbishing many of their existing hotels. The covenant is now institutional grade, contributing to yield compression for comparable hotel investments Cambridge.
Freehold sites of this kind are scarce in Cambridge, and restrictive planning regulations make such holdings particularly valuable. We believe the asset was undervalued at acquisition and continues to be so. Recent hotel transactions in the market support this view.