Padlock Partners UK Fund I Announces its September 2021 Update
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TORONTO, Oct. 15, 2021 /CNW/ - Padlock Partners UK Fund I (the "Trust") is pleased to announce this September 2021 update.
Property Update
The Trust completed its initial public offering on August 21, 2020 and received total capital commitments of C$36.6 million and simultaneously acquired three properties as originally described in the offering document. Following the initial portfolio purchase, the Trust acquired an additional four sites bringing the total Trust acquired sites to seven stores. Geographically, the portfolio comprises several sites within the London MSA with the remainder of sites mostly concentrated in the commuter markets north of London.
On August 21, 2020 the Trust closed the Leighton Buzzard self storage property located approximately 23 miles northwest of central London. Upon acquisition, we increased the 17,660 net rentable square foot site to over 28,192 square feet. We completed the expansion ahead of schedule and on budget. The lease up of the new units has exceeded expectations and demand for property units has been very strong. As of August 31, 2021 the property achieved 84% occupancy. Additionally, our efforts to increase rental rates have been effective as rates grew from £24.34 per square foot for storage units and £12.96 for bulk storage space at acquisition to over £27.74 across all rentable square feet. The significant increase has the property performing well ahead of expectations.
On August 21, 2020 the Trust closed the Letchworth property located about 22 miles north of central London. The property provided 18,938 square feet of storage space at acquisition. We increased the net rentable square feet through our expansion plan and converted 11,260 square feet of previously unused space to rentable square footage. The expansion was completed on time and on budget. Leasing up the newly created rental units has far exceeded expectations with the property achieving just over 90% occupancy as of August 31, 2021. Rental rate increases are another bright spot for performance, as we have grown rental rates to £24.59 across all units compared to rental rates at acquisition of £12.05 for bulk rental space and £22.87 for the storage units. Another sizeable boost to site performance has been the success of our ancillary sales programs, with unit insurance and packing supplies creating revenue which had been lacking prior to our ownership.
On August 21st, 2020 the Trust acquired the third property of the Initial Portfolio, a leasehold interest (with purchase option) on the small warehouse located in Wimbledon, about 7 miles from central London and within the M25 highway. The Trust exercised the purchase option to fully acquire the freehold property on April 15, 2021. The business plan incorporates demolishing the existing warehouse building and replacing it with a multi-storey Class-A self-storage facility. Full planning approval was received on August 19th, 2021. Although the entitlements were significantly delayed due to Covid related planning committee shut downs, we were able to achieve a slightly larger building with an extra floor. The property will be 5 floors tall, rather than our expected 4 floors. The increase in building size, especially within London is expected to enhance the property value significantly and potentially offset headwinds created by the delay. Demolition of the property has completed and the initial structural work is in progress. We have not been impacted by material supply chain delays and pre-purchasing most of the needed materials for the build has enabled the property to avoid the price increases many developers are currently receiving. From a market perspective, the London MSA has seen the largest increase in occupancies and rental rates in the country. Similarly, cap rates within the M25 continue to decrease as acquisition opportunities are less abundant.
On November 16, 2020 the Trust acquired the freehold vacant land in Newmarket by way of cash from the proceeds of the Trust's initial public offering. Concurrently with the closing, the Trust entered into a Funding and Development Agreement by which the Trust would acquire the improvements (the fully constructed empty shell warehouse) when completed. Structuring the purchase in this manner created significant Stamp Duty Land Tax savings for the Trust. The Trust completed the agreement and the warehouse was delivered as planned on June 24, 2021. Our fit-out of the interior 4 floors, offices, and rental units is ongoing and progressing as expected. Our first rental units were made available in August 2021 and were rented quickly. Additional units are to be added weekly up to our December 2021 estimate for project completion.
On December 17, 2020 the Trust acquired the Chippenham property via a purchase of the shares of the controlling company. Our work building the office and fitting out the first phase of the development has proceeded as planned on time and budget. As of August 31, 2021 we had just over 9,100 square feet of rental storage units available which leased up quickly to over 96% occupancy. The development of the additional building is progressing as planned. We expect the next phase of units to be made available next month with the full 32,000 square feet of storage space completed as expected. Local demand has been strong as many units are preleased before they have been completed.
On December 22, 2020 the Trust acquired the Bicester Self Storage business and negotiated a new 20 year lease under the Landlord and Tenant Act of 1954. The Landlord and Tenant Act provides additional security to leaseholders as landlords are required to re-sign a new lease at term end except under narrow exceptions. The property is located in Bicester, a busy market town within the growing Oxford to Cambridge corridor. Opened in 2018, this Class A self storage property provides approximately 25,000 net rentable square feet of storage space. Since acquisition, occupancy has risen to almost 96% and rental rates continue to tick upwards. Hosting a local art exhibition at the store was an August highlight. Over 400 pieces of work were displayed in the store from local artists, with sale proceeds going to local charities. The event brought in over 500 visitors at the store over the bank holiday weekend. We will continue our community outreach and building our waiting list for units. These efforts should allow us to more aggressively increase rental rates.
On April 26, 2021 the Trust acquired the Enfield property in the London MSA within the M25. The existing warehouse conversion to offices and storage units has progressed as planned and rental units will be available for tenants this month. The second phase of the project is in planning and includes doubling the size of the existing building. The entitlement process is proceeding as expected with the local council supporting our submittal to increase the building size. When completed, we expect the property to offer over 42,000 net rentable square feet of Class A storage space in a highly desirable London location. The UK Self Storage Association notes in their most recent annual report that self storage supply within London has actually decreased as demand has risen. As a result, London rental rates have risen to all time highs and cap rates have continued to become more favorable.
Trust Update
Since inception, the Trust has paid monthly distributions equal to 6% on an annualized basis. Our next distribution is expected mid-October 2021.
The Trust plans to conduct end of year valuations on each property. The Net Asset Values are expected to benefit, since the majority of our development assets will be fully completed and operational by year end. An updated NAV will be reported once the property valuations and year end audits are completed.
On April 15, 2021 the Trust announced the closing of a £17,100,000 Senior Secured Term Loan Facility. The facility is solely secured by a first, fixed legal mortgage over the properties. The facility includes a variable interest rate with a floor of 6.75% per annum and a 3 year maturity, prepayable with no penalty after 2 years. An initial drawdown of £10,315,000 was used to refinance existing assets and for the completion of the Wimbledon acquisition. Further drawdowns will be used toward the development of the Chippenham, Wimbledon, and Enfield properties. The loan was arranged by CBRE's Debt and Structured Advisory team in London.
Commercial real estate investment activity continues to be strong across the United Kingdom. There is significant demand from real estate private equity firms and public companies, and attractive debt terms support a strong UK market. Market conditions have prompted capitulation rates to continue to compress. Capitalization rates for core market, Class "A", self storage properties are approximately 4%-5.25%, depending on the quality and location of the site, with some London locations trading for sub-4% cap rates. Commuter and secondary markets are approximately 4.75%-6%, depending on site factors. Headwinds may emerge as the yield on UK 10-year notes has risen to 1% for the first time since March 2020, as markets are confronted with a mix of inflation concerns and fears of curtailed growth from a potentially tightening cycle.
The UK Self Storage sector has seen strong growth in occupancy and rent during the past several years, according to the 2021 UK Self Storage Association Annual Report and commercial self storage agents Cushman & Wakefield. In fact, Big Yellow and Safestore, two of the largest public UK self storage operators, both reported record performance. Drivers benefitting the self storage sector include: a growing adoption by the UK consumer, a temporary residential Stamp Duty Land Tax holiday (reducing or eliminating the tax buyers typically pay on home purchases), home renovations, a shift to work from home, a growing small and medium sized entrepreneurial business market, job changes, and relocations.
The Manager believes the portfolio will continue to benefit from strong demand for self storage space based on the quality of it's self storage sites, class leading management, Search Engine Optimization, and local store marketing. Periods of change have historically been enhanced demand drivers for self storage with both positive and negative economic and social trends providing local need. The Trust expects to continue to produce consistent investment returns for unitholders while building enterprise value for the Unitholders.
About Padlock Partners UK Fund I
The Trust is an unincorporated investment trust and was established for the primary purpose of investing in a diversified portfolio of income producing commercial real estate properties in the United Kingdom with a focus on self-storage and mixed-use properties. Currently, the Trust has acquired three operating self-storage properties in Letchworth, Leighton Buzzard and Bicester, development properties in Wimbledon, Enfield, and Newmarket, and one conversion property in Chippenham which recently commenced operations.
Forward-looking Statements
This newsletter contains statements that include forward-looking information within the meaning of Canadian securities laws. These forward-looking statements reflect the current expectations of the Trust regarding future events, including statements concerning the Trust's plans for certain properties. In some cases, forward-looking statements can be identified by terms such as "may", "might", "will", "could", "should", "would", "occur", "expect", "plan", "anticipate", "approximate", "believe", "intend", "seek", "aim", "estimate", "target", "project", "predict", "forecast", "potential", "continue", "likely", "schedule", or the negative thereof or other similar expressions concerning matters that are not historical facts.
Material factors and assumptions used by management of the Trust to develop the forward-looking information include, but are not limited to, the Trust's current expectations about: the development and fit out of properties; the development timeline; the availability of materials and labor; the availability of debt financing; the impact of COVID-19; the capital structure of the Trust; the global and United Kingdom economic environment; foreign currency exchange rates; and governmental regulations or tax laws. While management considers these assumptions to be reasonable based on currently available information, they may prove to be incorrect.
Although management believes the expectations reflected in such forward-looking statements are reasonable and represent the Trust's internal projections, expectations and beliefs at this time, such statements involve known and unknown risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities may not be achieved. A variety of factors, many of which are beyond the Trust's control, could cause actual results in future periods to differ materially from current expectations of estimated or anticipated events or results expressed or implied by such forward-looking statements. Readers are cautioned against placing undue reliance on forward-looking statements. Except as required by applicable Canadian securities laws, the Trust undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
SOURCE Padlock Partners UK Fund I
John Stevenson, Chief Executive Officer, Padlock Partners UK Fund I, 480-309-6184, [email protected]; Matthew Collins, Chief Financial Officer, Padlock Partners UK Fund I, 480-428-0152, [email protected]
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