UK - The BP Pension Scheme has reduced its rental risk by selling a number of UK real estate assets with lease break clauses due in the next four to six years.
Ropemaker Properties, the direct real estate arm of BP Investment Management, has sold an office building to Legal & General Property for £26m (€30m), and three warehouse units for £34.8m to F&C REIT Asset Management.
All four properties had break clauses due in the period 2014-16, which represented approximately £5.75m of rent at risk, according to calculations by Ropemaker.
Tim Hayne, head of property at BP Investment Management, said the above figure amounted to "about 10% of my entire portfolio's income return".
Hayne said he had taken advantage of the current strength in the UK investment market to make the disposals and reduce the risk.
The BP pension fund is now finding it more difficult to find value in the UK market when looking to buy real estate, following a spate of acquisitions in 2008 and the first quarter of this year.
Hayne said attractive internal rate of returns were achievable in the UK during this period, but these were based on future yield improvement rather than rental growth.
"From current yields it is difficult to see the sustainability of yields, yet alone further improvement," he said.
The office building sold to L&G Property is 4, The Square at Stockley Park, the first business park of its kind built in the UK, located near Heathrow airport.
The property has 81,500 square feet of space let to Cisco with a lease break clause in 2014.
The three warehouses sold to F&C REIT are located at Ham Halls National Distribution Centre, located close to the M42 motorway (pictured)
The three units offer 620,000 square feet of distribution space, let to Bell Micro Products, Wincanton Holdings and Arvato SCM, respectively, with lease break clauses in 2015-16.
F&C REIT said the transaction was the biggest this year in the Midlands area of England and reflected a net initial yield of 9%.
The deal also represents the second acquisition by the opportunistic fund manager during the current financial year, and its second purchase in the industrial sector following the acquisition of a £17.25m warehouse in Daventry.
"This acquisition, coupled with the purchase in Daventry in July, indicates our commitment to increase the company's activity within the industrial and logistics sector," said Richard Kirby, director of property funds for F&C Commercial Property Trust.
"Hams Hall is a strong logistical location and the purchase of such good quality properties at an initial yield of 9% is attractive to the company," he continued.
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