Segro and M&G to dissolve Heathrow big box JV

European listed logistics firm Segro has exchanged contracts with M&G Real Estate to dissolve The Heathrow Big Box Industrial and Distribution Fund (HBB) ahead of its termination date in June 2016.

HBB was formed as a 50/50 joint venture between Brixton and M&G Real Estate in 2004 to own two assets in the vicinity of Heathrow Airport: Axis Park and Heathrow Corporate Park. Segro acquired the interest as part of its takeover of Brixton in 2009.

Under the terms of the agreement, Segro will take full ownership of Axis Park which is valued at £144.9 mln (€200 mln), while M&G Real Estate will take full ownership of Heathrow Corporate Park at a value of £118.7 mln.

In addition, Segro will sell HCH House in Poyle to M&G Real Estate for £15 mln. All three assets will be sold at prices in line with December 2014 book values. The transaction is expected to complete before the end of June 2015.

Segro said the deal is in line with its strategy of expanding its wholly-owned presence in its target UK markets and of reducing the number of non-strategic joint ventures in the group. The company is familiar with Axis Park through its current asset management role.

Commenting on the transaction, Segro's chief investment officer Phil Redding said: 'Axis Park is in a prime position both for serving Heathrow Airport and for distribution to London and South-East England and this transaction allows us to increase our wholly-owned exposure to the attractive Heathrow market. We know the park well and, with occupier demand for urban distribution space improving and supply conditions remaining tight, there are opportunities to realise further value from this asset.'

Axis Park comprises 60,942 m2 of warehouse space around five miles north-west of Heathrow Airport. Royal Mail Group is the largest tenant, occupying 42,000 m2 of the estate. The vacancy rate at 31 December 2014 was 5%, reflecting a single empty unit, and the weighted average lease length to earliest of break or expiry is 5.8 years. The property generates an annualised net rent of £7.5 mln and the purchase price of £144.9 mln reflects an EPRA net initial yield of 5.0%.

Heathrow Corporate Park consists of 50,300 m2 of warehouse space across 13 units, around two miles from Heathrow Airport. The asset is fully let and the average lease length to earliest of break or expiry is 4.6 years. The property generates annualised net rent of £6.9 mln and the sale price of £118.7 mln reflects an EPRA net initial yield of 5.5%.

HCH House is a 5,700 m2 building let to Heathrow Cargo Handling until November 2021. The property generates an annualised net rent of £0.9 mln and the sale price of £15.0 mln reflects an EPRA net initial yield of 5.6%.