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TORONTO, Oct. 15, 2021 /CNW/ - Padlock Partners UK Fund II (the "Trust") is pleased to announce this September 2021 update.
The Trust completed its initial public offering on June 8, 2021 and received total capital commitments of C$33.8 million, exclusive of UK Manager's C$1.69 million co-investment, and simultaneously acquired two properties as originally described in the offering document. Currently, the portfolio comprises one site north of London and one site within the London MSA.
On June 10, 2021 the Trust closed the Huntingdon self storage property located approximately 46 miles north of London and 15 miles northeast of Cambridge. The newly built (2019) facility consists of warehouse, bulk, drive up, interior self storage and exterior parking totaling 54,485 net rentable square feet. The property is currently in lease up. Our plan to add circa 7,487 square feet of rentable self storage space, via drive up units and fitting out previously unused space, is currently underway and is expected to be completed by December 2021. Occupancy for the property, as of August 31, 2021 was just over 73% which is a significant improvement from the 55.5% occupancy at acquisition. In addition, we have achieved a £0.91 increase in rental rates and we have implemented our ancillary sales program, including tenant insurance and merchandise sales, which grew 140%. Our rebranding and the launch of our marketing program have commenced and the property is already experiencing higher traffic and lead generation. Our on site management team has been fully trained and they have been enthusiastic team members since the transition. Going forward, we will be focusing on improving occupancy and increasing rental rates.
On June 25, 2021 the Trust completed the acquisition of the Brentwood property, located within the London MSA, just off the M25 and A12 motorways. Brentwood is an upscale community just northeast of central London. The property consists of a modern warehouse and offices totaling 43,417 square feet with a self contained, secure yard with 29 parking spaces. Upon closing of the freehold property, the seller signed a lease to "lease back" the property until December 31, 2021. The lease rate is £275,000 per annum and requires the tenant to fully insure and maintain the property during the short term. Upon expiration of the lease, the Trust plans to fit out the current warehouse in order to develop a circa 53,000 square foot Class "A" facility in two phases. Management expects the first phase to be completed in the second quarter of 2022, which enables the property to begin lease up while the second phase of the construction commences. To prepare for the development of the property, the Trust is securing materials, supplies, and necessary planning for the site conversion.
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 Manager expects Net Asset Values will reflect the short holding period of the Fund with minimal change. Expect the update to the NAV to follow once the property valuations are completed.
The Trust has begun exploring suitable partners for the Trust debt. We are seeking 50-60% LTV at competitive rates. The Trust expects the debt facility, once arranged, to sufficiently support the Trust operations, further enhance contingency budgets, and potentially enable further property acquisitions. More updates to follow as this process continues.
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 the 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 its 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 II
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 one operating self-storage property in Huntingdon, and one development property in Brentwood.
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 II
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