The sale of a portfolio of logistics warehouses tenanted by leading parcel delivery company, DPD, to Abrdn for £20.2m has delivered strong returns of 9.5% IRR to private investor clients of Connection Capital, the specialist private client investment business.
- Deal provides private investors with 9.5% internal rate of return (‘IRR’) as logistics investment market thrives
Strategically located near Lincoln and in Aberdeen, the properties have excellent transport links by road, rail, air and sea – vital to enable logistics companies to service the crucial “last mile” of deliveries efficiently. They were let to DPD on 20 and 25 year terms respectively, with no break options and upwards-only rent reviews to open market value every five years.
The sale price reflects a net initial yield of 3.84%, with Abrdn acquiring both units on behalf of a local authority pension fund. The deal follows a series of recent investments in delivery and logistics assets by Abrdn.
The investment market for logistics assets is thriving as online shopping continues to boom, fuelled further by the Covid-19 pandemic. Appetite from both overseas and domestic investors has been strong and prime, single-let assets and portfolio deals have seen yield compression throughout the sector in recent years. Long-term growth prospects for the sector remain good, particularly from online retailers.
Connection Capital clients invested in the properties in December 2016 while they were still at the development stage, as part of a deal worth a combined total of £14.9million. The investment was sourced and managed through to exit by Connection Capital’s property partner, Riverside Capital.
Returns were generated by income as well as capital growth, with investors receiving distributions of 5% per annum throughout the term of the investment. Connection Capital clients were able to participate in units of £25,000, enabling them to enhance their portfolio diversification.
Claire Madden, Partner at Connection Capital says, “With logistics now firmly established as an appealing investment class seeing high demand from institutional investors, we’ve been able to provide access for private capital to get some skin in the game.”
“Our private investor clients relished the chance to invest in this high-quality commercial property asset, let to a top-tier tenant in the rapidly-expanding logistics sector, with rental growth built in, and it has really paid off for them. Trends in consumer behaviour continue to create appetite for logistics space, as the fact that it has attracted the interest of a high-profile purchaser in Abrdn attests.”
Dominic Wright at Riverside Capital comments, “DPD’s covenant status ensures they remain one of the most sought-after prizes within the last-mile logistics sector. We had always planned to hold these assets for five years, and with yields in the logistics market sharpening over recent months, the time was definitely right to divest and realise a healthy gain for investors.”
About Connection Capital
Connection Capital LLP is a Financial Conduct Authority authorised and regulated, specialist syndicator of investment funds from private professional investors into direct private equity, private debt and commercial property deals, as well as alternative asset funds. It currently has some £379million of funds under management across a diverse portfolio.
Connection Capital provides a specialist managed service to help professional clients build up their own alternative asset portfolios. Private investors self-select which opportunities they want to take a stake in. Opportunities are identified and negotiated by Connection Capital, which also carries out all due diligence and manages the investment from completion through to exit, on its clients’ behalf.
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