Council continues to make exciting investments as it secures Monopoly giant’s distribution hub
The UK distribution hub of boardgame giant Hasbro – famous for brands such as Monopoly and My Little Pony - has become the latest asset to be added to South Somerset District Council’s portfolio.
The investment has been completed for £2.78M as part of the Council’s commercial strategy. The aim is to invest in a diverse range of assets and generate income which will mitigate a reduction in central Government funding.
It will also ensure SSDC can protect the wide range of services our communities receive.
Details of the deal
The building on Reevesland Industrial Estate in Newport is the UK distribution hub of worldwide toy and boardgame giant Hasbro and it was secured for £2,780,000, reflecting a net initial yield of 7%. The deal was made possible with assistance from leading global real estate consultants CBRE and regional law firm Moore Blatch.
The property, known by the tenant as ‘Warehouse A’ was first identified by SSDC as part of a portfolio initially offered to the market in November 2018, but was rejected as the remainder of the portfolio was unsuitable. However, following some diligent work by Tom Morris at CBRE, it finally went under offer in June.
The particularly attractive feature of the property is that the remainder of the estate is owned by Hasbro, which SSDC considers makes the tenant far more secure and likely to remain in this location at the end of the lease. Hasbro is the largest toy maker in the world in terms of stock market and among its products are Monopoly, G.I. Joe, Furby, Transformers, Nerf, My Little Pony, Twister and the Power Rangers franchise.
The property is a 77,200 square foot industrial unit, used as a distribution centre by the tenant. The purchase forms part of the Council’s investment strategy, which is focused on finding value within a competitive market, to help provide income to support the provision of council services to its South Somerset residents.
The limited historic capital growth in South Wales has provided some opportunities in the market which allows for the acquisition of property with more secure tenants at excellent value.
The Council’s Portfolio Holder John Clark said: “Reevesland Industrial Estate is an excellent value property providing much needed inexpensive storage space in a market where precious little industrial stock is available. We’re also pleased that there is room for rental growth, which will increase the capital value of the property and the rental income to the council in future.
“This investment is the latest success in achieving the commercial strategy for generating income to continue the provision of public services. We are pleased to report that our investments to date and projected gross and net returns are all on target.”
How does the council pay for these deals?
The Council uses a range of funding sources including investments utilising its reserves (sums of money that are held so that there is a financial cushion to meet sudden unexpected costs) and internal borrowing, a process through which SSDC can borrow from itself and charge itself interest.
This means that money that was previously in bank accounts is generating a higher rate of return with the proceeds used to protect services and deliver important projects in South Somerset. It does not involve investing money that would have been spent on services.
And in the highly unlikely event that we do need to access to funding quickly in an unplanned way, our careful approach to investment means we can still do this.
Why is South Somerset District Council becoming more commercial?
The Council is currently operating in a complex financial climate where it needs to deliver savings rising to £6 million per year until 2022. This is in addition to having to cut its costs substantially since 2010.
SSDC has sustained a 70 per cent reduction in its Government grant funding since 2010 and further reductions are likely in the future whilst demand for and costs of many services continues to rise. It became clear that SSDC needed to make the most out of its assets and look for new opportunities which could generate income to protect the wide range of services our communities receive and create opportunities to fund new projects.
It has seen the Commercial Services and Income Generation team given an ongoing annual income target of £2m for commercial investment income and great progress is being made.
This is about making prudent financial decisions which will create significant income to get the best results for South Somerset but still, where possible, supporting the local economy.
In the future, we will have countered the loss of grant funding from Central Government though sensible investment and we will continue to deliver vital services, parks and open spaces as well as exploring new opportunities to make South Somerset an outstanding place to live, play and work.
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How does the council decide on where it invests?
Every decision that is made is being rigorously tested and checked. The Commercial Property Team is working to ensure that SSDC does not overpay for property due to the lack of supply, and is not exposed to undue risk, for example within the retail sector, where significant changes are currently occurring nationally.
A huge and diverse range of opportunities have been considered and rejected in the past year from a car showroom in Newcastle to an industrial estate in Poole.
Reasons for rejection can include the asking price not matching our valuation, unacceptable risk to income, non-compliance with our commercial aims and objectives, and over-exposure to a particular market.
SSDC is investing in a diverse range of locations and asset types to ensure that it spreads any risks attached to investments which reflects sound investment practice.
This includes assessing whether an investment outside the district will deliver a better rate of return for our communities than a similar opportunity in South Somerset.
The new asset forms part of South Somerset’s growing portfolio, which includes High Street retail, in town and out of town offices, industrial, energy storage and a residential development site.