Real estate investment trust Capital & Regional announced on Thursday it agreed to acquire The Gyle Shopping Centre on the western edge of Edinburgh for about £40 million, partly funded by a £25 million equity raise.

Capital & Regional’s biggest shareholder is Growthpoint Properties, South Africa’s largest-listed property firm, which owns 62.37% of the real estate investment trust (REIT).

The seller is the Gyle Shopping Centre Trustee Limited. Capital & Regional said it has “identified a number of asset management opportunities to create value.”

The REIT said: “The consideration for the acquisition is to be financed through existing funds held by the company, a new debt facility of £16 million and the approximately £25 million of gross proceeds to be received pursuant to a fully underwritten open offer …”

Capital & Regional CEO Lawrence Hutchings said: “The strong operational results and continued valuation stabilisation we are reporting today give us considerable confidence in our own portfolio, platform and UK Community centres strategy, as well as the physical retail market where many of the structural changes are maturing.

“This confidence is also reflected in our announcement this morning of the acquisition of The Gyle Shopping Centre in Edinburgh, which marks the first step towards rescaling our business and fully leveraging our proven skills and management expertise.

“This acquisition allows us to capitalise on an opportunity to add an established dual supermarket anchored community centre in Scotland’s capital city to our portfolio, in a transaction that will be part-funded by a £25 million equity raise available to all existing shareholders and fully underwritten by our majority shareholder, Growthpoint.

“The centre will be accretive to income from day one, with the agreed price representing a significant discount to the replacement cost and providing us with a highly attractive entry point from which we can create value.

“In addition, we have arranged terms with Morgan Stanley to staple debt to the acquisition at a 40% LTV capped at a cost of 6.5% fixed for 5 years.

“We have also identified a number of asset management opportunities to create value including refining the tenant mix, a renewed focus on leasing to improve occupancy and income, whilst enhancing the centre’s appeal to the growing and affluent catchment in south western Edinburgh.”

The Gyle comprises 88 retail units and is anchored by Marks & Spencer and Morrisons. It is a 415,000 square feet community shopping centre on a 50-acre site.

“The Gyle is complementary to the company’s existing portfolio and provides an opportunity for Capital & Regional to apply its management capability and experience to improve the centre’s retail and services offering, consistent with the company’s community shopping centre strategy which was launched in December 2017 …” said Capital & Regional. 

“The property’s retail space is let at approximately £6.8 million and approximately £5.77 million of annual gross rent and net rental income, respectively, with strong rent collection and headline occupancy of 94 per cent. as well as a weighted average unexpired lease term of 2.1 years.

“The asset is being acquired at a net initial yield of 13.51% that is expected to rebase to around 12%.

“With a 2022 footfall of 8.6 million, the property has 2,800 free car parking spaces and directly serves two large affluent residential areas, as well as the commercial areas of South Gyle and Edinburgh Park.

“It is also served by the tram system which links the nearby airport to Edinburgh City centre, further improving access and footfall.”