?470m Invested in Paddington Central Estate
British Land Invests £470 million in Paddington Central
Attractive West End Estate with Development Potential
British Land is pleased to announce that it has acquired assets comprising the majority of Paddington Central, a 1.2 million sq ft office-led, mixed use estate close to Paddington station in London's West End. The investment offers an attractive blend of income and capital return, with major development potential and significant future opportunity to improve the estate through asset management. On completion of the developments, British Land will own 1.0 million sq ft of a 1.6 million sq ft estate.
Highlights
· Attractive real estate with significant future upside from asset management and development
o 3 modern buildings and a retail/leisure cluster totalling 610,000 sq ft let to major corporates; nearly 11 years average lease length; 91% occupancy
o Income generating assets acquired for £400 million, a net initial yield of 5.3% on expiry of rent frees, rising to 6.2% when fully let.
o 2 sites with 355,000 sq ft of consented office development acquired on an effective price of £175psf; 80,000 sq ft of further potential development which reverts to British Land by 2018
· Well positioned to benefit from improving local infrastructure and regeneration
o Major London transport hub with strong links to Heathrow and the M4 corridor
o Opening of a new Hammersmith & City Line station in 2014
o New Paddington Crossrail station opening in 2018
· In line with strategy to increase focus on London and the West End and replenish development pipeline
o London and South East increased from 55% to 57% of UK portfolio
o West End weighting in Offices portfolio increased from 52% to 57%
o Increases near-term development pipeline by £250 million
· Investment of equity placing proceeds now accretive to 2014 earnings
o £22 million of gross contracted rent after expiry of rent frees
o 1.2 pence of annualised earnings per share
Chris Grigg, Chief Executive, British Land, said: "We are delighted to have bought into Paddington Central. It is an investment which plays to our asset management and development strengths, is in line with our strategy of increasing exposure to London and replenishing the development pipeline, and one we expect to generate strong returns. This is the most significant acquisition we have made since the equity placing in March and we are confident that investment of those proceeds will now be accretive to 2014 earnings, ahead of our original objective."
Tim Roberts, Head of Offices, British Land, said: "Managing and developing large estates in London is what we do well. With the benefit of improving local infrastructure, the regeneration of Paddington as a whole, plus our ability to improve and complete the estate, I am confident we can take Paddington Central to the next level and in the process, deliver attractive returns."
Overview of Paddington Central
Paddington Central is an 11 acre mixed use estate in London's West End comprising seven separate modern buildings, and a retail and leisure cluster, totalling 1.2 million sq ft. The area is well served by Paddington station, a major London rail and tube interchange with excellent connections to Heathrow airport via the Heathrow Express which will further benefit from the opening of the new Hammersmith & City Line station in 2014 and Crossrail in 2018. Paddington will be one of only three Crossrail stations in the West End, which will improve connections from the West End to the City and Canary Wharf.
The complex transaction combining a number of separate ownerships was arranged with the majority owner, Aviva Investors. British Land has acquired three of the existing buildings, together with the retail and leisure cluster in Paddington Central from funds controlled by Aviva Investors and other investors. These assets comprise 610,000 sq ft of income generating properties which are occupied by high quality tenants, including AstraZeneca, Nokia, Statoil and Accor. The quality of income is excellent, with a weighted average lease length of 10.7 years and occupancy of 91%. In addition, we have acquired 435,000 sq ft of development potential, comprising 355,000 sq ft of consented offices, which we intend to enhance and 80,000 sq ft of mixed use potential, currently occupied by Crossrail, but which reverts to us by 2018. On completion of the development, the estate will grow to 1.6 million sq ft, with British Land wholly owning just over 1.0 million sq ft.
2 Kingdom Street is the most significant property on the estate (which was jointly owned by Aviva and Avestus Capital Partners), providing 268,000 sq ft of multi-let office space. Occupancy is 84% and key tenants include AstraZeneca, Nokia and Statoil. The average lease length on this building is 11.2 years, with contracted income of £10.9 million per annum. 3 Kingdom Street is a 206 bedroom, 4 star "Novotel" hotel let to Accor. The lease length is 18.0 years, and the total income is £2.2 million per annum, subject to annual RPI uplifts. Both properties were designed by Kohn Pederson Fox and completed in 2010.
3 Sheldon Square is the second multi-let office property, comprising 143,000 sq ft of office space, completed in 2002. Occupancy is 100%, with tenants including Kingfisher, Prudential and Cerner. The average lease length is 7.8 years, and contracted income is £7.3 million per annum. Adjacent to this is the Sheldon Square retail and leisure area, a grass amphitheatre surrounded by cafés, bars and restaurants, with occupancy of 91%. The average lease length is 12 years, and the total income is £1.5 million per annum. British Land has also acquired the freehold in respect of 200 residential units sold to St. George on long leases which sit above the retail area.
The development sites of 4 and 5 Kingdom Street, which have consent for around 355,000 sq ft of offices, have been purchased at an effective price of £175 per sq ft. Design is well advanced, but it is our intention to add to, and improve, the existing consents. Subject to consent being received, we expect to commit to these developments and start on site towards the end of 2014. The expected cost to complete is around £180 million (excluding finance costs). In addition, the space beneath 4 and 5 Kingdom Street, currently occupied by Crossrail, will revert to British Land by 2018 and offers 80,000 sq ft of mixed use development potential.
Rationale
British Land has a strong track record of delivering value by managing and developing major London office-led estates through our ownership of Regent's Place in the West End and Broadgate in the City. At Paddington Central, there is significant future opportunity to drive returns through more proactive management of the existing properties including letting the remaining vacant space, by improving the public spaces, retail and leisure provision and by developing the sites to complete the estate. The current office rent which averages £49.50 per sq ft is attractively priced relative to the West End, and we therefore believe the prospects for growth in rents from these levels is good.
This acquisition is in line with our strategy of further increasing our exposure both to London and the South East and within our office portfolio to the West End. Paddington Central is well positioned in terms of its proximity to Paddington Station, one of London's key transport interchanges which will benefit both from the opening of the new Hammersmith & City line in 2014 and Crossrail in 2018.
Our committed development programme has made a significant contribution to overall returns in recent years and we remain positive about the medium term outlook for development returns going forward. The sites at 4 and 5 Kingdom Street increase our near-term development pipeline enabling us to maintain our development commitment as the current programme reaches practical completion.
Financial effects
The existing properties we have acquired generate contracted rents of £22 million on expiry of rent frees, which will rise to £25 million on letting of vacant space and minimum uplifts. The annualised accounting net rent is £21 million per annum which based on current year funding cost equates to earnings per share of 1.2p.
In March 2013 we raised £493 million in an equity placing, the purpose of which was to provide sufficient equity and debt capacity to take advantage of the increased flow of attractive investment opportunities. The transaction announced today brings the total amount invested to over £750 million excluding any associated potential development spend. The contribution from these investments will be accretive to current year earnings which exceeds our objective of delivering earnings accretion on an annualised basis by the end of the current financial year.
Our proportionately consolidated loan to value ratio as at 31 March 2013, adjusted for this acquisition, is 43% (31 March 2013: 40%).
Investor Conference Call
A conference call for analysts will take place at 8.30am today, 5 July 2013. The accompanying slides which will be referenced on the call are available on the website www.britishland.com. The details for the conference call are as follows:
UK Toll Free Number: 0800 279 4977
UK Number: +44 203 427 1901
Passcode: 2075027
A dial in replay will be available later in the day and the details are:
Replay number: +44 203 427 0598
Passcode: 2075027
Enquiries:
Investor Relations
Sally Jones, British Land 020 7467 2942
Media
Pip Wood, British Land 020 7467 2838
Gordon Simpson, Finsbury Group 020 7251 3801
About British Land
British Land is one of Europe's largest Real Estate Investment Trusts (REITs) with total assets, owned or managed, of £16.4 billion (British Land share £10.5 billion), as valued at 31 March 2013. Through our property and finance expertise we attract experienced partners to create properties and environments which are home to over 1,000 different organisations and receive over 300 million visits each year. Our property portfolio is focused on prime retail locations and London offices which attract high quality occupiers committed to long leases. Following our purchase of Paddington Central, our occupancy rate of 96.5% and average lease length to first break of 10.7 years remain among the highest of the major UK REITs.
Retail assets account for 58% of our portfolio, around 80% of which are located at prime out of town sites. Comprising around 29 million sq ft of retail space across 80 retail parks, 91 superstores, 17 shopping centres and 13 department stores, the retail portfolio is modern, flexible and adaptable to a wide range of formats. Our active asset management delivers space which is attractive and meets the needs of both retailers and consumers.
London offices, located in the City and West End, comprise 38% of the portfolio (which will rise to an estimated 41% on completion of current developments). Our 7 million sq ft of high quality office space includes Broadgate, the premier City office campus (50% share) and Regent's Place and Paddington Central in the West End. Since 2010, we have committed £1.2 billion to deliver 2.3 million sq ft of high quality space in London by 2014, including a 700,000 sq ft building at 5 Broadgate, the 610,000 sq ft Leadenhall Building in London's insurance district and a 500,000 sq ft mixed office and residential scheme at Regent's Place in the West End.
Our size and substance demands a responsible approach to business and we focus on five areas which matter most to us and our key stakeholders: managing buildings efficiently; developing sustainable buildings; enhancing biodiversity; exceeding customers' expectations and focusing on local communities. We believe leadership on issues such as sustainability helps drive our performance and is core to our corporate vision of building the best REIT in Europe.
Further details can be found on the British Land website at www.britishland.com
Forward Looking Statements
This announcement contains certain 'forward-looking' statements. Such statements reflect current views on, among other things, our markets, activities and prospects. Such 'forward-looking' statements can sometimes, but not always, be identified by their reference to a date or point in the future or the use of 'forward looking' terminology, including terms such as 'believes', 'estimates', 'anticipates', 'expects', 'forecasts', 'intends', 'plans', 'projects', 'goal', 'target', 'aim', 'may', 'will', 'would', 'could', 'should' or similar expressions or in each case their negative or variations or comparable terminology.
By their nature, forward-looking statements involve inherent risks and uncertainties because they relate to future events and circumstances which may or may not occur and may be beyond our ability to control or predict. Therefore they should be regarded with caution. Important factors that could cause actual results, performance or achievements of British Land to differ materially from any outcomes or results expressed or implied by such forward-looking statements include, among other things, general business and economic conditions globally, industry trends, competition, changes in government and other regulation, including in relation to the environment, health and safety and taxation (in particular, in respect of British Land's status as a Real Estate Investment Trust), labour relations and work stoppages, changes in political and economic stability, changes in occupier demand and tenant default and the availability and cost of finance. Any forward-looking statements should therefore be construed in light of such factors. Information contained in this announcement relating to British Land or its share price, or the yield on its shares are not guarantees of, and should not be relied upon as an indicator of, future performance.
Any forward-looking statements made by or on behalf of British Land speak only as of the date they are made and no representation, assurance, guarantee or warranty is given in relation to them (whether by British Land or any of its associates, directors, officers, employees or advisers), including as to their completeness, accuracy or the basis on which they were prepared. Other than in accordance with our legal and regulatory obligations (including under the UK Financial Conduct Authority's Listing Rules and Disclosure Rules and Transparency Rules), British Land does not intend or undertake to update or revise forward-looking statements to reflect any changes in British Land's expectations with regard thereto or any changes in information, events, conditions or circumstances on which any such statement is based.
This information is provided by RNS
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