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British Land Exchanges £733 Million of Joint Venture Properties With Tesco

British Land announces it has completed a £733 million property exchange transaction with Tesco. Under the terms of the transaction, British Land has sold its 50% interest in a joint venture portfolio of 21 stand-alone foodstores to Tesco and acquired Tesco's 50% interest in two joint venture portfolios predominately comprising Tesco-anchored shopping centres and retail parks.
The transaction is in line with our strategy to evolve our retail portfolio. It further reduces our foodstore weighting and increases our exposure to multi-let retail parks and shopping centres. Our full ownership of these assets will provide significant potential to add further value through asset management and development.

Charles Maudsley, Head of Retail & Leisure, British Land, said: “This mutually beneficial transaction clearly demonstrates the great relationship we enjoy with Tesco. It plays to our strengths of managing multi-let assets and gives Tesco more control of their stand-alone portfolio. We see significant opportunity to add value and drive returns through asset management and development.”

Key transaction terms

Sale of 50% stake in the Tesco Aqua Limited Partnership (“Aqua”) comprising 21 stand-alone foodstores; portfolio value £352 million (50% share); weighted average lease length of 13.3 years; NIY 4.8%
Acquisition of 50% stakes in Tesco BL Holdings Limited (“TBLH”) and The Tesco British Land Property Partnership (“TBLPP”) comprising 3 retail parks and 3 shopping centres, all anchored by Tesco stores, and 3 stand-alone foodstores; combined portfolio value £381 million (50% share); weighted average lease length of 11.4 years; topped up NIY 5.2%
British Land will make a net cash payment of £96 million to Tesco reflecting the difference in net asset value (including mark to market on debt) for Aqua (£81 million) and the combined TBLH and TBLPP joint ventures (£177 million).
In line with strategy to evolve the Retail portfolio

Stand-alone foodstore weighting reduced from 10% of portfolio to 8%
Increases focus on multi-let assets; number of stand-alone foodstores reduced from 79 to 58
Reduces the number of British Land joint ventures by 3 and the number of assets held in joint ventures by 30
Opportunity to drive returns through asset management and development

Taking full ownership of 660,000 sq ft of retail parks and 730,000 sq ft of shopping centres
Potential to enhance returns through asset management notably at Serpentine Green, Peterborough, Beaumont Leys, Leicester and the Kingston Centre, Milton Keynes
Asset swaps in line with valuation and accretive to earnings

Property asset swaps in line with latest reported valuations
Transaction accretive to earnings
Group weighted average interest rate reduced by 15 basis points


Financial effects

Overall, the transaction is accretive to earnings in 2016 reflecting a £2 million increase in net rent and an £8 million reduction in net interest.

The assets acquired within the TBLH and TBLPP joint ventures generate annual accounting net rental income of £20 million. The assets sold within the Aqua joint venture generate £18 million.

The acquired debt held within the TBLH and TBLPP joint ventures currently bears interest of £5 million per annum. The Aqua disposal saves £14 million of interest per annum and including the £96m of net cash payable to Tesco the interest saving is £8m per annum. The net cash payable will be funded from existing resources.

The Group's proportionally consolidated weighted average interest rate is reduced by 15 basis points. The proportionately consolidated weighted average debt maturity is unchanged at 8.9 years. The transaction increases LTV by 0.4%.

Net asset value per share is reduced by 3 pence per share principally due to the impact of mark to market on the debt.

 

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Copyright Acquisition Intl. 2016