British Land said it sold 75% of its stake in the Paddington Central assets to GIC for £694m on Monday.
British Land completed the sale of 75% interest in the majority of its Paddington Central assets to GIC.
This transaction creates a new joint venture in which GIC and British Land share 75:25 ownership where the completion is unconditional and will take three months.
The entire consideration of £694m is 1% less than the book value in September 2021 and represents a 4.5% NIY for the sale of Paddington Central assets by British Land/
This acquisition satisfies one of British Land’s core strategic aims, which is to aggressively recycle money from mature businesses where it has produced significant value.
The transaction’s proceeds will be used to invest in value-adding development possibilities across the group’s portfolio, as well as growth sectors such as development-led urban logistics in London and innovation campuses.
British Land’s recent collaboration is another example of how the group uses its operating platform to find new ways to add value.
The group will continue to serve as asset manager for the campus as well as development manager for prospects, such as 5 Kingdom Street, for which it will be compensated.
Paddington Central was purchased for £470m in 2013 and consisted of three buildings, a retail and leisure cluster, and two development sites at the time.
British Land completed the acquisition of 1 Sheldon Square for £210m in 2015, and the development of 4 Kingdom Street in 2017, which generated rentals 40% higher than the top rents on campus at the time of acquisition.
Since its acquisition, the campus has generated an average total property return of 9% each year.
The assets of the joint venture between British Land and GIC will be 2 and 4 Kingdom Street, 1 and 3 Sheldon Square including the retail and leisure component, the Gateway development site, and neighbouring moorings at first.
Currently, the Novotel at 3 Kingdom Street and the development site at 5 Kingdom Street are not part of the Joint Venture.
GIC will be granted an unconditional option via a separate joint venture machine established for this purpose to purchase 50% of 5 Kingdom Street, a 438,000 sq ft development opportunity for £68.5m plus a share of CAPEX, which includes some contingent consideration, for six months after completion.
GIC will also be given an unconditional option to purchase 3 Kingdom Street at current market value through the joint venture that will expire five years after completion.
On a 100% basis, the gross asset value of the properties acquired by the joint venture between British Land and GIC was £936m as of September 2021 and the net rental revenue attributable to those assets was £39m in FY 2021.
Before reinvestment, the group expects the deal to cut EPS per share by 1.6p on an annualised basis.
The acquisition will lower leverage by 500bps and reduce NTA per share post fees and taxes immediately upon completion, with revenues to be reinvested in development and growth opportunities by strategy.
As of September 2021, the gross asset values for 3 and 5 Kingdom Street were £62m and £122m, respectively. The net rental income from 3 and 5 Kingdom Street was insignificant.
Simon Carter, CEO of British Land said, “We are delighted to be partnering with GIC again and this second joint venture with them demonstrates the success of our relationship at Broadgate as well as the quality of the assets and the opportunity at Paddington Central. Paddington has been an excellent investment for British Land and this transaction is a great illustration of our strategy in action.”
“We are pleased to invest in Paddington Central, a high-quality office-led mixed-use campus with retail and leisure uses. It is very well-located with connectivity to national rail services and key transport links to Heathrow, West London and Oxford. Our earlier investment in Broadgate has demonstrated the high value of acquiring central London campuses and we are confident that this asset will generate resilient long-term returns,” added Lee Kok Sun, Chief Investment Officer of Real Estate, GIC.
British Land shares fell 1.3% to 509p after the sale of 75% interest in its Paddington Central assets to GIC on Monday.
