British Land and GIC exchange on £694m Paddington Central deal

British Land has sold 75% of its Paddington Central assets to GIC for £694m. The deal, which is unconditional and will complete within three months, will create a new 75:25 joint venture between the UK REIT and the Singapore sovereign wealth fund. The price paid by GIC is 1% below the September 2021 book value and represents a net initial yield of 4.5%. British Land said it would recycle the capital into its into value-accretive development opportunities across its own portfolio, as well as growth areas such as development-led urban logistics in London and innovation campuses. British Land will continue to act as asset manager for the campus and development manager for future opportunities, including 5 Kingdom Street, W2. The jv will be British Land’s second partnership with GIC, which took on Blackstone’s 50% stake in Broadgate, EC2, in 2013. British Land chief executive Simon Carter 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.” He added: “Paddington has been an excellent investment for British Land and this transaction is a great illustration of our strategy in action. Since acquiring Paddington Central in 2013, we have driven significant value through asset management and development across the campus. We are pleased to enter into this innovative jv structure so that we can continue to play a meaningful role in the development of the campus whilst also releasing capital to invest in other value accretive opportunities across our business.” Lee Kok Sun, CIO of real estate at GIC, said: “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.” What the deal covers British Land bought Paddington Central in 2013 for £470m. At the time it comprised three buildings, a retail and leisure cluster and two development sites. In 2015, it completed the acquisition of 1 Sheldon Square for £210m and in 2017 the development of 4 Kingdom Street was completed. Overall, the campus has delivered an average total property return of 9% per annum since acquisition. The joint venture will initially comprise 2 and 4 Kingdom Street, 1 and 3 Sheldon Square, including the retail and leisure element, the Gateway development site and surrounding moorings. The Novotel at 3 Kingdom Street and the development site at 5 Kingdom Street currently remain outside the jv. On completion, GIC will be granted an unconditional six-month option, via a separate joint venture vehicle established for this purpose, to acquire 50% of the 438,000 sq ft development opportunity at 5 Kingdom Street for £68.5m plus a share of capex. GIC will also be granted an unconditional five-year option to acquire 3 Kingdom Street at prevailing market value, currently gauged at £122m. Tracy Stroh, region head of Europe, real estate, GIC, added: “We are seeing returning demand in the take-up of new office spaces that are of high quality and in prime locations. We are pleased to partner with British Land again and look forward to leveraging their best-in-class capabilities to drive value across Paddington Central. We believe this investment will be a good addition to our Europe portfolio.” The gross asset value of the assets acquired by the jv was £936m as at 30 September 2021, with a net rental income of £39m. British Land said it expects the deal to reduce earnings per share by 1.6p on an annualised basis prior to reinvestment. The transaction will marginally decrease net tangible assets per share, after fees and taxes, and will reduce leverage by around 500bps immediately on completion. CBRE and UBS advised the seller. View lettings comparables and key metrics for the Paddington market >> To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Image from British Land