Friday, 18 September 2009 – The British Land Company is pleased to announce that it has today exchanged contracts to form a £2.13 billion Joint Venture with the Blackstone Group L.P. for its holdings in Broadgate, the 30 acre City of London office estate.
Together with the Meadowhall Joint Venture, this transaction realises our strategic objective of reducing exposure to large single asset concentrations. It puts British Land in a very strong position by reducing its Group loan to value ratio to 30% and allowing it to take maximum advantage of market opportunities as the cycle develops.
Under the terms of the Joint Venture, the real estate funds Blackstone Real Estate Partners Europe III and Blackstone Real Estate Partners VI (the “Blackstone Partners”) will acquire a 50 per cent interest in Broadgate valued at £1.07 billion. The Blackstone Partners’ share of the gross attributable value includes £987 million of third party debt, being 50 per cent of the debt secured against the assets of Broadgate, and the net consideration paid for their 50 per cent interest in Broadgate valued at £77 million.
The transaction brings together two experienced and well-financed office investors to take Broadgate forward through the next stage of its life. Both partners share the ambition to invest in and maintain Broadgate’s status as the City’s pre-eminent office campus.
British Land will be asset manager and administrator for the Joint Venture company. Broadgate Estates Limited remains a wholly owned subsidiary of British Land and will continue to provide property management facilities and services for the occupiers of Broadgate.
British Land benefits through a reduction in the relative scale within its portfolio of a long term development and investment project in a cyclical sector, as well as in its concentration risk at a single location, largely serving the financial services industry. Broadgate is British Land’s largest asset and currently represents 27% of the portfolio. This reduces to 16% after the transaction and the overall City Office weighting will also reduce from 31% to 21%.
Chris Grigg, Chief Executive, British Land said: “Reducing exposure to large single assets is the strategy I put in place when I arrived and this deal brings that phase to a close. The transaction increases our capacity for profitable investment opportunities elsewhere as we reinvest in more diversified, liquid assets. We have selected Blackstone as a valued partner with excellent financial strength and real estate capabilities.”
Chad Pike, Senior Managing Director and Co-Head of Blackstone Real Estate, added: “We are excited to be partnering with British Land, as we have immense respect for their team and consider them to be one of the UK’s leading office property managers. As partner, we hope that Broadgate will benefit from the extensive relationships we have with multi-national tenants in our current office portfolio as well as throughout the financial sector. Having just raised over €3 billion of new commitments for our recent European fund we are fortunate to be in a position to partner with British Land through an exciting and challenging time to ensure that Broadgate retains its pre-eminent position within the City.”
The Joint Venture will own the 14 securitised Broadgate buildings and the recently completed sister buildings 201 Bishopsgate and The Broadgate Tower, which will continue to be held outside the existing Broadgate securitisation. The Joint Venture partners will share equally in the returns from of 4.4 million sq ft estate and any future capital requirements.
The transaction is subject to shareholder and certain regulatory approvals and is expected to complete in October 2009. The Board does not anticipate a change in dividend policy as a result of the proposed transaction. A Circular and Notice of General Meeting for approval of the transaction will be published on or around 21st September 2009 and will also be available on www.britishland.com.
Notes to Editors
- Broadgate is valued at £2.16 billion as at 31 August, 2009. It was constructed in phases between 1984 and 2008. Underlying occupancy on the estate is 93.7% as at 31 August 2009. Contracted rent is c.£180 million per annum. The weighted average lease length is 11 years; or 9 years to first break. Average contracted office rents are £47.40 per sq ft. Broadgate had gross assets of £2,651 million at 31 March 2009 and £2,547 million at 30 June 2009.
- The three largest tenants at Broadgate are UBS, Royal Bank of Scotland and law firm Herbert Smith. Other major tenants include Deutsche Bank, Henderson, Reed Smith, Mayer Brown and ICAP. There are 1.4 million sq ft or 31% of leases expiring over the next 5 years which may require additional capital to reposition the buildings, if vacated.
- Broadgate is financed by a securitisation which has £1,973 million outstanding with a weighted average maturity of approximately 16 years at an average rate of 5.04%. The securitisation has no loan to value covenants, is non-recourse to the wider British Land Group and does not contain any change of control clauses.
- It is intended that 201 Bishopsgate and the Broadgate Tower are financed by a loan on commercial terms of £209 million bearing interest at 2.5% over LIBOR provided by British Land.
- British Land is one of the UK’s largest Real Estate Investment Trusts with total assets, owned or under management, valued at £11.6 billion, as at 30 June 2009.
- The portfolio, focused on the Out of Town Retail and London Office sectors, has the longest leases at an average 13 years and occupancy levels of 94% as at 30 June 2009.
- On completion of the transaction, British Land’s Retail assets will account for 65% of the portfolio, 82% of which is located in prime out of town sites. Offices will comprise 32% of the total portfolio, of which City 21% and West End 11%.
Blackstone Real Estate
- Blackstone is one of the world’s leading investment and advisory firms.
- In 1992, Blackstone formed its Real Estate Group and has assets under management of approximately $23 billion.
- Blackstone has been one of the world’s most active investors in global commercial real estate and property companies through the 9 real estate private equity funds it has managed.
Blackstone is currently one of the largest owners of office buildings in the US, with approximately 52 million sq ft of office space. Additional holdings include hotels, retail properties, distribution and warehousing facilities, hospitals, leisure parks, student housing facilities and a variety of real estate operating companies.
- Blackstone’s share of the gross attributable value includes £987 million of third party debt, being 50 per cent of the debt secured against the Broadgate assets, and a net consideration of £77 million.
- The net consideration comprises: £34 million payable in cash on completion of the transaction: £15 million, being the present value of £18 million payable in cash instalments until September 2016 (as adjusted by a discount rate of 6 per cent per annum); and a further £28 million, being 50 per cent of £55 million payable in cash by the Blackstone Partners to the Joint Venture on completion of the transaction.
- The consideration values the Estate at a net equivalent yield of 7.4% and a net initial yield of 7.1%. This represents a £18 million or 1.6% discount to the latest independent valuation of the Broadgate properties at 31 August 2009. The net initial yield rises to 7.9% with the expiry of contracted rent frees.
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