- Asset: 334-338 Oxford Street
- Size: 366,000 sq ft
- Situation: Let to Debenhams until 2039
- Price: Pays rent of £11m pa with a rent review in 2019
British Land pulled off one of the largest deals of the year last week, selling the crown jewel of its retail estate.
Debenhams department store in Oxford Street, W1, owned by British Land since 2005, was quietly sold to Stefan Persson, the billionaire chairman of high street fashion chain H&M, for £400m.
The price, which reflects a 2.75% yield, has the investment market talking again, after a pause in the run-up to and after last month’s Brexit vote.
British Land chief executive Chris Grigg said the sale reflected its retail strategy of focusing on properties let to multiple tenants.
But the timing, after the shock of the Brexit vote, had analysts speculating otherwise.
Mike Prew, analyst at Jefferies, said: “With Land Securities’ share price now racing ahead, rewarding its lower gearing and lower development risk strategy, this looks like a knee-jerk reaction to the surprise Brexit.
“British Land is rushing to a more defensive positioning of the business, but it contradicts its strategy of boosting its London portfolio exposure – it is cutting debt but also reducing the quality of the portfolio.”
A source close to British Land said the deal had been on the cards before the EU referendum result, however.
The extra £400m in the British Land bank account also puts the REIT in a stronger position to gear up for the next cycle. Analysts suggested the sale will help it to get its net gearing down from an already low 30%.
Although the sale was being worked up ahead of the referendum result, the move echoes British Land’s decision to sell its half stake in city office complex Broadgate to Blackstone for £77m (plus £987m of third-party debt) in 2009, when the market was similarly plagued with uncertainty. The move allowed British Land to shed around £2bn of debt from its balance sheet.
That move was viewed by analysts as a wrong turn for the REIT when Blackstone went on to sell a 50% stake in the complex to GIC for £1.7bn just four years later.
But in 2009, times were more troubled, and this sale is not being seen as a forced decision.
Alan Carter, analyst at Stifel, said: “British Land sold this because they could and they got a very good price for it. The bid was on the table, and in this market, where uncertainty beckons, why wouldn’t you? That’s what shareholders like.”
It is not the first time British Land has tried to sell the trophy West End block. In 2008, it explored a sale through CBRE, asking around £150m, but no deal was agreed.
It bought the Oxford Street asset in 2005 as part of a £495m sale-and-leaseback of 23 Debenhams stores, of which it has since sold nine.
The price British Land bagged has put confidence back into the investment market.
“Everyone is saying that there are no buyers at the moment, and then out of nowhere you get a seriously significant deal,” said Carter. “It shows that there is still interest around. Without a doubt, it will have provided a confidence boost to the market, particularly to the stock market.”
Vendors will be hoping the Debenhams sale has provided an accurate post-Brexit valuation for prime Oxford Street assets.
Anthony Selwyn, head of central London retail at Savills, said: “This yield profile is an obvious point to people that they should be confident.
Everyone is now guessing which other big chunks of Oxford Street will follow if British Land has sold at close to 3%.”
Prew estimates property funds will have to sell assets worth as much as £5bn into a “buyer’s market”.
Aberdeen Asset Management has already put its largest asset, 355 Oxford Street, W1, up for sale to raise cash to pay back its redemptions. It has priced the 57,000 sq ft block at £145m, reflecting a 3% yield.
So, if this Debenhams deal can be seen as a litmus test for pricing, then the market looks hopeful for the rumoured multi-millions of pounds worth of assets which are due to be sold in the coming weeks.
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