GIC and Lendlease have teamed up to sell their combined stakes, valued at £1bn, in the Bluewater shopping centre in Kent.
The Singaporean sovereign wealth fund owns a 17.5% stake, valued at £400m, and the Australian fund manager owns a quarter share, valued at £600m.
Combined with Hermes’ £167m, 7.5% slice, also on offer, half of the 1.8m sq ft centre is now on the block.
Lendlease and GIC had originally put their stakes up for sale separately.
Lendlease’s 25%, the largest stake for sale, had been offered through Macquarie for proportionately more than the other stakes, at a yield reflecting 4%, valuing the centre at £2.4bn. This implies a belief that prospective investors will pay a premium to allocate greater amounts of cash to the opportunity, owing to a lack of similar-quality opportunities.
GIC had offered its stake for £400m through Knight Frank, a price that reflected a 4.17% yield and valued the centre at just under £2.3bn.
A formal process marketing the stake is due to start in September using both advisers.
Hermes’ 7.5% stake, being the smallest, is also the “cheapest”. Being sold through HP4, the stake carries a £167m asking price, reflecting a 4.3% yield and a valuation of just over £2.2bn.
A source said: “This opportunity for one of the UK’s leading centres is likely to draw interest from all serious sovereign wealth funds. How often do you have the chance to pay £1bn for an asset of such calibre? It is very rare.”
The fact that the three stakes are being marketed simultaneously had not been planned initially by the stakeholders and all have separate motives.
The fact that the three stakes are being marketed simultaneously had not been planned initially by the stakeholders and all have separate motives.
Lendlease, the main stakeholder, is in the process of reducing the size of its £900m Lendlease Retail LP fund, in which Bluewater is held, in order to pay back investors that want to withdraw.
In October 2016, Lendlease held a vote seeking to extend the life of the fund to 2024, but was unable to secure full commitment. Some investors in the fund were unhappy at paying both a fund management fee to Lendlease and an asset management fee for Bluewater to Landsec (see box).
Hermes’ decision to sell its stake is a result of its strategy to focus on investments it can asset manage and, increasingly, on Asia.
GIC is moving towards holding only larger stakes in assets in order to have more control of them, a strategy that does not fit with a 17.5% share ownership. The fund has also been encouraged by the strong prices being paid for trophy office buildings in central London and is hoping that these higher prices also apply to fortress malls.
A source close to GIC said: “The wild bids that came in on the Walkie Talkie and the Cheesegrater were sub-4%, which was way ahead of the conventional valuations. It may well be that Bluewater could be the same, if you put together a big enough stake and you get a heavy hitter.
“However, it is one thing for Chinese investors to buy a central London tower and another for them to buy a shopping centre in Kent. I suspect that they would prefer to have a much bigger stake and may feel that the asset is expensive.”
The remaining owners – M&G Real Estate (17.5%), Aberdeen Asset Management (2.5%), and LandSec (30%) – are not contemplating a sale.
Despite the headwinds that the retail sector is facing at the moment, Bluewater is thought of as a secure asset. It has been a success and has become the go-to for international brands and retailers looking to establish their UK flagships or first shops outside London.
A source said: “No asset is immune to the retail market but it comes down to the genuine quality of the asset management and then to assessing how this is taken forward. LandSec is trying to reduce the number of retail units to create more space and to make the asset more experiential.”
A new owner would also benefit from potential development profits at Bluewater, which has a consent in place for a 320,000 sq ft extension that would make it the second-largest centre in the UK, second only to intuMetrocentre in Gateshead, Tyne and Wear.
Asset manager Landsec likely to hold firm
LandSec paid Lendlease £656m for a 30% stake in the shopping centre in 2014, a 4.1% yield. The price paid, which included 110 acres of surrounding land for £40m, was viewed by some analysts as excessive.
However, the deal included the lucrative asset management rights of the shopping centre, which are not on offer to any other prospective investors. LandSec’s management does not have an end period and the company can be dismissed only if the board revolts.
In part because of its management role, Landsec is very unlikely to sell out any time soon.
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