Landsec has taken 100% ownership of St David’s shopping centre, Cardiff, after buying the debt secured against the 50% share previously owned by collapsed mall owner Intu.
In a stock market announcement Landsec said it had completed separate transactions with two debt holders and confirmed the overall purchase price had been at a discount to the £113 million September 2022 book value of Landsec’s existing 50% share of the centre. The price paid translatees to a net initial yield of 9.7% and an equivalent yield of 9.7%.
St David's is an 1.4 million-square-foot dual level shopping with around 150 stores arranged over basement, ground and three upper floors, with mezzanine level. The remaining upper floors provide residential accommodation. The property is anchored by tenants such as Boots, H & M, Hamleys, John Lewis and Marks & Spencer.
The REIT said leasing momentum in St David’s has been strong, as the centre benefits from brands’ “flight to prime”.
Since March 2022, 36 leases have been signed or are in solicitor's hands, on average 11% ahead of estimated rental value (ERV). In the last 18 months, several brands have relocated to St David’s from elsewhere in the city, agreed to open new stores, or upsized their existing stores, including Zara, Ivy Asia, Gaucho, Footasylum and The Fragrance Shop.
In a separate deal, Landsec has bought the adjacent vacant Debenhams store for a "minimal sum", it said.
It added that together it has unlocked the opportunity to deliver its "future vision for the centre, to further enhance its attraction for brands and guests". This, Landsec says, will introduce new public spaces, "elevated F&B/leisure concepts and a refreshed brand mix, and is expected to deliver a high single digit income return on incremental capex".
Bruce Findlay, managing director, retail at Landsec said in a statement: “Acquiring this final stake in St David’s is testament to our ability to unlock complex opportunities and enables us to take forward our placemaking plans for what is the dominant retail destination in Wales. With annual footfall of 27 million, it also has the necessary attributes of what we see as a shopping centre of the future.
“Last quarter, we saw many household name brands make a move to prime city-centre locations like St David’s with a focus on creating best-in-class guest experiences. Our investment here will position us perfectly to capitalise on this trend, driving increased footfall and spend – while also helping to shape an exciting future for Cardiff’s city centre.
“It’s clear that the flight to prime isn’t slowing and we’re investing at a time where values are at a level that makes this transaction very attractive.”
Shopping centre group Intu owned and operated 17 shopping centres across the UK including a 50% stake in the St David's Centre, Intu Trafford Centre, Intu Lakeside, Intu Merry Hill and intu MetroCentre, in addition to a shopping centre and development site in Spain, before its collapse into administration in June 2020 in the biggest real estate casualty of the pandemic and wider disruption to the retail sector.
Each of the shopping centres was owned individually by special purpose vehicles or property companies that were outside of any insolvency process, typically as part of securitisations, and have continued to trade as normal under the control of their directors.
The malls have remained operational while the joint administrators and the bondholders and lenders assessed options for the assets. A number of well-known groups have been enlisted as asset and project managers.
In a separate operational update this morning, Landsec said that since its half year results, it had capitalised further on the ongoing customer demand for prime space across Central London offices and major retail destinations, while also recycling capital out of mature assets into new opportunities as it targets higher future returns. The business has further strengthened its capital base, it said.
Aside from the £350 million disposal of the fully-let One New Street Square office in the City in January, Landsec has also sold a fully-let leisure asset in north London and a small non-core residential asset, it said for a combined £49 million, presenting an average yield of 2.9% and a 26% premium versus the March 2022 book value.
It said operational momentum has remained positive across its central London portfolio and major retail destinations, as customer demand continues to focus on best-in-class space.
In Central London, Landsec's two largest on-site development schemes, n2 and Lucent, are now 66% and 67% prelet or in solicitors hands respectively, it said. As a result, its overall current pipeline is now 53% pre-let or in solicitor's hands, ahead of its completion by the summer.
Across Landsec's major retail destinations, like-for-like sales were 3% ahead of pre-COVID levels for the eleven months to February.
Mark Allan, chief executive, said in a statement: "Over the past year we have been decisive in positioning Landsec for a 'higher for longer' interest rate environment. We have realised capital out of mature assets through well-timed disposals; reduced net debt to preserve a strong balance sheet; extended debt maturities while preserving a low cost of debt; invested selectively in new opportunities that offer a materially higher return and responded proactively to the continued high demand amongst occupiers for prime space.
"We continue to believe that interesting opportunities will emerge as the economy transitions to a higher interest rate environment and have positioned the business to be able to respond accordingly."