Norges 'under offer' on Sheffield's Meadowhall

By Paul Norman - Wednesday, June 20, 2012 15:00

Norges Bank Investment Management has gone under offer to buy a 75% share of Sheffield’s Meadowhall shopping centre for between £1.15bn and £1.2bn, CoStar News can reveal.

Norway's Norges, the world’s largest sovereign wealth fund, has been in talks, advised by CBRE, to buy the stake from the centre owners - London & Stamford and British Land - for several months but market sources this week said the centre was now under offer.

London & Stamford said in its May results that it was “actively involved” in talks to raise significant funds from the sale of its 50% joint venture interest in Meadowhall, which produces annual income of around £77m.

The listed REIT appointed Savills in January to sell the stake in a deal that valued the centre overall at £1.68bn. BL subsequently engaged Savills to also sell 25% of its 50% stake. Market sources this week expected the final sale price to value the centre overall at between £1.55bn and £1.6bn, and a yield of around 5.25%.

All involved parties declined to comment.

Such a price for the 75% stake would reflect a pro rata premium to CBRE's 31 March £1.47bn valuation this year.

British Land will remain as development manager and retain a 25% stake.

The acquisition of the Sheffield centre - the fourth largest super regional shopping centre in the UK - would be Norges’ second direct investment in UK property after buying a 25% stake in Regent Street for £450m from the Crown Estate in 2010.

Meadowhall is financed by a long-dated 26-year £840m corporate bond securitisation, maturing in 2032, secured by the shopping centre. The bonds are secured by the Sheffield shopping centre and interest payments met by cashflows.

A partial sale of the Meadowhall would require Norges to inherit a 75% stake in the outstanding debt. At the 12 April interest payment date (IPD), the balance was £784.35m, putting Norges' proportion of the debt at £588.26m.

The cheap and long-dated secured finance was likely seen as a positive for Norges when assessing the deal, with Meadowhall Finance bonds paying a weighted average interest rate of 4.98%, at the April IPD, on a weighted average life of 12.9 years.

In the unlikely event that Norges would want to cancel the debt and hold the shopping centre on a purely equity basis, the sovereign wealth fund would have to tender a proposal to bondholders which include more than 15 pension funds and insurance companies.

Royal Bank of Scotland, Morgan Stanley and UBS were joint lead managers on the £840m Meadowhall Finance, against a £1.62bn valuation by Knight Frank on 30 September 2006, putting the original LTV at 51.8%.

The amortisation schedule increases gradually from April 2014.

Meadowhall was built in 1990 on the site of a former steelworks by Yorkshire entrepreneurs Eddie Healey and Paul Sykes. It was bought by British Land in 1999 for £1.17bn. London & Stamford bought its 50% stake for £588m in February 2009.

Meadowhall covers 1.5m sq ft and attracts an estimated 24m shoppers every year to shops including anchor tenants Debenhams and House of Fraser.

In October 2011, a £7m refurbishment of the Oasis Dining Quarter at Meadowhall was completed leading to the introduction of a number of new brands including Giraffe, Harvester, Chao Baby, Rice and Carluccio’s.

While Meadowhall has not been insulated from the economic downturn and has suffered some administrations and liquidations, it has proved resilient with a number of notable relets and assignments of units falling into administration.

L&S and BL are also planning a new development on land surrounding Meadowhall comprising 52,000 sq ft of shops and restaurants together with a 177,000 sq ft premium car dealership that includes a showroom, workshops and offices. This site is included in the sale.

There has been great interest in progress on the sale of Meadowhall, particularly as there has been a fall-off in shopping centre transactions in 2012.

Overall investment figures for the year look to be increasingly dependent upon the outcomes of the on-going sales of two prime assets - Meadowhall and Grosvenor’s 1m sq ft Festival Place Basingstoke shopping centre – if they are not to be significantly down on 2011.

Knight Frank’s Q1 shopping centre investment bulletin reported that 10 shopping centre assets had been transacted, with overall transaction values reaching £668.8m compared to Q1 2011’s £1.95bn.

Norges Bank Investment Management (NBIM) is the asset management unit of the Norwegian central bank set up by the Norwegian central bank in January 1998 to manage Norway's Government Pension Fund Global, known as the Norwegian oil fund, and most of Norges Bank's foreign exchange reserves.

The fund was given a mandate in March 2010 to invest as much as 5% of its assets in real estate outside Norway, at the expense of its fixed-income allocation. At the end of the first quarter, the Norwegian oil fund was valued at 3,496bn kronner, which is £372.89bn. A 5% stake would reflect £18.65bn. and

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