British Land and Schroders’ Hercules fund in £350m CMBS refi with MetLife, RBS and Lloyds

Hercules Unit Trust, the specialist retail warehouse fund managed by Schroder Property and advised by British Land, has raised £350m in five-year senior debt across two separate facilities.

The debt was secured by seven regional UK retail parks from Metropolitan Life, the Royal Bank of Scotland and Lloyds Banking Group.

MetLife and RBS have each provided an equal £125m towards £250m to fully refinance the outstanding £200m and €75m securitised loans in the dual-currency REC 4 Retail Parks CMBS issued by Rothschild in September 2005. This will be repaid to bondholders at the July interest payment date – three months ahead of maturity.

Lloyds Banking Group has separately provided Schroders and British Land’s Hercules Unit Trust with a five-year £100m revolving credit facility which will be used in respect of acquisitions, capital expenditure, disposals and general business purposes.

CoStar News understands both facilities are priced at just below 300 basis points over three-month LIBOR.

This is the second major refinancing of the Hercules unit trust in the last eight months following a £350m refinancing last September with Aareal Bank, which was partially syndicated with pfandbrief-funded banks, effectively splitting the circa £1.3bn fund’s securing collateral into two seven-strong pools.

The latest facility, provided by MetLife, RBS and Lloyds, is secured by: the £191m Parkgate Retail Park in Rotherham; the £165.2m Broughton Shopping Park in Chester; the £139.9m New Mersey Shopping Park in Speke; the £ 76.45m Prospect Place Retail Park in Dartford, the £37.05m Mostyn Champneys in Llandudno; the £27.6m Hatters Way Retail Park; and the £26m West Cornwall Shopping Park in Hayle.

All valuations were carried out by CBRE in September last year, totalling £663.2m. However, the seven-strong portfolio has fallen in value to £642.6m as at 3 April, according to CBRE, which takes the LTV to 38.9%.

Last September’s £350m refinance with Aareal Bank is secured by the following: Glasgow’s £296.95m The Fort; the £106.2m Inverness Retail & Leisure Park; the £75.9m Deepdale Retail Park in Preston; the £56.9m Queens Retail Park in Stafford; Leeds’ £53.57m Birstall Shopping Park; the £8.6m Princes Road in Dartford; and Malvern’s £7.8m Spring Lane.

CBRE’s valuations, ahead of last September’s refinancing with Aareal, are thought to have similarly marginally fallen in value subsequently from the aggregate £668.9m, with the LTV still below 40%.

The two Hercules refinancing deals – together with the £150m five-year senior loan Gibraltar Limited Partnership refinancing with Deutsche Pfandbriefbank (PBB) and Helaba Landesbank in March – is part of £2bn in maturing debt refinancings which British Land has completed  in the last 12 months.

In May 2011, British Land signed a new five-year £560m unsecured revolving bank facility with 11 banks, priced at a headline margin of 125 bps over three-month LIBOR.

Four months later, in September, the UK’s second largest REIT tapped the US private placement market with a $480m seven and 15 year issuance, which was hedged back into sterling, providing £300m at 146 bps over LIBOR

British Land has also refinanced a €173m syndicated bank loan, reducing the facility to €61m last December over a pool of Spanish properties in PREF, a retail joint venture in which British Land has a net investment of £96m.

Across its entire £2bn refinancing since April 2011, British Land has achieved an average margin of 160 bps and a blended all-in cost of debt of 3.8%, down from 6.0% in September 2011. British Land’s average interest rate, on a proportionally consolidated basis, fell by 30 bps to 4.6% at 31 March compared to the same time a year ago.

British Land now has a diverse spread of debt providers – from 26 lenders in the UK, Europe, the US and Asia Pacific, including China – and a broad spread of maturities giving us significant operational and financing security and flexibility.

British Land’s next significant refinancing requirement is not until 2014 and 2015, when a £506m and £945m facility respectively matures. Prior to which, there is £76m facility which needs refinancing or extending next year.

In its annual results this morning, chief executive Chris Grigg said: “We believe British Land is well placed. We intend to increase the pace of recycling and to re-invest in higher growth opportunities including development.

“We do remain cautious about the overall economic environment which remains difficult; we expect it to remain so with the UK economy growing slowly at best and the eurozone crisis unlikely to resolve quickly. Against this background, we expect property capital values in the UK to be variable in the near term.”

About CoStar News

Finance Editor, CoStar News
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