Henderson Global Investors (HGI) has refinanced its UK designer outlet malls with a fresh senior and development financing package of £265m across two separate five-year loans from MetLife, Bayerische Landesbank and Santander.
MetLife has provided HGI’s UK Outlet Mall Fund with the lion’s share of the fresh five-year £200m senior loan, taking around £125m, while BayernLB, which has financed the three shopping malls since they were first built in the early 1990s, provided around £75m.
Separately, HGI’s UK Outlet Mall Fund has secured a £65m development loan, split 50/50, between BayernLB and Santander, reducing BayernLB’s overall commitment from £210m – as sole lender to support the fund’s £364.5m acquisition over five years – to a combined £107.5m.
The fresh £265m facility matures at the end of the closed-ended fund’s 10-year life, in August 2018.
The £200m senior loan is secured by the two stabilised assets: Cheshire Oaks, the UK’s largest designer outlet centre with 145 stores, and the 90-plus stores Bridgend designer outlet centre in South Wales which is managed by McArthur Glen.
BayernLB and Santander’s £65m loan is expected to convert from a development loan into an investment loan in around two years, after agreed pre-let and rental hurdles are met. Thereafter, the investment loan will benefit from a reduced margin typical of pricing for prime quality, fully let, regional retail shopping centres.
BayernLB arranged and negotiated both loans.
The development includes the regeneration of the historic Long Shop, built in 1874 as part of the Grade II-listed Great Western Railway Works, which will become part of the centre.
BayernLB and Santander’s development loan is for around two years, with agreed pre-let and rental hurdles for the extension, which once met will convert the facility into an investment loan thereafter reducing the margin to lower, more customary, pricing for prime quality, fully let, regional retail shopping centres.
The UK Outlet Mall Fund was last valued at the end of March at £432m, but with the development expected to incrementally increase value of the Swindon Designer Outlet Centre, HGI estimates that the blended LTV across the fresh £265m combined facility will remain at around 50%.
Colin Throssell, head of Treasury at HGI, said: “This financing demonstrates Henderson’s strong credit profile, and reflects the external confidence in the Henderson UK Outlet Mall Partnership which is one of Henderson’s flagship funds. This has enabled us to raise competitive debt finance from a diversity of lending sources.”
Mike Worley, head of real estate finance, Bayern LB London Branch, said: “We were very pleased to have financed Henderson when they originally bought these Outlet Centres in 2008 and are very grateful that they have mandated us to arrange the refinancing. These deals demonstrate our very close relationship with Henderson Global Investors and also our expertise in financing Outlet Centres not just in the UK but throughout Europe”.
HGI’s UK Outlet Mall Fund acquired the three designer outlet malls in August 2008 from a consortium of investors – including AXA REIM, BP Pension Fund and Morley – for £364.5m, financed with a £210m five-year syndicated senior loan by BayernLB.
Launching the UK Outlet Mall Fund five years ago, Henderson raised £181m in equity from a pan-European syndicate of financial institutions including BNP Paribas, Allianz and The Dutch Metalworkers Pension Fund.
Leases in the outlet mall sector tend to be linked to turnover performance of the retailers, allowing the UK Outlet Mall Fund to share in the success of the retailers at the centres, with a minimum base rent supplemented by a turnover top-up, which in recent years has tended to be between 10% and 11% of total turnover.
Andrew Rich, fund manager for the Henderson UK Outlet Mall Fund, added: “We are delighted to have secured this financing, particularly given the development loan for Swindon which will allow us and McArthurGlen to proceed with the exciting extension of the Designer Outlet Mall on behalf of our investors.
“Swindon is a very successful centre within our outlet mall portfolio, and the expansion is part of our investment strategy to continue to deliver strong performance for our investors in a fund that has returned almost 10% IRR in a difficult period for the UK economy and property market, demonstrating the resilience of the outlet mall sector.”