Grainger, the UK’s largest quoted residential investment manager, launched a three-day investor roadshow today to raise up to £200m in a fresh seven-year, secured corporate debt to refinance expiring facilities and lower the group’s weighted average cost of debt.
Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland have been selected as joint bookrunners for Grainger’s guaranteed secured notes, which will be used to repay maturing facilities, which will be announced towards the end of the week after the conclusion of the roadshow.
Grainger said in a statement this morning that it is “considering diversifying its funding sources and accessing the debt capital markets”.
While Grainger is not issuing any guidance as to the pricing it could achieve, assuming an LTV consistent with its stated group target, of between 45% and 50% LTV, an all-in cost of debt of circa sub 4.5% is thought achievable.
Grainger has reduced its group debt by £235m to £959m in the past 12 months through property disposals, allowing subsequent debt repayment, and refinancing at lower overall leverage points.
Andrew Cunningham, chief executive officer at Grainger, stated in its preliminary results for the year to the end of September: “We are now operating within a range of gearing of 45%-50% which we consider is appropriate in the medium term.
“We will also actively manage our average cost of debt downwards from its current level, towards 5.0%, which will assist the relationship between rents and fees and interest costs.”
Post the transaction around 40% of the company’s debt will be financed by non-banking institutions. The average debt maturity will be around four to five years with around 70% of debt funding either hedged or fixed over that similar period.
Grainger’s portfolio of around 10,000 units is spread across the UK with London and South East accounting for 60% as of the financial year to September 2013.
Last Wednesday, HSBC and Lloyds Banking Group priced and closed a £485m 10-year corporate bond, secured by Intu Metrocentre, priced at 137 basis points over September 2023’s UK Treasury 2.25% benchmark. Final pricing saw spreads tighten from an initial guidance of 140 to 145 bps.
The £485m 10-year corporate bond, which was almost 2.5 times oversubscribed, will refinances Opera Finance (MetroCentre) PLC, which was scheduled to mature in February 2015. The bond has been structured with a five-year tail period.
Intu Metrocentre, the shopping centre and associated retail park, in Gateshead, South West of Newcastle upon Tyne, was valued at £881m, which put the LTV at 55.05%.
The bond, named Intu Metrocentre Finance, was rated ‘BBB+’ and ‘A’ by Standard & Poor’s and Fitch Ratings, respectively.
Intu Metrocentre Finance traded 100% domestically, with 54% of the paper placed with insurers and pension funds, and 46% to fund managers.
Intu Metrocentre is owned through The Metrocentre Partnership, a limited partnership with is 40% owned by GIC (Realty) Private, a subsidiary of the Government of Singapore Investment Corporation.
GIC’s ownership is through an indirect subsidiary called Euro Core Private. Intu Properties owns the balance, save for the freehold which is retained by Church Commissioners, and who is due 10% of net rental income as ground rent.
The center benefits from an annual footfall of 23 million, which supports a predictable, highly granular, and diversified income stream.
The top 10 tenants combined represent approximately 32% of passing rent, with no tenant group contributing more than 7%.
The center comprises over 350 stores, including Marks & Spencer, TK Maxx, Primark, Debenhams, and House of Fraser, and Nando’s, Pizza Express, Wagamamas and Ed’s Diner.
The shopping center’s weighted-average lease length to the earlier of first break and lease expiry is 8.6 years and the retail park’s is 10.5 years.