Credit Agricole CIB and Deutsche Bank have launched the single-tranche, investment grade securitisation of a £750m senior loan backed by the £1.95bn Westfield Stratford City shopping centre, in the largest UK CMBS in recent years.
CA CIB and Deutsche Bank are refinancing the existing £550m senior loan financing syndicate – jointly led by Eurohypo, HSBC and CA CIB in August 2011 – through an agency-style CMBS which directly links the sponsors cost of debt to the price of the bonds.
The new five-year agency CMBS will mature in August 2019 with a legal final maturity of August 2024.
Initial pricing guidance is expected later this week, with a closure earmarked for early August.
Westfield Stratford City, Europe’s largest urban shopping and leisure destination, is 50% owned by Westfield Corporation, which sold a 25% stake to Canada Pension Plan Investment Board (CPPIB) and Dutch pension fund Algemene Pensioen Groep (APG) in December 2010 for a combined £871m.
The agency CMBS refinancing, in a process dubbed Project Agora, reflects a 38.4% LTV, valuing the 1.9m sq ft shopping centre at £1.95bn, according to a CBRE valuation in May 2014 – up £201m in the three years since the existing financing syndicate.
The existing £550m senior syndicate, due to mature at the end of July 2016, was priced at between 225bps to 250bps over three-month LIBOR, and based on the upward re-valuation reflects a 28.2% LTV.
In October 2011, Eurohypo, HSBC Bank and CA CIB syndicated the senior debt to Aareal Bank AG in London, AXA REIM SGP on behalf of its clients, Bayern LB, MetLife, Credit Foncier, Deutsche Pfandbriefbank and Santander.
CA CIB and Deutsche are expecting a AAA-rating for the lowly-geared agency CMBS refinancing with UK insurance asset managers likely to be targeted as subscribers. Fitch Ratings and DBRS are rating the CMBS.
A substantial improvement on the existing cost of debt is expected to be achieve by this refinancing, with the asset’s quality, low leverage and unexpired lease term all expected to help deliver a new record in the post crisis period for cheap costs of debt.
Westfield Stratford City, three miles north east of the City of Londo, is anchored by tenants including John Lewis, M&S and Primark and delivers a £92.8m net operating income, which reflects a net initial yield of below 5.0%.
The shopping centre’s tenancy profile is diverse with the top 10 tenants representing only 18.4% of the gross rental income (GRI) – reflecting £15.3m – and 46.5% of net rentable area, or 902,430 sq ft, while the occupancy level is 98.9%.
The shopping centre has a weighted average lease term of 12.6 years to expiry and 6.6 years to break as of May 2014, providing significant tail period relative to the loan term.
Capita Asset Services has been appointed primary and special servicer.
In the second half of 2014, planning permission has been granted for the construction for an approximate £73m, equity-funded, development that includes:
- the installation of a new full glazed high level canopy along the majority of the outdoor shopping street;
- the installation of integrated tensile fabric covers at two outdoor public spaces;
- the installation of associated lighting, public realm works and localised wind mitigation, and;
- the design and construction of a new store located at the south end of the shopping centre (in excess of 70,000 sq ft GIA).