The Great £2.7bn end of year UK portfolio sell-off frenzy

Around £2.7bn of UK commercial property is up for sale across more than a dozen live portfolio deals, with the vast majority of vendors targeting an end of year disposal as they seek to capitalise on the feeding frenzy driven by the need to deploy capital.

While there is a spread of deals on the market by size, sector, geography and yield profile, there is a discernible trend towards industrial portfolio sales, with more than £1.1bn up for grabs across nine separate portfolios.

Notably, some of the portfolios currently contested be deal-hungry investors are not distressed assets or forced sales, but instead are fairly fully-valued secondary portfolios from vendors seeking an investment exit to crystallise profit.

All of this is aided by a fully resurgent lending environment, in which complex capital stacks are on offer. Indeed one or two of the portfolios have different iterations of pre-arranged high LTV capital structures with a mix of senior, mezzanine and preferred equity terms ready in the wings, to facilitate vendor sales.

Also notable, so far, is the sharpening yield at which some portfolios are trading at, which, together with the return to punchy financial engineering, is counter-intuitively enabling opportunistic funds to outbid lower-leveraged institutional investors, despite the latter having considerably lower costs of capital.

Ultimately, there remains a greater weight of capital chasing stock than there is stock for sale, which is encouraging some vendors looking to sell into a market awash with capital which needs deployment.

The run up in pricing has been dramatic across 2014, in possibly one of the fastest Bull markets ever recorded, but investors still believe attractive deals can be done and in some instances some of the froth can be knocked off the aspirational asking pricing set.

The final weeks of 10 weeks of 2014 will be busy for investors’ across the spectrum as they try to wade through the raft of opportunities and dodge signs of exuberant bidding wars.

Below, CoStar News reports on the latest within the major live portfolio trades.

Industrial portfolios

Partridge portfolio

Brockton Capital and Dunedin’s joint venture has been selected as preferred bidder on Columbus Capital Management’s 38-strong secondary Partridge portfolio for around £230m.

The sale at circa £230m would reflect a 6.8% net initial yield, and beats the asking price of £220.5m.

CoStar News understands that underbidders included AEW Europe and, at an earlier bidding stage, Blackstone.

Partridge portfolio is comprised of 314 units over 38 UK industrial estates, with assets in locations such as the Midlands, North West, Scotland, South West and Yorkshire. In London, there are assets in Hemel Hempstead, Battersea and Heathrow.

The portfolio has a rental value of £18.8m a year and a passing rent of £15.7m, with its vacancy rate 5.88%.  Tenants include Royal Mail, Caffè Nero and Kenwood Appliances.

JLL was mandated to sell the Partridge portfolio on behalf of Columbus Capital.

Ocean portfolio (and Fradley Park)

First round bids were submitted on Thursday lunchtime to acquire the 12-strong Ocean portfolio and the 1.7m sq ft Fradley Park industrial park in Lichfield from Lone Star.

CoStar News understands first round bidders were expected to include Legal & General, M&G Investments, AEW Europe, Henderson Global Investors and Tristan Capital Partners.

The Ocean portfolio is comprised of around half of the Brightsea portfolio – also previously known as the Tawny portfolio.

The portfolio was placed into receivership in August 2013 by Hudson Advisors, wholly-owned by Lone Star, which acquired the defaulted loan as part of the wider Project Acorn loan portfolio win, Eurohypo’s UK commercial property loan book.

Hudson Advisors has instructed DTZ to market The Ocean portfolio and Fradley Park industrial park in Lichfield separately, with asking prices in excess of £110m and £105m, respectively.

The £110m asking price for the Ocean portfolio would reflect a 7.24% net initial yield, a 7.97% reversionary yield.  The total annual income for the Ocean portfolio is £7.96m, reflecting £4.34 per sq ft on the industrial and £7.44 per sq ft of the offices.

Fradley Park’s £105m asking price – offered separately although Hudson Advisors is expected to favour a single sale of all 13 assets – equates to a 7.21% net initial yield, a 7.77% reversionary yield.

The current annual income derived from Fradley Park is £7.6m, which equates to £4.52 per sq ft on the let industrial accommodation and £12.91 per sq ft on the let office accommodation.

For a detailed report on Fradley Park and the Ocean portfolio, its composition and history, please click here.

Project Titan

Aviva Commercial Finance has narrowed finalists on Project Titan to two joint ventures – Apollo Global Management with M&M Real Estate and Värde Partners with APAM –  and Kildare Partners, CoStar News understands.

Apollo and M&M were among the underbidders on Project Avimore, while Värde with APAM together acquired Project Minard, the 235-strong Local Shopping REIT portfolio for £79.3m.

Goldman Sachs, advised by CBRE Investors, and Tristan Capital Partners also submitted second round bids.  Final bids are expected in around two weeks, with pricing expected to reach up to £240m.

Project Titan is a highly granular secondary mixed-use portfolio comprised of 187 properties spread throughout the UK and comprised of retail, some with residential, offices, industrial and leisure.  For a detailed report on Project Titan, please click here (second story in report).

Marble portfolio

M7 Real Estate and VBR Investments (VBRi) have appointed KPMG to sell its 109-strong Marble portfolio, comprising 90 industrial properties, 10 retail assets and nine offices over 4.1m sq ft across 1,042 lettable units from more than 700 tenants with a current occupancy of 79%.

The contracted rent is £11.7m pa.  By income, the portfolio is 81% industrial, 10% retail and 9% offices.

The Marble portfolio is expected to fetch around £110m to £120m.  The process is at an early stage and bids are expected by end of November with a winner scheduled to be identified for mid-December.

Stephenson portfolio

Stirling Investments has put up for sale a 15-strong high yielding portfolio of manufacturing and industrial assets, predominantly in the North of England, with a guide price of £84m, which reflects a net initial yield of 9.1%.

Stirling Investments is selling its Stephenson portfolio, which is security of an RBS facility, to fund the company’s regional development pipeline including a site in Leeds city centre.

The 2.6m sq ft Stephenson portfolio is let to 23 tenants on 35 leases, which collectively deliver £8.1m per annum, or £3.28 per sq ft.  By income, the Stephenson portfolio is 64% Yorkshire, 16% South of England, 15% North West and 5% North East.

JLL is marketing the Stephenson portfolio on behalf of Stirling Investments.  CoStar News reported on the portfolio last Thursday.

First round bids are yet to be called, but likely sometime during the third week of November.

Spanish Portfolio

Brockton Capital and Dunedin’s joint venture have brought to market the Spanish portfolio, comprised of multi-let industrial estates throughout England.

The vendors are seeking offers in excess of £52m, which would reflect a 9.15% net initial yield. Alternatively, bidders can purchase directly the Channel Islands-domiciled SPV at a NIY of 9.51%.

The 1.6m sq ft Spanish portfolio has an 11.3% vacancy rate, and a weighted average lease term of 3.81 years.  The total passing annual rent is £5.03m from 77 tenants and 130 leases.

The Spanish portfolio comprises:

  • the 229,075 sq ft Kayley Industrial Estate in Ashton-under-Lyne
  • the 351,706 sq ft Tyseley Business Park in Birmingham
  • the 207,513 sq ft Lineside Industrial Estate in Littlehampton
  • the 351,392 sq ft Greens Industrial Park in Wakefield
  • the 354,412 sq ft Hindley Green Business Park in Wigan (also 4 acres of land); and
  • the 114,913 sq ft Oxford Street Industrial Estate in Wolverhampton

The five largest tenants comprise: Tenneco-Walker (UK) Ltd, Kier Construction Ltd, Contitech (UK) Ltd, Unipres (UK) Ltd and TEI Ltd.

JLL is selling the Spanish portfolio.

Orbital portfolio

Industrial REIT Segro has two separate portfolios up for sale.

The first is the Orbital portfolio, which is comprised of six multi-let estate over 1m sq ft within the M25 motorway with an asking price of £102m, which would reflect just under a 7.0% net initial yield.

The Orbital portfolio has 71 tenants with an annual rent roll of £7.5m.

DTRE is selling the Orbital portfolio. 

The second Segro portfolio which CoStar News has identified – and the final industrial portfolio in this round-up – is Project Lake (see below).

Retail portfolios

In the retail market, CoStar News has identified three separate shopping centre portfolios which are currently up for sale, the Tiger portfolio, Project Carbon and Project Foyle, and one broader retail portfolio, Project Renouvier.

The first two of these portfolios, Tiger and Carbon, share a common characteristic of having been assembled in the post-recession environment by high quality asset managers which have undertaken extensive asset management initiatives to improve value and are not looking to crystallise profits in a stronger market.

By comparison, Project Foyle is a pool of mismatched assets with varying degrees of enduring distress, pooled together through loan enforcement by the senior lending bank, while Project Renouvier is also comprised of granular retail units.

Project Carbon

Praxis Holdings, the Isle of Man-based property company, has brought to market seven shopping centres across the UK with an asking price of £156m, which would reflect a net initial yield of 7.7%.

CBRE has been appointed to sell the 1.1m sq ft Project Carbon, which includes the 164,000 sq ft Letchworth’s Garden Square shopping centre, which Praxis acquired for around £15m in December 2012 from IBRC and asset manager Vale Retail.

Earlier this year, in May, Praxis bought the 70,000 sq ft St John’s Shopping Centre in Preston, bought from Land Securities for £4m, equating to a 13.5% net initial yield which has been spun into Project Carbon.

In addition, Project Carbon includes: the Crossgates Shopping Centre in Leeds; the 300,000 sq ft Salford Shopping Centre; the 309,996 sq ft Castle Dene Shopping Centre in Peterlee; and the Broadway Shopping Centre in Plymstock.

Project Carbon’s annual rent roll is £14.3m.

Tiger portfolio

Seven weeks ago, Rockspring Property Investment Managers launched the sale of seven UK shopping centres, dubbed the Tiger portfolio, seeking £265m, which would reflect a net initial yield of 7.0%.

The UK shopping centres are fully-valued secondary properties, at a 7.0% yield, with some instances of over-renting within the portfolio, CoStar News understands.

Four of the seven shopping centres – in Gloucester, Southampton, Romford and Falkirk – were acquired by Rockspring from the Mall Fund four years ago in August 2010 for a combined price of £135.9m.

In addition, the Tiger portfolio includes the Precinct shopping centre in Blaydon, the Mall Shopping Centre in Aberdeen and Grays shopping centre in Essex.

To facilitate a sale, Eastdil Secured, which has been jointly-mandated alongside Coady Supple, has secured indicative debt pricing guidance for a range of LTV attachment points to suit different potential investors, ranging from around 50% up to 65% and above in a mix of senior and whole loan facilities from investment banks.

Potential first round bidders include Oaktree Capital Managers, possibly with existing joint venture partner Capital & Regional which of course used to own four of the seven Tiger portfolio assets through the Mall Fund.

In addition, Hark Group and Infrared could emerge as possible joint bidders, as well as Orion Capital Managers, Kennedy Wilson and Ellandi, the latter also likely as part of a joint venture.

The seven shopping centres are owned by Rockspring’s UK Value Fund 1.

Project Foyle

Bank of Ireland is selling a portfolio of high yielding shopping centres and high street units spread throughout the UK, dubbed Project Foyle.

Project Foyle comprises 11 assets, six shopping centres and five high street retail parades in what was originally a slightly larger portfolio seeking around £50m.  The slightly reduced 11-strong Project Foyle is likely seeking in the early £40m-range.

The six shopping centres in Project Foyle comprise:

  • the 134,975 sq ft Pendle Rise Shopping Centre. Key tenants include Wilkinson, Boots, Greggs and Card Factory.
  • the 130,645 sq ft WheatSheaf Shopping Centre.  Principally let to Wilkinson, Peacocks, New Look, Brighthouse and Argos
  • the 107,745 sq ft Meridian Shopping Centre, principally let to Boots, Wilkinson, Costa, WH Smith, Argos and Vodafone;
  • the 63,664 sq ft Market Place Shopping Centre, principally let to Thomas Cook, Peacocks, Iceland, Boots and Bright House;
  • the 57,083 sq ft Riverside Quay Shopping Centre, principally let to Carphone Warehouse, Claire’s Accessories, Peacocks, Costa, WH Smith, Argos and Vodafone;
  • the 14,085 sq ft Luton Mall Shopping Centre in George Street, principally let to McDonald’s and Snappy Snaps;

In addition, Project Foyle includes five high street parades:

  • the 5,693 sq ft 3-5 High Street in Bromsgrove, let to Newsquest;
  • the 9,346 sq ft 24-26 High Town, let to WH Smith and 3 Store;
  • the 32,282 sq ft Westgate Buildings, Units 3 & 8 on 174-175 Commercial Street in Newport. Key tenants include Starbucks, Santander and Thomas Cook.
  • the 36,972 sq ft Farley Hill Centre in West Bromwich
  • 145-147 High Street & 11-13 Elmer Approach at Southend-on-Sea

Project Renouvier

Two weeks ago, Local Shopping REIT brought a portfolio of 387 local shopping assets to market, seeking offers of in excess of £90m, dubbed Project Renouvier

Allsop has been appointed to sell the 727,000 sq ft Project Renouvier, comprised of 925 tenants including national Tesco, Coral, Thomas Cook, Argos and Clydesdale Bank.

This is the successor portfolio to Project Minard which sold to Värde Partners in August for £79.3m.

Project Renouvier is spread across the UK, with weighting towards London and the South East. The annual rental income is £7.99m with rental uplift potential to £8.78m per annum due to 127,200 sq ft in vacant space.

There is an average weighted unexpired term of 3.7 years to break and 4.7 years to expiry for commercial tenancies.

Project Emperor

At the end of September, Goodman launched the sale of a nine-strong business parks portfolio, dubbed Project Emperor, seeking £133m which reflects a net initial yield of 8%.

CoStar News understands that Project Emperor includes Oxford Business Park, Hatfield Business Park, Edinburgh Broadway Business Park, Glasgow Central Quay Business Park and Leeds Valley Park.

The average weighted unexpired lease term of Project Emperor is nine years to expiry and five years to first break.

Current rental income on Project Emperor is £11.247m per annum, reflecting an average of £15 per sq ft.  Four of the properties are held in individual SPV’s which offer stamp duty land tax (SDLT) saving potential.

Strutt & Parker is selling Project Emperor on Goodman’s behalf.

Spark portfolio

Legal & General Property has brought to market the Spark portfolio, a 10-strong mixed-use portfolio seeking offers in excess of £33m, which would reflect a net initial yield of 8.7%.

The Spark portfolio comprises retail, retail warehousing, office and industrial assets which Legal & General has completed on its asset management programme.

The vacancy rate is just over 3% and floor space in 320,000 sq ft across the portfolio.

Knight Frank has been appointed to sell the Spark portfolio and initial marketing process has just begun.

And, the ‘secret’ under offer deals we hear…

Segro is understood to have received an offer for a secretive off-market portfolio dubbed Project Lake, which JLL is selling.  Highcross has received an offer for its 20-strong non-core secondary industrial portfolio dubbed Project Hollywood, which Deloitte is selling.

Aberdeen UK Balanced Fund is under offer on Project Beam, a mixed-use UK portfolio which carried an asking price of £38m, reflecting a 7% net initial yield.

Allsop is selling Project Beam, on behalf of Aberdeen.

Project Runner

KSL Capital Partners is under offer to buy the 25-strong Village Urban Resorts, De Vere’s mid-market hotels chain, for more than £490m.

CoStar News reported the portfolio, dubbed Project Runner, deal last Thursday.

Great Eagle Group, one of Asia’s biggest property groups, was the underbidder on the deal, which JPMorgan has been running on behalf of De Vere.

The 25 hotels are based predominantly in major cities across the UK including, Aberdeen, Birmingham, Blackpool, Cardiff, Coventry, Edinburgh, Leeds, London, Manchester, Newcastle and Swansea.

‘Mini’ Saturn portfolio

Morgan Stanley Real Estate Funds is selling a three-strong portfolio of Manchester leisure assets, spun out of the former Saturn portfolio which the opportunity fund acquired back in 2011.

The ‘mini’ Saturn portfolio comprises the Ramada Renaissance hotel, the Origin in Piccadilly and a site on Owen Street with consent for a residential tower.

The ‘mini’ Saturn portfolio, which is being sold by JLL, is expected to fetch in excess of £50m.

And finally, the Volt portfolio..

National Grid Pension Fund subsidiary Aerion has been marketing via CBRE its Project Vault, a 12-strong portfolio which is expected to fetch around £250m, which would reflect a 4.7% net initial yield.

The portfolio comprises seven Premier Inns, two call centres let to RAC in Walsall and Bristol, two Tesco supermarkets in Enfield and Southwark and a Spire Hospital.

There have been 15 expressions of interest, but the process remains in its early days.

jwallace@costar.co.uk and pnorman@costar.co.uk and jbuckley@costar.co.uk

 

The Great £2.7bn UK secondary portfolio sell-off table

Industrial portfolios

Partridge portfolio £230m

Ocean portfolio (and Fradley Park) £215m

Project Titan £240m

Marble portfolio £110 to £120m

Stephenson portfolio £84m 

Spanish Portfolio £52m

Orbital portfolio £102m

Project Hollywood £120m

Project Lake (size unknown)

= £1.153bn

 

Retail portfolios                                             

Tiger portfolio £265m

Project Carbon £156m

Project Foyle £40m 

Project Renouvier £90m

= £551m

The Rest

Project Emperor (business parks) £133m

Project Runner (hotels) £490m 

Project Saturn (hotels) £50m

Project Vault (mixed use) £250m

Project Beam (mixed-use) £38m

Spark portfolio (mixed use) £33m

= £994m

Subtotal = £2.698bn

About CoStar News

Finance Editor, CoStar News
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