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Hammerson acquires Grand Central in Birmingham for £335m

Hammerson has announced that it has exchanged contracts with Birmingham City Council to acquire the new Grand Central shopping centre in Birmingham for £335m. The company has also said that it is in advanced discussions, with an existing joint venture partner on other assets, about entering into a 50:50 joint venture for the future ownership of Grand Central. Hammerson has acquired a 150 year headlease on the centre and the freeholder is Network Rail. As part of the transaction Hammerson has also acquired Ladywood House, a 95,000 square foot vacant office building adjoining Grand Central with a value of £10m.

Grand Central opened in September 2015 and provides 435,000 square feet of retail space. It was developed by Network Rail and Birmingham City Council as part of the £750m regeneration of Birmingham New Street Station. The scheme is anchored by a 250,000 square foot John Lewis department store.

The company says that the centre provides an attractive retail setting for 40 premium stores including Monsoon, Fat Face, Hobbs, The White Company, Cath Kidston, Joules, Kiehls, Jo Malone, L’Occitane and MAC. A significant share of space is dedicated to restaurants and cafés across 20 casual dining brands including Carluccio’s, Yo Sushi, Pho, Ed’s Easy Diner, Caffe Concerto, Giraffe, Handmade Burger Co and Tapas Revolution. There are over a dozen pop-up units on short term leases as well as an additional income stream from the ‘Eyes’ – large digital advertising screens on the exterior of the scheme.

The centre sits above the redeveloped New Street Station, which is the busiest train station outside of London and is expected to see footfall of over 55 million passengers per annum. A new car park at the centre adds over 400 car park spaces to the existing 11,000 provided within central Birmingham.

The company says that the retail scheme is close to being fully let (96% occupancy) with topped-up annual net rental income of £13.9m. The current weighted average unexpired lease term to break is 10.4 years. Based on the price paid for the retail space the acquisition represents a net initial yield of 4.0%, an equivalent yield of 4.7% and a reversionary yield of 4.9%. The expected 5-year IRR is 7-8%.

The company says that the centre has demonstrated strong performance since opening, attracting average footfall of 62,000 per day in its first three months of trading with up to 105,000 per day over the Christmas period. They say that many retailers have reported trading well ahead of budget since opening.

The company says that the acquisition supports their long term commitment to investment in Birmingham as shown by Hammerson’s success at Bullring. According to latest ONS data, household disposable income growth in the West Midlands is the fastest in the UK with Birmingham growing at 3.5% per annum. They say that, in their view, significant public sector infrastructure investment in Birmingham, including the future HS2, has supported a surge in business investment and a record level of office take-up as an increasing number of international firms choose to locate in Birmingham.

Total acquisition costs, including fees, are £350m. Hammerson will fund the transaction with an expanded acquisition credit facility of £1.1bn, which has maturities of March 2017 (£734m) and September 2017 (£367m). After completion of the acquisition of Grand Central, Hammerson says that its LTV will be 39%, based on estimated values as at 31 December 2015 and disposals announced to date. They also say that, following the recent sale of Villebon 2, Hammerson has realised total proceeds of over £360m in the last twelve months, and has completed the first £200m tranche of disposals to fund its acquisition of the Irish portfolio, anchored by Dundrum. A further £300m of disposals are planned during the course of 2016. Following these asset sales, the proposed 50% joint venture on Grand Central and conversion of the Irish loans to underlying properties the company forecasts that its LTV will reduce to 37%.

Hammerson acquires Grand Central in Birmingham for £335m : HMSO

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