Land Securities (LAND) has launched a £500m share issue to pay for the £516m acquisition of Metrocentre in Newcastle and a £100m consolidation of its retail portfolio.
The £4.7bn real estate investment trust is raising the money in a placing to institutional investors and offer to retail investors. The price of the new shares will be set during a book build by UBS, Barclays and Deutsche Numis.
Chief executive Mark Allan said Landsec’s £1bn investment programme into major retail destinations was its “highest conviction call” based on the high income yields and attractive growth prospects on offer for the right assets.
“Our acquisition of Metrocentre represents a rare opportunity to obtain 100% control of a top-10 UK shopping centre. Metrocentre offers the scale, relevance and quality of catchment where demand from brands is highest, as they focus on fewer, bigger, better stores in the strongest locations,” he said.
Landsec was reported to have beaten Mike Ashley’s Frasers Group and Hammerson (HMSO) to the acquisition. It is buying from Tynehawk Holdings, a Jersey special purpose vehicle set up by Metrocentre’s lenders after the collapse of its previous owner Intu Properties in 2020.
Situated two miles from Newcastle city centre, Metrocentre generates annual footfall of over 16m and retail sales of around £650m and its tenants include Apple, Sephora, Zara, M&S, Next, Lego, Primark and JD Sports.
Landsec said it had identified efficiency savings that could add 0.4% to Metrocentre’s net rental income yield of 7.9%. Forecasts for income growth were in line with the 2030 4.5%-7% target for Landsec’s wider retail portfolio.
The company has agreed heads of terms to further consolidate its ownership interest in its retail assets for around £100m cash.
Following the acquisition of Metrocentre, Landsec says it will own eight of the UK’s top 30 shopping centres, including Liverpool ONE, Bluewater in Kent and Westgate in Oxford.
Our view
Richard Williams, senior analyst at QuotedData, said: “Landsec is making a sizeable bet on the continued recovery of prime UK retail, but the details of the Metrocentre deal help explain its conviction. The 7.9% day-one income yield is attractive, with LAND expecting operational efficiencies and asset management to drive further returns. Importantly, the £500m equity raise allows it to fund Metrocentre and increase its ownership of other retail assets without increasing leverage, with pro-forma LTV actually falling to 37.7%. The acquisitions represent more than half of LAND’s planned £1bn investment in major retail destinations and should be earnings accretive from FY28. Having spent recent years selling lower-growth assets, this is a significant acceleration of LAND’s shift towards the parts of its portfolio where it sees the strongest combination of income and growth. The deal economics provide a strong rationale for the fundraise, so it will be interesting to see the level of participation from retail investors. More broadly, it is good to see listed retail property companies finally growing again after years in the doldrums.”
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