The 10 Biggest Shopping Centre Deals Done At The Worst Time To Buy Shopping Centres
The shopping centre investment market remained depressed in 2018, with investment volume of £2B mirroring that of 2017. But there might have been a worse time to buy — 2013 and 2014.
Back then, prices had started to recover after the financial crisis, and buyers started to pile back in. While the e-commerce revolution was already in full swing, a recovering economy meant that tenants were not shedding stores like in 2017 and 2018.
Regional centres were trading at yields of 6% to 7.5%, but 2014 was the peak in terms of values, according to RCA; prices then flatlined until 2017 before dropping 10% to 20% in 2018, according to various financial metrics. The discount to net asset value at which the shares of listed shopping centre owners trade suggests that further falls are to come.
And the market is starting to see financial distress. Last year two malls, Vicar Lane in Chesterfield and the Nicholsons centre in Maidenhead, went into receivership.
Those centres bought in 2013 and 2014 and financed with a five-year loan, the most common loan duration, either already need to be refinanced or have an upcoming maturity. Advisory firm APAM has said that there may be as many as 200 malls around the UK facing financial pressure as loans come up for refinancing in a debt market shunning retail.
Here are the 10 largest mall bought during the period, according to RCA.
Listed Intu bought the 430K SF Midsummer Place in Milton Keynes in March 2013 from Legal & General for £248M, a 5% yield. Yields for assets like this have moved out to around 6%, according to Savills, a drop in value of around 20%. Intu allocated around £125M of its corporate debt to the asset, and analysts have pointed out that the company needs to reduce its overall leverage levels.
The Centre Livingston
Hines and HSBC Alternative Investment’s deal to buy The Centre in Livingston and the adjacent Almondvale West retail park in December 2014 was one of the biggest financially at £227M and also in terms of area — the shopping centre is Scotland’s second largest at 1M SF and the retail park is another 116K SF. The deal was struck at a yield of 6.4%, and movement in the value of the portfolios of listed companies suggests that even good quality centres fell in value by 10% last year.
Invesco Real Estate and Lendlease paid Hammerson £202M for the 872K SF Queensgate Centre in Peterborough in January 2014, using debt from German bank Aareal. They are undertaking a £30M makeover of the scheme, including adding a new cinema and more restaurants.
St. Enoch Centre
Blackstone and Sovereign Centros paid £190M for the 715K SF St. Enoch Centre in Glasgow in September 2013, a 7.5% yield. The deal was completed with £130M of debt provided by GE Capital, but there is unlikely to be much pressure on the owners around the debt maturity — Blackstone bought GE’s loan book in 2015. That year it also tried and failed to sell the centre for £250M. Now, the owners are trying to increase the appeal by adding a new cinema and other leisure facilities.
Bon Accord and St. Nicholas Centre
BMO Real Estate paid £189M for the 460K SF town centre Bon Accord and St. Nicholas centres in October 2013, a 7% yield. Savills said the yield on such schemes has since risen to 7.75%, a 10% fall in value. The deal was relatively highly leveraged, with £102M of senior debt provided by Aareal and £40M of mezzanine debt provided by LaSalle Investment Management. Plans to upgrade the Bon Accord centre were approved in 2017.
East Kilbride Shopping Centre and Trinity Walk
Orion Capital Managers has been one of the private equity funds that has had the most success over the years buying shopping centres, and the firm went big on town-centre schemes in 2014. It paid Ares £150M in March for the 550K SF Trinity Walk shopping centre in Wakefield, a 6.7% yield, and in August it paid Delancey £178M for the 1.4M SF East Kilbride shopping centre in Scotland, a 6.8% yield. Last year Orion filled a vacant former BHS unit at East Kilbride with a new tenant, TJ Hughes, but hit out at a new proposed retail park being built nearby, saying it would affect trade at the centre.
The Bridges Shopping Centre
French fund manager AEW paid Landsec £152M for the Bridges Shopping Centre in Sunderland in June 2014, a 6.9% yield. German bank Deka provided a loan at 65% LTV against the 609K SF centre.
On a per square foot basis, Prupim’s purchase of the Friary in Guilford in March 2013 was the most expensive: The £150M paid for the 151K SF centre reflects a 5% yield and £993/SF. Prupim swapped the centre for one it owned in Milton Keynes with Hermes.
Most of the deals in this list were undertaken by private firms, but there was one U.S. pension fund at the time with an appetite for shopping centre deals: Alaska’s Permanent Fund, which invests the proceeds from the state’s oil reserves. In a 50/50 joint venture with LaSalle Investment Management it paid £141M for the 712K SF Golden Square centre in Warrington, a 6.8% yield. Savills said yields on such schemes have risen to 7.75%.