* Offloads 50 percent of 30-acre hub to Blackstone
* Deal paves way for bottom-of-market investment spree
* B.Land CEO says expects to invest 1 billion stg
* Shares dip 1.1 percent to 505.5 pence by 0835 GMT
(Adds analyst comment)
By Sinead Cruise
LONDON, Sept 18 (Reuters) - British Land BLND.L has sold a 50 percent stake in City of London office complex Broadgate to Blackstone BX.N in a deal crafted to thrust the UK real estate firm to the front of the chase for UK property bargains.
The private equity giant has paid just 77 million pounds ($127.5 million) for the half stake in Broadgate, one of London’s biggest office landmarks.
It will also take on half its 1.97 billion pounds debt pile, freeing up British Land to mount a much speculated buying spree as a two-year property slump nears an end. [ID:nLI93731]
“This further strengthens our balance sheet and puts us in a position where we can make new acquisitions,” said British Land Chief Executive Chris Grigg.
“At the current state of the market, we think that’s an important opportunity and one we intend to take,” he said.
British Land shares were trading 1.1 percent down to 505.5 pence by 0835 GMT, lagging a 0.5 percent fall in the FTSE 350 Real Estate sector .FTNMX8730.
Evolution Securities analyst Harry Stokes said the sale, which values Broadgate at 2.14 billion pounds, made strategic sense but the price achieved could rile some shareholders.
“Broadgate accounted for 27 percent of the company’s balance sheet, it is an ageing asset with near-term lease expiries, and needs substantial capex,” Stokes said.
“However, the yield paid -- equating to 7.9 percent -- including rent-frees may disappoint. The deal dilutes net asset value by 3 percent and earnings by around 12 percent, due to the high yield and low cost of debt,” he added.
Grigg said the firm had talked internally about investing about 1 billion pounds in discounted retail and office property over the next stage of the cycle, although its overall spending power was “substantially” greater than that.
However, he said the company was not in a hurry to splash out in a sector where investment demand for UK real estate outweighs supply of assets to the market.
On Monday, benchmark provider Investment Property Databank said UK commercial property values rose for the first time in 26 months in August, after shedding more than 44 percent since June 2007. [ID:nLE92533]
This rise in prices, which comes against a backdrop of increasing vacancies and falling property rents, is broadly seen as the result of large numbers of cash-rich overseas investors seeking property bargains. [ID:nL4405102]
“It’s true to say that in respect to the big banks, we’ve yet to see much (property) come available but we do see opportunities and we’re evaluating a number as we speak,” Grigg said.
“We’ll be patient ... We’re not going to go out there and buy things for the sake of it but we’re very comfortable that kit will become available,” he said.
Grigg said British Land’s intention was to ensure Broadgate remained the premier office estate in the City of London.
Together with partner Blackstone, the company said it was planning to invest up to 100 million pounds to redevelop the ageing estate over the next five years.
British Land said the deal helped to reduce its long-term development and investment risk to a single asset, which largely serves the financial services industry. The sale also trims its overall loan-to-value ratio to 30 percent.
“Reducing exposure to large single assets is the strategy I put in place when I arrived and this deal brings that phase to a close,” said Grigg, adding that the company had no plans to sell any more assets from a strategic perspective.
“As I’ve said before, we’ll continue to asset manage so if we see particular assets that we think are very fully valued or no longer fit our overall portfolio, then we’ll be prepared to sell them,” he said.
British Land will remain asset manager of the 14 buildings on the estate and administrator for the joint venture. ($1=.6041 pounds) (Editing by Mike Nesbit and Andrew Macdonald) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)