Â鶹ӳ»­

As British Land prepares to sell its £255 mln (€300 mln) retail holdings in Continental Europe, PropertyEU examines the portfolio.

The UK REIT, which co-owns Spain’s largest fashion mall, blamed the economic crisis in Southern Europe for the decision, and said Europe was ‘a subscale business’.

‘Our intention is to exit over time’, said British Land CEO Chris Grigg. He was commenting after the company reported that its assets in mainland Europe fell 17% in value as a result of outward yield movements and rental concessions. 'It could be a long haul, the market's not that easy in Europe at the moment and we don't expect any near-term announcement but this is a very clear statement of intent,' he added.

EUROPEAN PORTFOLIO
British Land entered mainland Europe in 2005 with the purchase of Pillar Property, a retail specialist with assets in Spain and Italy. It currently owns a 50% interest in Puerto Venecia, Spain's largest mall, as well as stakes in 10 retail parks, through its 65.3% interest in the Pillar Retail Europark Fund (PREF).

According to those who track the market, Puerto Venecia is likely to be the first asset to be put on the market. ‘The usual thing is to start by selling the best assets, and Puerto Venecia is a prime retail scheme which is trading well while killing the competition,’ said a source who wished to remain anonymous.

Opened in October 2012, the scheme provides 186,000 m2 of retail and leisure accommodation in Zaragoza, Spain. The mall, which is expected to trade for a yield of around 7%, is held by Eurofund Investments Zaragoza, a joint venture between British Land and Orion European Real Estate Fund III. Orion is expected to retain its half share although it might grab the chance of an opportunistic sale.

Market sources point to listed retail specialists or a core investment funds as potential buyers for the asset, which has an estimated value of some €300 mln. ‘It is a highly geared asset and the debt is not likely to be transferred. Whoever the buyer will be, it will have to obtain a new financing facility in order to acquire the property,’ a well-informed market source told PropertyEU. The scheme generates annual rents of £16 mln.

In addition to Puerto Venecia, British Land has interests in 10 retail warehouses in Portugal, Spain, France and Italy, which have a combined value of £204 mln. In Portugal, PREF's five out-of-town retail parks are some of the best in the industry, particularly the Sintra retail park near Lisbon. The 27,000 m2 Portimao Retail Park on the other hand is in bad conditions after it almost completely burnt down in a fire in September last year.

PRICING
Market experts say pricing will be difficult given the lack of transactional evidence in the country. 'Pricing remains a question mark as we have not seen a single retail park deal in the past five years. The market will have to be tested,' a source said.

In Spain, British Land's PREF currently owns the Nassica Retail and Leisure Park in Getafe to the south of Madrid, and the Vista Alegre Retail Park in Zamora. Both properties were refinanced last year with a new €61 mln loan from pbb Deutsche Pfandbriefbank. On the other hand, it is understood that the company's roughly 60% stake in the 120,000 m2 Nueva Condomina in Murcia, was handed back to the lender, BNP Paribas after the loan backing the asset came to maturity in 2012.

British Land and PREF bought Nueva Condomina in March 2007 for nearly €350 mln, financing the deal with a €220 mln loan from Fortis Bank, currently known as BNP Paribas Fortis.

Market experts believe that finding a buyer for retail parks in Spain will remain a challenge for the time being. 'Nassica is a good asset and may draw investors' interest, but Vista Alegre will be difficult to sell. It is defensive asset with no competition in the region but is located in the very small town of Zamora,' a source said. PREF's Nassica and Vista Alegre are likely to trade for a yield of 8.5%.

Click on the link below for an overview of PREF's assets.