German fund manager Deka Immobilien has cast a 拢435 mln (鈧�509 mln) vote of confidence in the London office market with the acquisition of the freehold of Facebook's UK headquarters.
UK REIT Great Portland Estates (GPE) sold Rathbone Square, 35/50 Rathbone Place, W1 to a joint venture between Deka Group fund companies, WestInvest and Deka Immobilien Investment, at a net initial yield to the buyer of 4.25%.
The sale is expected to generate a whole-life capital return for GPE from the entire development project of 拢110 mln which GPE proposes to return to shareholders by way of a special dividend.
GPE was advised on the sale and proposed capital return by CBRE, GM Real Estate, Nabarro, BofA Merrill Lynch, JP Morgan Cazenove and Lazard. 'This deal, one of the largest transactions in recent years, underlines the strength of appetite and commitment from overseas capital for London and UK real estate, and indeed London's position as a global technology hub,' said James Hammond, head of West End Investment at CBRE.
In a statement GPE said that the sale ensured that it retained significant financial flexibility created over recent years as it looked ahead to a continued period of market uncertainty. Toby Courtauld, CEO of GPE, added: 'Rathbone Square is our largest-ever development scheme and this sale continues our successful strategy of recycling capital out of assets where we have created significant value. Having purchased the site in late 2011, obtained an attractive planning permission and commenced construction in early 2014, we pre-sold the vast majority of the residential units in summer 2014 and secured one of the largest ever lettings in the West End a year later. This sale is expected to crystallise a whole life capital return of 19.9% and an annualised unlevered IRR of 12.1%.'
Totalling 419,700 square feet (39,000 m2), the mixed-used development is currently under construction with phased practical completion expected from late March 2017. The 22,560 m2 of office space is pre-let to Facebook on 15-year leases, with no breaks, at an initial annual rent of 拢17.8 mln. About 1,290 m2 of the 2,340 m2 of retail space is under offer and 139 of the 142 private residential units have already been exchanged for sale on 999-year leases.
The estimated rental value of the entire scheme, including residential ground rents, was 拢19.7 mln at end-September 2016. Following this transaction and the sale of the remaining residential units, total receipts from Rathbone Square are expected to be more than 拢655.0 mln, GPE said.
Tenant incentives
The headline price of 拢435 mln is before deductions for Facebook tenant incentives, including a 30-month rent free period and a capital contribution of 拢12 mln, paid by Deka, and maximum retail unit rent guarantees of 拢3 mln, totalling 拢60 mln. These conditions result in a net purchase price payable by Deka to GPE of 拢375 mln, subject to final area measurement and settlement of the retail rental guarantees.
The consideration comprises 拢368 mln for the freehold sale and 拢6.5 mln for reimbursement of the development costs, under a development agreement, to complete the scheme.
Deka has already paid 拢113 mln with the balance of the purchase price payable in three instalments. Following receipt of the majority of the sales proceeds, GPE proposes to return the whole life surplus of 拢110 mln to shareholders by way of a special dividend, which would be accompanied by a share consolidation, subject to shareholder approval, which is expected to be sought in April 2017.
