British Land announced that it has acquired assets comprising the majority of Paddington Central, a 1.2 million ft² (approx. 111,500 m²) office-led, mixed use estate close to Paddington station in London’s West End for £470 million (approx. €548 million). The investment offers an attractive blend of income and capital return, with major development potential and significant future opportunity to improve the estate through asset management. On completion of the developments, British Land will own 1.0 million ft² (approx. 92,900 m²) of a 1.6 million ft² (approx. 148,650 m²) estate
Overview of Paddington Central
Paddington Central is an 11 acre mixed use estate in London’s West End comprising seven separate modern buildings, and a retail and leisure cluster, totaling 1.2 million ft². The area is well served by Paddington station, a major London rail and tube interchange with excellent connections to Heathrow airport via the Heathrow Express which will further benefit from the opening of the new Hammersmith & City Line station in 2014 and Crossrail in 2018. Paddington will be one of only three Crossrail stations in the West End, which will improve connections from the West End to the City and Canary Wharf.
The complex transaction combining a number of separate ownerships was arranged with the majority owner, Aviva Investors. British Land has acquired three of the existing buildings, together with the retail and leisure cluster in Paddington Central from funds controlled by Aviva Investors and other investors. These assets comprise 610,000 ft² of income generating properties which are occupied by high quality tenants, including AstraZeneca, Nokia, Statoil and Accor.
The quality of income is excellent, with a weighted average lease length of 10.7 years and occupancy of 91%. In addition, British Land has acquired 435,000 ft² of development potential, comprising 355,000 ft² of consented offices, which they intend to enhance and 80,000 ft² of mixed use potential, currently occupied by Crossrail, but which reverts to British Land by 2018. On completion of the development, the estate will grow to 1.6 million ft², with British Land wholly owning just over 1.0 million ft².
2 Kingdom Street is the most significant property on the estate (which was jointly owned by Aviva and Avestus Capital Partners), providing 268,000 ft² of multi-let office space. Occupancy is 84% and key tenants include AstraZeneca, Nokia and Statoil. The average lease length on this building is 11.2 years, with contracted income of £10.9 million per annum (approx. €12.72 million). 3 Kingdom Street is a 206 bedroom, 4 star ‘Novotel’ hotel let to Accor. The lease length is 18.0 years, and the total income is £2.2 million per annum, subject to annual RPI uplifts. Both properties were designed by Kohn Pederson Fox and completed in 2010.
3 Sheldon Square is the second multi-let office property, comprising 143,000 ft² of office space, completed in 2002. Occupancy is 100%, with tenants including Kingfisher, Prudential and Cerner. The average lease length is 7.8 years, and contracted income is £7.3 million per annum. Adjacent to this is the Sheldon Square retail and leisure area, a grass amphitheater surrounded by cafés, bars and restaurants, with occupancy of 91%. The average lease length is 12 years, and the total income is £1.5 million per annum. British Land has also acquired the freehold in respect of 200 residential units sold to St. George on long leases which sit above the retail area.
The development sites of 4 and 5 Kingdom Street, which have consent for around 355,000 ft² of offices, have been purchased at an effective price of £175 per ft². Design is well advanced, but it is our intention to add to, and improve, the existing consents. Subject to consent being received, we expect to commit to these developments and start on site towards the end of 2014. The expected cost to complete is around £180 million (approx. €210 million)(excluding finance costs). In addition, the space beneath 4 and 5 Kingdom Street, currently occupied by Crossrail, will revert to British Land by 2018 and offers 80,000 ft² of mixed use development potential.
Source: British Land