European Property Investors Special Opportunities, L.P. (EPISO), a fund co-advised by AEW Europe and Tristan Capital Partners, has partnered with Addington Capital to complete the purchase of the Sapphire Retail Portfolio in the UK for £145 million (approx. 166.7 million) representing a net initial yield of ca. 7.75%.
The portfolio comprises three regional shopping centers; Charter Walk, Burnley, Queens Arcade, Cardiff and the Harvey Centre, Harlow. The centers comprise over 1,125,000 ft² (approx. 105,000 m²) of retail and ancillary accommodation and are let to over 270 tenants. The current net income from the portfolio is approximately £12 million per annum with an ERV of in excess of £15 million per annum.
The centers were put into administration in August last year by a syndicate of Banks led by LBG. Grant Thornton was appointed as Administrators and London & Associated Properties, asset manager.
Commenting on the deal, Ric Lewis CEO of Tristan Capital Partners, said: "We are pleased to have acquired these three shopping centers and to be partnered with Addington Capital who have an excellent reputation and vast experience in asset managing centers such as these.
"We are buying these properties at a tough time in the cycle, but we think there is a lot of upside potential. We are glad to be further diversifying the Fund by investing in the UK shopping center market".
Peter Mather, Co-Head of Investment at AEW Europe, commented: "This opportunity allowed us to purchase a portfolio of good quality shopping centers which provide many opportunities to add significant value over our intended hold period. With a planned capex budget our aim is to stabilize and then increase NOI through the leasing of vacant space, reducing irrecoverable expenditure, development, amalgamation of units as well as general improvement to the shopping environments.
"Working with the experienced team at Addington will make sure we hit our business plan objectives efficiently and effectively".
Martin Roberts of Addington added: "We are delighted to have secured the Sapphire portfolio as our first investment deal with our partners at AEW Europe and Tristan Capital and are looking to double the size of the targeted investment portfolio over the next 12 months if conditions allow.
'We believe that our ability to move quickly and provide certainty with the support of a cash underwritten bid was decisive in securing the portfolio in the face of some high quality competition.
"Each of the centers has suffered from a lack of capital expenditure over the last few years and there is plenty that can be done to improve not only net income, but also the look and feel of the centers and of course, tenant mix. We believe that these secondary centers will respond well to strong management and capital investment given that footfall at each center is between 10 - 12 million people a year."
Addington Capital will be retained as asset manager of the portfolio, overseeing the property and facility management and driving the lease up of the centers.
There were over 40 shopping centers available in Q4 2010, ranging from super prime through to tertiary and all attracted interest from multiple potential purchasers. The market remains constrained by a lack of supply rather than any weakness in investor sentiment. It will be interesting to see whether the bank induced selling accelerates this year or continues to ebb and flow as in 2010. Our view is that the market can sustain a significantly higher level of supply before the availability of debt or weakening investor appetite leads to weaker pricing for the better secondary centers.
Addington & EPISO were advised by King Sturge, the Administrators were advised by Franc Warwick.
Source: Bellier Financial