British Land invests in 23 Debenhams Department Stores (UK)

The British Land Company PLC has exchanged contracts for a transaction encompassing 23 freehold and long leasehold Debenhams department stores totalling 3.28 million square feet for a value of some £495 million. Completion will bring the value of British Land’s retail property portfolio to over £6.4 billion (based on September 2004 values and subsequent acquisitions).

The stores are located in prime positions on high streets in major cities and towns throughout the country, including London (Oxford Street), Manchester, Cardiff and Chester.

They are leased to Debenhams for a term of 30 years from March 2004 (35 years in the case of Oxford Street and Manchester) at a total rent of £27.9 million per annum from March 2005. The rent increases annually by 2½% compound (except for the four years from March 2010 when it increases annually by 3%), with a review in March 2019 and five yearly thereafter to the higher of market rent or the initial rent as grown by 2½% per annum. The tenant has an option to renew at the end of the lease for a further 25 years with a rent reviewable at five yearly intervals to market rent.

The transaction will be financed at rates of approximately 5.1% from existing cash and debt facilities, including the £500 million additional long-term bond finance currently being finalised as part of the (unrelated) Broadgate refinancing.

Stephen Hester, British Land Chief Executive comments:
“This well let portfolio has guaranteed annual uplifts throughout a minimum term of 30 years, and potential for additional rental growth, plus an initial income return of 5.6%. We believe the 23 stores, leased to one of the leading department store operators in the UK, provide an excellent addition to British Land’s retail portfolio. The secure income growth is expected to be increasingly valuable with various asset management opportunities on top and in a sector well known to us. ”

Source: British Land

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