British Land in Broadgate sale talks

British Land is in talks to sell half of its £2.5bn Broadgate office estate in the City of London to private equity investors as part of efforts to raise cash and rebalance its property portfolio.

The company is locked in negotiations with the Macquarie-backed Australian fund manager MGPA about a partial sale of the office campus (pictured below), one of the supposedly “sacred cow” legacy assets from its dealmaking during the last recession.

Broadgate was valued at more than £2.5bn at the company’s last set of results for the third quarter to December 31, although any deal would likely see the estate have a value of nearer £2.3bn.

The estate is financed through a single £2.1bn securitisation structure and it is likely that any deal would see MGPA assume half of this debt, with a low amount of additional equity needed.

Those close to the negotiations emphasised that these are still at an early stage. British Land has also had approaches from other potential partners and has held talks with other US private equity investors.

Delancey, the fund manager headed by Sir John Ritblat, the former British Land chief executive, has also been interested, although it is understood to view British Land’s price as too high. Some analysts believe the value of the estate could be nearing that of its debt, which would mean that almost any equity would be wiped out.

The sale process, which is being overseen by Chris Grigg, recently appointed chief executive, follows a wider recapitalisation of the British Land balance sheet.

The company has raised £740m through a rights issue and has been selling other assets, such as half of its Meadowhall shopping centre in Sheffield to London & Stamford. It has recently sold Abbey’s London headquarters to Santander, the bank’s owner.

It has an untapped debt facility of more than £2.5bn that can be used to buy when the market recovers, although it needs equity to unlock the facilities. Shares in British Land closed up 28¼p at 418½p, partly owing to a sectoral rally on the back of an upgrade from Nomura.

Both British Land and MGPA declined to comment when contacted on Wednesday.

Other real estate investment trusts are also looking at raising additional cash through sales.

Hammerson has held talks to sell its £460m Bishops Square building with a number of parties. Liberty International has been sounding out interest in Covent Garden, while Land Securities is close to selling its 1 Wood Street office scheme to a German fund.