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Liberty International Plc, the U.K.'s largest owner of malls, and Great Portland Estates Plc, a property company focusing on London's West End, formed a 460 million-pound ($903 million) venture to invest in central London.
Liberty's Capital & Counties unit is investing 299 million pounds of office assets in the venture, with Great Portland putting in 162 million pounds of properties and 68 million pounds in cash, the two companies said in separate statements today. Great Portland will manage the venture.
Great Portland will be able to redevelop more assets in the West End, the most expensive place in the world to rent offices, while Capital & Counties can focus on retail assets in the U.K. capital's Covent Garden district, where it is the biggest landlord.
``This will allow us to prosecute our business plan much more aggressively,'' Great Portland Chief Executive Toby Courtauld said in an interview. ``Joint ventures give us access to messy raw material that we couldn't get if they came on the open market.''
The properties in the venture have around 850,000 square feet of space (79,000 square meters), generating 21.1 million pounds of rents at inception. That will rise to about 30 million pounds a year in four or five years, excluding any increases as a result of redevelopments, said Courtauld.
``This is another transaction in which Liberty receives cash,'' JPMorgan Chase & Co. analyst Harm Meijer said in a note to clients. ``We would suggest Liberty returns cash to shareholders by buying back its own shares, rather than pursuing further acquisitions in this hot market.''
The venture was a ``win-win'' for both companies, said Meijer. JPMorgan rates both companies ``overweight.''
Some hedge fund managers are paying more than 100 pounds a square foot in rent for prime space in Mayfair in the West End. Tenants in the properties in the venture are paying around 26 pounds a square foot, said Courtauld. Two of Liberty's offices in the venture are in Piccadilly and Regent Street.
Many of Liberty's properties in the venture are owned by the Queen of England's property estate, while a number of Great Portland's are close to Crown Estate properties.
``There will be buying and selling both ways and restructuring of leases,'' said Courtauld.
Liberty's shares rose 23 pence, or 1.9 percent, to 1,243 pence in London. Great Portland's shares gained 16.5 pence, or 2.2 percent, to 772 pence.
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