Land Securities Group (LSE:LAND) has exchanged contracts to acquire a 100% stake in Metrocentre, Gateshead, for net cash consideration of £516m, down from a headline price of £530m after agreed reductions.
The seller is Tynehawk Holdings (Jersey), and the deal is being funded through a separately announced equity issue alongside existing debt facilities.
Based on in-place net rental income of £41m, the price implies a net income yield of 7.9%, which Landsec says offers a high day-one return alongside strong rental growth prospects and an expected low double-digit unlevered internal rate of return.
Metrocentre, roughly two miles from Newcastle city centre, is a top-10 UK shopping centre by sales, drawing more than 16m visitors a year across 282 stores and 1.86m sq ft of lettable space, with tenants including Apple, Zara, M&S, Primark and JD Sports.
The acquisition includes an adjacent 0.2m sq ft retail park with 15 units, and the combined asset is 95% occupied with a 4.5-year average lease term.
The deal fits Landsec's stated strategy of investing a further £1bn in major retail assets, and on completion the group will own three of the UK's top 10 shopping centres and eight of the top 30, with major retail destinations making up about 46% of annualised rental income.
"Our acquisition of Metrocentre represents a rare opportunity to obtain 100% control of a top-10 UK shopping centre," said chief executive Mark Allan, adding that retail sales across Landsec's existing major retail platform are up 26% since March 2022, against 1% for the average UK market.
Completion is conditional on the dissolution of a legacy Intu Properties entity, expected on 9 October, and on bondholder consent to restructure Metrocentre Finance PLC's outstanding bonds, which requires support from 75% of bondholders.
Tynehawk has already received confirmations from bondholders representing more than 80% of the bonds backing the restructuring and the acquisition, with completion expected by the end of October.
Alongside the deal, Landsec gave a trading update covering the five months to 31 August, reporting lettings comfortably ahead of estimated rental value (ERV) and relettings well ahead of previous passing rent, underpinning its guidance for 3-5% like-for-like net rental income growth in the year to March 2027, consistent with the target set out at May's full-year results.
The company has also sold or exchanged contracts to sell £290m of lower-income assets this year, chiefly a London office development site and an older London office block, as it continues trimming lower-growth exposure in pursuit of its roughly 5% compound annual EPRA EPS growth target through to FY30.