Norway SWF buys half stake in £1.5bn UK shopping centre

The writing is on the wall for a long hold of the 1.5 million square foot shopping centre in Sheffield as fund steward NBIM declares its intention of realising its ‘long-term potential’.

Norges Bank Investment Management (NBIM), the steward of Europe’s largest state fund, has completed the acquisition of a 50 percent stake in Meadowhall, one of the largest shopping centres in the UK.

NBIM, which manages the NOK3.7 trillion (€505.8 billion; $655.7 billion) Norwegian Government Pension Fund Global, announced today it bought the half share from a joint venture between London-listed opportunistic investment house London & Stamford Properties and Green Park Investments, reported to be Abu Dhabi sovereign wealth fund, Abu Dhabi Investment Council (ADIC).

The transaction, which completed on Saturday, values the 1.5 million square foot Sheffield asset at £1.525 billion (€1.89 billion; $2.44 billion), including debt.

The outlay is the latest in a still nascent investing programme for NBIM which was only granted a green light by the Norwegian government to invest up to 5 percent of its total assets into real estate in 2010. The state fund has so far been invested only in European real estate, starting with a 25 percent stake in London’s Regent Street for £448 million that same year, and going on to include Paris office portfolios.

In a panel presentation in London earlier this year, Karsten Kallevig, chief investment officer for real estate at NBIM, said the state fund manager was motivated by teaming up with local expertise in its investments and particularly with groups that shared a long-term holding perspective. In acquiring a half share in Meadowhall, it has partnered one of the UK’s most established REITs, British Land, which will manage the asset for the partnership.

He said then: “We go into situations where there are no structural impediments to holding [the asset] forever.” Kallevig said NBIM would not likely invest in limited duration investment funds as that would present “reinvestment risk”. “We won’t go into something where the exit is what drives the deal.”

Further cementing this approach, Kallevig said regarding the tie-up with British Land on Meadowhall: “The purchase gives us exposure to one of the largest and most dominant shopping centres in the UK. We are very pleased to be teaming up with a partner of British Land’s calibre and look forward to working together to further develop the long-term potential of Meadowhall.”

The exit by London & Stamford and ADIC marks a significant realisation of value for the pair which acquired the property in February 2009, a year reflecting something of a nadir for UK real estate values, in a deal valuing the asset at £1.175 billion. The profit for the two groups was £155.9 million.

Raymond Mould, chairman of London  & Stamford and one of the UK’s best known property investors said of the exit: “There is no doubt that there is strong demand globally for prime UK property and therefore we believe that this sale is timely.” He said the proceeds of the sale would be reinvested into the UK market.