Merry Hill set for major overhaul after £400m deal

DUDLEY’S massive Merry Hill Shopping Centre is set for a major overhaul in order to attract more premium retailers following a £408m buy-in to the site by UK shopping centre owner Intu.

Intu has agreed to purchase a 50% stake in the centre from former owner, Westfield, with the other half of the business remaining with Australian investment body QIC.

Intu said it believed the Merry Hill complex was significantly under-performing because of its retail mix and has announced plans for a radical reorganisation in the centre’s make-up in order to attract higher profile, flagship retailers.

In a statement announcing the deal, it said: “Merry Hill occupies a strategic West Midlands location filling a gap in Intu’s national coverage and provides opportunities to grow rental values and generate capital value growth over the medium term.

“The board believes that, although it is a prime regional centre, Merry Hill’s relative position has declined in recent years. The centre presents significant opportunities to re-engineer and update the tenant mix encouraging large flagship formats and reducing the number of smaller units to make the centre more relevant for retailers and customers.”

It said that on a square foot basis, considering its size, Merry Hill had relatively low valuation and rental levels. It said the current zoning rents of £150 per sq ft were well below the UK average of £317 for a comparable regional centre and way behind those of Intu’s flagship Trafford Centre, near Manchester, where the figure is £405.

“The board is of the view that Merry Hill has the potential to be repositioned over the medium term as a family day-out destination with an integrated shopping, dining and leisure experience, extending dwell time, trading hours and catchment,” it adds.

“The short to medium term business plan for the centre is to pursue a number of initiatives to improve the rental tone of the centre.”

Proposals include resizing a number of existing units in order to attract potentially higher profile retailers, especially those without a presence in the centre. Targets include international and aspirational  brands. The centre will also be rebranded intu Merry Hill.

The number of smaller units at the centre could be amalgamated and the number of short-term leases reduced.

The food and leisure offerings may also be repositioned, with more restaurants being targeted.

The acquisition forms part of a wider deal worth £867.8m, which has seen Intu also acquire the Westfield Shopping Centre in Derby and the Sprucefield retail park in Northern Ireland.

It is proposing a £500m rights issue to support the new acquisitions.

Commenting on the deal, David Fischel, chief executive of Intu, said: “The transaction is a rare and attractive opportunity to acquire a further two prime shopping centres in line with our strategy to focus on the UK’s largest and most successful destinations.

“The acquisition strengthens Intu’s position as the leading owner, developer and manager of prime UK shopping centres filling in gaps in our national coverage and extending the footprint of our nationwide consumer facing brand and digital strategy. We are delighted to establish a partnership with QIC, a major global investor, at Merry Hill.”

Intu has entered into a £191.3m facility agreement with Deutsche Bank and HSBC to provide debt secured against its 50% stake in Merry Hill. This will mature in September 2016 (with a one-year extension option). In 2012 QIC issued a commercial mortgage-backed security (CMBS) against its 50% share in the centre, which again matures in 2016. It is anticipated that in due course both parties will refinance their respective debt secured against their holdings in Merry Hill through borrowing secured at the asset level.