TCS agrees Merrion House refinancing deal
Town Centre Securities, the property investor and car park operator, has announced it has finalised a deal with Leeds City Council over the re-financing of Merrion House in Leeds.
In February, Town Centre Securities announced practical completion of its £70m Merrion House redevelopment, which now houses Leeds City Council services and staff.
The 170,000 sq ft, ten-storey building is jointly owned by Town Centre Securities and LCC, with the council occupying the building on a new 25-year lease.
Merrion House is jointly and equally owned by TCS and LCC in Merrion House Limited Liability Partnership (MH LLP).
MH LLP has reached agreement for LCC to advance all base rent due from 1st October 2018 until the lease end on 11th February 2043, discounted at an annual equivalent rate of 3.5% plus costs.
As a result, Town Centre Securities will receive £26.4m in cash. This is net of estimated costs. From an accounting perspective this transaction will be treated as a financing arrangement within MH LLP. On that basis MH LLP will continue to recognise quarterly rent (£0.8 million per quarter) offset by an interest charge calculated on an effective interest rate basis. TCS 50% share of the accounting net income will continue to be recognised in its income statement.
The balance sheet of the LLP will reflect the full market value of the building, less the deferred income balance, which will reduce quarterly to zero at the lease end. Half of the net asset value of the entity is then consolidated into Town Centre Securities.
The lease allows for capped RPI increases every five years. These will continue to apply and will flow as normal rental payments through MH LLP.
Edward Ziff, chairman and chief executive, said: “We’re delighted to announce this agreement with Leeds City Council which gives us both enhanced financial flexibility to fund our ambitious growth plans and an immediate benefit to our leverage ratios.
“The innovative transaction allows us to maintain joint ownership of Merrion House and benefit from future rental increases, whilst giving the company a material cash injection. The proceeds will be used to immediately reduce debt, whilst giving more flexibility to invest in our acquisition and development pipeline for future growth, including the recently announced George Street development in Leeds.
“This agreement adds to our growing momentum and follows our recent announcement of the £9m purchase of Ducie House in Manchester, which is a valuable addition to our existing assets at the Piccadilly Basin site and strengthens our wider portfolio of opportunities.”
Merrion House is now the main city centre office base for Leeds City Council, housing 2,196 staff including all public-facing services and some from West Yorkshire Police and Leeds Community Health Care.
