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Shrewsbury shopping centres
On 24 January 2018 we completed the purchase of Shrewsbury’s three main shopping centres from UK Commercial Property Trust Limited, which is advised by Standard Life Investments.
Under the terms of the deal, we've purchased:
- The freehold of the Charles Darwin Shopping Centre, including 11 Castle Street
- The freehold of the Pride Hill Shopping Centre
- The leasehold of the Riverside Shopping Centre
- The leasehold of the Riverside Medical Centre
The purchase price is c£51 million.
What are the reasons for purchasing the shopping centres?
The primary objective for the purchase of the shopping centres is to support the economic growth and regeneration of Shrewsbury town centre. It will support the development of Shrewsbury as a ‘destination’, help provide an improved and attractive retail and leisure offer, and secure employment for Shropshire residents both directly and indirectly.
It will also generate a sustainable year-on-year income stream, including £2.7million in the first year.
Other benefits and opportunities from purchasing the centres
- Support for the enhancement of the shopping centres
- Support for some of the council’s key outcomes and strategies (ie prosperous economy, the Economic Growth Strategy)
- Support for the delivery of the Shrewsbury Big Town Plan by facilitating the economic regeneration of the town centre
- Improving car parking
- Building a strong relationship with the Shrewsbury Business Improvement District, Shrewsbury Town Council and University Centre Shrewsbury
- Opportunity to address poor retail linkages in the town centre and an under-provision of larger modern units for fashion, discount and family dining brands
- Opportunity to resolve some of the key transport issues: sustainable transport, links with the proposed Northwest Relief Road reducing traffic on Smithfield Road, and provision of car parking/lifts/escalators for those with specific needs
What happens now?
In the short term, people will see no change to their experience of the centres. Over the coming months we’ll carefully think through our next steps in terms of the wider development opportunities, and how these align with the vision for the town as articulated within the Shrewsbury Big Town Plan. We’ll be seeking people’s views before any decisions are made.
The council is currently considering a long-term plan to combine Pride Hill and Darwin with a mixed use development at Riverside. This links to the wider Economic Growth Strategy and Shrewsbury Big Town plan. Through a combined control of items such as town branding and identity; car parking (quality, pricing etc); public realm; a greater range of non-retail uses (potentially a leisure attraction and residential development) the council strongly believes that the Pride Hill and Darwin have a long term future within the town.
It is predicted that Darwin will become the focus of future mid-market and aspirational retail. Primark, and the mid-mall refurbishment are key to this.
The role of Pride Hill is different. The Upper level works well and can be further enhanced and Wilko moving into the lower level will be a catalyst for change in that area. We will be focusing on improving mid level and looking at uses, not simply retail.
Riverside will be a catalyst of creating an urban development form that is aligned to the character of Shrewsbury with a development that connects to the river.
Management of the centres
Through robust procurement from a central government framework a national and well respected property and asset manager has been appointed by the Trust to take on the ongoing management of the assets. This ownership structure of the centres has been successful in the past and has been mirrored to start the Council’s tenure.
Montagu Evans, one of the national top 10 managers of shopping centres and who currently manage 40 shopping centres nationwide, have been appointed by the trustees on the recommendation of the Council.
Montagu Evans will be responsible for all aspects of over 113 tenant lets, the properties themselves and the marketing of the shopping centres – as has always been the case – as well as considering the future development of the sites.
The short to medium-term management of the centres will be covered by a detailed business plan which will be agreed with the council. This will set out the plans for the future success of the centres and will be regularly reviewed, reported on and updated annually.
How was the purchase paid for?
The purchase will be funded from our ‘capital budget’. This is money that legally can only be spent or invested on assets and infrastructure projects and not on the direct provision of council services. Any money earned or saved as a result of a capital project can then be added to the council’s ‘revenue budget’ to help fund key frontline council services.
About the purchase
The purchase of the shopping centres is via the purchase of the units of each of the three existing Jersey Property Unit Trusts (‘JPUT’). A JPUT is a common, legal and well-established property investment vehicle in the United Kingdom. Legal, regulatory and tax issues relating to JPUTs are well understood.
The properties were already held offshore and therefore this was a like-for-like transaction.
This was by far the simplest way to complete the deal, and will save the council a great deal of money, which can be used to benefit the people of Shropshire.
The Council has not yet made any formal decision on transferring the assets back to the mainland although that is the intention. This option is currently being considered in detail and a report will be brought to a future cabinet and council meeting for decision.
The total expenditure for consultants who have been engaged to support the acquisition process, including specialist property and asset advisors, specialist legal advisors and specialist financial advisors is currently forecast to be £544,000 which is within the amount approved by Cabinet to support the acquisition process.
Repairs, maintenance and refurbishment of the shopping centres
Refurbishment costs in addition to the usual maintenance costs have been considered in detail during the due diligence process and are covered by the Planned Maintenance Programme. The costs are recovered through the service charge; allowances have been made for mid-level and Pride Hill with a continued refurbishment programme, together with capital expenditure associated with tenant fit out across a number of specific units.
Detailed financial information on allowances is confidential at this time as it is commercially sensitive.
History and timeline
We've been in discussion with the owners and managers of the shopping centres for a number of years to encourage investment and redevelopment. In 2017 the owners made it clear that they were looking to sell the shopping centres, as opposed to entering into any partnership arrangement with Shropshire Council. In July 2017 our cabinet agreed to formally express an interest in acquiring the shopping centres, subject to contract.
Work began on the potential acquisition in September 2017. Montagu Evans has undertaken due diligence on a wide range of property management considerations. Browne Jacobson has undertaken due diligence on a wide range of legal considerations.
The purchase was approved at a meeting of the full council on 14 December 2017, and contracts were exchanged on 21 December 2017.
The national context
Within the last two years, 15 local authorities have acquired shopping centre investments in their areas for a total of £570 million, with a further £220 million under offer or in negotiation.
What have people said about the purchase of the shopping centres?
Councillor Peter Nutting, leader of Shropshire Council, said:
“The investment in the shopping centres is very exciting and hugely important. It will provide us with the opportunity to shape the redevelopment of a large part of the town centre. In particular, the redevelopment of the Riverside Centre is desperately needed as the area is looking tired and rundown. It offers huge opportunities for development.
“Over the coming months we want to carefully think through our next steps in terms of the wider development opportunities and how these align with the vision for the town as articulated within the Shrewsbury Big Town Plan. We’ll also be seeking people’s views before any decisions are made.
“The investment in the shopping centres will also enable us to get a better financial return on our money, providing the council with £2.7 million income in next year’s budget.”
Councillor Steve Charmley, Shropshire Council’s deputy leader and cabinet member for corporate support, said:
“This is a once in a lifetime opportunity to enhance and improve the town centre and change Shrewsbury for the better.
“Whilst this is an investment in Shrewsbury’s shopping centres it’s an investment that will benefit the whole of Shropshire, so this really is great news for the whole county.”
Will Fulton, fund manager at Standard Life Investments, said:
“The sale of these three centres is in line with our previously stated strategy of reducing our portfolio’s weighting towards retail. Furthermore the sale provides us with additional financial resources which we intend to recycle into other investment opportunities that fit with the company’s investment strategy. We have been discussing long term options for these centres with Shropshire Council for a while which ultimately led to negotiations around the council acquiring them and managing them going forward. We believe that this is a very satisfactory outcome for both parties and for the future of the centres.”