Property news. L&G Expands Commitment to UK Housing
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WINTER 2014 LEGAL & GENERAL PROPERTY NEWSLETTER
Property news.
L&G Expands Commitment to UK Housing
Forming part of its larger UK housing and infrastructure investment strategy, and increased expansion into
alternative real estate sectors, L&G has continued to participate in a growing range of supply side housing
activities. Now involved in a pipeline of over 29,000 new homes across a range of tenures, as well as more
than 17,600 student accommodation beds, we have played an active role in financing affordable homes,
build-to-sell housing, urban regeneration, student accommodation and care homes.
Inside:
Pg 2: Expanding commitment to UK Housing
Pg 3: £350m Industrial Fund refinancing
Pg 4: Launch of operational certificates
Pg 5: UKPIF II acquisition of Overgate in Dundee
pg 6: Bournemouth town centre leisure scheme
Pg 7: BREEAM “Excellent” refurbishment and fit-out
Pg 8: Sale of Coutt ’s HQ
Pg 9: Invests a further £60m into ECf ’s regeneration
Pg 10: £1.7bn property fund converts into PAIF
Pg 11: £114m Waitrose distribution warehouse
Pg 12: Surrey Hills cycling challenge
WINTER 2014 LEGAL & GENERAL PROPERTY NEWSLETTER WINTER 2014 LEGAL & GENERAL PROPERTY NEWSLETTER 3
L&G expands commitment to UK housing. Industrial Fund completes £350m
refinancing.
LGP has successfully refinanced its Industrial Towards the end of last year the Fund successfully
Property Investment Fund (IPIF), agreeing a new merged with the Falcon Property Unit Trust, providing
£275 million term part fixed rate, part floating rate it with over 280 units over 36 multi-let estates which
facility with three lenders, RBS, Wells Fargo and it felt would significantly benefit from the scale,
L&G’s lending arm, Commercial Lending Limited resources and efficiencies of IPIF’s management
(CLL), with an additional £75 million revolving credit intensive structure, whilst increasing IPIF’s already
facility provided by RBS and Wells Fargo which can large added value pipeline at an opportune point in
be drawn down for future investment opportunities. the market cycle. The merger followed shortly behind
the news that IPIF had extended its life to 2020, whilst
Replacing a £210 million facility that was due to
also adding redemption provisions and introducing
expire in September 2015, the new £350 million loan
a number of initiatives enabling it to be more flexible
facility is arranged over a six year term, supporting
in terms of raising further equity and responding to
the Fund through its recently extended life span and
market conditions.
providing it with significantly increased firepower
to seek attractive market investment opportunities. Jonathan Holland, Fund Manager of IPIF, said: “The
RBS continues to be the principal debt provider and Fund has continued to lead the market in delivering
Committing over £5.5 billion to UK infrastructure division of Bellway Homes as well as focusing the arranger, with a £95 million stake in the secured strong outperformance through its careful stock
projects to date, L&G has provided over £500 million business on the North and West London Boroughs. facility and 50% share of the revolving credit facility, picking of good quality, higher yielding multi-
to affordable housing alone over the past 18 months. Originally joining Bellway Homes in 2004 as land whilst L&G has increased its loan to £90 million (from let industrial estates and highly proactive asset
manager, James has also held previous roles at £75 million). Wells Fargo has come in as a new lender management programme. This new financing
As part of this, the Company has recently completed
St George and Laing Homes, and brings with him to the Fund, providing £90 million of the secured arrangement provides us with significant headroom
a £25 million, 40 year loan to Adactus Housing Group,
around 14 years’ experience in the residential sector. facility and a 50% share of the £75 million revolving with which to capitalise on attractive investment
a £40 million, 20 year debt facility to Rooftop Housing
credit facility. opportunities that we believe currently exist in the
Group, a £50 million, 40 year debt facility to Housing In his new role at L&G, James will support the
market.”
Solutions, and secured a portfolio of over 4,000 units company in accessing new forms of investment The largest industrial fund in the IPD, IPIF has
let to Places for People for 50 years. into the sector and structuring innovative funding continued to be one of the most active investors in Nick Solomon, Director at the Royal Bank of
initiatives. the UK industrial market, growing its assets under Scotland, commented: “RBS is delighted to lead this
David Cowans, Group Chief Executive at Places for
management from £920 million to circa £1.194 billion financing and continue our long standing relationship
People, said: Bill Hughes, Managing Director of Legal & General
since the beginning of the year. Launched in 1997, with Legal & General and IPIF; which continues to
Property, said:
“The scale of under supply in housing and the need IPIF was one of the first indirect specialist real estate perform strongly. The Financing positions IPIF well
to invest in infrastructure across the UK is central “Demonstrating our continuing commitment funds. Having outperformed its benchmark, the IPD for the next stage of its lifecycle.”
to our determination to develop partnerships with to the sector, James’ appointment reflects the Quarterly Industrial Benchmark, over three, five, 10
Richard Craddock, Director at Wells Fargo, said: “We
investors like L&G in order to create new consortia to meaningful role that Legal & General believes that and 15 years and delivered a total return of 25.2% to
are delighted to be extending our relationship with
tackle the shortfall in housing construction and free the private sector as a whole can play in helping to its investors over the 12 months to September 2014,
Legal & General and to support a Fund with such a
up resources to stimulate innovative investment in find a solution to the housing shortage. Focused the Fund continues to be a leader in its sector.
strong and proven track record.”
the infrastructure required to support it.” on supply side initiatives, as a long-term provider of
investment capital, L&G has already invested £5.5
In order to support the growing role L&G is playing
billion in UK infrastructure projects to date, of which
in addressing the UK’s chronic housing shortage,
its investment into residential sector forms a major
LGP has also appointed James Lidgate as Head of
part.”
Residential.
James joined LGP from
Bellway Homes, where
he held the position of
Land Director since 2010.
Under this role, James was
responsible for managing
and developing a new
land team. Leading to the
most successful period
of land acquisition for the
North London division,
James helped lead the
Management Team to
become the most profitable
WINTER 2014 LEGAL & GENERAL PROPERTY NEWSLETTER WINTER 2014 LEGAL & GENERAL PROPERTY NEWSLETTER 5
UK PIF II kicks off investment phase with
Operational certificates launched. Dundee and Birmingham investments.
LGP is piloting a new voluntary operational rating scheme called VolDECs.
Based on Display Energy Certificates (DECs), this Debbie Hobbs, Head of Sustainability at Legal &
represents an innovative approach for private sector General Property, commented:
ownership of commercial property and responds to
“We believe that VolDECs are a great first step in
the absence of a government rating scheme. Funded
engaging managing agents and tenants to improve
and tested by LGP, the VolDEC scheme has been
energy performance. At a lower cost than a statutory
developed by the National Energy Foundation (NEF),
DEC, we feel that it is truly cost effective to roll out
an independent charity that has been at the forefront of
across large fund portfolios and will allow us not only to
improving the use of energy in buildings since 1988 and
determine the annual operational rating of our assets in
independent energy consultant, Phil Jones of Building
order to ensure that our supply chain is managing them
Energy Solutions. The scheme responds directly to
effectively but most importantly to act if any exceptions
Government’s U-turn on its commitment to extend
show up. In time we hope to extend the scheme to cover
DECs to commercial buildings by October 2012 as
other environmental aspects.”
pledged in the Carbon Plan in March 2011 and expected
through the 2011 Energy Bill. Phase one of the scheme is focused on the office sector
and has already been successfully tested on 16 of LGP’s
Since April 2008 it has been mandatory to display DECs
major multi-tenanted office properties. Phase two of
in buildings over 1,000 sq m that are occupied by public
the pilot project will include working with other forward-
authorities or institutions providing a public service.
thinking partners to expand the sample of offices and
VolDEC’s use the same methodology as statutory DECs
to extend the scheme to other asset classes such as On behalf of its second UK Charlie Walker, Fund Manager of the UK PIF I and UK
and a similar certificate layout with an A-G scale, but
shopping centres and retail parks. VolDEC is a ‘not for property income fund(UKPIFII), PIF II, comments:
that’s where the similarity ends.
profit’ scheme for the benefit of the industry and hopes LGP has acquired the Overgate
“Both acquisitions hit the sweet spot of target
to gain the backing of the whole industry using sector Shopping Centre in Dundee and
investments for this strategy, with strong income
specific benchmarks. The key aim is to highlight building Priory & Temple Court offices in
profile and plenty of opportunities to drive additional
energy performance and encourage improvement the centre of Birmingham.
value. As the fund continues to attract new equity, we
but also to conduct research to gradually improve our
Representing the first purchase are considering a strong pipeline of opportunities to
benchmarks.
made by UKPIFII, Overgate add to these first investments.”
Phil Jones of Building Energy Solutions, who also was acquired for £125.3m
chairs the CIBSE Energy Performance Group, said: reflecting 7.5% NIY. The fully
enclosed shopping centre totals
“This relatively simple tool will ultimately encourage
420,000sqft of retail space across 70 units and anchor
deeper analysis to benefit building operators, designers
stores including Debenhams and Primark.
and the whole industry. VolDECs will provide a
‘soft start’ for the commercial sector to measure The second purchase following quickly from Dundee
performance and aims to set common standards is the prominent office investment of Priory &
through an industry wide scheme but tailored by Temple Court in Birmingham. Let to the Ministry of
sectors.” Justice and PWC, the asset was aqcquired for £87.5m
reflecting a net initial yield of 8.3%.
Bill Hughes, Managing Director of Legal & General
VolDECs are based on relatively simple data, making Property, said: The all-in cost of borrowing is estimated at 4.5% for
them inexpensive and quick to produce. Separating the duration of the loan, which looks very attractive
“As one of the UK’s largest institutional property
out tenant energy outputs from those produced by the against the yields on offer via the Fund’s focused
fund managers, with £14.2bn of property assets
common parts of a building, the aim of the project is strategy of seeking well-located, larger lot size assets
under management, at LGP we recognise the critical
to provide property owners and operators with cost- with strong income dynamics. The Fund will target
importance of understanding our energy output in order
effective, user-friendly energy ratings for only the areas opportunities that are expected to allow it to achieve
to ensure properties are managed in the most efficient
of an asset which are within their control to improve. a net IRR of 8-9% for ungeared investors and a net
and sustainable manner possible. Additionally, as a
IRR of 12-14% for geared investors.
The scale has been extended to include G1 to G4 leader in employing best practice techniques in all areas
ratings, providing low ranking buildings with a more of sustainability, we believe that it is our responsibility to
defined rating in order to encourage improvement, engage the entire industry in driving the green agenda
as well as U (Unclassified) rating for buildings where forward, particularly where it is apparent that there is a
performance or data is exceptionally poor. VolDECs void in policy and regulation.”
also include a certificate quality rating: High, Medium Priory & Temple Court offices, Birmingham
and Low, to encourage improvements in data quality.
WINTER 2014 LEGAL & GENERAL PROPERTY NEWSLETTER WINTER 2014 LEGAL & GENERAL PROPERTY NEWSLETTER 7
Leisure Fund backs Bournemouth town Stockley Park leads the way with “Excellent”
centre scheme. BREEAM Non-Domestic Refurbishment and
Fit-out.
A project by LGP to refurbish a standards through the upgrading a series of consultation events
building at Stockley Park to the west of heating, ventilation, cooling and and opportunities for industry to
of London is the first pilot project to lighting services to category A fit- comment on the scheme throughout
LGP has completed contracts on a prime town centre NCP car “Without question this is the most achieve an “Excellent” rating through out standard. Stockley Park was the summer.
on the funding of a £50 million park site, it is located adjacent to the eagerly anticipated cinema and the new BREEAM UK Non-Domestic therefore instrumental in helping
leisure development in the centre main retail pitch of Bournemouth restaurant-led leisure development Refurbishment and Fit-out 2014 to define the scope of BREEAM
of Bournemouth. As a result, and overlooking the award winning that the UK has seen in the past Scheme. Refurbishment Part 2: Core services,
construction has now started on site gardens, as well as opposite a brand ten years and we are extremely to ensure the scheme is relevant for
Breathing new life into the major
(1 December 2014) and is targeted new £60 million five star Hilton hotel proud to act as its forward funding this type of project.
office park and supporting the
for completion in late Summer 2016, anchored development scheme. partner. Backed by some of the UK’s development of the new BREEAM Debbie Hobbs, Head of Sustainability
creating a total of 500 new jobs in the top leisure operators, we believe scheme for certifying sustainability at Legal & General Property,
town. Andrew Ferguson, Head of Leisure this development will not only add in refurbishment and fit-out projects, commented:
at Legal & General Property, a vibrant, high quality leisure offer Stockley Park is one of 12 projects
Spanning a two acre site, the 120,000 commented: that strongly appeals to the local “Having specified BREEAM
that are piloting the scheme.
sq ft town centre regeneration population and visitors from much excellent on all new builds and major
scheme, which is being developed “After years without a dedicated further afield, but it will act as a major To ensure the successful refurbishments for a number of years,
by Licet Holdings, comprises a family-orientated leisure offer catalyst to Bournemouth’s wider development of the new scheme, the it is important to us to work together
10-screen, 2,000-seat Odeon cinema, within Bournemouth’s town centre, regeneration.” BREEAM team has been collecting with influential organisations like
together with 14 restaurants pre-let significant steps forward are at last detailed information on the types of BREEAM to help shape practical
to Nando’s, Handmade Burger, Coast being achieved to realise the potential work undertaken in non-domestic ratings that can be adopted by
to Coast, Prezzo, Ask Italian, TGI of this key site. refurbishments and fit-outs. the wider industry to encourage
Fridays, amongst others. Situated real improvements that result in
LGP makes widespread use of
operationally sustainable buildings
BREEAM across its property portfolio
and change in the UK’s existing
and was keen to ensure the new
building stock.”
refurbishment scheme would cover
the various scenarios and scales Following the major refurbishment
typically involved in refurbishment. project at No 4 The Square, L&G
concluded lettings to Hasbro UK Ltd
Although No 4 The Square
and Rocket Superstore UK Limited,
represents a major refurbishment,
bringing the scheme to 66% let, with
due to its relatively recent
25,000 sq ft remaining available
construction, changes to its structure
for occupation through joint letting
and fabric of the building were not
agents Strutt & Parker and Knight
within scope of the work, neither
Frank.
was the final fit-out, which is subject
to the tenant. The primary focus The draft BREEAM Refurbishment
of the project was therefore on and Fit-out scheme is due to be
bringing the services of the property published for consultation in early
up to modern day, Grade A office July and BRE will also be announcing
WINTER 2014 LEGAL & GENERAL PROPERTY NEWSLETTER WINTER 2014 LEGAL & GENERAL PROPERTY NEWSLETTER 9
Sale of Coutts’ headquarters for £175m is A further £60m investment into ECf
completed. regeneration of Salford.
ECf major regeneration of Salford Central includes the creation of almost 1,000
new homes and 11,000 new jobs.
English Cities fund (ECf) has agreed terms with Bailey location currently consists of vacant land
LGP to invest a further £60 million into the major around Salford Central Station and the riverbank
regeneration of the New Bailey area of its Salford opposite Manchester’s successful business district of
Central scheme, by forward funding a 125,000 sq ft Spinningfields.
office building and a new multi-storey car park.
Bill Hughes, Managing Director of Legal & General
Following the commencement of a new Premier Inn Property, said:
hotel, the investment will fund a further two phases of
“This is a significant investment in Salford and
development of the New Bailey Scheme, a major city
one that we believe will help to kick start the City’s
centre regeneration project which is situated adjacent
wider regeneration. We believe that ECf’s plans for
to the successful Spinningfields development. The
Salford Central will not only fundamentally reposition
first of these to start on site, the multi-storey car park
this city centre location, but provide much needed
is targeted for completion in December 2014 and
homes, jobs and office, retail and leisure space, as
will comprise 615 spaces arranged over nine levels.
well as the improved infrastructure to support the city
Benefitting from direct access to two main arterial
going forward.
routes to the city – a pre-let is in place with National
Car Parks (NCP) on a 35 year FRI term with RPI-linked “With significant volumes of patient capital under
reviews. management, we believe that it is inevitable that the
private sector in the form of long-term institutional
Salford Central is made up of two inter-dependent,
L&G has completed the sale of Coutts’ Gordon Aitchison, Director of Investment and investment plays a meaningful role in bringing about
but distinct areas, Chapel Street and New Bailey,
headquarters, 440 Strand, to TIAA Henderson Real Development at Legal & General Property, said: major regeneration and solving the UK’s chronic
occupying over 17.75 hectares of Salford. When
Estate for £175 million, representing a net initial housing shortage. As such, we have already invested
“The Coutts’ HQ formed part complete, the scheme, which is being delivered
yield of 4.34%. over £5.5 billion in infrastructure and housing, and are
of a portfolio of eight assets through a development agreement with Salford
part of the insurance industry group that has pledged
One of the standout deals of Q1 2014, the property that were successfully resold Council, will create around 11,000 new jobs and will
to invest £25 billion in UK infrastructure projects by
formed part of LGP’s March purchase of a portfolio in Q2 on behalf of L&G provide 2.37 million sq ft of commercial space, 849
2018.”
of 55 assets backed by RBS from Telereal Trillium Capital. This left our annuity new homes and 390 hotel rooms.
for a total consideration of £550 million. Signifying fund with a prime portfolio,
During 2013 ECf commenced or secured four phases
one of the largest portfolio acquisitions to be backed by an A-rated
of development with a combined end value of £95
successfully undertaken by a UK fund in recent tenant on long term index-
million. Linking with Chapel Street and the historic
years, the deal represented a rare opportunity linked leases, providing
heart of Salford, where ECf is currently on site with
to acquire RBS’s flagship buildings, with a prime an exceptionally attractive
the 97 home ‘Vimto Gardens’ development, the New
portfolio let to RBS on lease terms predominantly match for L&G’s long dated
over 23 years with RPI linked reviews, representing liabilities.”
a net initial yield of 5%.
The other properties included 97 New Bond Street
Leveraging the wider L&G platform, the deal was which was sold to Wittington Investments for a
made possible through the combined investment total consideration of £18,750,000, representing
of L&G Retirement (L&G’s annuity fund) and L&G a net initial yield of 2.3%, 2-4 Lower O’Connell
Capital (L&G’s shareholder fund). Providing L&G “Using
Street, our–strong
Dublin a primenetwork of
retail investment in Dublin
Retirement with £300 million in properties that Citycontacts,
Centre, to we continue
a Private to be for €11,437,000
investor
match its long-dated, risk adjusted liabilities, this one of 5.08%,
reflecting the most active
and the Trident Portfolio to Direct
sale forms part of LGP’s successful disposals Lineinvestors in the UK
for £10,400,000 r ecting
refle al 5.99%. Furthermore,
programme for L&G Capital’s stake. estate
it has market,the
completed with
sale of No. 28 Cavendish
a notable
Square increase Lancer, for a total
to its freeholder,
in appetite of
consideration for£5.35 million, representing a net
yield of 3.7%.
initiaallternative
real estate
sectors,
which
we
WINTER 2014 LEGAL & GENERAL PROPERTY NEWSLETTER WINTER 2014 LEGAL & GENERAL PROPERTY NEWSLETTER 11
Forward funding of £114m Waitrose
Property fund converts into PAIF.
distribution warehouse at Magna Park.
As a result of the conversion, L&G’s UK Property Unit Trust has been renamed A rare opportunity to fund a strategically located south east ‘super’ shed
the Legal & General UK Property Fund and provides investors with more the capable of delivering the quantum of space demanded by a top UK retailer.
tax-efficient income.
On 24 May 2014, Legal & General’s £1.7 billion UK Michael Barrie, Director of Fund Management at
Property Unit Trust converted into a Property Legal & General Property, said:
Authorised Investment Fund (PAIF) structure. As a
“Continuing to support retail investors’ search for
PAIF, distributions from rental income and interest
income yield, we believe that greater tax efficiency
can be paid out gross to qualifying investors,
brought about by the PAIF structure will help ensure
benefiting those investing through an ISA or within a
that the Fund remains attractive to investors over the
pension. It also involves the creation of a feeder fund
long-term.”
within a unit trust, allowing all unit holders who are
ineligible or unable to invest in a PAIF to continue to Matt Jarvis, Fund Manager of the Legal & General
remain in the fund. UK Property Fund, commented:
The Legal & General UK Property Fund is one of the “Using the property platform’s unrivalled sector
fastest growing funds in its sector, having increased specialist skills, we continue to carefully stock pick
assets from £100 million to over £1.3 billion since well located assets that we believe are strongly
inception in 2006, and continues to receive inflows supported by enduring occupier trends and/
from retail and institutional investors. The fund or positive structural shifts, thereby offering the
invests in a diversified portfolio of UK commercial potential for long term capital growth. Additionally,
property assets and has outperformed the Lipper with a strong focus on active management, we
Property IMA Sector peers over one, three, and five work hard to explore interesting asset management
years. opportunities that we believe will not only help to
future proof our portfolio and protect values but
significantly enhance returns over the shorter term.”
L&G has forward funded a new major distribution approximately 45.8 million people within a 4.5
warehouse at Magna Park in Milton Keynes for a hours’ drive time. The Park totals 220 acres and has
total consideration of £114 million, representing a planning consent for 4.4 million sq ft of distribution
net initial yield of 4.64%. Pre-let to Waitrose Limited accommodation.
on a 30 year term, the 938,449 sq ft unit has been
Adam Kerr, Head of Long Income Transactions at
purchased on behalf of L&G’s annuity fund.
Legal & General Property, comments:
Waitrose’s parent company, John Lewis plc, already
“This transaction represents a rare opportunity to
occupies two warehouses on the park, totalling over
fund a strategically located south east ‘super’ shed
1.3 million sq ft. L&G will be funding the development
that is capable of delivering the quantum of space
over the construction period and the scheme is being
demanded by a top UK retailers. Underpinned by its
developed by Gazeley, a leading global developer,
quality of construction and a fundamental shift in the
owner and manager of logistics warehouses and
optimal location for logistics parks in the UK due to its
distribution parks.
easy access to London and the wider south east.”
The development, which is currently on site, is due
for completion in November 2014 and will provide
a major new distribution warehouse, including
ancillary offices arranged over three levels, a
gatehouse, secure yards, parking for 530 cars, 231
HGV’s and 117 tractors, and landscaped areas. With
high sustainability credentials, the development is
targeting a BREEAM rating of “Excellent”.
Situated on the east side of Milton Keynes, between
Junctions 13 and 14 of the M1 motorway, Magna
Park is one of the premier distribution parks in the
UK. The strategic location allows HGV’s to reach
WINTER 2014 LEGAL & GENERAL PROPERTY NEWSLETTER
Legal & General takes on the Surrey Hills.
On Friday 5 September, a group
of 17 took part in Legal & General
Property’s inaugural cycling
“sportive” in the Surrey Hills,
including head of LGP, Bill Hughes,
a partner of Clifford Chance, Mike
Edwards, and a partner of Pinsent
Masons, Simon Gardiner.
Organised by head of business
space development, Simon Wilkes,
the group set off from Cobham high
street in their new L&G cycle kit
for some 70 miles of bonding and
suffering, taking in gradients of over
20% (including Barhatch Lane and
Whitedown Lane), tending to five
punctures and climbing a total of over
5,200 sq ft.
We look forward to next year’s bigger
and better cycling challenge!
Bill takes over as President of the BPF.
In July this year, Bill Hughes became President of the British
Property Federation (BPF), a membership organisation devoted to
representing the interests of all those involved in real estate
ownership and investment in the UK.
The appointment took place at the BPF’s Annual Reception, held at
London’s Waldorf Hilton. Expected to be one of the most eventful
years for the BPF for more than a decade, Bill will be overseeing
the presidency in a period of great change as it looks to welcome a
new BPF chief executive, and as the UK as a whole faces the
General Election next May with an uncertain political outcome.
CONTACT US IMPORTANT INFORMATION
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+44 (0)203 124 2803
The views expressed in this newsletter are those of
www.lgim.com/property Legal & General Property, who may or may not have acted
Legal & General Property upon them. Unless otherwise stated all data is at end November 2014.
One Coleman Street, London EC2R 5AA © Legal & General Property Ltd, authorised by the Financial Conduct
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Registered office: One Coleman Street, or transmitted in any form or by any means including photocopying and
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