Legal & General Property.
Bill Hughes – Managing Director, Legal & General Property
LeGaL & GeneraL ProPerty Corporate profile
“ Legal & General Property’s focus is on the changing needs of clients, placing the highest emphasis on transparency and integrity.”
Property Investment Experts.
Legal & General Property’s success is built on core values that are the foundation of everything we do.
SCALE
Part of Legal & General Investment Management (LGIM) – the largest investment manager in the UK – with £347 billion (as at end September 2011) of assets under management. See page 4
SPECIALISM
Market-leading specialists across a full and diverse range of sectors, from Central London offices to indirect investments. See page 8
INTEGRITY
Drives our award-winning achievements in corporate governance, client service, and sustainability, and upholds our trusted position in the UK market. See page 13
PERFORMANCE
An exceptional track record of consistent outperformance has positioned Legal & General Property at the forefront of UK real estate investment managers. See page 14
INNOVATION
Since the UK property market recovery began in 2009, Legal & General Property has responded to client demand with the successful launch of more new funds than any other UK manager. See page 26
3LEGAL & GENERAL PROPERTY CorPoratE ProfIlE
68000756.indd 1 04/01/2012 11:49
Legal & General Property takes pride in its rich heritage, which stretches back to 1836, when Legal & General Life Assurance Society was founded. Today, the Legal & General Group employs over 9,000 people, while around one in ten of the UK population relies on us for their pensions, insurance and investments.
Introduction.
LEGAL & GENERAL PROPERTY INtroDUCtIoN
68000756.indd 2 04/01/2012 11:49
5
Legal & General Property takes pride in its rich heritage, which stretches back to 1836, when Legal & General Life Assurance Society was founded. Today, the Legal & General Group employs over 9,000 people, while around one in ten of the UK population relies on us for their pensions, insurance and investments.
Office Redevelopment: Central St Giles, London
employees of Legal & General worldwide
9,000+
68000756.indd 3 04/01/2012 11:49
Our headquarters at Coleman Street, London
“ Property is a core area of LGIM expertise and LGP is unique among property managers in its ability to draw upon the size, knowledge, and influence of LGIM’s broader platform to meet its clients’ objectives.”
Mark Zinkula – Chief Executive Officer Legal & General Investment Management
lEGal & GENEral GroUP
Sector Specialist funds
Single-asset Joint VenturesBalanced funds Segregated
Mandates
SavingslEGal & GENEral INVEStMENt MaNaGEMENt risk
lEGal & GENEral ProPErtY fixed Income Equities Ventures liquidity
Legal & General Group is a FTSE 100 company
LGIM is the largest investment manager in the UK, with £347 billion AUM (as at end September 2011)
LGP is a top three UK real estate investment manager, with £10.4 billion AUM (as at end September 2011)
LEGAL & GENERAL PROPERTY INtroDUCtIoN
68000756.indd 4 04/01/2012 11:49
Legal & General Investment Management was established in the 1970s to manage assets for external pension funds and institutional clients. From small beginnings, the company has grown to become one of the largest investment management companies in the world, and the largest in the UK, managing £347 billion (as at end September 2011).
LGIM has successfully built active and index management businesses with an international reach and scale covering cash, equities, fixed income, property lending, alternative assets and private equity assets worldwide on behalf of institutional clients, sovereign wealth clients, and retail funds.
LGIM’s success has been built upon its market-leading client service and ability to develop high quality, risk-aware investment solutions.
Legal & General has managed real estate since the 1830s, and launched its pooled Managed Property Fund for external investors in 1971. Legal & General Property manages over £10.4 billion (as at end September 2011) across the UK, ranking amongst the top three UK institutional real estate managers, with 19 different funds and mandates and covering all major real estate sectors.
All derivative transactions for LGP funds are executed by LGIM who have extensive experience in this area.
Legal & General Property’s outstanding performance track record and UK specialist expertise has attracted considerable external capital, with 70% of capital being entrusted to LGP from external sources: 23% from retail funds whose assets we manage, and the remaining 47% from institutional sources. The majority of LGP’s staff are also aligned with fund performance, via co-investment, carry, annual formulaic bonuses, or personal investments.
£125
£2583 £2930
£2787£1519
£355
Industrial
Retail
Office
Cash/Derivative/Unlisted
Leisure
Other
All figures in £ million
lEGal & GENEral ProPErtY aSSEtS BY SECtor lEGal & GENEral ProPErtY aSSEtS BY GEoGraPHY
North 10%
Midlands 11%
East 10%
London 28%
South East 29%
Scotland 3%
West 9%
Single-asset Joint Ventures
liquidity
7
68000756.indd 5 04/01/2012 11:49
Legal & General Property’s business is built around market-leading specialists in fields as diverse as central London offices; shopping centres; planning; development; property derivatives; and indirect (unlisted) investments.
Our specialist capability.
LEGAL & GENERAL PROPERTY oUr SPECIalISt CaPaBIlItY
68000756.indd 6 04/01/2012 11:49
Legal & General Property’s business is built around market-leading specialists in fields as diverse as central London offices; shopping centres; planning; development; property derivatives; and indirect (unlisted) investments.
9
Forward Funding: Paternoster Square, London
68000756.indd 7 04/01/2012 11:50
Legal & General Property’s expertise and track record of outperformance stem from its people. At the core of our structure are experienced and proficient fund managers, drawing on an array of specialisms to add value to the investment process and ongoing asset management.
of outstanding REIT and property derivative positions
£350 millionOver
LEGAL & GENERAL PROPERTY oUr SPECIalISt CaPaBIlItY
68000756.indd 8 04/01/2012 11:50
More than 80 people work within Legal & General Property – over 35 of whom are asset and fund managers, with an average of 18 years’ experience. A platform of this scale, focused primarily on the UK, enables LGP to foster specialists that lead in their fields.
11
LGP’s sector specialists maintain a focused brief on occupier and investment dynamics within their field – providing valuable insight and input into both asset management plans and the investment process of every transaction executed by LGP’s funds and mandates.
This focused approach allows fund managers to benefit from detailed knowledge of key micro issues affecting a given asset, including the leasing market, potential tenants, new development provisions, access to established tenant relationships and recent transactions.
SECtor SPECIalISM
Legal & General Property’s Executive Team contribute in the following forums;
• Chair of Association of Real Estate Funds (AREF)• Chair of the Association of British Insurers (ABI)
Property Forum• Chair of the Green Property Alliance• Fellow of the Reading College of Real Estate
Management• IPD Consultative Committee • Committee of the City Property Association• IPF Research Committee• Member of Investors in Non-Listed Real Estate
Vehicles (INREV)• Member of UK Green Building Company (GBC)• IPF Property Derivative Interest Group• British Property Federation (BPF) Retail Forum• Better Buildings Partnership Steering Committee• Committee of the Society of Property
Researchers
UK ProPErtY INDUStrY lEaDErSHIP
Retail Warehouses
Shopping Centres
Multi-let Industrials
High Street Retail
Central London Offices
Logistics
Leisure
Regional Offices
SectorSpecialism
68000756.indd 9 04/01/2012 11:50
In-depth sector expertise and a market-leading capability, participating in all forms of real estate investment, to provide truly informed thinking.
Transactions Team
PropertyDerivatives
Indirect Investment
Research
Development and
Planning
LGIM
Informed Decisions
Indirect Investment (Secondaries) We manage £900m of indirect investments, primarily in closed-ended, unlisted property funds, providing clients access to specific assets, gearing, large lot sizes or specific asset management skills in niche property sectors. Detailed fund analysis and forward pricing of indirect vehicles enables us to identify mispricing and arbitrage opportunities on entry and exit.
Property Derivatives LGIM’s derivatives team is highly respected in the UK market, having excellent relationships with market-makers and end users. The team has over £350m of outstanding derivatives positions across a range of funds, providing services from analytical support to market execution.Our success stems from combining LGP’s real estate knowledge with LGIM’s derivative processes.
Research Our extensive UK property research team draws on LGIM’s respected economics team for macro-economic forecasts and research themes. The team provides quarterly, 13-sector forecasts to LGP’s investment team and adds further value through identifying performance drivers in demographic and micro-economic trends.
Development and Planning Our specialist team have a wealth of experience from Retail Development to Grade A, BREEAM Excellent, Mixed Use schemes in central London. The UK’s strict planning and development regimes act as barriers to entry for many investors, but present opportunities for LGP to generate attractive returns for its investors.
Legal & General Investment ManagementLGP’s parent company is the largest manager of shares on the UK stock market, the largest fixed income manager in the UK, and a market-leader in Liability- Driven Investments. LGP makes full use of these specialisms when analysing tenants’ corporate health, securing opportunities direct from corporates or banks, and pricing cashflows, including the inflation swaps inherent in some real estate leases. These capabilities give LGP a vastly enhanced skill set to manage its portfolios.
Transactions TeamLGP’s transactions team was launched in June 2009, to lead LGP’s relationships with agents, banks and other market participants seeking creative and innovative solutions to their real estate holdings. Whilst each fund manager remains fully market facing, the team’s market contacts provide additional intelligence and deal flow, whilst the resource provides the capability to deliver cross-platform solutions in off-market, principal-to-principal discussions.
£900 millionof indirect investments
LEGAL & GENERAL PROPERTY oUr SPECIalISt CaPaBIlItY
68000756.indd 10 04/01/2012 11:50
“ To deliver enhanced returns to our investors, sustainability has been integrated into everyday thinking, not just a selective greening of some of the portfolio.”
Bill Hughes – Managing Director Legal & General Property
Our focus on sustainability.Refurbishment: 6 Agar Street
Property Location: Covent Garden, Central LondonProperty Sector: OfficeProperty Age: 1985• BREEAMratingofExcellentthroughcarefuldesign• Highlyenergyefficientplantequipment• Carparkconvertedto60cyclestoragefacility• Lowwaterusefittings• Stricttargetsonrecyclingofdemolitionwaste• Greenleaseclausesandsustainablemanagementethos
Legal & General Investment ManagementLGP’s parent company is the largest manager of shares on the UK stock market, the largest fixed income manager in the UK, and a market-leader in Liability- Driven Investments. LGP makes full use of these specialisms when analysing tenants’ corporate health, securing opportunities direct from corporates or banks, and pricing cashflows, including the inflation swaps inherent in some real estate leases. These capabilities give LGP a vastly enhanced skill set to manage its portfolios.
13
68000756.indd 11 04/01/2012 11:50
Our key focus is to generate superior investment performance for our investors. A track record of consistent outperformance across the platform has positioned Legal & General Property at the forefront of the UK market.
Fremlin Walk Shopping Centre, Maidstone
Proven track record.
LEGAL & GENERAL PROPERTY ProVEN traCK rECorD
68000756.indd 12 04/01/2012 11:50
15
Our key focus is to generate superior investment performance for our investors. A track record of consistent outperformance across the platform has positioned Legal & General Property at the forefront of the UK market.
68000756.indd 13 04/01/2012 11:50
Michael Barrie – Director of Fund Management Legal & General Property
Legal & General Property offers both open-ended and closed-ended structures. Some use gearing – often those focused on a specific sector or those further up the risk/returnspectrum–whileothersprovideungeared returns generated from a balanced, nationwide portfolio. Some funds are benchmarkedrelativetotheirspecificsectoroftheUKmarket,whileothershaveabsolute,index-linkedgilt,orLIBOR-basedreturnhurdles. Yet the consistent picture across all funds is of outperformance for both short-term andlonger-termhorizons.Assuch,LGP’strackrecord in delivering superior performance to its clients is second-to-none.
“ Outperformance stems from a research-enhanced investment process, expert asset picking, and a relentless pursuit of added value.”
Carlisle: Key details
Asset: Department StoreLease Term: 27 yearsInitiative: Counter-cyclical purchasePurchase Yield: 9.5%Exit Yield: 6.75%Ungeared IRR: 37.5% over 11 monthsExit: Sold to Institutional Investor
LEGAL & GENERAL PROPERTY ProVEN traCK rECorD
68000756.indd 14 04/01/2012 11:51
Michael Barrie – Director of Fund Management Legal & General Property
As sustainability has risen up the agenda for real estate investors, LGP has led the market in recognising the need for a performance-focused house to develop its investment professionals’ understanding of this emerging differentiator.
In 2007, LGP launched the “Sustainability in Real Estate Investment” course in conjunction with the College of Estate Management to improve knowledge across LGP’s platform and the wider industry. All of LGP’s staff are required to complete this course as part of their professional development.
Sustainability analysis is a key element of LGP’s acquisitions process. As both legislation and tenant requirements continue to evolve, LGP views the sustainability credentials of an asset as a crucial factor that enhances performance through mitigating depreciation and future-proofing portfolios.
17
GENEratING oUtPErforMaNCE aCroSS tHE PlatforM
£6.9bn
Relative Property Return Benchmark
£3.1bn
Absolute Property Return Benchmark
£374m
Real Absolute Return Benchmark
LGP’s track record is not limited to a couple of hand-picked funds, but instead driven by a collegiate approach aimed at generating outperformance across the 19 funds it manages. This unique approach contributed to a weighted average outperformance across all LGP’s funds of 2.0% in 2010 alone. For a portfolio of £10.4 billion (as at end September 2011), operating within strict risk criteria, this achievement is a demonstrative endorsement of LGP’s approach to real estate fund management.
INVEStMENt ProCESS
• FundRequirements
• On/OffMarketSourcing
• InnovativeDealCreation
• SectorSpecialistCritique
• DailyStockMeetings
• SustainabilityCredentials
• ExpectedvsRequired Return Build Up
• FundImpactModelling
• Asset/BusinessPlan
• InvestmentCommittee Approval
• DueDiligenceTeam
• DelegatedAuthorities
• AuthorisationProcess
• FinancialControl
• TransactionReview
• AssetManagement
• PropertyManagement
• SellDiscipline
• OngoingStrategyReview
Introduction Process
analysistransaction
ManagementImplementation
SUStaINaBlE PErforMaNCE
Source: LGP
68000756.indd 15 04/01/2012 11:51
Legal & General Property’s rich network of banking and property industry contacts and established transactional expertise, enables it to gain unrivalled access to high-quality investment opportunities both on and off-market.
Exceptional deal access.
LEGAL & GENERAL PROPERTY EXCEPTIONAL DEAL ACCESS
68000756.indd 16 04/01/2012 11:51
19
Legal & General Property’s rich network of banking and property industry contacts and established transactional expertise, enables it to gain unrivalled access to high-quality investment opportunities both on and off-market.
Off market acquisition: Fountains Retail Park, Tunbridge Wells
68000756.indd 17 04/01/2012 11:51
LXB Portfolio: Key details
Property location: UKInitiative: Portfolio purchaseAsset: Various (including Leisure, Supermarkets, Department Stores, Retail Parks and Development site)Tenant: Various (including Tesco, Marks & Spencer, House of Fraser, Cineworld and Sainsbury’s)Purchase price: c. £145 million
LXB Portfolio: Sixfields Leisure Park, Northampton
LEGAL & GENERAL PROPERTY EXCEPTIONAL DEAL ACCESS
68000756.indd 18 04/01/2012 11:51
assets acquired in the UK over 2010 and 2011
£2bn+
21
Acquisitions: National Football Centre
Location: BurtonTenant: The Football AssociationLease length: 30 yearsIncome Yield: Excess of 400bps over comparable index-linked giltsLease type: Annual RPI upliftsCompleted asset value: £40-50 million
To achieve superior returns for LGP’s partners and investors, LGP uses its cross-sector expertise to secure opportunities via:
• Partnerships with UK banks seeking to reduce covenant breaches
• Corporate acquisitions to secure underlying real estate
• Development fundings, securing arbitrage generated by the paucity of development finance
• Offmarket deals with distressed vendors
• Sale-and-leasebacks direct with global corporates and public-sector bodies
• Asset creation through land assembly and planning change.
Over the course of 2010 and 2011, LGP invested over£2bnintheUKpropertymarket,includingseveralportfoliotransactions.Thisquantumoftransactions places LGP amongst the very top investorsintheUKmarket;securingitspositionasafirstportofcallforagents,banks,andmarketprincipals,andbolsteringLGP’scovetedrelationshipsintheUKinvestmentmarket.
Gordon Aitchison – Director of Investment and Development Legal & General Property
“ Our close relationships with agents, banks, and market principals are absolutely key to securing sought-after assets at the most advantageous price for our clients.”
68000756.indd 19 04/01/2012 11:51
Legal & General Property’s long-term ability to add alpha to its clients’ returns is underpinned by a relentless focus on active management; pursuing strategies that use lease engineering, refurbishments, developments, and income enhancement to generate outperformance.
Focus on active management.
“ Every property, from the largest to the smallest, has a bespoke business plan to maximise the returns that can be generated from it.”
Paul Edwards – Director of Asset Management Legal & General Property
LEGAL & GENERAL PROPERTY foCUS oN aCtIVE MaNaGEMENt
68000756.indd 20 04/01/2012 11:51
23
Legal & General Property’s long-term ability to add alpha to its clients’ returns is underpinned by a relentless focus on active management; pursuing strategies that use lease engineering, refurbishments, developments, and income enhancement to generate outperformance.
G-Park, Bristol: subsequently let to GKN Manufacturing
Value add: £8.5 million
68000756.indd 21 04/01/2012 11:52
Savile Row: Key details
Initiative: Site assembly, planning consentSale Price: £97 millionAdditional Floor Space: 24,000 sq ftProject IRR ungeared: 63.5%Exit: Early sale to crystallise upside
LEGAL & GENERAL PROPERTY foCUS oN aCtIVE MaNaGEMENt
68000756.indd 22 04/01/2012 11:52
LGP added a total of £151.5m of value to its clients’ investments through proactive asset management during 2010 – a key element of LGP’s performance generation. To achieve this level of performance, each of the 430 properties with over 3,400 tenancies that LGP manages benefits from a bespoke business plan, setting out a strategy to maximise the returns generated by the asset during its hold period.
LGP’s track record of added value has been delivered through four key channels:
1. Sector specialists – in-house experts highly proficient in the dynamics of their sector and key micro-locations, bringing extensive networks of relationships with major tenants.
2. Dedicated asset managers – individuals within LGP responsible for designing and delivering business plans, with personal alignment to portfolio performance.
3. Stock selection – LGP secures assets with excellent real estate fundamentals, in order to benefit from strong tenant demand.
4. Niche expertise – LGP uses its scale to secure best-in-class managing agents and surveyors at a local level.
LGP targets building refurbishment and redevelopment to increase the appeal to tenants and thus rental and capital values, and sustainability credentials of its assets. As a minimum, LGP seeks to achieve BREEAM ‘Excellent’ or an equivalent benchmark for the sustainability credentials of all its development projects, and adopts ISO 14001 accreditation for all relevant assets within its portfolio. Finally, LGP continues to seek significant reductions in waste landfill and energy use, with particular focus on those properties that use the most energy and where the greatest impact and savings can be made.
One clear differentiator between real estate and other investment classes is the potential it offers the manager to proactively drive returns through the active management of individual assets.
Covent Garden: Key details
Initiative: Portfolio acquisition through loan defaultAssets in portfolio: 11Value add to Q3 2011: £3.9 millionNext stage: Redevelopment of offices into strong leasing market in 2012
319 Oxford Street: Key details
Initiative: Planning consent and redevelopmentSale Price: £58 millionProject IRR ungeared: 22.3%Lease length: 15 yearsRental level: New record for Oxford Street retail
25
of value added to clients’ portfolios in 2010
£152m
68000756.indd 23 04/01/2012 11:52
Legal & General Property has emerged from the downturn as one of the fastest-growing property investment managers in the UK, successfully launching more new vehicles in response to client needs and market opportunities than any other manager.
Culture of innovation.
Cambridge Science Park, Cambridge
LEGAL & GENERAL PROPERTY CULTURE OF INNOVATION
68000756.indd 24 04/01/2012 11:52
Legal & General Property has emerged from the downturn as one of the fastest-growing property investment managers in the UK, successfully launching more new vehicles in response to client needs and market opportunities than any other manager.
“ Over the past few years, LGP has led the market in responding to clients’ requirements with creativity and innovation. We look forward to continuing to push the boundaries, evolving new solutions to changing market conditions for our valued partners.”
Charles Walker – Director of Business Development Legal & General Property
27
68000756.indd 25 04/01/2012 11:52
Major refurbishment: 50 Pall Mall, London
LEGAL & GENERAL PROPERTY CULTURE OF INNOVATION
68000756.indd 26 04/01/2012 11:52
Lookingforward,LGPseesopportunitiesforitsclients and partners in:1. Structuring solutions for over-leveraged legacy
transactionsonbankbalancesheets.2. SecuringopportunitiesthroughacquiringREITs
and unlisted funds.3. Portfolioacquisitionsandsiteassemblyin
central London and other economically-robust UK regional cities.
4. Arbitrage over long-dated, fixed-income alternatives in a Solvency II environment.
5. Using derivatives to provide synthetic exposure to real estate returns, or hedge unwanted elements of portfolio beta.
6. Coalescing balanced portfolios with superior sustainability characteristics to generate outperformance.
Legal&GeneralProperty’sclearmarketdifferentiator is its innovation. Not innovation forinnovation’ssake,butcreativeinnovationthat enables its clients and partners to secure opportunities and returns that would otherwise not be open to them.
Recent examples include LGP’s UK Property Income Fund, launched in 2010 and the first fund in the real estate investment management industry to employ a pioneering structure that offered investors a choice of gearing levels, between 0% and 50%. The fund also benefited from an array of innovative corporate governance mechanisms, setting new standards in manager alignment.
In the same twelve-month period, LGP also launched the Limited Price Inflation (LPI) Income Property Fund, which was specifically structured to match clients’ liability-matching requirements using UK real estate. The fund offers investors a real estate backed alternative to index-linked gilts, providing long-dated income streams from predominantly government and public sector sources that rise annually with LPI (RPI between 0% and 5%).
Demand from investment consultants and LGIM’s clients led LGP to launch the first property fund specifically designed for Defined Contribution pension scheme clients in 2011 – the Hybrid Property Fund, using both global listed property securities and direct property to access a diversified pool of over £1.7bn in underlying holdings.
“ A major focus of innovation is structuring funds and partnerships that provide the alignment and market-leading corporate governance that our investors require.”
Katherine Laurenson – Senior Legal Counsel Legal & General Property
Griffon Studios, Imperial College London
29
68000756.indd 27 04/01/2012 11:52
CoNtaCt US
+44 (0)203 124 2799
www.lgim.com/property
Legal & General Property One Coleman Street, London EC2R 5AA Registered in England No.166055 Registered office: One Coleman Street, London EC2R 5AA
IMPortaNt INforMatIoN
All funds are managed by Legal & General Property on behalf of internal and external clients of Legal & General. The views expressed in this brochure are those of Legal & General Property, who may or may not have acted upon them. Unless otherwise stated all data is as at end September 2011.
Legal & General Investment Management Limited, One Coleman Street, London, EC2R 5AA. Authorised and regulated by the Financial Services Authority.
© Legal & General Property Ltd. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means including photocopying and recording without the written permission of the publishers.
The Rolls Building, Fetter Lane: Key details
Initiative: Purchase of freehold, providing long-dated inflation-linked government incomeAsset: Prime Offices and CourtsLocation: Centre of London’s legal district Tenant: HM Government and Weil Gotshall MangesAnalysis: Covenant rated by LGIM fixed income researchLease terms: 30 years on government income with RPI linkagePurchase price: In excess of £300 million
30LEGAL & GENERAL PROPERTY CULTURE OF INNOVATION
68000756.indd 28 04/01/2012 11:52
