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L&G, PGGM team up for £370m fund buy

The UK insurer and Dutch pension manager have acquired a 24-asset UK portfolio in an all-cash deal.

Legal & General Property, the property investment management arm of UK insurer Legal & General, has teamed up with Dutch pension manager PGGM to buy a fund in the UK for £370 million (E470 million; $561 million), the partners announced today.

L&G Property, which operates as part of the insurer’s investment arm L&G Capital, and PGGM acquired the Bishopsgate Long Term Property Fund Unit Trust via an auction process. The investment reflects a yield of 6 percent.

Going forward, PGGM and L&G Capital will act as the limited partners with L&G Property serving as the fund’s manager.

The pair said in the announcement that their investment plan for the fund was to target a strong return via a strategy of “optimizing property level business plans, while also integrating material environmental, social and governance aspects throughout the portfolio, and realizing strong ESG performance.”

The portfolio of the trust comprises 24 properties across the UK, with a combined floor space of more than 1.54 million square feet. It includes two prime offices in London, one in Convent Garden and the other in Kensington. The wider portfolio has a strong bias towards London and the south of the UK with only 40 percent of the assets by value located outside. They benefit from a low 2.3 percent vacancy rate with an average unexpired lease term of 9.3 years. The assets house 159 tenants.

L&G Property added that a “moderate level of gearing” would be introduced to the portfolio where previously there was no debt. That finance has come from L&G Capital via a £142 million facility. The portfolio, at its September valuation, had a 40 percent loan to value ratio.

Mathieu Elshout, senior investment manager at PGGM said the portfolio offered it an opportunity to add value and enhance returns through active asset management. Of its investment partner, he said: “Strongly aligned in our investment goals, as part of this, we share a belief with L&G that ESG factors have a material impact on the financial performance of our real estate portfolios and that it is our responsibility to capture the value and mitigate the risks related to these by planning in advance and leading the way in sourcing cutting edge solutions.” He suggested the pair could make more investments following this fund acquisition.

Michael Barrie, a director at L&G Property, said: “We believe that our success in securing this investment came down to the certainty and speed of execution that we could offer the vendor, based on our proven ability to handle complex transactions in a short time period, quality of capital, with an all cash offer, and high standards of confidentiality.

Knight Frank and CBRE Capital Advisors advised on the transaction.