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Transcript of Legal & general investments
Matt Jarvis - Fund Manager
CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDSMarch 2013
Legal & General UK Property Trust
This is not a consumer advertisement. It is intended for professional financial advisers and should not be relied uponby private investors or any other persons.
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
2CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
UK Commercial Property MarketOccupational markets and forecasts
For a choice of other images – pleasesee the Presentation divider slide
presentation available from the LGIMmenu
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
3CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Source: IPD UK Monthly Index
IPD All Property Return - 1 month
Capital values declining for secondary stock and short income
-6
-4
-2
0
2
4
Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12
%, 1
Mon
th
Rental Growth Yield Impact Total return
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
4CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Some easing in commercial real estate credit conditions
Commercial Property Lending Standards(positive indicates easing)
-100-80-60-40-20
02040
Nov-02
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Nov-11
Nov-12
ba
lanc
e of
resp
ond
ents
ea
sing
less
thos
etig
hten
ing
Uk Past 3 mthsUK Next 3 mthsUS Past 3 mths
Source: Bank of England, Federal Reserve
• Lending standards easing
• New originators- Debt funds
- US / emerging market banks
- Insurers
- Non-performing loan specialists
• Regulatory pressure on banks easing- Introduction of slotting being reworked
- Upside surprise on Basel III rules
• But let’s not get ahead of ourselves…
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
5CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Walsall
Croydon
Swansea / Swindon
Doncaster
Hanley
BirminghamWolverhampton
Solihull / Cambridge
PlymouthDerbyNottingham
Glasgow
OxfordNorwich Reading
Stockport
Guildford
Kingston
Preston
BlackpoolIpswich
BournemouthHull
Bradford
Bolton
Sheffield
C. London York
Richmond
Cardiff
Coventry
Liverpool
Shrewsbury
Milton K.
Exeter
Manchester
The wide variation in town centre vacancy rates
% Increase from ’05 low
Latest town centre vacancy rate (%) Source: PMA
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
6CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Office supply
• Overall London office vacancy rates are 5.5% comparedwith a 10yr average of 6.6%
• Equity targeting London will turn to development
• Regionally, overall vacancy remains inflated at 12.6%but selective Grade A shortages
• Regional development very Low: 1.75 million sq ftacross the UK, of which 1 million sq ft is pre-let
• Obsolescence to increase: ‘natural’ rate of vacancystructurally higher?
London:5.5%
WesternCorridor 14.8%
Bristol:11.3%
Cardiff:9.0%
Manchester:10.7%
Leeds:10.1%
Edinburgh:7.3%
Glasgow:11.8%
Birmingham:17.1%
Source: Legal & General Property
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
7CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Supply - Industrial estates and distribution warehouses
• Second hand space increasing, while pockets ofunder supply for the best space
• Construction activity justified for the best andbiggest logistics sheds…
• ….Meanwhile demand looks toward design andbuild
• Yorkshire and Humber ‘unfairly’ inflating UKvacancy rates
ERV in voids as % of ERV: Industrials
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
StandardIndustrials
London Inner SouthEastern
Outer SouthEastern
Rest of UK DistributionWarehouses
%
2012 Q3 2007Q4
Source: Legal & General Property
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
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Legal & General Property central case all property projection – 6% overfive years
-2
0
2
4
6
8
10
2013 2014 2015 2016 2017
Income Rental Growth Yield Impact Depreciation Added Value / Lease Effects Total
Source: Legal & General Property
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
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Value in the derivatives curve?
0
2
4
6
8
10
2013 2014 2015 2016 2017
% pa LGP Jan-13 Derivatives Pricing Jan-13PMA Dec-12 IPF Concensus Nov-12
Source: Legal & General Property / RBS / PMA / IPF
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
10CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Market outlook for 2013
• Risk 1 – Economy disappoints expectations
- Continued focus on lettability / angles which do not rely on market recovery
• Risk 2 – Inflation significantly overshoots
- Index-linked leases
• Risk 3 – Risk free rates rise
- Underweighting ‘bond-style’ assets with limited growth potential
• Risk 4 – UK exit from the EU
- Low probability but high impact risk. Could shock sentiment. Monitor.
• Growing optimism, but little in the way of new development
• Banks maintain an increasingly pro-active stance to exit underperforming loanpositions
• Debt availability easing with UK institutions to play a larger part
• Good assets continue to outperform, due to selective occupiers and investors
• Selective opportunities to buy secondary at deep discounts
Resilience to key risks?
Source: Legal & General Property
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
11CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Legal & General UK Property TrustPerformance and recent activity
For a choice of other images – pleasesee the Presentation divider slide
presentation available from the LGIMmenu
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
12CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Fund profileAs at 31 December 2012Objective: To provide an attractive income yield
and potential for income and capitalgrowth through a diversified portfolioof UK Commercial Property assets
Fund value: £728m in assets
£154m in cash (21%)
No. of direct properties: 64
Av. lease length: 9.3 years
(IPD Universe 10.2 years)
Vacancy rate: 2.1%
(IPD Monthly Index 10.3%)
Property initial yield: 6% (IPD Monthly at 6.32%)
Other assets: 2% REIT holding
0% Derivatives
Sector Weighting
11%
1%
12%
13%
14%13%
2%
6%
22%
4%2%
Retail High Street Retail Shopping CentreOffice - London Office - RegionalIndustrial Retail WarehouseLeisure OtherCash REITSReserved Cash (Developments)
Source: IPD / Legal & General Property
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
13CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Legal & General UK Property Trust:Annualised Performance Over 1, 3 and 5 Years
1.6%
4.6%
-1.6%
2.1%1.5%
7.4% 7.2%
0.8%
-0.5%
0.3%
-0.3%
2.8%
-5%
0%
5%
10%
L&G(1yr)
LipperPeers(1yr)
L&G(3yr)
LipperPeers(3yr)
. L&G(5yr)
LipperPeers(5yr)
. L&G(1yr)
IPD(1yr)
L&G(3yr)
IPD(3yr)
L&G(5yr)
IPD(5yr)
Ann
ualis
ed R
etur
n (%
)
Source: IPD Monthly December 2012Lipper Property IMA December 2012
*Note: Lipper Peers are key comparable UK funds thatprimarily invest directly in UK property assets: mean, annualised.
Past performance is not a guide to future performance, and may not be repeated
Outperformance against Lipper Peers and IPD Monthly
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
14CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Income focus – Ptarmigan distribution warehouse portfolioPortfolio of four distribution warehouses
High income yield of 9.5% – secure tenants, but shorter leases.
• Banbury – adjacent to M40 and Let to DHL for 5 years.
• Birmingham – Nexus – close to M6 let to Corporate Expressfor 5 years.
• Northampton – Brackmills – close to M1 and let to John Lewisfor 5 years.
• Manchester – Stakehill – between M60 and M62 and let toAldi for 3 years.
Source: Legal & General Property
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
15CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Development funding - long RPI or fixed increase leasesGreenwich - Waitrose supermarket funding
• Retail element of a residential development by Galliard Homes
• £15.6m funding of supermarket pre-let to Waitrose for 25 years withannual fixed increases of 2.5% pa.
• Development Funding interest to charge during development at 5%
• Site purchase with payments linked to completion of wider 980 unitresidential scheme fronting Thames (right).
Stirling – Burghmuir Retail Park Development Funding
• Supermarket and retail park development with Stirling DevelopmentAgency
• £18.5m funding of new retail park with A1 planning consent.
• 65% pre-let to Waitrose at £17.50 per sq.ft for 25 years with fixedincreases of 2.5% pa every 5 years. First Waitrose outside ofEdinburgh / Glasgow.
• 25% pre-let to TK Maxx at £20 per sq.ft for a minimum of 10 years.
• Development Funding interest to charge during development at 5.5%.
• Final payments linked to success of letting Unit 3 (10%).Source: Legal & General Property
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
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Future asset management and development opportunities
67 Tufton Street, London SW1
• Located in Victoria within walking distance of Housesof Parliament.
• Let to April 2017 (tenant break) to Secretary of Stateat a rent of £45 per sq.ft, but is only occupied by askeleton staff.
• Opportunity to convert to residential, subject toplanning and vacant possession.
• Purchased in November 2013 for £16 millionreflecting 5.75% Net Initial Yield.
• Development team appointed and plans drawn up fora 22 unit residential scheme.
• Terms agreed in principle with the occupier andadjoining owner.
• Residential market remains attractive for core CentralLondon product from developers and occupiers alike.
Source: Legal & General Property
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
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Summary
• Performance track record remains very strong over 1, 3 and5 years despite growth handicap.
• Success on asset management expected in H1 for 2013.
• Cash position under control despite significant inflows.
• C.20% of all lease income benefits from either fixed or RPIlinked increases.
• Low void level maintained through the life of the fund.
Source: Legal & General Property
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
18CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
AppendixSupporting Slides
For a choice of other images – pleasesee the Presentation divider slide
presentation available from the LGIMmenu
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
19CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Michael BarrieDirector and Lead Fund Manager
Recent Career• Joined Legal & General Property Ltd as Director in
November 2005.• Currently responsible for UK balanced funds with
specific focus as Fund Manager of the UK PropertyTrust.
• Previously a Director with Foreign & Colonial PropertyAsset Management.
• Chartered Surveyor.• Degree in Urban Land Economics from Sheffield
Hallam University and a post graduate Diploma inProperty Investment from Reading University.
Matt JarvisFund Manager
Recent Career• Joined Legal & General Property Ltd as Asset
Manager in November 2004.• Currently responsible for UK Property Trust.• Previously a Commercial Valuer with Jones Lang
LaSalle.• Chartered Surveyor.• Degree in Land Management from Reading University.• Diploma in Property Investment from Cambridge
University.
UK Property Trust
Source: Legal & General Property
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
20CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Diversified property and tenant risk
2.3%MWB Business Exchange Centres Ltd8
4.6%British Airways Plc4
4.7%The Malmaison Hotel (Manchester) Ltd3
2.1%Everything Everywhere Ltd10
2.2%Homebase Ltd9
2.4%Conexant Systems UK Limited7
3.2%National Westminster Bank Plc6
4.0%BMI Healthcare Ltd5
4.6%Amgen Ltd2
8.0%Tesco Stores Ltd1
%Rent
Top 10 Tenants
5.6%Cambridge Science. Pk – Amgen1
2.6%Darlington – Woodlands Hospital6
3.6%Islington – Upper Street3
2.0%Leeds – Whitehall One10
2.2%Manchester – Royal Buildings9
2.3%London – Walter House, Strand8
2.4%Ludlow – Tesco7
2.8%Market Deeping – Tesco5
3.0%Manchester – Malmaison Hotel4
3.7%Hayes – Bulls Bridge I/E2
%WholeFund
Top 10 Properties
Source: Legal & General Property
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
21CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Void management
0
2
4
6
8
10
12
14
End2005
Mid2006
End2006
Mid2007
End2007
Mid2008
End2008
Mid2009
End2009
Mid2010
End2010
Mid2011
End2011
Mid2012
End2012
% pa
IPD Monthly Index Vacancy Rate Fund Vacancy Rate (%)
Source: Legal & General Property/IPD
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
22CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Asset management – other recent highlights
St.Stephen’s Place, Trowbridge
• Purchased in June 2010 as part of CastlePlace Shopping Centre. Attributed price £1m.
• Planning application obtained in Q1 2012 tobuild a leisure park and provide sorely neededfacilities for the town’s residents.
• Seven screen cinema pre-let to Odeon for 25years at £14 per sq.ft. First two rent reviews tobe RPI linked (2%-4%).
• 80 bed hotel pre-let to Premier Inn for 20 yearsminimum at £4,100 per room. Rent reviews toCPI (0%-5%).
• Six family restaurants and a café pod –currently on the market and attracting goodinterest.
• Contractors appointed with PracticalCompletion anticipated Q3 2013.
Source: Legal & General Property
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
23CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
Powerful combination of sector expertise and corporate depth
BMW UK Portfolio
Experienced Fund Team
Real Estate Research Team
RetailShoppingCentres
RetailWarehouses Offices Multi-let
IndustrialsLogistics
Planning,Development
&Transactions
Macro Economic view Corporate Relationships Tenant Credit Analysis
Legal & General Investment Management
Sector Specialists
LeisureDerivatives
andREITS
UK Property Trust Team – Use our platform reach
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
24CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
KEY FACTS
Managing Director: Bill Hughes
Number of Funds: 18
AUM: £10.4bn (US$16.7bn)
Number of Properties: 430
Number of Tenants: c.2200
Total Staff: 81
Note: All information as at Dec 2010
£1,251
£648
£521
£2,292 £2,546
£2,494
Retail
Office
Industrial
Logistics
Other
Cash/Derivs/Unlisted
All Figures in £million
Scotland
3%
North
10%
East
10%
Midlands
11%
South East
29%
London
28%
West
9%
Legal & General Property
7
Entirely UK focussed businessSource: Legal & General Property
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
25CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
• Legal & General Property has a strong and long-termcommitment to sustainability and adopting orinvesting in pioneering solutions. We believe thatthrough the adoption of sustainable practices, we willdeliver enhanced returns to our investors over themedium to long term.
• We are working in partnership with UpstreamStrategies, the UK Green Building Council and theBetter Buildings Partnership to formulate strategies,targets and action plans for the sustainablemanagement of all our property portfolios.
• We understand that each of our properties hassocial, economic and environmental effects on thecommunity in which it is built. We aim to understandthis triple bottom line of sustainability through trainingall staff in the fundamentals of Sustainability in RealEstate Investment.
Sustainability commitment
Source: Legal & General Property
March 2013 CITYWIRE WEALTH MANAGER CONFERENCE ANDAWARDS
26CITYWIRE WEALTH MANAGER CONFERENCE AND AWARDS
DisclaimerImportant information
This presentation, and any information it contains, has been produced for use by professional investors andfinancial advisers only and should not be distributed without the permission of Legal & General (Unit TrustManagers) Limited.
Legal & General UK Property Trust is an authorised unit trust, managed by Legal & General (Unit TrustManagers) Limited. Unit Trust funds are managed by Legal & General Property on behalf of internal andexternal clients of Legal & General.
The Fund is designed to be held for the medium to long term of at least five years.
The value of property is generally a matter of valuer’s opinion rather than fact. Details of the specific andgeneral risks associated with the fund mentioned are contained within the Key Investor Information Document.
The risks associated with the Fund are set out in the Prospectus and this should be understood before makingany investment decisions. Additional information in relation to the Risk Management process is available onrequest. A copy of the Prospectus can be obtained from: Legal & General (Unit Trust Managers) Limited.
The value of investments and any income from them can fall as well as rise and is not guaranteed andinvestors may get back less than they invest. The views expressed within this document are those of Legal &General Investment Management Limited, who may or may not have acted upon them. Past performance isnot a guide to future performance.
Issued by Legal & General (Unit Trust Managers) Limited. This document should not be taken as an invitationto deal in Legal & General investments or any of the stated investments.