Income attracts investors to back L&G’s sequel to UK PIF

Wells Fargo and Santander provide debt to take initial firepower to £224m

Legal & General Property launched a follow-on UK Property Income Fund last week with £138m of equity, plus debt from Wells Fargo and Santander.

Seven pension funds, including the Royal Mail’s, committed equity at the first closing, which, with debt, gives the fund an initial £224m to invest. Four of the pension funds are repeat investors.

A second closing is planned before the end of the year and the target gross asset value is larger than the first fund’s, at £750m, capped at £1bn.

Like fund 1, UK PIF II allows investors to choose their preferred level of gearing, with loan-to-value levels ranging from zero to 50%.

Fund 1, which bought £430m of property and made its last investment in February, is returning just over 7% income distribution to ungeared investors and about 9% to geared ones.

Charlie Walker, director of business development and fund manager for both vehicles, said: “Investors recognised that the investment timing for Fund 1 was excellent and we bought 9-10 year income at 8% gross yields on cost.

“The timing is still good but the income strategy is what’s really resonating with investors.” Both funds invest in big assets, typically of at least £50m-£60m up to just over £100m, “for the illiquidity discount available on those lot sizes”, Walker said.

Fund 1’s assets, which include shopping centres Fremlin Walk in Maidstone and The Meadows in Chelmsford, and Guildford Business Park, are all in the south east.

Walker said Fund II would “broaden the focus beyond the south east to include more regional assets, because of the recovery prospects”.

Wells Fargo and Santander provided a seven-year loan, matching the fund’s life. Wells Fargo is the lead agent. Both banks also lent on UK PIF 1, Wells Fargo in its former guise as Eurohypo.

Cushman & Wakefield Corporate Finance is placement agent for UK PIF II.