LGP and PGGM bag Bishopsgate Unit Trust for €473m

Legal & General Property (LGP) and Dutch pension fund manager PGGM have acquired the Bishopsgate Long Term Property Fund Unit Trust for around £370 mln (€473 mln) following a competitive bidding process.

The acquisition reflects a net initial yield of 6%.

The Bishopsgate trust holds a portfolio of 24 commercial properties located across the UK, including two prime London offices in Covent Garden and Kensington. Nearly 60% of the assets by value are located in London and the South, with the remaining 40% located in major regional cities such as Manchester, Cardiff, Leeds and Glasgow. The assets generate a passing rent of £22 mln and have a 2.3% vacancy rate.

The portfolio has 159 tenants and an average weighted unexpired lease term of 9.3 years. It will be held as a Jersey Limited Partnership, with PGGM and LGC acting as limited partners and LGP acting as the fund manager.

The investment plan is to target a strong return through a strategy of optimising property level business plans, while also integrating material environmental, social and governance (ESG) aspects throughout the portfolio, and realising strong ESG performance.

LGP and PGGM said a moderate level of gearing will be introduced to the portfolio which previously held no debt. Legal & General Capital has already provided a £142 mln facility to the joint venture, reflecting a 40% loan-to-value ratio.

The two partners plan to add value to the assets by integrating environmental, social and governance (ESG) aspects throughout the portfolio.

Mathieu Elshout, senior investment manager at PGGM, commented: ‘The portfolio comprises well located, high quality UK assets, with significant opportunities to add value and to enhance the income return through asset management initiatives.’

Laura Mason, director of direct investments at Legal & General Capital, said: ‘This investment demonstrates our continued commitment to opportunistically seeking out direct investments that provide our shareholders with strong risk-adjusted returns whilst utilising our broad capabilities and strong customer franchise. We believe that our partnership with PGGM and LGP is backed not only by like-minded investors, but high quality assets and a roadmap to achieving value.’

Knight Frank acted for LGP, while CBRE Capital Advisors represented the vendor.

For more on the prospects for the UK real estate market, see the article and video interviews from our Outlook 2015: Europe/UK & Asia Capital Flows investment briefing.