Legal & General Property (LGP) is looking to raise £300m in senior debt from two lenders to finance the leveraged component for the UK property fund manager’s successor UK Property Income Fund (PIF).
PIF II – like the inaugural fund with a gross, fully invested value of £475m – will be a UK core-plus fund which allows investors to individually customise their own leverage appetite.
LGP has begun the search for two lenders to provide a committed senior financing of £300m from likely two lenders for either five or seven years.
Phil Bayliss, business development manager at LGP, is leading the financing process, for which the timetable is to assemble a shortlist of prospective senior debt providers by mid-April, with committed lenders in place and terms signed by end of May, aligned with a likely first equity close for PIF II of circa £150m in early June.
PIF II would draw down the senior debt incrementally as deals are secured and according to the varying leverage of the fund’s underlying investors.
LGP will have a two-year investment period from when the equity is raised, with a series of staggered closings until the expected final closing in June 2014, for which the target is £500m.
PIF II will seek investments in core to core-plus properties outside prime central London and throughout the UK, with internal rates of return (IRR) targets net of fees varying from 8% to 14%, depending on the level of leverage investors apply from zero to 50%.
PIK II will invest in assets with investment grade tenants with asset management angles, with income likely a strong component of every deal’s total return.
Senior debt pricing, therefore, is likely to come in around the 275 to 300 basis points over three-month LIBOR, based on the asset profile the fund will target.
The predecessor UK PIF fund’s senior debt consists of a legacy £112.5m legacy Eurohypo facility, which was supplemented last month with a £52m senior debt facility and an £11m capex facility from Santander.
Eurohypo’s facility, arranged in March 2010, was around 165 bps, while last month’s Santander senior facility was priced at around 300 bps, while the £11m capex facility is at 400 bps.
The Santander add-on facility financed PIF I’s final acquisition, the 48-strong trade parks FIX Portfolio for £115.9m from a consortium of investors represented by Paradigm Real Estate Managers.
Since its launch in March 2010, PIF I has acquired a string of core-plus assets worth a combined £313m, including: City Place in Gatwick; St George’s House in Croydon; the Meadows Shopping Centre in Chelmsford; Fremlin Walk Shopping Centre in Maidstone; Guildford Business Park in Guildford; and the Co-op distribution centre in Andover.
UK PIF’s final equity close was at the end of 2011, having secured a total of £300m of equity from 14 major international institutional investors based in the Middle East, Denmark, UK, France, Finland, Switzerland and Japan.
LGP intends to secure equity commitments from an even broader global investor base for the successor fund, as the UK property fund manager seeks to deepen its underlying investor universe worldwide.
