Changing Retail: A Fund's View Overgate Shopping Centre, Dundee - PowerPoint PPT Presentation

1 MAY 2016 PROPERTY MANAGERS ASSOCIATION Changing Retail: A Fund's View Overgate Shopping Centre, Dundee Mark Harvey - Senior Asset Manager, Managed Fund 020 3124 2754 Neil Crawford - Head of Retail and Leisure Development 020 3124 2796

2 MAY 2016 PROPERTY MANAGERS ASSOCIATION Agenda 1. Changes in the retail world 2. How has L&G’s portfolio been influenced? 3. How has our thinking changed? 4. What next: how will we respond going forwards?

3 MAY 2016 PROPERTY MANAGERS ASSOCIATION You don’t need us to tell you that retail is challenging! • Rising wage costs • Discounting and deflation • Investment in technology • Economics of ecommerce • Business rates • Black Friday • Millennials and Generation Y • Unwieldy store estates • The Weather….

4 MAY 2016 PROPERTY MANAGERS ASSOCIATION How do we know what is coming next? Source: Google Trends, Strutt and Parker

5 MAY 2016 PROPERTY MANAGERS ASSOCIATION Just look at how delivery is changing The continued evolution of ‘click and collect’

6 MAY 2016 PROPERTY MANAGERS ASSOCIATION The future is….now! VR pop up shop in Old Retailers and manufactures such as Audi are Street station already adopting this technology Source: Real Assets, Audi

7 MAY 2016 PROPERTY MANAGERS ASSOCIATION What does retail look like from our perspective? • Shortening leases/break options • Monthly rents • Covenant risk/administrations = Bearish sentiment • Depreciation/obsolescence = Lower forecast returns • Over-renting • Structural challenges • Too much retail space in UK • Portfolio rationalisation

8 MAY 2016 PROPERTY MANAGERS ASSOCIATION LGP house view, H1 2016 NB: These forecast are prepared by LGIM Real Asset Research using an internally developed proprietary model as at 27/2/16. These forecasts should not be relied upon as an indicator of future performance.

9 MAY 2016 PROPERTY MANAGERS ASSOCIATION So why do we do it? We like property because: • Stable income streams And because averages hide a wide • Asset management angles divergence in performance • Diversification benefits • Inflation linkage (sometimes) And we like retail assets because: • Retail key part of economy • Dynamic market - new formats and entrants • Role in regeneration/mixed use • Structural challenges can be worked through

10 MAY 2016 PROPERTY MANAGERS ASSOCIATION Retail and leisure assets are still a core part of our portfolio 2005: total holdings £8.8bn 2015: total holdings £10.3bn Source: Real Assets, MSCI Note: excludes long income funds, which have a high weighting to Other

11 MAY 2016 PROPERTY MANAGERS ASSOCIATION We are convictional on the regional markets Breakdown by total 2008 2015 retail AUM (%) 0% to 2% 3% to 5% 6% to 8% 9% to 10% 11% to 15% 16% to 20% 20% + Central Central London London Source: Real Assets (as at Q4 2015)

12 MAY 2016 PROPERTY MANAGERS ASSOCIATION Sector synergies: £39m of contracted rent and counting Retailers in our industrial space Leisure operators in our industrial space

13 MAY 2016 PROPERTY MANAGERS ASSOCIATION PROPERTY MANAGERS ASSOCIATION We continue to be net purchasers of retail and leisure Net expenditure (£ million) Source: LGIM Real Assets

14 MAY 2016 PROPERTY MANAGERS ASSOCIATION Notable recent purchases and sales Purchases Sales House of Fraser, Birmingham Umbra portfolio Birstall Retail Park Leeds Middlesbrough Mayfly Portfolio Grafton Centre, Cambridge Walsall Huddersfield

15 MAY 2016 PROPERTY MANAGERS ASSOCIATION Wrong turns can cost time and money! 22-23 High Street, Watford TJ Hughes unit (administration) Unit split and re-let Source: LGIM Real Assets

16 MAY 2016 PROPERTY MANAGERS ASSOCIATION So what do we own now? Source: Real Assets, as at March 2016

17 MAY 2016 PROPERTY MANAGERS ASSOCIATION We are changing how we think about retail property Service or experience Collection/return points Distribution hubs Showrooms Functional convenience Leisure parks Shopping Unit shops Retail parks Solus units centres Source: LGIM Real Assets

18 MAY 2016 PROPERTY MANAGERS ASSOCIATION PROPERTY MANAGERS ASSOCIATION Why, what and where next? Reward Development  In-town regeneration  Leisure extensions in shopping centres  Mixed use schemes, with residential Regional resilience  Prime regional high streets  Dominant asset s(core & non-core locations) Robust  Sector synergies (e.g. leisure in sheds)  Transport hubs income  Dominant bulky retail parks  Retail parks within M25 with residential conversion potential  E-commerce assets  Annuity-style income product Risk Source: LGIM Real Assets

19 MAY 2016 PROPERTY MANAGERS ASSOCIATION It’s a tricky job trying to manage 19 pots of money LEGAL & GENERAL INVESTMENT MANAGEMENT BALANCED FUNDS SEGREGATED MANDATES SPECIALIST POOLED FUNDS JOINT VENTURES Industrial Bishopsgate Central Saint Managed Property Long Term UK Property Annuity Life Fund Giles Fund (PAIF) Portfolio Investment Fund Limited Fund Partnership Fund (IPIF) Partnership Bracknell Vantage Limited Price Regeneration London Linked Linked Life Inflation (LPI) BMW Leisure Fund Partnership Pensions Limited Income Fund (BRP) Partnership Arlington UK Property UK Property Shareholder Business Parks English Cities Income Fund Income Fund II Partnership Fund Fund (ECF) (UK PIF) (UK PIF II) (ABPP) Source: LGIM Real Assets

20 MAY 2016 PROPERTY MANAGERS ASSOCIATION What are we doing to be a better landlord?  Keep control of costs  Retailer v landlords – no longer the adversarial relationship of old (in most cases..!)  L&G has added more market- facing Asset Managers (we’ve even got two former retailers)  Retailer Relationship Framework  Increased retailer meetings: 200+ in 2015  Drinks and networking events  = PMA Award [thanks!]  But there is more to be done…

21 MAY 2016 PROPERTY MANAGERS ASSOCIATION In the meantime….. Results from our 2016 Tenant Survey Question Response We provide swift feedback 70% agree We are a proactive landlord 65% agree Your relationship with us has improved 65% agree Would like to hear more about us 60% agree We meet frequently with you 60% agree Source: LGIM Real Assets

22 MAY 2016 PROPERTY MANAGERS ASSOCIATION But there is always room for improvement Survey feedback: • “…ask us directly what you can do to help improve our trading and operational performance…” • “….quicker responses and decision making…” • “....paperless billing…” • “….more detail on scheme performance (L4Ls, turnover) so we can benchmark ourselves…” • “…more networking functions and clearer visibility on strategy across portfolios…” And finally… • “…annual rent reductions!” • “…leave London to visit us every now and then.”

23 MAY 2016 PROPERTY MANAGERS ASSOCIATION What’s keeping us awake at night? Landlord perspective Tenant perspective • Millennial relationship management • Over to you! - Investment in infrastructure? • Shrinking margins and job losses - Investment in technology? • Lease accounting changes - Economics of online? • Difficult voids - Deflation and cost headwinds? • Pitch shift and locational obsolescence - NLW becoming NMW? • Sustainability - Millennials and anti-branding? - Buying your own freeholds? • Changing demographics

24 PROPERTY MANAGERS ASSOCIATION MAY 2016 We want to do more deals with you! NEIL CRAWFORD, MRICS Head of Retail & Leisure Development

25 PROPERTY MANAGERS ASSOCIATION MAY 2016 Bracknell “The Lexicon”

26 PROPERTY MANAGERS ASSOCIATION MAY 2016 Bracknell – “The Lexicon”  A comprehensive redevelopment of Bracknell town centre, comprising 570,000 sq ft of new build retail and leisure accommodation  Main tenants include Fenwick, M&S, Cineworld, Primark, H&M, Next, Arcadia  Started January 2015  Anticipated opening spring 2017  GDV: £246M

27 PROPERTY MANAGERS ASSOCIATION MAY 2016 Thorpe Park, Leeds

28 PROPERTY MANAGERS ASSOCIATION MAY 2016 Thorpe Park, Leeds  Joint venture partnership with Scarborough  Next, M&S, Arcadia, TK Maxx, H&M, Boots Group and Pure Gym  Mixed-use master plan containing new retail,  Cinema offers received and being reviewed  Very strong interest from catering market leisure, offices, houses, public spaces and  Anticipated start ‘16, opening Autumn ‘18 infrastructure over a 200 acre site  New retail and leisure scheme comprising  GDV: £119m 270,000 sq ft of retail and leisure accommodation

29 REAL ASSETS RETAIL & LEISURE OFFSITE Arndale Centre, Eastbourne

30 PROPERTY MANAGERS ASSOCIATION MAY 2016 Arndale Centre, Eastbourne  New retail and leisure extension to the existing Arndale Centre  Current footfall of circa 17 million  180 sq ft of new space, over 3 levels  9 screen cinema, 9 restaurants, 25 retail units  New covered mall linking into new public realm  Main tenants: Cineworld, H&M, Next, Carluccios and Byron Burger  Anticipated start: late summer 2016  Anticipated opening: spring / summer 2018  GDV: £113m (extension)