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

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

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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

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Mark Harvey - Senior Asset Manager, Managed Fund 020 3124 2754 Neil Crawford - Head of Retail and Leisure Development 020 3124 2796

Changing Retail: A Fund's View

MAY 2016 1 PROPERTY MANAGERS ASSOCIATION

Overgate Shopping Centre, Dundee

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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?

MAY 2016 2 PROPERTY MANAGERS ASSOCIATION

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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….

MAY 2016 3 PROPERTY MANAGERS ASSOCIATION

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How do we know what is coming next?

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Source: Google Trends, Strutt and Parker

PROPERTY MANAGERS ASSOCIATION MAY 2016

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Just look at how delivery is changing

5 PROPERTY MANAGERS ASSOCIATION MAY 2016

The continued evolution of ‘click and collect’

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The future is….now!

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VR pop up shop in Old Street station Retailers and manufactures such as Audi are already adopting this technology

Source: Real Assets, Audi

PROPERTY MANAGERS ASSOCIATION MAY 2016

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What does retail look like from our perspective?

  • Shortening leases/break options
  • Monthly rents
  • Covenant risk/administrations
  • Depreciation/obsolescence
  • Over-renting
  • Structural challenges
  • Too much retail space in UK
  • Portfolio rationalisation

MAY 2016 7 PROPERTY MANAGERS ASSOCIATION

= Bearish sentiment = Lower forecast returns

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SLIDE 8

LGP house view, H1 2016

MAY 2016 8 PROPERTY MANAGERS ASSOCIATION

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.

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So why do we do it?

We like property because:

  • Stable income streams
  • Asset management angles
  • 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

MAY 2016 9 PROPERTY MANAGERS ASSOCIATION

And because averages hide a wide divergence in performance

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SLIDE 10

Retail and leisure assets are still a core part of our portfolio

2005: total holdings £8.8bn 2015: total holdings £10.3bn

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Source: Real Assets, MSCI Note: excludes long income funds, which have a high weighting to Other

PROPERTY MANAGERS ASSOCIATION MAY 2016

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SLIDE 11

We are convictional on the regional markets

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Source: Real Assets (as at Q4 2015)

Breakdown by total retail AUM (%)

PROPERTY MANAGERS ASSOCIATION

0% to 2% 3% to 5% 6% to 8% 9% to 10% 11% to 15% 16% to 20% 20% +

2008 2015

Central London Central London

MAY 2016

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Sector synergies: £39m of contracted rent and counting

Retailers in our industrial space Leisure operators in our industrial space

12 PROPERTY MANAGERS ASSOCIATION MAY 2016

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We continue to be net purchasers of retail and leisure

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Source: LGIM Real Assets

PROPERTY MANAGERS ASSOCIATION

Net expenditure (£ million)

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Notable recent purchases and sales

14 MAY 2016 PROPERTY MANAGERS ASSOCIATION

Purchases Sales

Birstall Retail Park Leeds Mayfly Portfolio Grafton Centre, Cambridge Middlesbrough Walsall Huddersfield House of Fraser, Birmingham Umbra portfolio

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Wrong turns can cost time and money!

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Source: LGIM Real Assets

TJ Hughes unit (administration) Unit split and re-let 22-23 High Street, Watford

PROPERTY MANAGERS ASSOCIATION MAY 2016

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So what do we own now?

PROPERTY MANAGERS ASSOCIATION MAY 2016

Source: Real Assets, as at March 2016

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We are changing how we think about retail property

Leisure parks Shopping centres Unit shops Retail parks Solus units Showrooms Distribution hubs Collection/return points Service or experience Functional convenience

PROPERTY MANAGERS ASSOCIATION MAY 2016

Source: LGIM Real Assets

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Why, what and where next?

18 PROPERTY MANAGERS ASSOCIATION MAY 2016

Source: LGIM Real Assets

Risk Reward Development Robust income Regional resilience

  • Prime regional high streets
  • Dominant asset s(core & non-core locations)
  • Sector synergies (e.g. leisure in sheds)
  • Transport hubs
  • Dominant bulky retail parks
  • Retail parks within M25 with residential

conversion potential

  • E-commerce assets
  • Annuity-style income product
  • In-town regeneration
  • Leisure extensions in shopping centres
  • Mixed use schemes, with residential

PROPERTY MANAGERS ASSOCIATION

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19

LEGAL & GENERAL INVESTMENT MANAGEMENT

It’s a tricky job trying to manage 19 pots of money

Central Saint Giles Partnership Bracknell Regeneration Partnership (BRP) Industrial Property Investment Fund (IPIF) Arlington Business Parks Partnership (ABPP) English Cities Fund (ECF) Leisure Fund BMW Annuity Portfolio Shareholder Fund Life Fund Linked Pensions Managed Fund Linked Life UK Property Fund (PAIF) Limited Price Inflation (LPI) Income Fund UK Property Income Fund (UK PIF) UK Property Income Fund II (UK PIF II)

BALANCED FUNDS JOINT VENTURES SPECIALIST POOLED FUNDS SEGREGATED MANDATES

Bishopsgate Long Term Fund Limited Partnership Vantage London Limited Partnership MAY 2016 PROPERTY MANAGERS ASSOCIATION

Source: LGIM Real Assets

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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…

MAY 2016 20 PROPERTY MANAGERS ASSOCIATION

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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

21 PROPERTY MANAGERS ASSOCIATION MAY 2016

Source: LGIM Real Assets

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But there is always room for improvement

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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.”

PROPERTY MANAGERS ASSOCIATION MAY 2016

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What’s keeping us awake at night?

Landlord perspective

  • Millennial relationship management
  • Shrinking margins and job losses
  • Lease accounting changes
  • Difficult voids
  • Pitch shift and locational obsolescence
  • Sustainability
  • Changing demographics

Tenant perspective

  • Over to you!
  • Investment in infrastructure?
  • Investment in technology?
  • Economics of online?
  • Deflation and cost headwinds?
  • NLW becoming NMW?
  • Millennials and anti-branding?
  • Buying your own freeholds?

23 PROPERTY MANAGERS ASSOCIATION MAY 2016

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We want to do more deals with you!

NEIL CRAWFORD, MRICS Head of Retail & Leisure Development

24 PROPERTY MANAGERS ASSOCIATION MAY 2016

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25 MAY 2016 PROPERTY MANAGERS ASSOCIATION

Bracknell “The Lexicon”

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Bracknell – “The Lexicon”

26 PROPERTY MANAGERS ASSOCIATION MAY 2016

  • 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
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Thorpe Park, Leeds

27 MAY 2016 PROPERTY MANAGERS ASSOCIATION

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28 PROPERTY MANAGERS ASSOCIATION MAY 2016

Thorpe Park, Leeds

  • Joint venture partnership with Scarborough

Group

  • Mixed-use master plan containing new retail,

leisure, offices, houses, public spaces and infrastructure over a 200 acre site

  • New retail and leisure scheme comprising

270,000 sq ft of retail and leisure accommodation

  • Next, M&S, Arcadia, TK Maxx, H&M, Boots

and Pure Gym

  • Cinema offers received and being reviewed
  • Very strong interest from catering market
  • Anticipated start ‘16, opening Autumn ‘18
  • GDV: £119m
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Arndale Centre, Eastbourne

29 REAL ASSETS RETAIL & LEISURE OFFSITE

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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)
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Asset repositioning

  • Remodelling and refurbishment of existing

shopping centres:

  • Grosvenor Centre, Northampton
  • Dolphin Centre, Poole
  • Grafton Centre, Cambridge
  • Creating better environments
  • Modern, bright architecture / environments
  • Better sightlines
  • Driving footfall
  • Encouraging dwell time
  • Introducing more catering and leisure

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Grafton Centre, Cambridge

REAL ASSETS RETAIL & LEISURE OFFSITE

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LGP development strategy

32 PROPERTY MANAGERS ASSOCIATION MAY 2016

  • Judge each case on its own merits
  • Focus on good quality locations
  • Opportunities to:-
  • Bridge trading gaps
  • Meet the needs of the catchment
  • Modern, bright architecture / environments
  • Better sightlines
  • Drive footfall and encourage dwell time
  • Introduce more catering and leisure
  • Larger units, free of columns,
  • Tall, glazed shop fronts to improve visibility
  • Provide mix use developments
  • Large-scale investments / repositioning results is

a catalyst for further development / regeneration

Bournemouth

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Come and talk to us!

33 REAL ASSETS RETAIL & LEISURE OFFSITE

Mark Harvey Senior Asset Manager 020 3124 2754 07525 679036 mark.harvey@lgim.com Neil Crawford Head of Retail & Leisure Development 020 3124 2796 07718 395304 neil.crawford@lgim.com