Property news. - Legal & General Investment Management

WINTER 2013
LEGAL & GENERAL PROPERTY NEWSLETTER
Property news.
NEST selects Legal & General to provide
access to real estate
NEST (National Employment Savings Trust) has awarded L&G all three of its real estate mandates,
forming its first investment into commercial property. Reinforcing Legal & General Property’s continued
leadership in the Defined Contributions (DC) market, this represents the most significant mandate
awarded to a property fund manager in recent years.
Inside:
Pg 2: Nest selects L&G to provide access to real estate
Pg 3: UK PIF II reaches first close
Pg 4: PUT celebrates £1bn milestone
Pg 5: IPIF merges with Falcon
Pg 6: Leisure Fund raises £70m
Pg 7: LGP are one of the most active investors in market
Pg 8: LGP nears completeion of St Stephen s Place Leisure Park, Trowbridge
Pg 9: LGP wins industry awards
Pg 10 Sustainability spotlight

WINTER 2013
LEGAL & GENERAL PROPERTY NEWSLETTER
Continued from cover
“NEST is an industry leading platform
and likely to be one of the most
significant participants in the UK
pensions industry over the next decade.”
With an allocation of 20%, this will make-up a
sizeable portion of NEST’s default allocation,
investing on behalf of NEST Retirement Date
Funds, as well as the NEST Higher Risk Fund and
NEST Ethical Fund options. Additionally, with
NEST forecast to reach £150bn total AUM by 2030
in time, this could be the most significant mandate
awarded to a property fund manager in recent
history.
NEST will invest through Legal & General’s Hybrid
Property Fund, which launched in 2011 and offers
Defined Contribution (DC) pension schemes with a
new and innovative way to access property funds
while also managing volatility and liquidity. The
Hybrid Fund invests in LGP’s UK balanced fund,
the Managed Property Fund, and LGIM’s Global
Real Estate Equity Index tracker fund on a default
position split of 70:30, respectively.
The combination of UK direct and global indirect
funds provides greater diversification and liquidity,
while reducing fund expenses and the entry and
exit costs typically associated with direct property
investment.
Furthermore, the Ethical Fund mandate was
awarded owing to NEST recognising that LGP is
at the cutting edge of integrating environmental
sustainability into its direct real estate investment
strategy, understanding the ever-increasing
importance of sustainability in real estate
construction and management in terms of
generating long-term value for investors.
Announcing the appointment, Mark Fawcett, chief
investment officer at NEST, said: “Legal & General
was chosen because it delivers on our demanding
requirements for excellence in investment processes
and philosophy, high quality risk management and a
comprehensive integration of environmental, social
and governance (ESG) factors. These elements give
us confidence that we will continue to deliver strong
and sustainable performance for NEST members.”
Bill Hughes, Managing Director of Legal & General
Property, commented: “NEST is an industry-leading
platform and likely to be one of the most significant
participants in the UK pensions industry over the
next decade, therefore we see this strategic decision
to include property within its key building blocks as a
major step forward for commercial real estate within
the new world of DC pensions and a significant
endorsement of the Hybrid Property Fund.
“Offering an innovative and bespoke solution for
DC schemes, our Hybrid Fund is unique in enabling
this growing market to gain access to property
market returns, whilst also providing enhanced
diversification and liquidity. The award of the
Ethical Fund mandate also supports the importance
we place on fully integrating environmental
sustainability into our investment strategy process in
order to generate long-term value for our investors.”
“Legal & General
was chosen because
it delivers on our
demanding requirements
for excellence in
investment processes and
philosophy, high quality
risk management and a
comprehensive integration
of environmental, social
and governance (ESG)
factors.”
G r e e n S t a r 2 0 1 3
The Managed Property Fund was awarded a
GRESB Green star for sustainability in 2013
Agar Street, London, redeveloped
by the Managed Fund

WINTER 2013 LEGAL & GENERAL PROPERTY NEWSLETTER 3
UK Property
Income Fund II
reaches first close.
Representing the largest first close
achieved yet this year for a UK-focused
fund, UK PIF II secures £138m.
Co op Distribution unit in Andover, owned by UK PIF I
LGP has successfully reached the first close of
its second UK Property Income Fund (UK PIF II).
Signifying the largest first close achieved yet this
year for a UK-focused fund (according to Prequin),
UK PIF II has secured over £138m from seven
investors, giving it a Gross Asset Value (GAV) of
c.£224m when including gearing.
Drawing on the proven track record of UK PIF I,
subscriptions for UK PIF II came from institutions
based in the UK, Nordics and Middle East, four
of which invested in the first fund. With a strong
pipeline of investor interest, the Fund is targeting a
£750m GAV and is capped at a GAV of £1bn.
Providing a unique solution to wide ranging
international leverage appetites, it will retain the
proven fund structure of UK PIF I, which offers
investors the ability to choose their preferred level
of gearing between 0% and 50% LTV. The Fund will
target opportunities that are expected to achieve a
net IRR of 8-9% (ungeared) or 12-14% (geared). As
with UK PIF I, it will deliver a core/core-plus risk
strategy over a seven year lifespan.
Aiming to provide investors with robust incomebased
returns from assets in strong geographical
locations, the Fund seeks to capitalise on
opportunities presented by changing market
conditions and the UK’s long-term economic
recovery. Taking a flexible investment approach,
the Fund will target larger lot size assets across all
sectors.
Supported by our 100-strong dedicated UK real
estate team, UK PIF II is led by the management
team responsible for the impressive track record
of UK PIF I and will use the superior depth of
expertise across the platform to enhance returns.
Focussing on assets that require specialist property
management skills to reach their full potential,
rather than being reliant on market movement
to drive returns, it will identify and execute asset
management business plans to take advantage of
the yield gap.
Charlie Walker, Fund Manager of UK PIF I and
UK PIF II, commented:
“Representing the largest first
close achieved yet this year for a
UK-focused fund, the high level of
investor interest and commitment
secured to date is a significant
endorsement of the compelling
strategy.
“As a weight of overseas capital
continues to drive up the prices of
lower risk, prime assets, particularly
those located in London, there
continues to be a favourable
illiquidity discount on larger lot
sized properties outside prime. -
The strategy is positioned in a
relatively uncongested space and,
benefiting from a strong potential
asset pipeline, I look forward
to commencing our acquisition
programme and continuing to build
investor commitments during 2014.”
b
g
4

WINTER 2013
LEGAL & GENERAL PROPERTY NEWSLETTER
Property Unit Trust passes
£1bn mark.
Over £180m invested so far this year, as Fund continues to snap up
UK property investment opportunities.
LGP’s UK Property Unit Trust (“PUT”), one of the
fastest growing funds in its sector, has reached over
£1bn as it continues to outperform its peer group and
deliver strong returns.
With net inflows of over £250m since the beginning
of the year, the PUT, which was launched in 2006,
has grown from £100m to over £1bn since inception.
Equating to 35% growth per year on average, it is
one of the very few property funds in the sector that
continues to see steady inflow of capital from both
Retail and Institutional investors. Delivering strong
returns, the Fund has outperformed the Lipper
Property IMA Sector peers over one, three, and five
years, with 2.1% per annum outperformance over the
five years to October 2013.
Investing in a range of retail, office and industrial
market opportunities across the UK, that provide
the potential for long-term capital growth, the
Fund also invests in alternative sectors such as car
showrooms and hotels, whilst retaining liquidity
by utilising further investment capabilities such as
REITs and derivative trades. So far this year the
PUT has secured 23 acquisitions, totalling £183m,
and is in discussions on a number of other potential
purchases.
Benchmarked against the Lipper Property IMA
and IPD Balanced Monthly Index Funds, the Fund’s
investment objective is to achieve income and
capital growth through diversified investment in
UK commercial property, with an emphasis on
property selection and active management within a
research-driven risk/return framework for portfolio
construction. In order to achieve this, the Fund is
focussing on three main areas: defensive assets
that offer very long leases and indexation or fixed
growth provisions; high quality development
funding opportunities that may be purchased at a
discount and benefit from stamp duty savings; and
high yielding medium term income streams in core
locations which offer added value potential through
lease engineering.
Matt Jarvis, Fund Manager of the PUT, said:
“It is a significant milestone for
us to achieve and we are incredibly
pleased with the way the Fund has
grown and performed since we
launched in 2006. With the property
market now attracting increased
interest from retail investors we
expect the growth of the Fund to
continue and for our investment
appetite to be sustained into 2014.”
Recent acquisition for the PUT: Fife Leisure Park, Dunfermline

WINTER 2013 LEGAL & GENERAL PROPERTY NEWSLETTER 5
Legal & General’s Industrial
Fund merges with Falcon.
Having recently extended its life span and modernised its offer, in September
2013 LGP’s Industrial Property Investment Fund (IPIF) successfully led its
merger with the Falcon Property Unit Trust, making it the largest multi-let
industrial fund in the UK.
The distressed Falcon Property
Trust was set up in 1988 and
by 2013 comprised 36 multilet
estates with a GAV of over
£100m. As a result of the merger,
the enlarged IPIF now comprises
circa £1bn of industrial assets and
continues to be managed by LGP.
With complementary investment
strategies and portfolios, the
amalgamation offered IPIF an
attractive range of tenants and
estates which would benefit
from scale and intensive asset
management, thereby enhancing
its returns going forward.
Furthermore, the ungeared fund
provided IPIF with an enlarged and
more diversified investor base.
The proposal to amalgamate
IPIF and Falcon received 99.9%
approval from both vehicles’
investors.
Launched in 1997, IPIF was one
of the first indirect specialist real
estate funds and has become
a leader in its sector, having
outperformed its benchmark,
the IPD Quarterly Industrial
Benchmark, over one, three, five,
10 and 15 years.
The lowly geared fund is one of
the most liquid closed-ended
funds in Europe, benefiting from
a strong secondary market with
approximately 5% of its units
traded each quarter.
Its strategy remains focussed on
investing in good quality, higher
yielding, predominantly multi-let,
industrial estate assets, with a high
weighting towards London and
the South East, but ultimately will
be opportunity led. Supported by
Jones Lang LaSalle, it is managed
by a team of 40 professionals
across both firms. Much of IPIF’s
success lies in the hands-on,
efficient management of its tenant
relationships and a continuing
programme of new lettings, lease
renewals and rent reviews.
Jonathan Holland, Fund Manager
of IPIF at Legal & General
Property, said:
“Falcon had built up a strong
portfolio of multi-let industrial
estates which we believed would
significantly benefit from the scale,
resources and efficiencies of IPIF’s
management intensive structure,
whilst increasing IPIF’s already
large added value pipeline at an
opportune point in the market
cycle.”
Dan Batterton, Business
Development Manager at Legal &
General Property, added:
“The amalgamation provided
an attractive solution to Falcon’s
liquidity issues whilst providing
IPIF with considerable asset
management opportunities going
forward.”
Taking a new approach to
achieving best practice standards
of corporate governance, in June
2013 IPIF successfully extended its
life from 2015 to 2020, whilst also
adding redemption provisions and
introducing a number of initiatives
enabling it to be more flexible in
terms of raising further equity and
responding to market conditions.

WINTER 2013
LEGAL & GENERAL PROPERTY NEWSLETTER
Legal & General raises circa £70m for the
Leisure Fund and acquires The Light, Leeds.
In May this year, LGP announced that it had raised an additional £67m for its
Leisure Fund, its flagship specialist pooled leisure fund, in order to support
its investment strategy, and followed up a month later with the purchase
of The Light in Leeds.
New equity for the Leisure Fund has been raised
at a premium to NAV and further expands the
Fund’s investor base to around 30 unit holders.
Oversubscribed by c.20%, the capital was raised at a
premium to NAV – the only specialist property fund
to have done so in the past three years.
Enabling the Fund to seek additional investment and
forward-funding opportunities, in June it purchased
The Light in Leeds. Acquired through a 50:50 Joint
Venture partnership with Legal & General’s Managed
Property Fund, the transaction that reflected a net
initial yield of 7.2%.
One of the largest City Centre leisure schemes in the
UK, with an annual footfall of approximately 6.1m per
year, the asset is situated on The Headrow and is well
located within the heart of Leeds. The leisure scheme
comprises 221,275 sq ft of covered space arranged
over four floors, together with streetscape areas. In
addition, there is a 147-bed Radisson Hotel and a 420
space car park let to Q Parks. Along with the hotel,
the scheme is anchored by a Vue cinema and a Virgin
Active Health Club.
Already one of the highest yielding unlisted funds
in the UK, the Leisure Fund offers exceptional
income security from a portfolio of high quality
tenants. Indeed, approximately half of the income
has fixed or inflation-linked increases and, following
extensive asset management initiatives, the void rate
is currently very low, at circa 2.8%, and the average
unexpired lease term is over 13 years.
The Fund also benefits from a low cost of debt
which, at 3.5%, enables it to deliver an annual income
distribution in excess of 6%.
Andrew Ferguson, Fund Manager of the Leisure
Fund, commented:
“With the cinema and restaurant
“With the cinema and restaurant sectors performing
sectors performing well in recent
well in recent years and demonstrating strong
years and demonstrating strong
recession proof characteristics, we believe that there
recession proof characteristics, we
is significant value to be found in the leisure market.
believe that there is significant value
The sector offers secure income returns, with long
to be found in the leisure market.
leases off lower base rents, and therefore provides
The sector offers secure income
an attractive alternative diversification option for
returns, with long leases off lower
investment.
base rents, and therefore provides an
attractive alternative diversification
“The strength of this market has been reflected in the
option for investment.
performance of the Leisure Fund, which has come
first out of the IPD Pooled Property Funds Index
“The strength of this market has
over the past 10 years and delivered high returns to
been reflected in the performance
its investors. This latest capital raise enables us to
of the Leisure Fund, which has
continue to seek attractive investment opportunities,
come first out of the IPD Pooled
particularly high quality, well located development
Property Funds Index over the past
schemes, with major pre lets in place, and support its
10 years and delivered high returns
successful story of outperformance over the medium
to its investors. This latest capital
term.”
raise enables us to continue to seek
attractive investment opportunities,
particularly high quality, well located
development schemes, with major
pre-lets in place, and support its
successful story of outperformance
over the medium term.”

WINTER 2013 LEGAL & GENERAL PROPERTY NEWSLETTER 7
LGP continues to be one of the most
active investors in the UK commercial
property market.
Over the past four years LGP has been one of the most active investors in the
UK Property Market, transacting circa £6bn of deals
The year of 2013 has been exceptional for LGP,
completing over £1.5bn of purchases by the end
of October, comprising 35 transactions, including
eight portfolios, and a total of around 160 assets let
to over 80 tenants. Purchases were made across
a wide variety of lot sizes, ranging from IPIF’s
£3.9m purchase of a Kidderminster industrial asset
to the £202m purchase of City trophy asset, 70
Gracechurch Street, on behalf of the Annuity Fund.
This has been against the backdrop of one of the
most competitive investment markets since 2006
given the general low interest rate environment.
Using our superior access to on and off-market
deals, and market leading in-house transactional
capabilities, we have continued to take advantage of
the opportunities that exist for those with capital in
place or the ability to raise it.
Widening our investment universe and diversifying
risk, we also believe that we have been at one of
the earlier market movers in terms of increasing
our allocation to emerging sectors, selectively
investing non-traditional real estate markets where
we see significant value. As part of this, LGP has
been one of the most active investors in the student
accommodation sector, committing a total of over
£750m in the past few years, including eight major
university-backed acquisitions and two lending
deals. Recent forward fundings include those
backed by Newcastle University, Aberystwyth
University, Canterbury Christ Church University and
University of the Arts London.
Gordon Aitchison, Director of Transactions and
Development, said:
ong “Using netwoo ur rk strong of contacts, network we of continue
e contacts, most activ w einvestors continue to in be the one UK real of
with the most a notable ctive increase investors appetite in the UK
real esestate sectors, market, which ith a we notabl believe
active incr ase proposition in appetite for for investors. alternative
real estate sectors, which we
“We believe the secondary end of the market is now
believe provide an attractive
starting to provide excellent value for money, but
proposition for investors.
that sourcing stock with the necessary underlying
fundamentals is “We key believe to success. the secondary end
of the market is now starting to
“As a result, we have for some time, been
provide excellent value for money,
increasingly looking outside of London and the
but that sourcing stock with the
South East and into the regions where yields have
necessary underlying fundamentals
more room to move. We are also selectively looking
is key to success.
at opportunities to move further up the risk curve.”
“As a result, we have for some time,
been increasingly looking outside
of London and the South East and
into the regions where yields have
more room to move. We are also
selectively looking at opportunities
to move further up the risk curve.”

WINTER 2013
LEGAL & GENERAL PROPERTY NEWSLETTER
LGP nears completion of St Stephen’s
Place Leisure Park in Trowbridge.
Mary Poppins themed gala opening marks final stage of the new
Trowbridge development.
LGP, on behalf of its UK Property Unit Trust, has
successfully launched the ODEON cinema, Nando’s,
Prezzo, and a Premier Inn hotel at St Stephen’s Place
Leisure Park in Trowbridge, as it reaches the final
exciting phase of the development.
The Gala opening of St Stephen’s Place Leisure Park
took place on the evening of Tuesday 19 November.
The VIP screening of Disney release, Saving Mr
Banks, at the ODEON Cinema and was attended by
over 150 people, notably its stakeholders and all
those that played a large role in making it happen,
including members of the Council, ODEON, and its
development team led by main contractor Leadbitter
Group.
Once fully opened, St Stephen’s Place is expected
to employ over 200 people within the scheme,
adding a much needed boost to the local economy.
Since opening its doors on 25th October, the 1,300
seat ODEON cinema has already seen average
attendances of over 1,000 people per day. Frankie
& Benny’s will launch in February 2014 and will be
followed by three further restaurants which are yet to
be announced.
Tim Russell, Senior Asset Manager, commented:
“After 30 years without a cinema or high quality
leisure offer, Trowbridge is finally becoming an
exciting destination in its own right with St Stephen’s
Place Leisure Park already acting as a major draw
not only for the local population but also tourists and
visitors from further afield. Furthermore, creating
a significant number of jobs and providing a much
needed boost to the local economy, we believe that
will act as a catalyst for further regeneration in the
town centre, putting Trowbridge back on the map as
the County Town of Wiltshire.”
Tim Russell (third, right) and Simon
Russian (third, left), from LGP, on
the red carpet for the Mary Poppins
themed Gala opening
St Stephen s Place, Trowbridge

WINTER 2013 LEGAL & GENERAL PROPERTY NEWSLETTER 9
Legal & General continues to
sweep up industry awards.
Legal & General Property has won numerous industry awards in 2013 both at a
platform level and fund level, as well as for individual initiatives or assets.
G r e e n S t a r 2 0 1 3
Fund Manager
Over the course of 2013, LGP
has continued to be pleasantly
surprised by the number of
industry awards it has received
in recognition of its exceptional
investment performance, ability
to launch new innovative products
and to achieve new standards
of sustainability, amongst other
things.
Included in these accolades
was the double title win of Fund
Manager of the Year at the two
key property industry award
ceremonies – the EG Awards
2013 and Property Awards 2013 –
making LGP the first fund manager
to ever win both trophies in the
same year.
Held at the London Hilton on
Park Lane on 12 December, the
prestigious EG Awards saw
LGP claim Fund Manager of the
year for our ability to win large
mandates, significant transactional
capabilities and market
outperformance, with one judge
describing us as a “very active
player, head and shoulders above
the rest.” In particular, however,
it was our innovation in taking
new approaches to achieving best
practice in corporate governance
and designing terms that protect
our investor’s long-term interests
that really caught the judges’
attention, as well as our consistent
outperformance.
Voted on by the entire property
industry, the Property Awards 2013
were held in June at Grosvenor
House Hotel and attended by over
1,300 guests. Recognised for our
all round strong performance, LGP
was singled out as the winner in
particular “for revolutionising what
a UK institution can be under the
leadership of Bill Hughes” and our
continued transformation. This is
the second time that LGP has won
this award in recent years, having
previously picked it up in 2010.
LGP has also picked up a whole
host of awards for its hard work
in the sustainability arena. Most
recently this was recognised
through GRESB’s (Global Real
Estate Sustainability Benchmark)
independent performance
benchmarking report, receiving
Green Stars for all 10 of our
applicable funds and three Sector
Leader accolades. The three
funds that were acknowledged as
‘world leaders’ in their categories
included the Industrial Property
Investment Fund (IPIF) in the
‘Industrial’ category, the Leisure
Fund within the ‘Other’ category,
and Central Saint Giles, within the
‘Office and Residential’ category.
The Managed Fund was also
honoured as a European leader of
the largest category – diversities.
Furthermore, out of the 543 funds
who submitted information in
2013, all 10 of our funds were
ranked within the top 40.
2013 WIN
LGP has continued to work hard
to embed sustainability into its
investment processes, making
it a fully integrated part of what
we do every day. During the
year we were also awarded the
Sustainability Data Quality
Award at the IPD/IPF Property
Investment Awards 2013, which is
a completely objective accolade
being not based on votes cast or
opinions in a survey but rather the
accuracy, consistency and detail
of data submitted, as well as a
‘Gold Award’ at the BCSC Green
Apple Awards for the sustainable
construction of Westgate - the
highest of all green apple awards.
Other industry trophies won
over the course of 2013 include
collecting the UK Property Award
at the Pension & Investment
Provider (PIPA) Awards 2013,
for our innovative product
launches and strong investment
performance, and Fund/ Property
Company of the Year at the
Industrial Agents Society (IAS)
Awards 2013 in recognition of
consistent performance and sector
specialism. The UK Property
Unit Trust was also picked as the
Winner of the Best Large Property
Fund at the Money Observer
Fund Awards 2013 – the third time
in the last five years – and was
highly commended in the Value
for Money category for the second
year in a row.

WINTER 2013
LEGAL & GENERAL PROPERTY NEWSLETTER
Sustainability spotlight.
Bill Hughes and Debbie Hobbs share their views on the green debate.
The green debate has been going on for a while.
Where is it now
Bill Hughes: Sustainability has become a real issue
over the past decade. In the early stages, it was
about assimilating knowledge and awareness. Then
new regimes for dealing with sustainability were
created. Then there was an interlude where some
people mistakenly thought that because there was
a recession, sustainability no longer mattered.
During this time, we have fervently held a counter
view, which is that when economic times are hard,
sustainability is important because it is going to
save money in terms of building operations and
preservation of capital.
There has been some legislation encouraging
sustainability. Is what’s gone through good for the
industry
Debbie Hobbs: In the UK right now, new regulations
are having quite an effect on the market. For
example, if you have a building with an EPC (Energy
Performance Certificate) rating of an F or G, the
lowest available, it is possible that the forthcoming
Minimum Energy Performance (MEP) legislation
will not allow you to continue to let it post April 2018
without undertaking ‘Green Deal’ energy efficiency
measures. However, these are currently hard to
assess as they are down to the Green Deal assessors
/ assessment. This is causing quite a bit of stir at the
moment, as people realise the implications for their
portfolios. As a result, a consultation group has been
developed by the British Property Federation in order
to advise the Department of Energy Climate Change
on how to frame the forthcoming MEPS legislation
from the perspective of the property industry.
Are regulations needed because managers aren’t
seeing the value of doing this otherwise
Hobbs: In any market, you get leaders and followers,
and then you get the laggards. Legislation is often
seen as a way of making the laggards comply with
what needs to happen. A lot of the legislation on
sustainability is being driven by the EU, and it is a
challenge to get a level playing field across Europe.
Every country has different building regulations,
and so a lot of the regulations are about getting
everybody up to a certain minimum level. However,
we see the value in going above and beyond the
minimum legislative requirements.
Hughes: We take the view that sustainability matters
and that there are a number of important steps you
can take to enhance a property portfolio. It starts with
measurement, because you have to have the data
before you can really take action. We need a standard
approach across the industry because we need to be
able to measure industry performance as a whole.
Engaging in better practices is something everyone
should be doing, not just some organisations. I think
it is really difficult for the industry to do that on its
own without some sort of external firm guidance.
Hobbs: One of the big issues we face is we still don’t
have a consistent system across Europe for labeling
whether a building is sustainable or not. We don’t
have a way of saying, “This building in the UK is more
or less sustainable than this building in Australia or
Europe or the US.” There are no universal standards
in ratings and lots of different schemes all around the
world. In the UK we’ve got BREEAM, which is sort of
the equivalent to LEED in the US, and also we’ve got
DNGB and HQE in Europe. If we consistently had the
same label, we could actually compare properties
globally.
How does sustainability in the UK compare to the
rest of the world
Hughes: In cycling parlance, I feel the UK is probably
in the peloton; we are in the chasing pack, not out
in front. It is a developed economy rather than
a developing economy, which means it faces a
specific set of challenges. Sustainability in the UK by
definition must be about retrofit and modification.
We are a high-density population, which makes
sustainability more manageable in terms of heating
and power as well as infrastructure and transport
policy. In terms of best practices around the world,
Australia seems to be on the leading edge.
Hobbs: Germany has had better building standards
than the UK for years, but their EPCs are generally
much cheaper. Every market is starting to develop
differently, which is why we’ve got so many different
ratings tools. When I started going to the US, I was
amazed at how the standard in different states varied.
At one end, California’s air quality regulations are
driving carbon emission management to quite a
high standard, but some other states have not really
gotten started.
Are investors focusing on sustainability
Hughes: Over the past 12 or 18 months, we have
begun to notice investors prioritising sustainability.
They are not necessarily going to say, “Is the building
sustainable” But they are saying, “Are you as a
fund manager fully conversant with the issues, and
are you doing the right thing” A number of times
we have been selected as the fund manager for
mandates ahead of others because we are deemed

WINTER 2013 LEGAL & GENERAL PROPERTY NEWSLETTER 11
to be highly knowledgeable about sustainability. It
is now an important selection criterion from publicsector
UK investors and mainstream European
institutional investors.
Do investors see this fitting into their fiduciary
responsibility
Hughes: There is a growing body of evidence
that indicates a link between sustainability and
investment returns. There is a positive correlation
and therefore you had better take it seriously. In our
portfolio we have many examples of assets that are
more sustainable than the average and where you
can see that green measures are protecting capital
value.
How do you underwrite the costs of bringing an
acquisition up to your standards
Hughes: Our investment process is very explicit
about this. As an example, we are looking at investing
in an office building in London that has an average
EPC rating and therefore Debbie has spent some
time thinking very hard about what we could do if we
owned that building to improve this.
Hobbs: As part of our due diligence process, we
modeled it ourselves, so we could compare the
current EPC to what it was when the certificate was
originally done in 2008 and what might happen to
that rating in the future as the UK building regulations
change. We then have looked at what the capital cost
would be to upgrade it. All buildings deteriorate and
there are costs just to keep them at a level that will
allow them to be let.
Have you been doing this enough to see positive
effects in your portfolio’s performance
Hughes: It is harder to sell assets that have poor
sustainability characteristics and therefore they sell at
a price discount. The reverse is also true. If you have,
as we do, the capability to improve an asset, then that
becomes a central part of asset management that
delivers added value. I see sustainability as being
closely linked to obsolescence and depreciation. If
you can’t let a building because it has a poor EPC
rating, then it becomes functionally obsolete.
Are occupiers requiring this now from the buildings
Hobbs: I think occupants have started to focus on this
not only because of operational costs but
increasingly because of corporate policies. As an
example, an office occupier came to us as they were
approaching the end of a long lease and said, “Our
corporate policies are telling us that we now have
to occupy very sustainable buildings. We want this
asset to continue to be our headquarters building,
but we can’t take a new lease unless it has got high
sustainability credentials.” So I got involved and
asked, “How do you measure that What do you
want” They said, “We want a BREEAM Excellent
rating,” and that was all they knew they wanted. As
the UK market typically only has BREEAM ratings on
new developments, this started a whole dialogue of
how we could help. We have now commissioned
a detailed report to look at every possible thing we
can do to this building to improve its operational
sustainability credentials, as opposed to just
theoretical measurements, such as EPCs. This
ranges from occupant engagement programmes,
to installing new building services and renewable
energy generation systems
Hughes: And employees care about it. PWC,
for example, which is on the leading edge of
sustainability and has a brilliant, outstanding office
building in London, will tell you it found it easier to
recruit talent with sustainable office space.
What is the largest challenge
Hobbs: The biggest challenge is getting everyone
working together with the same objective. We may
own the building but not operate it, and where
we do manage it you’ve got tenants and supply
chains to consider too. You might have two sets of
maintenance engineers doing similar jobs, on behalf
of both the landlord and the tenant, with their own
separate supply chains, and all need to be working
together to maximize the efficient operation of the
building.
Hughes: A lot of what we are doing is not really to
develop a competitive advantage for this business
alone, but to try and show some constructive
leadership for the sector as a whole. This includes
working with major industry bodies to try and do
the right thing for the entire UK property sector. As it
happens, as a by-product we have become a market
leader, but that is not the only thing we are seeking to
achieve.

WINTER 2013
LEGAL & GENERAL PROPERTY NEWSLETTER
Legal & General Property and Citygrove
team summit Mount Toubkal for charity
Over £52,000 raised for Variety, the Children’s Charity by
Legal & General Property and Citygrove
In May this year, a team of 12 from
Legal & General Property and
property development company,
Citygrove, joined forces to make
an ascent of Mt Toubkal, which at
4,167metres is the North Africa’s
highest peak.
The team traded in their suits for
hiking boots and spent five days
trekking through the High Atlas
Mountains. Walking six to 12 hours a
day and living out of backpacks, the
team reached the summit at 06.30am
on 16 May, after a challenging trek
in the darkness over ice fields, in -25
degree temperatures and 60mph
winds.
By doing so, they raised a sum
of £52,000 in aid of Variety, the
Children’s Charity. The money has
subsequently been used to fund two
Sunshine coaches, for Pioneer School
in Basildon and Shooter’s Hill School
in Woolwich.
Gordon Aitchison, Director of
Legal & General Property, said:
“This was a huge team effort and we
have been overwhelmed with the
generous support of all our sponsors.
We are delighted that we have raised
enough for two specialist mini-buses
for this fantastic children’s charity.”
CONTACT US
olivia.goodall@lgim.com
+44 (0)203 124 2777
www.lgim.com/property
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2013.
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