Investment Strategy

Moorfield seeks risk-adjusted returns with a value-add investment philosophy

Moorfield’s investment strategy is to maximise returns on equity invested through the origination, acquisition, financing, active management and disposal of UK real estate and real estate related investment opportunities. Moorfield is geographically and sector diverse in its approach, investing across the UK and in all sectors, assessing every potential investment opportunity on its own merits.

Moorfield’s team has a very broad network of established contacts throughout the Traditional and Alternative real estate asset classes, as well as the banking, advisory and finance sectors and through these contacts it looks to source a diverse range of investment opportunities (see Origins of Investment).

Our preferred deal size can range from £10m up to £500m (enterprise value or asset value), though we will consider smaller deals where we are supporting a growth platform and/or an asset is an addition to an existing investment. We will also consider larger deals on the basis that we have a substantial pool of potential co-investors or JV partners that we could call on to invest alongside us.

Moorfield aims to distinguish itself from its perceived peer group by its ability to:

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Macroanalyse

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Identify new trends and market gaps ahead of others

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Identify strategic investment opportunities that require innovative and entrepreneurial thinking

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Optimise relationships with investment opportunity sources, joint venture partners, management teams and debt providers

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Formulate innovative financing structures

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Employ creative asset management initiatives to maximise an asset's potential

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Use strategic outsourcing to take advantage of third party expertise and specialisation where appropriate

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Actively manage the Business Plan of every investment to ensure they remain current and optimal

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Identify when it is optimal to dispose of an investment

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Identify the optimal route to exit

Exclusive and Singular Focus on UK Real Estate:

Since 1996, Moorfield has been exclusively focused on the UK market. Despite having real estate experience in other European countries, the senior management decided to concentrate on the UK market where the Moorfield real estate professionals collectively have over 100 years of extensive knowledge and experience. They believe that the UK real estate market offers attractive investment opportunities at almost every point of the economic and real estate cycle, capitalised upon by a timely varying of investment focus. Moorfield believes its breadth and depth of knowledge, and performance track record, has allowed it to develop an enviable reputation as a reliable and trustworthy buyer as well as a preferred partner in the UK.

Pan UK Real Estate Strategy:

Unlike other pan-European real estate funds, whose UK market presence is limited predominately to London, Moorfield additionally has extensive experience and relationships outside of Central London, having completed real estate acquisitions across all of the Traditional real estate asset sectors and many of the Alternative real estate asset sectors in the majority of the principal UK cities.

Complex and/or Innovative Transaction Focus:

Moorfield believes that because of its unique and multidisciplinary nature, it is able to take advantage of complex and/or innovative situations that can offer exceptional risk-adjusted returns, as they are often priced inefficiently due to short term but correctable dislocations, whether due to the capital markets, a lack of expertise or because of vendor circumstances such as stress or distress (see Origins of Investment below). Moorfield’s previous investments have resulted in a large portfolio of many disparate assets, all of which were acquired with clear purpose under detailed Business Plans. Moorfield believes that by employing its rigorous investment process on all components of an investment, it is able to unlock “hidden value” that may have been inaccessible or overlooked by the vendor and other potential buyers. Moorfield is also willing and able to work closely and creatively with vendors, where a sale for the vendor is complicated or frustrated for some reason on their part. Hence, by proactively targeting larger and inherently more complex investment opportunities, Moorfield optimises its skill base and greatly reduces the number of potential competitors.

Assets in need of Active Asset Management or Development

Investment opportunities differ in their appeal to investors dependent upon the rationale for investment. Some investors are simply very risk averse whilst others will determine the degree of risk they are prepared to take, often according to the overall investment returns they are seeking to achieve. Many investors will sell an asset as it becomes higher risk and/ or more dependent on active asset management to maintain or enhance income and capital value. Some investors will be selling their asset as a result of an immediate or imminent difficulty they feel unable to resolve, or perhaps do not have the time or inclination to tackle. There can, of course, be many issues that relate directly to the asset and the profile of the asset owner that results in a disposal. The asset in need of active asset management is one of the types of investment opportunity that Moorfield looks for.

Assets arising out of Stress or Distress

The terms “stress” and “distress” refer to an asset’s financial state and are often used interchangeably in the market place. However, Moorfield distinguishes between these two areas of investment opportunity and the approach to sourcing from them.  Stress will often be a precursor to distress and arises as a result of catalysts such as a loan maturity, an enforced debt reduction or the need to fund essential capital expenditure requirements that can’t be met from surplus cash flows or additional debt. In some of these situations the asset might be being managed appropriately and there are opportunities to partner with the existing borrower, particularly where an injection of funding is required alongside the adoption of a refreshed Business Plan. Moorfield created the ‘White Knight Partnership’ to attract these types of opportunities enabling it to use its skills of partnership and delivering structured financial solutions to reach a mutually acceptable conclusion. The alternative outcome may be that the stress, limited management capability and/or lack of capital provokes a sale in which case Moorfield would take full control of the asset before it reaches the distressed stage.  Distressed opportunities invariably arise when the bank has determined to take control and administrators have been appointed to sell the asset. This typically implies that the asset has been neglected in some material form (financial or asset management) and that it therefore requires intensive asset and/or financial management to stop value decline prior to value creation being achieved.

Asset Exposure resulting from Debt/Equity Purchase

Given that the banks need to reduce their exposure to real estate as soon as possible, they are increasingly evaluating the benefits of undertaking real estate loan sales. This may also present opportunities where it is possible to underwrite the underlying assets and obtain the appropriate asset control. Moorfield will purchase asset related debt or work with the bank and borrower to find a mutually acceptable financial solution. Moorfield will remain selective in its asset exposure even if purchasing or gaining the asset exposure through a debt or a related instrument. The assumption here is that ownership of the debt/financial instrument might result in ownership of the underlying asset.  Moorfield may also invest in a real estate asset class through supporting a management team. This support will come in the form of an equity or loan investment together with material control over the asset, financial, strategic and corporate business planning. Investment in asset and corporate debt or equity enables Moorfield to gain exposure directly or indirectly to assets that would not ordinarily be available to it at an acceptable cost or time.

Assets resulting from a Corporate Strategic Change

Since the mid-nineties, many organisations have come under considerable pressure to enhance shareholder value through corporate restructuring and by returning the business focus to stated core activities. One of the fall-outs of this activity has been the disposal of real estate held as fixed assets. These assets can offer significant investment appeal from a number of perspectives, ranging from leasebacks to refurbishment/redevelopment.  A second fallout from changing business practice and corporate reorganisation has been the shorter more flexible leases demanded by the occupier and the opportunity is to embrace this change where appropriate. Company take-overs, privatisations, insolvencies and refinancings can also result in investment opportunities arising, particularly if it is in the real estate sector or involves asset rich businesses. In addition, substantial portfolio acquisitions in need of an asset ‘sell-down’ and leveraged real estate funds reaching maturity are also a source of interesting investments.

Assets in Emerging Real Estate Markets

Emerging real estate markets can also offer opportunistic fund returns. A great deal of research and caution is required prior to making an investment, with the intent of not being ‘first to market’ but instead being ‘early to market’. First to market will test demand and normally highlight errors that can be seen and later avoided. Examples of this early to market activity where Moorfield has strategically and actively participated are; student and key-worker accommodation (Domain), limited service hotels (Kew Green Hotels), retirement villages (Audley) and hostels (Safestay).

The UK real estate sector can be broken down into two asset classes: ‘Traditional’ real estate assets and ‘Alternative’ real estate assets.

The Traditional real estate asset class encompasses office, industrial and retail (and all their various sub-sectors).

The Alternative real estate asset class encompasses real estate used in a wide number of different operational sectors, principally and broadly: healthcare, leisure, hospitality and residential markets.

Moorfield believes that the UK real estate market is an appealing platform for investment.

The relative size, liquidity, transparency, lease structure and legal framework, together with the expertise and maturity of its professional governing bodies and advisors, are all important features of the attractions of this UK market. Our success in pursuing opportunities within this market arises from our diversity of knowledge and abilities, thereby allowing the recognition and subsequent capitalisation of all the factors driving the sector, its sub-sectors and its buyers and sellers.

Our Real Estate team looks at over £30bn worth of deals a year, which it sources either directly itself or indirectly through a wide network of contacts across the Traditional and Alternative real estate sectors. Our focus is primarily on major UK cities and towns.

 

The team looks predominantly at opportunities that arise in the following sub-sectors:

  1. Central city offices with a strong tenant/rental covenant or potential
  2. Retail – shopping centres, out of town parks, factory outlets, trade parks and as part of mixed use schemes
  3. Industrial/Logistics/Distribution property located on major routes and interchanges across the UK
  4. Leisure property including hotels, restaurants, sports/health clubs and pubs
  5. Retirement and Healthcare accommodation including hospitals, polyclinics, GP surgeries, care homes and retirement villages
  6. Student and key worker accommodation
  7. PRS (Private Rented Sector) / purpose built to rent residential accommodation and residential portfolios
  8. Opportunities related to the ‘Green Agenda’ such as renewable and sustainability
  9. Development sites for any of the above

Moorfield believes that at each stage of the economic and real estate cycle there is invariably the opportunity to make successful real estate investments, as long as the investor is sufficiently experienced and broad thinking to change focus and be prepared to diversify, whilst retaining flexible financing structures.

Through our Indirect Investment team we will invest in opportunities that are backed by real estate assets or that are directly real estate related. This means that we look at a wide range of opportunities from venture capital in unlisted start-ups through corporate development capital in SMEs to strategic investment capital in listed companies.

This frequently results in our involvement in companies in the emerging alternative real estate sectors such as student accommodation, hostels and retirement villages, as well as the more established leisure industries such as pubs and hotels. It can also involve us acquiring an operating business alongside the real estate asset base. When investing in a real estate related operating business we will look to back entrepreneurial and proven management teams.

Within this arena we employ creative integrated financial solutions and investment structuring, frequently using convertible preference shares, loan stock, mezzanine finance and asset linked loan notes.

 

In summary the range of opportunities that we will consider is as follows:

  1. Private Equity – Management buy-outs or management buy-ins
    – supporting a credible and proven management team
  2. Venture/Development Capital – backing entrepreneurs to build a new business or providing growth finance to an already seeded company
  3. Joint Ventures – with investment/development or operational specialists or other finance providers who need additional equity and/or real estate expertise
  4. Corporate investment – investment in corporates operating real estate related businesses in need of either: additional equity; a new investor; or real estate expertise – often with a longer term view using creative structuring including convertible preference shares or the provision of mezzanine finance
  5. Listed Companies – stake building with a view to forming strategic alliances, joint ventures or backing management teams in entrepreneurial initiatives
  6. Debt – investment in debt and debt instruments secured on real estate assets, on a purely financial basis or with a view to controlling or managing the underlying asset, and the provision of mezzanine finance
  7. Derivatives – principally as hedging instruments