MoorfieldGroup

Moorfield Capital Partners Real Estate Portfolio

In March 1999, Moorfield led the origination and acquisition of the £396.3 million purchase of a pan-UK portfolio of 75 assets (and over 750 tenants) formerly owned by funds controlled by a UK-based insurance group, Royal & SunAlliance (“RSA”).
The financial structure of the transaction was one of a number conceived by Moorfield and was negotiated to suit both the vendor and the purchaser. In addition to procuring a senior debt facility of £295 million from a bank, Moorfield also negotiated a £72 million vendor loan note
The assets were acquired in two limited partnerships – one investment and the other trading, based on the individual business plans for each of the assets.
The portfolio comprised a wide range of assets. Examples include: a business park, known as Kembrey Park, comprising over 750,000 square feet of space near Swindon (£40.6 million), a retail and office shopping centre in Liverpool (£7.6 million), office buildings in London (£26.5 million) and Birmingham (£19.5 million) and industrial space near Gatwick Airport (£7.0 million)

DEAL SOURCING

Moorfield initially approached RSA, the vendor, suggesting various means to release equity from their real estate assets. RSA then opened conversations with Moorfield in this regard but felt obliged, for reasons of propriety, to approach a small number of real estate companies, prior to making a decision to work exclusively with Moorfield to structure a transaction which met their corporate and tax requirements and suited Moorfield’s investment criteria.

INVESTMENT THESIS / RATIONALE

The acquisition suited Moorfield’s focus on complex and innovative transactions involving a substantial portfolio located throughout the UK and spread across a number of asset classes. Rigorous analysis identified a significant number of asset management and realisation opportunities to create additional value and enhance investment returns.
The financial structure of the transaction, negotiated and put in place by Moorfield, substantially reduced the transaction’s equity requirement and enabled the return of equity within eight months through select asset disposals.

DEVELOPMENTS SINCE CLOSING

The assets were divided into an investment portfolio and trading portfolio for business plan purposes.
A number of portfolio disposals were made in the six months after completion of the acquisition. By the end of 1999 all the equity capital had been returned to the investors and the investment transaction had been substantially de-leveraged and all of the equity risk removed.
Other assets were identified as having significant asset management opportunities (notably Kembrey Park, a 55 acre mixed use business park near Swindon, an 80,000 square feet office building in Newcastle and an office and shopping centre complex in Liverpool) where substantial capital expenditure projects were undertaken to facilitate lettings and enhance values over the longer term.
In 2001 the balance of the senior debt facility originally negotiated as part of the acquisition finance package was refinanced and re-leveraged to take advantage of the favourable interest rate and lending climate.
By the end of 2003, 71 assets had been sold for approximately £400 million against an original cost of some £337 million. Those that remained had an acquisition cost of £59.3 million but including capital expenditure since acquisition of £9.1 million and revaluations of £5.0 million they were included in the audited financial statements for the year ended 31 December 2003 at £73.4 million.

EXIT STRATEGY

The exit strategy has been tailored to suit the profile of each asset in the portfolio. Those assets which afforded minimal asset management opportunities to enhance income, capital values and investment returns were prepared for sale whereas other assets required much more asset management and capital expenditure to create an attractive investment in the longer term.
The sale of assets has been pursued through the use of real estate agents with specific sector knowledge of the market, through personal contacts of the Moorfield team (who were aware of other investor requirements) and where appropriate, for smaller assets, through auctions which can reach the retail investor market where appetite for smaller assets with longer-term income streams has been strong.

Moorstone – Real Estate Portfolio

INVESTMENT SUMMARY / BACKGROUND

This relatively small portfolio comprised a mix of assets with a range of values from £6.2 million for an office building in Baker Street, London to a small office building in Camberley, Surrey acquired for £0.7 million.

DEAL SOURCING

During their time at Goldman Sachs, Messrs Gilbard and Stanley had introduced the management team of Imry (the assets’ owner) to the Whitehall Real Estate Fund. A potential deal (c. £120 million) had been analysed and negotiated but had not proceeded and upon joining Moorfield discussions covering a smaller portfolio were re-commenced.

INVESTMENT THESIS / RATIONALE

This was Moorfield’s first acquisition through a limited partnership structure after the change in corporate direction and management in 1996. It also established Moorfield’s business relationship with Blackstone Real Estate Advisors (“BREA”) and demonstrated the ability to pursue the business model of establishing limited partnerships with substantial co-investors to acquire assets using Moorfield’s real estate and financial expertise.
The assets purchased were under-managed and under-funded as the portfolio was in a form of ‘intensive care’ within Barclays Bank.

DEVELOPMENTS SINCE CLOSING

The assets were divided into an investment portfolio and a trading portfolio for business planning reasons.
Five assets were sold in 1997 for approximately £14.5 million compared to a cost of £12.6 million and a further asset was sold in 1998 for £8.4 million against a cost of £6.2 million. The remaining two assets were acquired by Moorfield on an arms-length basis for £5.1 million when BREA wished to liquidate their equity position for non asset related business reasons. Moorfield subsequently sold these assets for £5.6 million.

Exit strategy

Part of this portfolio was acquired with a view to realising value relatively quickly. The first sale took place in June 1997, 7 months after the original acquisition. Moorfield’s approach as to timing of sales was flexible enough for BREA to exit from the last two assets before Moorfield and for those assets to be sold when the active asset management role had been completed thereby enhancing investment returns.

The Reach Residential Scheme (“The Reach”)

INVESTMENT SUMMARY / BACKGROUND

The Reach is one of Liverpool’s largest residential schemes and comprises 274 residential 1 and 2 bedroom apartments and penthouses situated close to the city centre. Construction started in November 2004 and is expected to be complete in mid 2006. The apartments have been marketed in two lots – one of 220 apartments and a second phase of 54 apartments.
The site is adjacent to the Atlantic Point student accommodation scheme and the land was acquired as part of the 6 acre Atlantic Point site acquired for the Domain student accommodation business. Moorfield chose to split the site leaving 2 acres available for alternative use. Moorfield reviewed all the options for the 2 acre site, including extending their student accommodation scheme, but chose the residential option in the light of strong consumer demand for high quality city-centre apartments. The centre of Liverpool has seen a number of substantial re-development and re-generation schemes in recent years, which has culminated in Liverpool being awarded the European City of Culture award for 2008.
In view of the fact that the substantial majority of apartments have been pre-sold, a 100% construction finance loan of £26 million has been arranged. The total development cost is circa £32 million and the value of the scheme is circa £40 million.

DEAL SOURCING

This site formed part of a site purchase for Moorfield’s student accommodation business. Having completed the viability analysis, Moorfield manages the project through design, planning, construction, marketing and completion of the sales of the individual apartments.

INVESTMENT THESIS / RATIONALE

The Reach demonstrates Moorfield’s ability to look across the real estate investment market to generate value and enhance returns from a wide range of asset classes whilst retaining control of the investment and development process.
Before committing itself to the project Moorfield was confident that the apartments could be pre-sold as a result of which the development risk was removed thereby enabling Moorfield to secure attractive funding for the project.
Without undertaking detailed market research and analysis, as well as substantially de-risking the project through forward sales, Moorfield would not take the speculative development risk on a project of this nature.

DEVELOPMENTS SINCE COMMITTING TO THE PROJECT

The project has been fully designed and all necessary planning consents obtained.
The project has been marketed in two phases – 220 apartments and 54 apartments – and contracts exchanged with purchasers for more than 70% of the apartments.
The construction phase of the project is fully funded. Construction contracts have been negotiated and construction work began in November 2004 and is scheduled to be complete by mid 2006.

EXIT STRATEGY

To sell any remaining apartments prior to/during the construction phase.