F&C REIT Asset Management last month managed to retain its largest management contract after independent shareholders in a £729m (€854m) investment trust it manages voted against a merger that would have resulted in it losing the £6m revenue stream.
Shareholders in the listed F&C Commercial Property Trust voted down the merger with the UK Commercial Property Trust, which would have created a listed company with a market capitalisation and portfolio of around £1.6bn.
The vote was tight – just 0.14% of shareholders preferred not to merge the two trusts. A deal would have been the largest piece of merger activity in the UK property sector since before the downturn.
Board serves notice
Ignis Investment Management, which manages UKCPT, would have managed the combined company. The independent board of FCPT had already served notice to terminate F&C REIT’s management contract.
But after the merger failed, FCPT’s board re-appointed F&C REIT Property Asset Management to run the portfolio on condition that charges would be lowered.
The new FCPT annual management charge will be capped at 0.6% of average total assets, lower than the previous upper limit of 1%. The base management charge will be 0.5%, compared with 0.6% previously, and will be reduced to 0.25% a year on cash net of gearing that constitutes more than 5% of net assets.
The performance fee will be subject to the cap and rebased on 1 October, when amendments to the management agreement will take effect.
Meantime, F&C REIT has been pressing on with its plans to expand its UK funds and joint ventures, introduce new products for Germany and, in time, move into new markets such as Spain and Italy.
The fund manager is launching four vehicles, two of which have had a first closing: the €100m Fosca II, and the £20m open-ended F&C UK Property Fund. The latter has made its debut purchase with the £6m acquisition of 62-66 George Street in Edinburgh from Alba Investment Properties, in a deal reflecting a 6% yield.
The UK Property Fund targets independent financial advisory firms and wealth managers; in time F&C REIT hopes smaller pension funds will also invest in it.
Angus Henderson, F&C REIT’s head of business development, says: “We want to double the size of this over the next 12 months and are raising more capital now.”
Another new vehicle, the Devonshire UK Opportunity Fund, will have equity of £300m, geared up to £1bn, and target a 20% internal rate of return. Its investors include US and European and some Australian institutions, pension funds, fund of funds, and the larger discretionary advisors; £10m is the minimum investment.
Fosca II is aimed at European institutions, with German funds and insurers buying in. The plan is to close it later this year or the start of 2011. Fosca II invests in France, mostly Paris office assets and some retail property, and is targeting returns of between 10% and 12%, says Henderson.
F&C REIT has also set up a new German vehicle, German Best Value Fund 1, and is looking to raise €165m for this from German institutional investors such as KAGs.
“This will target assets in cities other than the country’s ‘big seven’, that is, the second-tier, high street-type properties such as retail units with offices above, in deals that reflect a 6% yield. The fund will be leveraged up to a maximum of 50%,” says Henderson.
German success story
“In Germany, it’s been a fantastic success story. We expect those who have invested in this vehicle to come into subsequent funds,” adds Henderson. F&C REIT manages a total of €1.5bn in the country.
F&C REIT Asset Management is the group’s global property asset management business. It was formed in 2008 from the merger of F&C’s property division and REIT Asset Management. F&C REIT operates from offices in London, Dublin, Munich, Mumbai and Stockholm.
F&C was focused on core and core-plus business, while REIT Asset Management aimed for very strong returns, achieving levels as high as 60%. The merged business is responsible for a £7.3bn global portfolio of assets under management.
Since its inception, F&C REIT has secured deals such as the acquisition of the £600m Dawnay Day property portfolio and concluding total transactions worth more than a £1bn in the past 18 months. Recently it placed under offer the €400m Liffey Valley shopping centre in Ireland.
Henderson says: “In time we expect to have some sort of pan-European product.”
