Federated Hermes and L&G have announced that the Federated Hermes Property Unit Trust has merged into the L&G Managed Property Fund, in a landmark transaction for the UK real estate funds sector.
The enlarged fund is valued at £4.7 billion.
As part of the deal, a substantial portion of FHPUT unitholders’ holdings will be transferred to the MPF, which will take ownership of the former's real estate portfolio. All FHPUT unitholders will either have their holdings transferred or receive liquidity.
The move brings together two of the UK’s longest-established property funds – FHPUT, formed in 1967, and MPF, formed in 1971 – into a single platform.
The L&G fund was worth at £3.854 billion at last valuation as of 30 June. The fund is invested wholly or predominantly in freehold and leasehold property including retail and commercial premises, agricultural land, development sites and schemes in the UK. It is available to defined benefit and defined contribution pension schemes in the UK.
The largest top 10 assets in the L&G fund as of 30 June were: Woodside Industrial Estate in Dunstable, valued at £300 million to £350 million; West Cross Industrial Park in Brentford; Kingsland Business Park in Basingstoke; the Strand Island site offices in London; Manchester’s North Tower; the Yotel London Clerkenwell; the Into Newcastle University building in Newcastle; 76-88 Wardour Street in London; Interchange Shopping Park in Bedford; and The Light in Leeds.
The Federated Hermes fund had a net asset value of £855.6 million and had 55 assets. The trust is invested in by exempt funds, such as UK pension funds, charities and investment trusts. The top three largest assets than were: Maybird Shopping Park in Stratford-upon-Avon valued at £60 million to £65 million; Broken Wharf House, a hotel in London; and Thomas Road Industrial Estate in London.
L&G said the merger will unlock the potential for it to deliver greater scale and liquidity, while maintaining long-term performance for all investors.
The parties said investor engagement throughout the process has been significant, with an overwhelming majority of FHPUT unitholders voting in favour of the merger.
Mark Russell, chief investment officer for Federated Hermes Real Estate, said in a statement: “We are proud to be able to announce today the successful merger of FHPUT with the L&G Managed Property Fund. It is also with a sense of pride, and some nostalgia, that we bring our 24-year association with FHPUT, a consistent strong performer, to a close. As the market has evolved, the needs of our clients have likewise changed and, we therefore sought this merger to provide the best options possible for them.
"This outcome follows months of detailed and thoughtful planning, undertaken in close consultation with FHPUT’s unitholders. Our goal throughout has been to deliver a solution for our investors that offers continued market exposure to the majority, where feasible, while enhancing both stability and liquidity over the long term.
"We are confident that the L&G Managed Property Fund – managed by a like-minded and highly experienced team – will continue to serve our clients with the same excellence and integrity they have come to expect. We are grateful to the L&G team for their collaborative and constructive approach throughout this process.”
Michael Barrie, head of real estate, UK & Europe, L&G: “Bringing together two of the UK’s most established property funds is a significant step in our strategy to strengthen our market position. It reinforces the collaborative approach that underpins L&G’s private market platform growth, our credibility as the partner of choice for consolidation opportunities and our abilities to execute innovative solutions.
"Through combining deep sector expertise with strong partnerships, we will continue to seek resilient, long-term value for investors. The overwhelming support from FHPUT unitholders is a clear vote of confidence – both in our strategy and in our partnership with Federated Hermes.”
Rob Codling, head of commercial funds – real estate equity, L&G, said: “The MPF has been very acquisitive over the last 18 months, and this merger will continue to expand and strengthen our property portfolio. The assets complement existing holdings, and we expect the combined portfolios to drive strong returns for all investors. It has been a pleasure to collaborate with Federated Hermes through this process, to deliver a compelling solution for the FHPUT unitholders who we look forward to welcoming into the MPF.”