1. LEGAL AND GENERAL PROPERTYMAY 2013 11 PETE GLADWELL Head of Public Sector Partnerships 10 October 2013 HOUSING LIN: Aligning Long Term Investment with Long Term Care LEGAL & GENERAL. FEBRUARY 2015 EVERY DAY MATTERS

2. LEGAL AND GENERAL PROPERTY 2 Agenda - Introducing Long Term Investment - Does it still have a role to play in addressing Long Term Social Needs? Where are we going wrong? The Aim of the Game Distractions New Models - Timing - Conclusion - Q&A FEBRUARY 2015

3. LONG TERM INVESTMENT 3 Hyde Housing Group £102m, 15- year facility Sentinel Housing, private placement (registered social housing provider in Hampshire) £40m, 25 year facility enabling 500 affordable homes billion pound investment programme 15 £429m rebuild of the Royal Liverpool University Hospital. University of Southampton £93m, 40 years income 1,104 beds £252m investment 50 year lease Acquiring 4,000 homes Building 7,00 houses Methodist Care Homes £70m long term (30 year) RPI linked lease. THE ENGLISH CITIES FUND Schemes in Liverpool, Plymouth, Canning Town, Salford and Wakefield, over 5.4m sq ft of mixed-use space, brownfield land Transport and Logistics c£320m, maturities to 30 years

4. LEGAL AND GENERAL PROPERTY 4 Applies to both in-house L&G Annuity and third party pension fund capital Approached with a different mindset… FEBRUARY 2015

5. LEGAL AND GENERAL PROPERTY A New Paradigm? “WE ARE LIVING IN THE TRANSITION FROM OUR EXISTING WORLD SYSTEM, THE CAPITALIST WORLD SYSTEM OR SYSTEMS, TO ANOTHER WORLD SYSTEM OR SYSTEMS. WE DO NOT KNOW WHETHER THIS WILL BE FOR BETTER OR FOR THE WORSE. WE SHALL NOT KNOW UNTIL WE GET THERE, WHICH MAY NOT BE FOR ANOTHER 50 YEARS NOW.” 5 FEBRUARY 2015 Does Capitalism have a long term social role?

6. LEGAL AND GENERAL PROPERTY The Intersection of Long Term Social Needs FEBRUARY 2015 6 HOUSING CAREHEALTH Long-Term Investment

7. LEGAL AND GENERAL PROPERTY Where are we going wrong? Huge reliance on banks and ‘traded credit’: paper contracts that relate to loan structures created by banks Bond yields can fluctuate dramatically (see image) based on external factors and traders’ profit taking – unlike people’s pension rates and savings Profile of payments doesn’t grow, so doesn’t match rental growth over time Very little account taken of fundamental properties: all about the corporate and capital structures “All our eggs are in one basket” – RP Treasurer How many layers between the money and the social need? 7 FEBRUARY 2015

8. LEGAL AND GENERAL PROPERTY Investment Banks Potential Sources of Interference in Transmitting Society’s Long Term Capital to Address Society’s Long Term Needs FEBRUARY 2015 8 HOUSING CARE HEALTH Long-Term Investment PFI’s Housing Association Debt Gilts (Govt borrowing) -> Grant Care Home (Property) Investments More Risk Less Risk Securitisations Some have proved themselves vital… others are only in it for themselves! Local Authorities and Govt Identifying and Quantifying Long Term Need Developers

9. LEGAL AND GENERAL PROPERTY Directing Society’s Long Term Capital to the Long Term Need FEBRUARY 2015 9 HOUSING CARE HEALTH Long-Term Investment Flexibility to take More Risk Or Less Risk Seeking an organic and simple transmission of Money to address Need Local Authorities (and Govt) Identifying and Quantifying Long Term Need Grant (Govt borrowing) Care Home Operators Housing Associations Contractors

10. LEGAL AND GENERAL PROPERTYFEBRUARY 2015 10 Timing: long term investment has never been ‘cheaper’… “A good to time secure long term investment”

11. LEGAL AND GENERAL PROPERTY 114 What might this look like? L&G funds construction of care home, or number of care homes Local Authority or Major RP leases these for 20 – 50 years: rent typically c.60% of normal care home rent Long-term (20 yr+) investment provides income for our commitments to pensioners Typically index-linked (inflation or otherwise) income growth Lease payments set at c.60-70% of gross rents, with remaining c.30-40% of rent retained for management, maintenance, and to generate surpluses LA may sub-contract management and maintenance to an RP, existing operator, or in-house L&G or LA can procure Contractor to build the homes Depending on the lease terms, the homes can be returned to the RP or LA at lease end. Focussed on long term alignment of interests FEBRUARY 2015

12. LEGAL AND GENERAL PROPERTY 12 Conclusion - Institutions need to step up to the challenge of funding more of the Social Infrastructure this sector requires - New Models are required, that direct Society’s Long Term Money more cheaply and accurately to Society’s Long Term Needs - Structures should be more organic, and driven by relationships around shared values, not banks - Investments viewed as long term partnerships with an attractive social return, not driven by short term profit-making - Long term sustainability of the funding model is vital for both parties Clear alignment between funding institution and care provider FEBRUARY 2015