Land Secs snaps up PFI specialist for £927m

Land Securities, the property giant, is significantly extending its presence in the growing public-private partnership market with the acquisition of one of Europe's largest PFI investors for £927m including debt.

The group's property partnership business Land Securities Trillium (LST) is to pay the fund manager Star Capital Partners £527m for Secondary Market Infrastructure Fund (SMIF), plus around £400m in total debt.

Some 30 other parties were interested in acquiring SMIF, including Australia's Macquarie Bank, Ontario's Teachers Pension Plan, 3i with Barclays and SG and HSBC Infrastructure.

The fund manager Henderson recently acquired John Laing, the only other sizeable British PFI portfolio, for £1bn after a bidding war with Germany's Allianz in a deal that highlighted the attractiveness of infrastructure assets.

SMIF was established in 2001 to create a secondary market for PPP/PFI projects and to take over the management of assets completed by other companies. Two years later, it was sold to Star Capital Partners, who grew it from a portfolio of 19 assets to 79, across six sectors: health, education, accommodation, prisons, transport and utilities. Its other shareholders were Halifax Bank of Scotland and AMP Capital.

Land Securities' chief executive, Francis Salway, said that after the deal the company now has access to around 100 PPP projects. Land Securities, which is the UK's largest quoted property company with a portfolio including 28 shopping centres, 32 retail parks and 11 supermarkets, moved into the PPP market in January this year, with a joint venture with the finance firm Mill.

Ian Ellis, chief executive of LST, said the acquisition secures the company's position in both the primary and secondary markets "where we expect to see increasing convergence".

"In less than 12 months we have accessed a portfolio of opportunities which would have taken many years to assemble through organic growth," he said. "We can now deploy our traditional strengths in customer service, asset management and financing through long-term partnerships."

Harm Meijer, an analyst at JP Morgan with an overweight rating on the stock, said the purchase gives Land Securities a leading position in the PPP market, utilises its property scale and positions it well for the future.

"We reiterate that Land Securities is one of our top picks for 2007," he said. " The company expects future PPPs from the UK government to amount to £25bn in the coming five years. It aims to capture a significant share of this."