Universities Superannuation Scheme Limited – the trustee of the UK’s largest private pension scheme by way of assets – has agreed the terms of a major investment in bp’s freehold property estate of 199 UK forecourts.
In a transaction arranged by USS Investment Management, the wholly-owned subsidiary and principal investment manager and adviser to the scheme, USS has agreed to invest nearly £400m for a 49% stake in a sale and leaseback of the property estate. This has been made possible by the creation of a new joint venture holding structure which will become landlord. bp will retain sole operational control of the forecourts as tenant under new 20-year leases.
This deal allows bp to realise some of the value tied up in its freehold property portfolio and to reallocate capital elsewhere, without affecting day-to-day operations. Earlier this year, bp announced its ambition to become a net zero company by 2050 or sooner, and to help the world reach net zero. Part of its new strategy includes aiming for a near 10-fold increase in electric charging points globally from 7,500 today to 70,000 by 2030.
In return, USS will secure annual rent reviews which are linked to inflation, providing the scheme with liability-matching cashflows. The long-term nature of the leases mirrors the needs of the pension scheme to secure more predictable cash flows in order to pay the pension promises that have been made. The additional benefit of a link to inflation is also attractive to a large pension scheme such as USS as it provides some hedge against future economic uncertainty.
This investment will join an existing property portfolio of nearly £4 billion which forms part of USS’s £18 billion of investments in Private Markets assets. These are typically long-term investments made in the likes of property or companies and assets with inflation-linked cash flows.
USS Investment Management CEO, Simon Pilcher, said: “This transaction allows USS to partner with a quality Investment Grade business in a long-term arrangement that supports our duty as a Trustee to pay those pensions which have already been promised.”
USS Investment Management Deputy Head of Property, Alex Turner, said: “This is a prime portfolio which is diversified across the UK and which benefits from sustainable rents set against the proven trading performance from both fuel and non-fuel sales.”
Advisers to USS on the transaction were: Cushman & Wakefield (Property), Gowling WLG and Dentons (Legal).