Cornerstone UK Premier Property Fund

London & Birmingham, UK

The Cornerstone UK Premier Property Fund will invest c €22 million in residential property in the UK. Focusing on London and Birmingham, the Fund will invest in stock units and second-hand properties in both cities. Approx 86 properties will be purchased by the Fund and the investment term is set for between 5 and 7 years.

The primary aim of the Cornerstone UK Premier Property Fund is to make a capital gain over a 5 to 7 year period. Your investment in the Cornerstone Fund will be made through a Pension Policy from a life company. The only exception to this will be those individuals wishing to make a direct investment in the Cornerstone Fund outside of a pension product. The Cornerstone Fund, a unit linked fund, will subscribe for shares and loan notes through a Luxembourg corporate structure, which will hold the underlying properties. The monies will be invested in identified UK residential properties. The purpose of this structure is to ensure the investment is made in a tax efficient manner. PriceWaterhouseCoopers has provided a tax opinion with respect to the structure.

Cornerstone Property Ltd will raise C€12.5million equity from pension and non-pension investors and the Fund will then be leveraged to c €22 million, which will be invested in UK residential property. Launching a Fund now allows us to buy property in a down turned market at prices not seen in the UK since July 2005. Furthermore, discounts of 15% - 40% apply to purchases due to the bulk buying power and strong relationships forged by Cornerstone Property with UK developers.

Highlights of the Fund include:

• Cornerstone Property have been investing and developing in the UK for 5 years and have forged excellent relationships with many of the countries top developers, allowing access to good deals and improved bargaining power.
• Savills Research, June 2008 predicts 19% total growth from 2010 to 2012 inclusive
• Reduced turnover in new build sales has resulted in lower building activity: residential schemes at planning stage are being resubmitted for alternative use or have been mothballed or cancelled completely - this will lead to a rebalance of supply.
• As output continues to fall, notwithstanding rising demand (supported by UK demographics, increased household formation and high immigration), price growth should return to the UKs housing market in the short term.
• Solid labour market, low interest rates and a shortage of new houses continues to support the market.
• The Euro/Sterling exchange rate is also a factor worth considering. Currently floating around .866p=€1, this points to a strong currency play over the next 3 - 4 years, as economists predict sterling will ultimately strengthen back to between .72p and .74p = €1euro. Buying at today's euro rate, and selling in a .72p=€1euro environment would represent a 20% on the purchase price of the Fund, assuming zero property growth.
• The borough of Greenwich, where we have identified London properties for the Fund, has remained virtually static in the past twelve months, with an annual change of -0.4% (UK Land Registry House Price Index, November 2008 figures). Average house prices in Greenwich now stand at £272,573 - across all house types and classifications. (The Fund is buying at an average price of £267,888).
• Developers pricing on stock identified in Greenwich for the Fund shows approx 20% uplift on those prices at which Cornerstone have negotiated for the Fund.
• Rental yields in the London development should achieve 6.17% gross.
• By 2016 the population of Greenwich is projected to rise by 17,400 people. This equates to further demand in an area already limited in supply for owner-occupiers and tenants alike.
• With London set to host the Olympic Games in 2012 this should have a positive effect on house prices. Historically, property prices in Olympic host cities such as Athens, Sydney and Barcelona soared directly before and during the games. London should be no different with establishment of improved transport services and urban regeneration. Greenwich is the venue for the equestrian events at London 2012 Games.
• Birmingham's property market has fallen 6.5% in the twelve months to October 2008 (according to the Land registry house price index, November 2008) with prices averaging £127,659 across all types and classifications. The average price of property going into the Fund for Birmingham stock is £140,312 for prime, city centre located stock.
• Developers price lists for the stock identified for the Fund shows approx 30% price increase to those prices achieved by Cornerstone for the Fund.
• There are two Birmingham developments proposed for the fund. One is an already operational serviced apartment business, situated in the heart of the city adjacent to the National Indoor Arena. The second, just off the cities main thoroughfare Broad Street, is signed up as a serviced apartment operation. Both offer the Fund pooled rental guarantees of 4.75% net.
• Birmingham's hotel/serviced accommodation market is unaffected by the economic downturn. As the number 1 conference destination in the UK, occupancy rates for hotels run at 72% per annum, and 64% for serviced apartments.

Overall, we feel that at the prices at which the Fund will buy stock in at, the falling interest rate environment in the UK and eurozone, UK demographic factors that will ultimately redress the supply/demand imbalance, and a strengthening of sterling against euro over the investment term, that this Fund will produce strong returns which will exceed the hurdle rate of 8.5% IRR.

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