9th February 2011

Harwell – Joint Ventures and PartnershipNick Compton

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INTRODUCTION1

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INTRODUCTION

The use of partnerships and the participation of private sector investment have been key components in the continuing evolution of the science park sector.

Why is this the case – what does each party gain?

How are partnerships created?

What are investors looking for?

Supporting market context.

Ingredients for success.

Conclusions.

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What does each party gain?2

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Benefits for each party

Owner(Academic, Corporate or Public Sector)

New Partner (Investor/Developer)

Contributes:Land, tenants & incomeKnowledgePlanning consentScientific NetworksPeople

Contributes:Access to funding sourcesDevelopment expertiseMarketing toolsCommercial attitudePortfolio efficienciesResources

Benefits:Accelerated programDelivery vehicleOutsourcing opportunityCash release & share in upside without loss of control

Benefits:Exposure to sector (superior returns, specialist asset)Returns through active managementPortfolio opportunity

Joint benefits: Optimal marketing team, shared risks and benefits, clear vision and timescale.

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Harwell example

Find a lasting solution

Allow UKAEA to dispose of surplus land whilst retaining stake in future

Secure development expertise and establish credible development vehicle that can grow with site

Achieve alignment with STFC vision for their part of campus

Satisfy needs of stakeholders – provide a solution that balances imposed constraints with commercial reality

Allow outsourcing and downsizing of UKAEA’s RE resources

Maximise practical benefits to UKAEA within constraints of Government funding arrangements

Entity must be a private sector vehicle

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How are partnerships created?3

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Harwell JV

Deadlocked 50:50 Public/ Private limited partnership JV

Each partner itself a limited partnership

– PUBSP – between UKAEA + STFC

– PSP – Goodman

Allowed Goodman to use more efficient structuring on its side of JV

Land parcels transferred by long ground lease on a drawdown basis

Additional land restored by NDA transferred by same process

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What are investors looking for?4

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What are Investors looking for?

Investors prefer to participate in parks that display the following characteristics:

Located in a well established R&D cluster (demonstrating the well established factors for successful parks)

Local market for R&D property is active and does not require support of public subsidy

Whole park under single ownership/management structure to facilitate active management and limit internal competition

Vehicle is a private sector entity that can be geared and where equity stakes can be traded.

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Success Factors

Factors

1 Strong Science Base (academic/public/commercial)

2 Entrepreneurial Culture (evidence of successful IP commercialisation, growing companies etc

3 Growing company base across lifecycle

4 Ability to attract and retain staff (across full spectrum)

5 Strong demographics (existing pool of expert labour)

6 Property and Infrastructure (specialised and generic)

7 Effective networks (to promote open innovation, partnering etc)

8 Existence of support services/network

9 Availability of finance (across full spectrum)

10 Supporting policy environment/govt support

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Market Context5

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R&D Real Estate Market Characteristics

The bad news:

Industry rationalisation and generally poor economic conditions have combined to create a worldwide glut of surplus R&D assets.

UK based assets face global competition because R&D occupiers increasingly consider/compare locations on a regional/global basis.

Supply of R&D property in the UK stands in excess of 10m sq ft across the full size range from incubator/starter units through to full scale R&D campuses.

Supply will increase further if sites that are currently being discretely marketed as ongoing concerns reach the open market.

The good news:

The R&D sector’s desire to be leaner and more agile and to increase partnering, external interaction and open innovation is directing demand for specialist accommodation to established R&D clusters. Science Parks are well placed to benefit from this trend.

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Large Campus Closures/Downsizing

Image Location Future Use

Terlings Park,Harlow

Residential

New FrontiersHarlow

Uncertain?

South Eden ParkBeckenham

Residential/mixed use.

The FrytheWelwyn

Residential

Image Location Future Use

CharnwoodLoughborough

Existing use sale?

NewhouseLanarkshire

Existing use sale?

SandwichKent

R&D?

Approx 6,000 jobs/7m sq ft

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Ingredients for success6

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CHALLENGES

Multiple land owners/complexity

Multiple stakeholders (UKAEA, STFC, MRC, NDA, HPA, ShE, DIUS DBERR, SEEDA, CNC, OGC, HMRC, CO, BBSRC, NERC, EPSRC, Local Govt and Parish Councils)

EU regulated procurement regime

Ex nuclear research site potential contamination perception issues

Energy Act 2004

Conflict between vision and commercial reality

Governance vs Financial Return

Weakening market conditions

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KEY LESSONS LEARNT

Constant engagement with stakeholders

Get direct sign-off from senior management

Win over those against

Agree vision, objective and commercial proposition and don’t change them

Keep timeline but don’t force pace

Soft market test solutions before agreeing final structure

Don’t rush to market – incomplete propositions waste time and kill interest

Get comfortable with returns timescale – JV’s can be slow burners

Use a law firm with specialist expertise

Don’t over constrain or over-complicate JV. – But JV’s are complicated.

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THE OUTCOME

A true partnership

A deliverable Vision

An exciting commercial opportunity

A highly incentivisised private sector partner

A thriving environment for public and private sector science

An optimised environment for technology transfer

A maximised opportunity and financial return for the UK taxpayer

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Conclusions7

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Conclusion

Small but committed and expert group of private sector investors are participating in science parks

Opportunities for both parties to benefit from participation

Flexibility is required to adopt a more commercial approach whilst protecting the wider vision of the park.

Private sector investors will only participate in “investable” parks

Expectations need to be aimed at medium to long term success

Evolving R&D model favours open science parks over closed campuses – but only those that satisfy key success factors.

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Appendix8

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Harwell Partner Procurement Process and Tools

Candidate/Consortium No 1/0

PQQ Assessment Template

Submission Date 23.05.06 Time 00:00:00

Consortium Candiate ID

Consortium Information Declaration

Comments Comments

1. Company Name 2. Address

Comments Comments

5.14

3. Candidate Information 4. Personnel

Comments Comments

5. Financial Information

Net Assets (£m) £100

or

Managed Funds (£m) £0 Hurdle Pass

5.1 5.7

5.2 5.8

5.3 5.9

5.4 5.10

5.5 5.11

5.6 5.12

Comments

Scored Criteria 5.13 Score

<£10m = 0, £10-25m = 1, £25-50m = 2, £50-£100m = 3, >£100m = 4, >£200m = 5, not geared = 3

5.14 Score

>90% = 0, 75-90% = 1, 50-75% = 2, 25-50% = 3, <25% = 4, no gearing = 5

5.15 Score PANEL

5.16 Score ASSESSED

Assess for completeness, scale, comparability, how recent, complexity, and successful outcome.

Total 20

Comments

No

Complete Complete

Complete Complete

Complete Complete

Complete

Complete

Complete

Complete

Complete

Complete

Complete

Complete

Complete

Complete

Complete

Complete

5

5

5

5

Complete

Complete

Complete

Complete

Pass

OJEU Notice PQQ Scoring

ISOP Stage

Web Based Procurement Portal ITN Stage

Closure

PQQ Stage

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Emerging Land Use Zones