M&G Investments (M&G) has launched the first pooled institutional fund to invest in long lease Continental European real estate, building on the experience it has gained with its market-leading £3 billion UK strategy.
The M&G European Secured Property Income Fund offers pension funds and other institutional investors income growing in line with inflation through investment into real estate leased to tenants over the long term. Its first investments, totalling EUR100 million, are in the leisure and retail sectors in Belgium and Portugal. Exchange on two further deals in Germany and Ireland is expected shortly and further opportunities are under review.
M&G has 15 years’ experience of investing in UK long lease real estate, launching its M&G Secured Property Income Fund in 2007 for third-party investors. Sale and leaseback has become an increasingly attractive way for UK companies with operating assets to unlock the value of their real estate. This is usually an alternative to bank financing, while enabling companies to maintain long term occupational security.
The new fund’s immediate pipeline totals EUR130 million, providing investors with a gross yield of 5.8 per cent from leases to tenants which are 100 per cent linked to inflation with a weighted average term of 34.5 years. The portfolio dynamics will evolve as further deals are completed. M&G’s Fixed Income and Real Estate businesses combine credit and property expertise to analyse both tenant quality and the underlying value of the real estate.
Simon Pilcher, Chief Executive, Fixed Income, M&G Investments, says: “A new European financing landscape is emerging following the financial crisis, where pension funds and institutional investors, the natural owners of long term capital, are providing long term finance where banks previously dominated the market. European companies are beginning to seek alternative ways to raise finance, with sale and leaseback being an increasingly popular option.
“Launching this fund is the natural next step as we take more of our institutional strategies into Continental Europe.”
Alex Jeffrey, Chief Executive, M&G Real Estate, says: “Long lease property is an established asset class in the UK but is not as widespread in Continental Europe. This innovative fund will enable investors to access an evolving opportunity at a time when the European economy is improving. Having invested in Continental Europe for over 15 years, we are bolstering our investment capability and expanding our footprint across the region as we strive to provide clients access to quality real estate with long term value.”
The launch sees M&G’s first foray into Portuguese real estate through a portfolio of supermarkets, which have been sold by and leased back to Sonae, Portugal’s leading food retailer. The new fund invested alongside M&G Real Estate’s European core property strategy. The investment in Belgium is for a David Lloyd health and racquets club in Brussels, which follows a circa GBP350 million deal announced in January 2016 for the chain’s UK clubs.
The M&G European Secured Property Income Fund is managed by Ben Jones with Peter Riley as deputy fund manager. Retail Partners Europe advised M&G Real Estate for the deal in Portugal.