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PRUPIM buys supermarket assets for its fast-growing long lease fund

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PRUPIM has confirmed the purchase of three supermarkets on a sale and leaseback basis for M&G’s Secured Property Income Fund, a fund launched to meet pension funds’ growing appetite for investments that mitigate inflation risk.

The real estate fund manager has bought three Sainsbury’s Superstores for a total purchase price of GBP125m on a sale and leaseback deal. These leases, at stores in Worcester, Truro and Huddersfield, are for 25 years, with RPI-linked rent reviews.
 
Steffan Francis, Director of Fund Management at PRUPIM says: “These assets, which offer long-term income from a high-quality tenant, with the added security of good quality underlying real estate, meet the needs of institutional investors in the Fund. Pension schemes in particular are increasingly attracted to this Fund as properties such as these can help address inflation risk at a lower cost than equivalent government bonds.”
 
The M&G Secured Property Income Fund targets prime properties, many on sale-and-leaseback arrangements, let to high quality tenants. Other assets include offices, hotels, student accommodation and healthcare.  All leases have contracted rising rental income – typically linked to inflation – with a weighted unexpired term of around 25 years.
 
The M&G Secured Property Income Fund was launched three years ago to enable pension schemes to diversify some of their inflation risk management away from index-linked gilts. It currently offers an additional yield pick up of 3.5% over index-linked government bonds.
 
Since its launch on 1 August 2007, the Fund has also outperformed the IPD Monthly All Properties Index by 6.4% per annum.
 
This purchase maintains the weighted average lease length of the Fund at close to 25 years and increases the proportion of the Fund’s income that is inflation linked to over 80%.
 
Steffan adds: “The transaction allows investors to receive further exposure to a sector which has proven to be stable and liquid in varying economic environments. We expect the current strong appetite for the Fund to continue and are seeking out suitable investment opportunities with the necessary lease structure and quality of tenant.”
 
PRUPIM and G L Hearn advised the Fund, Jones Lang LaSalle acted for Sainsbury’s.

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