UK - M&G Investments has acquired five Premier Inn hotels for its Secured Property Income Fund, which offers inflation-linked income to institutional investors, including UK pension schemes.
The properties were purchased from Whitbread, the UK's largest hotel and restaurant company, for more than £36m (€40.7m), and they will be leased back to the seller for 25 years, with rentals linked to the retail prices index - one of the two major indicators of UK inflation.
The fund's portfolio now comprises 15 UK properties, let to a range of quality tenants from different sectors of the economy.
M&G Investments, which combines fixed income expertise with the real estate expertise of PRUPIM, said recent inflows from investors seeking this approach have enabled the fund to acquire seven properties totalling nearly £190m in the last four months.
"This latest purchase provides investors with exposure to the UK's largest budget hotel chain at a time when the sector has proved surprisingly resilient to the economic downturn," said Ben Jones, fund manager.
Jones said the UK hotel market was ripe for growth as budget hotels form a much smaller part of the hospitality sector (13%) than in other countries, such as France, where they represent 23%, and the US where they represent 25%.
"Many investors seem to be debating whether commercial property as a whole is yet to bounce, as other assets have, but the long-lease end of the sector has been offering attractive, inflation-linked income opportunities for several years," Jones said.
"Investing here is popular because investors receive income from blue chips like Whitbread and Tesco, linked to inflation, for around 25 years - thereby offering similar return characteristics to an index linked bond, but with the benefit of the long term capital upside potential of owning the underlying real estate," he added.