UK’s biggest long-lease fund makes first disposal

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  • Supermarket

The M&G Secured Property Income Fund, the largest UK long-lease property fund in terms of assets, has made its first disposal since its launch in 2007.

The Sainsbury’s supermarket in Worcester was sold to the BP Pension Scheme for £27.25m (€32.9m) as the £1.9bn M&G fund shifts its focus to larger investments, operational assets and development finance.

The Sainsbury’s property was acquired in 2010 and was one of a number of supermarkets acquired by the fund in its early years.

The lease has 21.7 years left to run with annual RPI increases collared at between zero and 4%. The sale price represented an initial yield of 4.18%.

The fund’s manager Ben Jones said: “We take a robust, long-term, relative-value approach to investment and if best value is achieved by selling a quality asset, we’re happy to do so, even when we have existing capital to deploy,” he said.

Long-lease funds in the UK have attracted strong capital inflows in recent years from domestic pension funds looking to inflation-linked property to match their liabilities.

This week, Orchard Street Capital revealed it been hired by a large UK pension fund to pursue a long-lease strategy on a separate account basis.

Orchard Street said it had been awarded the £150m mandate by a client of Aon Hewitt and would target long-lease, index-linked investments of between £10m and £30m across the UK.

It said it expects to deploy the capital within the next 12 to 24 months.

Philip Gadsden, managing partner of Orchard Street, said: “Pension funds are trying to put together baskets of assets that meet or beat their liabilities, and therefore ought to be interested in properties that have inflation-linked rental streams.”

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