Aviva Investors sells €217m UK Recovery fund to SLI

Global asset manager Aviva Investors has sold its £165 mln (€217 mln) UK Real Estate Recovery Fund II to Standard Life Investments Property Income Trust (SLIPIT).

The fund launched in September 2013, having raised equity from 13 UK and European institutional investors.

The fund invests in UK commercial real estate with a focus on higher-yielding assets. Shortly after it launched, the fund bought 22 individual assets, predominantly in the office and industrial sectors. The assets were mainly located in London and the South East to benefit from strong rental growth in these areas.

Aviva Investors’ asset management team then executed development plans for each asset, focusing on the delivery of investment improvement activities. Since the fund was launched, these assets have yielded a good total return of 18.7% against a target of 8%, resulting in outperformance of close to 11%.

'We launched the fund two years ago after identifying a strong cyclical market opportunity to take advantage of the large pricing gap that existed between prime and secondary property,' said Anna Rule, Real Estate Fund manager. 'By making investments in the market expediently and picking good quality assets, we have been able to generate a good outcome for our clients.'

She added: 'Towards the end of last year, we made the decision that prevailing market conditions presented an attractive opportunity to execute an exit strategy of the portfolio after already achieving the investment target.'

The transaction will increase the size of SLIPIT’s gross assets by 50% and improve liquidity in the Trust.

'The portfolio is an ideal fit for the fund and reinforces our strategy to provide income and income growth for investors, as we get closer to the end of capital growth in this cycle. The properties are highly complementary to SLIPIT, being well diversified by sector, tenant and location,' said Jason Baggaley, fund manager of SLIPIT.

Following an equity raise and two property disposals in the final quarter of 2015, SLIPIT used £75 mln of new equity to acquire the portfolio, along with debt and cash reserves. The Company currently provides a 5.8% dividend yield on the issue price, and its shares are trading at 86p.

Baggaley added: 'For SLIPIT in 2016 we will be focusing on bedding in this new portfolio and delivering on the asset management opportunities to increase rental income from the properties.'

The portfolio includes the Foxholes business park in Hertford, a P&O warehouse in Dover, the Quadrangle in Cheltenham, the Elstree Tower, Borehamwood, Charter Court in Slough, further office buildings in Bishops Stortford and Epsom, industrial sites in Bristol, Manchester, Warrington, Horsham, Preston, Warwick, Corby and retail units and centres in Southend, Rochdale, Kingston, Newcastle and Hednesford.