Aviva Investors is to float its first real estate investment trust (REIT) on the Main market of the London stock exchange with the aim to raise £200 mln (€227 mln).
The trust, called Aviva Investors Secure Income Reit, will focus on UK long lease commercial property assets which are increasingly in demand by institutional investors. ‘With the FTSE at record highs and gilt rates at record lows, there is a search for yield and income. The aim is to provide that secure income through a diversified portfolio,’ said Renos Booth, head of real estate long income at Aviva Investors.
Aviva, the UK’s largest real estate manager with around £24 bn of properties under management, said the move will allow it to access a wider pool of investors than a traditional property fund. 'Traditionally our investors in long lease are consultant advised institutional pension schemes. What the REIT enables us to do is offer a similar secure and growing income to a wider investor base, including both wholesale and retail investors,' Booth told PropertyEU.
The company was one of the first to set up a secure income long-lease fund in 2004 with the launch of Lime Property Fund, which has now reached a size of £2 bn.
An Aviva group company is the fund’s cornerstone investor with a commitment to take a 20-25% share in the vehicle, which is expected to start trading in early December.
Aviva Secure Income Reit has a pipeline of £85 mln of property it has already agreed or is in advanced negotiations to buy (with a net initial yield of around 5.6%), and a pipeline of £400 mln of property assets it believes will allow it to have fully invested the IPO proceeds within nine months of admission. The company will invest in a diversified portfolio of long-lease commercial real estate assets located within the UK and leased to predominantly investment grade tenants, typically with a minimum lease length of 10 years and a targeted weighted average lease length at the portfolio level of 15 years to expiry.
This strategy will allow the REIT to offer an inflation-protected yield with lower volatility and lower capital value risk than traditional real estate, according to Booth. ‘The current environment of low interest rates and rising inflation is particularly favourable for long income real estate investments. Our strategy aims to provide a compelling risk return profile that offers secure income as well as lower volatility and lower capital value risk compared to traditional real estate investments, which we have a strong track record of delivering through investing in secure and long income real estate.’
Tenant credit quality is essential to providing security of income in a long lease strategy, he added. 'Our focus will be to acquire high quality buildings leased to predominantly investment grade tenants, because sub-investment grade tenants have a higher probability of defaulting on their rental obligations and properties let to them exhibit greater capital value volatility over time. Furthermore, we will pursue leases typically with inflation-protected rent reviews with a view to achieving our aim of delivering stable and predictable cash flows for investors over the long-term.'
Andrew Cunningham, the former chief executive of housebuilder Grainger, will chair the fund, which is targeting an annual yield of 5% and a total return of 7% per annum.
Earlier this year the company also launched a Continental European long lease strategy with a first close of €105 mln from two insurance investors secured in April. The fund's portfolio will consist of continental European properties with an initial focus on office, retail and alternative sectors in Germany, Austria, Benelux and Scandinavia.
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7 December 2018
Outlook 2018: Europe & UK Investment Briefing
The UK has had a roller-coaster ride this year, as a weakening economy and difficult negotiations over Brexit have created profound uncertainty in the market. The government lurches from crisis to crisis. Despite this, London has continued to attract massive capital inflows as investors from Asia as well as Europe have made the most of a weaker currency to buy trophy properties. What are the prospects for the year ahead?
Come to this time-efficient briefing for a chance to network, to hear the views of market experts and to ask your own questions.
Attendance is free but places are strictly limited.
