AXA raises £125 mln for £1bn Long Lease UK fund

AXA Real Estate Investment Managers is seeking to raise £1 bn (€1.2 bn) over the next five years for its recently launched UK Long Lease Property Fund. The fund aims to offer UK institutional investors, pension schemes and investment consultants a new property-based, liability matching solution with long and secure income streams.

The Paris-based company - the leading real estate portfolio and asset manager in Europe - has already raised an initial £125 mln for the new open-ended fund which will target a range of sectors from traditional long lease assets. Examples include supermarkets, distribution centres and offices, as well as more alternative assets such as healthcare, social housing, student accommodation, hotels, leisure, automotive and ground leases.

The UK market typically has longer leases than continental European countries, while the leasehold structure is also attractive to investors, the Financial Times reported in an article breaking the news on Monday. 'UK rents are reviewed on an upward only basis every five years, so that the rent can never fall during the term of the lease, compared to the annual indexation used in France, Germany and Spain,' the paper noted.

The UK Long Lease Property Fund will aim to maintain a long weighted, unexpired average lease term of 20 years or more mostly with inflation indexation or fixed rental uplifts underpinned by high quality tenant covenants. This strategy is expected to generate long term and stable income streams often with inflation indexation for institutional investors that are looking for investments with liability matching attributes and is particularly well suited for pension schemes.

Deborah Shire, Global Head of Business Development at AXA Real Estate, said that record low bond yields meant that liability matching has become the key challenge for many institutions and pension schemes in particular. 'We believe that the stable long term and mostly inflation indexed income generated by long lease property offers an attractive alternative for investors, while, at the same time providing diversification benefits to the rest of their fixed income and property portfolio.'

AXA Investment Managers had over €43 bn of assets under management at the end of September 2012. It has over 130 third party institutional clients spread across the world, in addition to managing funds for 10 AXA
insurance companies.