M&G launches 1st long-lease Continental European fund

M&G Investments (M&G) has announced the launch of its first pooled institutional fund to invest in long- lease Continental European real estate.

The initiative, which builds on the experience M&G has gained with its £3 bn (€3.8 bn) UK strategy, will offer pension funds and other institutional investors income growing in line with inflation through investment into real estate leased to tenants over the long term.

Dubbed M&G European Secured Property Income Fund, the vehicle has made its first Investments with the purchase of two leisure and retail assets in Belgium and Portugal for a total of €100 mln.

M&G said it also expects to exchange on two further deals in Germany and Ireland shortly.

M&G has 15 years’ experience of investing in UK long-lease real estate, launching its M&G Secured Property Income Fund in 2007 for third-party investors. 'Sale and leaseback has become an increasingly attractive way for UK companies with operating assets to unlock the value of their real estate. This is usually an alternative to bank financing, while enabling companies to maintain long-term occupational security,' the company said in a statement.

The new fund’s immediate pipeline totals €130 mln, providing investors with a gross yield of 5.8% from leases to tenants which are 100% linked to inflation with a weighted average term of 34.5 years.

'A new European financing landscape is emerging following the financial crisis, where pension funds and institutional investors, the natural owners of long-term capital, are providing long-term finance where banks previously dominated the market,' said Simon Pilcher, Chief Executive, Fixed Income, M&G Investments. 'European companies are beginning to seek alternative ways to raise finance, with sale and leaseback being an increasingly popular option.'

He added: 'Launching this fund is the natural next step as we take more of our institutional strategies into Continental Europe.'

Alex Jeffrey, Chief Executive, M&G Real Estate, noted: 'Long-lease property is an established asset class in the UK but is not as widespread in Continental Europe. This innovative fund will enable investors to access an evolving opportunity at a time when the European economy is improving.'

The launch sees M&G’s first foray into Portuguese real estate through a portfolio of supermarkets, which have been sold by and leased back to Sonae, Portugal’s leading food retailer. The new fund invested alongside M&G Real Estate’s European core property strategy. The investment in Belgium is for a David Lloyd health and racquets club in Brussels, which follows a circa £350 mln deal announced in January 2016 for the chain’s UK clubs.

Retail Partners Europe advised M&G Real Estate for the deal in Portugal.