UK - A complex deal between Universities Superannuation Scheme (USS) and Henderson Global Investors has enabled the pension fund to diversify its UK retail warehouse portfolio, while the investment manager has reduced the leverage in one of its funds.
USS has bought two retail warehouse assets in Newcastle for £50m (€55bn) from Henderson's UK Retail Warehouse Fund while simultaneously selling its interest in Manchester Fort Shopping Park (pictured) for £101m to the same vehicle.
As part of the transaction, USS received approximately £51m in new units in the UK Retail Warehouse Fund - a fund it is already invested in.
The transaction means USS still has exposure, albeit at a reduced level, to Manchester Fort Shopping Park, as well as two new retail warehouse assets and an increased interest in the Henderson fund.
Henderson's UK Retail Warehouse Fund, meanwhile, has ultimately received a capital injection, reducing its loan-to-value ratio.
Graham Burnett, head of property at USS, said: "This transaction has enabled us to diversify our retail warehouse holdings with the acquisition of two strong open A1 retail parks in Newcastle, together with an increased investment in the Henderson UK Retail Warehouse Fund. USS has acquired in excess of £450m during 2009 prior to this transaction and we continue to pursue other opportunities."
The two individual assets sold to USS were the Kingston and Belvedere Retail Parks in Newcastle, each reflecting a net initial yield of 5.75%, subject to the settlement of the outstanding rent reviews.
Henderson said the acquisition price of the Manchester Fort Shopping Park reflected a net initial yield of approximately 7.1%, including rental guarantees.
It added that because of the fund's competitive loan arrangements, the yield on the Manchester asset provides the vehicle with a cash-on-cash return at purchase of over 10%.
The UK Retail Warehouse Fund's gross asset value following the transaction totals £922m.
"This transaction is an excellent example of the growing confidence shown by investors in retail warehousing and of the fund," said Michael Neal, fund manager at Henderson.
" Valuations have been increasing every month since June 2009 and the last three months in particular have seen strong capital growth generating total returns for the fund of over 18% during that period.
"The injection of new equity resulting from the transaction, together with the recent valuation growth of the portfolio, now provides the fund with very significant headroom on its banking covenants."
He continued: "The Manchester Fort Shopping Park provides the fund with opportunities to add value through active asset management and we will continue with the excellent progress made by USS in strengthening the attractiveness of this dominant shopping park".