Aviva sells and refinances £503m portfolio

Aviva Commercial Real Estate Finance has sold a distressed UK portfolio for £503m to Kennedy Wilson Europe Real Estate.

The insurer has also provided £352.3m of staple finance, reflecting a loan-to-value of 70%. The senior debt facility has been split into a three-year floating rate loan (33%), a five-year fixed rate loan (20%) and an eight-year fixed rate loan (47%). The facility has a weighted average margin of 206 bps and has the flexibility to substitute properties over the life of the loans, based on the acquisition purchase price.

The deal displays both Aviva’s need to clean up its legacy loan problems whilst also maintaining its loan book to match the liabilities of its policy holders.

Ewan Tocher, managing director, Aviva UK Life Commercial Mortgage Restructuring, said:

“The sale of this portfolio was central to concluding our property restructuring strategy for 2014 and we are very pleased that the high quality nature of the assets and income streams were attractive to KWE as an investor.

“The sale has allowed Barry Fowler’s team in Aviva Commercial Finance to establish a new relationship with KWE through the provision of a new long term debt facility. With gilt yields at all-time lows, we can offer attractive and competitive all-in financing costs for quality portfolios owned by experienced operators and we are keen to develop this relationship further.”

The Bridgett portfolio was previously owned by companies controlled by the Noé family. The price paid reflects a net initial yield of 6.9%.The 180 assets total 3.5m sq ft and are 98% occupied with an average unexpired lease term to break of 9.6 years.

The assets are weighted 54% towards London and the South East. By sector, 62% are used for food, retail and convenience shopping, 14% let to leisure tenants, 12% are for industrial use and 6% each for hotel and office. It includes a Travelodge in King’s Cross, a Waitrose supermarket in Saltash, Cornwall and an Asda in Hemel Hempstead.

Mary Ricks, president and chief executive of Kennedy Wilson Europe, said:

“This significant portfolio acquisition allows us to access a high quality mixed-use portfolio with strong tenant covenants generating robust income streams at a material discount to the original loan amounts. The portfolio benefits from a number of institutional quality investments with good individual asset liquidity across the remaining portfolio. There are significant asset management angles, including growing income through lease re-gears, renewals, rent reviews and the leasing up of vacant space.

“We are pleased to have vendor finance provided on such a material transaction and to be adding Aviva to KWE’s portfolio of lenders. This has enabled us to reduce the group’s borrowing costs and extend the term to maturity.”

Kennedy Wilson Europe, which floated on the London Stock Exchange last February raising £1bn, has now taken on £910.4m of debt against its portfolio with a further £233.5m undrawn. The weighted average cost of debt has reduced to 2.8%, the term to maturity will increase to 5.4 years and the company’s average LTV will increase to 32.6%.

CBRE advised Kennedy Wilson and JLL advised Aviva.