Cordea Savills is the latest fund manager to respond to the continued demand from pension funds for long-leased, inflation-linked assets.
The manager has £95m of new money from an existing pension fund client to buy properties with RPI or fixed rent increases.
The assets bought will be pooled with £30m of stock from the client’s existing £325m direct property portfolio, also let on fixed uplifts, to create a separately benchmarked portfolio.
“Our client appreciates the bond-type qualities of these assets and decided to give us some more money,” said Savills fund director George Tindley.
“Clients want these assets – demand is coming from the actuaries and consultants who continue to see them as a good way to match liabilities for mature pension funds.”
An initial £23.46m has been spent on the Vue Cinema in London’s Leicester Square, at a relatively high 8.25% initial yield, reflecting the fact that the interest is a head leasehold only from freeholder Gascoyne Estates, running for 22 years. The lease has fixed annual 2% uplifts.
Long-leased, inflation-linked assets have outperformed the IPD all-property index over the past few years.
Investors continue to be keen on such assets; fund trading platform PropertyMatch this month reported investor interest in buying into the M&G Secure Property Income Fund at a 5% premium to net asset value.
However, some managers have questioned whether the value of these relatively expensive assets may be vulnerable to rises in bond yields.