Kennedy Wilson Europe Real Estate (KWE) has exchanged contracts on a 180-strong mixed-use UK property portfolio for £503.0m, financed by a three-tranche multi-duration £352.3m senior loan from Aviva Commercial Real Estate Finance.
KWERE is to acquire the portfolio, at a price which reflects a net initial yield of 6.9%, from multiple receivers with effectively stapled finance from Aviva, with the acquisition expected to complete at the end of January.
Aviva has provided a £352.3m three-tranche senior debt facility – aligned to the projected timeline of KWE’s business plan for the 180 properties – and is comprised of: a £116.3m three-year floating-rate tranche; a £70.5m five-year fixed-rate; and a £165.6m eight-year fixed-rate.
The weighted average margin across the three tranches is 206 bps, providing KWE with the flexibility to substitute properties over the life of the loans, based on the acquisition purchase price.
The property portfolio is 98% occupied with a WAULT of 9.6 years (11.1 years to expiry) and generates total net rental income of £36.1m. Its geographic concentration is predominately England, 54% weighted towards London and the South East with 5% of value weighted towards Scotland and Wales.
The primary sector use is retail, food and convenience, comprising 62% of the value of the portfolio followed by leisure at 14%, industrial at 12%, and office and hotels at 6%, respectively.
The portfolio includes strong institutional grade properties with the top 10 assets representing 31% of the purchase price and a combined value of £153.5m. These include a Travelodge hotel in King’s Cross, a Waitrose Superstore in Saltash, Cornwall and an Asda Superstore in Hemel Hempstead.
The top 10 tenants represent 32% of total net rental income with a WAULT of 12.6 years (14.9 years to expiry). These include robust covenants such as Wincanton, Debenhams, Travelodge, Waitrose and Matalan.
Upon completion of the acquisition, the KWE investment portfolio will have a value of £1.95bn, with a rental income of £130.1 million, generating a net initial yield of 6.5%.
In a statement, Mary Ricks, president and CEO of Kennedy Wilson Europe, commented: “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.”
Ewan Tocher, managing director, Aviva UK Life Commercial Mortgage Restructuring, added: “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.”
CBRE advised KWE and JLL advised Aviva.