M&G Real Estate has agreed its first deal in Portugal with the purchase of 12 hypermarkets for €164m (£126.8m).
Despite concerns over the eurozone’s economic health, with the European Commission cutting its growth forecast for the year to 1.7% this month, the pension fund was attracted to the portfolio by the high yield available on the long-lease assets compared with yields on bonds and equities.
The price reflects a yield of 6.5% and the 624,000 sq ft of stores have been leased back to Sonae for 20 years. The deal is due to complete at the end of the month.
Sonae is Portugal’s largest retailer, with 415 stores, and the hypermarkets are operated under its Continente brand. The company has decided to monetise its property portfolio and in the second half of last year sold €132.4m of property.
In M&G’s Continental European Outlook report, released last November, the pension fund predicted retail rental growth in Portugal of 4.4%. It said: “There are opportunities to boost returns by investing in [continental Europe’s] affluent second-tier cities.”
M&G made its debut in Spain last July, buying the 377,000 sq ft Calle Rios Rosas office building in Madrid for €175m.
According to Cushman & Wakefield, Portuguese investment volumes hit a record €246.3bn in 2015, surpassing the 2007 high of €230.5bn. C&W forecasts another record year in 2016, with a 5.6% increase to €260bn.
Oliver Fraser-Looen, director of cross-border retail investment at Savills, said: “This portfolio offers exposure to an excellent and strong covenant. Portugal has witnessed growing demand from cross-border capital looking to invest in the market over the past 18 months. The sale of this portfolio further demonstrates the growing momentum being generated in the market in a deal that will enhance both parties’ respective positions.”
Savills acted for Sonae.
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