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BP Pension Scheme buys supermarket from M&G

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The UK pension fund for BP has acquired a supermarket from the M&G Secured Property Income Fund, the largest UK long-lease property fund in terms of assets, as it begins disposing of assets for the first time since 2007.

The Sainsbury’s supermarket in Worcester was sold to the BP Pension Scheme (BPPS) for £27.25m (€32.9m) as the £1.9bn M&G fund shifts its focus to larger investments, operational assets and development finance.

The property was acquired in 2010 and was one of a number of supermarkets acquired by the fund in its early years.

The lease has 21.7 years left to run with annual RPI increases collared at between zero and 4%. The sale price represented an initial yield of 4.18%.

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The fund’s manager Ben Jones said: “We take a robust, long-term, relative-value approach to investment and if best value is achieved by selling a quality asset, we’re happy to do so, even when we have existing capital to deploy,” he said.

BPPS has previously shown an interest in supermarket holdings, last September swapping ownership of several retail parks for stakes in buildings occupied by supermarket Tesco and retailer Debenhams. 

Long-lease funds in the UK have attracted strong capital inflows in recent years from domestic pension funds looking to inflation-linked property to match their liabilities.

Meanwhile, a large UK pension fund has picked Orchard Street Investment Management to set up and run a £150m (€181m) UK long-lease commercial property mandate, the asset manager said.

Orchard Street said it had been awarded the £150m mandate by a client of Aon Hewitt and would target long-lease, index-linked investments of between £10m and £30m across the UK.

It said it expects to deploy the capital within the next 12 to 24 months.

Philip Gadsden, managing partner of Orchard Street, said: “Pension funds are trying to put together baskets of assets that meet or beat their liabilities, and therefore ought to be interested in properties that have inflation-linked rental streams.”

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