Long lease real estate represents a defensive investment that blends traditional fixed income and real estate characteristics. It provides long-dated, inflation-linked income from high quality investment grade tenants, secured by prime UK real estate, further strengthening cash flows. The universe of long lease real estate assets comprises investment structures such as sale and leasebacks, ground rent transactions and income strips. All transaction types give investors the benefit of long dated lease contracts, with quarterly rental payments and contracted, inflation-linked uplifts.
Long lease real estate can offer diversification benefits versus equities, typically offering similar return potential but with less volatility. The risk profile can also be considered to be lower than traditional real estate, with an illiquidity premium over corporate bonds demonstrating relative value.
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UK long lease real estate usually constitutes prime real estate let on a long-term, inflation-linked lease to investment grade tenants such as listed companies, universities or local authorities. Typically, investments are structured through property sale and leasebacks, whereby an owner-occupier sells the freehold to an investor in order to release capital, and signs a 25-year plus tenancy. Ground rent transactions are a variation of this model, distinguished by an ultra-long lease often in excess of 60 years.
Inflation-linked rent payments offer the potential for secure income streams, with growth over time. The return profile is therefore can be well-aligned to the objectives of many institutional investors, further reinforced by the opportunity for capital value growth from ownership of the underlying property.
M&G’s long-term, relative value driven investment strategy invests in business-critical assets in sectors with positive structural drivers. Over more than two decades, leveraging real estate and fixed income expertise has enabled us to build a large, diverse portfolio of high quality investments, with the aim of delivering attractive and consistent risk-adjusted returns. The M&G Secured Property Income Fund, the flagship portfolio of the strategy, is ranked 1st in its peer group as per the 2023 Global Real Estate Sustainability Benchmark (GRESB) Survey1.
1 GRESB ratings should not be taken as a recommendation. Find out more about GRESB
EU long lease real estate usually constitutes prime real estate let on a long-term, inflation-linked lease to investment grade tenants such as listed companies, universities or local authorities. Typically, investments are structured through property sale and leasebacks, whereby an owner-occupier sells the freehold to an investor in order to release capital, and signs a 15-year plus lease. Ground rent transactions are a variation of this model, distinguished by an ultra-long lease often in excess of 60 years.
Inflation-linked rent payments offer the potential for secure income streams, with growth over time. The return profile therefore can be well-aligned to the objectives of many institutional investors, further reinforced by the opportunity for capital value growth from ownership of the underlying property.
M&G’s long-term, relative value driven investment strategy invests in business-critical assets in sectors with positive structural drivers. Over more than two decades, leveraging real estate and fixed income expertise has enabled us to build a large, diverse portfolio of high quality investments, with the aim of delivering attractive and consistent risk-adjusted returns. The M&G European Secured Property Income Fund, the flagship portfolio of the strategy has maintained its 5* green status per the 2023 Global Real Estate Sustainability Benchmark (GRESB) Survey2.