abrdn seeing attractive opportunities in real estate debt market and accelerates deployment for UK pooled fund
abrdn has secured three new investments for its Commercial Real Estate Debt fund II (CRED II), taking deployment to approximately 50%.
The first investment by the fund is secured against a portfolio of best-in-class, prime central London ultra-luxury hotels with a long history of excellent performance. The loan has a 38% loan-to-value (LTV), is rated as A and delivers a total return of c.6% (>100bps pickup over equivalent rated corporate bonds).
The second deal, currently in documentation, is to be secured against a portfolio of high-quality logistics assets located across the UK with long leases in place to high quality tenants. The loan is structured as a 50% LTV loan, rated as BBB and is expected to deliver a total return of c.6.3% on completion (based on current interest rates).
The third investment, also in documentation, will be secured against a prime leisure asset which has demonstrated exceptional performance since COVID and has a long and proven operational track record. The deal is structured with a 45% LTV, rated BBB and is expected to deliver a total return of over 7% (again based on current interest rates).
In addition to these deals, the pipeline for the fund is increasingly buoyant and abrdn has a very positive outlook for the prevailing investment environment. With real estate equity capital value corrections, lower LTV’s and higher margins, abrdn expect to continue to see attractive opportunities in which to deploy the remaining capital in the fund.
Neil Odom-Haslett, Head of Commercial Real Estate Debt at abrdn, said: “We are delighted with the CRED II fund investments to date, which are providing investors with access to significant illiquidity pick up. Across the entire abrdn CRED book, we have had no loan losses to date since inception and indeed, high standards in our underwriting and rating methodology coupled with working alongside experienced borrowers, is key to the success of the abrdn commercial real estate lending platform. As we move through 2023, the lending market will see shake outs, meaning that partnering with a experienced lender will be critical for clients. For abrdn and indeed the alternate lenders, these are exciting times in having the ability to offer investors what could be compelling risk adjusted returns in this asset class. We believe that abrdn is well positioned to help those investors capitalise in this market”.
Commercial real estate debt demonstrates a particularly attractive opportunity in the private credit markets, with spreads and illiquidity premia reaching 10-year highs over the past few years. This comes because of the growing funding gap in this space as banks continue to reduce financing – allowing pension and insurance investors access to this area.
CRED II is an evergreen, UK-focused strategy for institutional investors. The fund is designed to generate attractive levels of income by investing in a diversified portfolio of predominantly senior, investment grade real-estate debt assets. CRED II will have an average rating of BBB and is targeting spreads and illiquidity premia in the range of 375-575bps and 100-300bps respectively. The fund held its first close in March 2022 with £205m in commitments and aims to grow to £1bn.
The commercial real estate debt platform at abrdn is supported by its £94bn1 Fixed Income team, and the Real Estate team representing over £40bn1 of assets. abrdn’s wide-spanning Private Credit business has over £12bn1 in AUM and is well positioned to provide tailored solutions to clients’ long-term needs.
1 As at 30 June 2022.
abrdn invests in Dorset-based Wessex Internet
abrdn’s Core Infrastructure team has agreed to make a major equity investment in Wessex Internet.The investment will help to accelerate the deployment of Wessex Internet’s full fibre-to-the-home network across rural parts of the South West of England. abrdn will work together with Wessex Internet’s founders to support their vision for the future growth of the business.
Wessex Internet is a full fibre operator in the South West of England, having built an impressive fibre footprint across Dorset, Hampshire, Wiltshire and Somerset. The business has a network footprint covering tens of thousands of homes across these counties and has secured significant contracts underpinning a business plan that targets an additional 150,000 premises by 2027, through a combination of subsidised and unsubsidised capital investment. Notably, at the end of August 2022, the UK Government announced that Wessex Internet had been awarded the first subsidy contract under their new £5bn Project Gigabit broadband scheme, which will reach 7,100 premises in rural parts of North Dorset.
This is the first investment funded by abrdn’s third Core Infrastructure Fund, ASCI III, which is raising a target €1 billion to invest in the Pan-European infrastructure mid-market, and follows on from the final investment in abrdn’s second Core Infrastructure Fund, SLCI II, which invested in the German train rolling stock sector.
Dominic Helmsley, Head of abrdn Core Infrastructure, said: “We are committed to delivering reliable and essential infrastructure to local communities. This investment is our second UK rural fibre investment and underpins our core capabilities and ambitions in real assets.”
Alex Anderson, Investment Director, abrdn Core Infrastructure, added: “We look forward to working alongside Wessex Internet’s founders and management team, leveraging our capabilities and experience in the infrastructure sector to deliver this next phase of growth to the benefit of a number of historically underserved rural parts of the country.
This kind of investment is crucial to allowing the supply of ultrafast, reliable and cost-effective broadband in rural areas to help drive productivity, connect communities and reduce the digital divide across the UK.
Hector Gibson Fleming, Chief Executive Officer at Wessex Internet, commented: “Wessex Internet is a local Dorset company, our fantastic team have already built a track record of delivering outstanding products and exceptional service through our collaborative approach to full fibre rollout into underserved rural communities.
This investment from abrdn is a demonstration of the success of our differentiated strategy. As we accelerate our rollout, we will fulfil our vision of connecting the rest of the communities within our region, creating a truly local broadband operator with a trusted brand that fully understands its customer base. We are hugely excited about working with the abrdn Core Infrastructure investment team to build on our reputation as we enter this next phase of growth.”
abrdn launches MyFolio Sustainable Index range
abrdn has extended its existing £16.5 billion* MyFolio franchise, launching the MyFolio Sustainable Index range. The range of five risk targeted multi-asset fund of funds has been designed to be closely aligned with the MyFolio Index range with sustainability considerations included.
Each MyFolio Sustainable Index fund aims to generate growth over the long term (5 years or more) while being managed to a defined level of risk. The funds will invest in a manner that seeks to account for long-term environmental and social risks and opportunities and to promote good corporate governance, through investment in other funds.
Justin Jones, senior investment manager, said: “The MyFolio Sustainable Index range lets customers access investments which aim to do more good and less harm, versus funds without an explicit sustainable mandate, whilst retaining all the benefits of MyFolio’s Strategic Asset Allocation and multi-asset portfolio construction approach, at a level of risk they are comfortable with and with a low cost which is capped.”
As a fund-of-funds range, the portfolios are comprised of carefully chosen funds which meet the requirements of the MyFolio Sustainable Index investment approach. The overarching consideration is to limit harm through a series of key screens and exclusions.The range allocates capital to avoid companies whose business practices or the industry they’re in are deemed to be controversial.
That means the range avoids companies which manufacture controversial weapons, as well as those who don’t meet UN standard on human rights, labour, environment and anti-corruption (UN Global Compact). The range backs companies that treat people and the planet well, which means investing in funds seeking lower risks around people and planet or can help companies with lower scores to change direction
Daniel Reynolds, Investment manager abrdn added: “The launch of MyFolio Sustainable Index increases the number of MyFolio ranges to seven, offering advisers flexibility and choice in terms of price, componentry and sustainability credentials. This new range offers advisers a robust suite of well diversified multi-asset investment portfolios, which explore sustainable investment in a controlled risk environment. Our tried and tested Strategic Asset Allocation process provides a solid foundation from which we aim to deliver strong returns to investors seeking a sustainable approach in their investment choice.”
*(as at 31 March 2022)
abrdn invests in Italian gas network
abrdn has invested EUR 60m on behalf of its strategic partner Phoenix Group (“Phoenix”) in Societa Gasdotti Italia S.p.A (“SGI” or the “Company”) the second largest Italian Transmission System Operator with 1,700km of high-pressure gas network.
The loan is used to refinance existing debt, extend the debt maturity profile and support new investment including the replacement of existing infrastructure, extension of the pipeline, and construction of a new compressor station. SGI benefits from an established and supportive regulatory framework in Italy with limited volume risk ensuring a sustainable stream of cash flows to our clients.
Gas infrastructure plays a key role in the energy transition in Europe, and part of the proceeds of the refinancing will be used to upgrade the network in preparation for transportation of hydrogen. SGI achieved a 5-star rating from GRESB in the most recent assessment round, demonstrating strong operational ESG performance against peers. Throughout the life of the loan the Company will provide annual reporting on a number of ESG KPIs including Scope 1/2/3 carbon emissions, board gender diversity and health and safety incident rates.
Albane Poulin, Head of European Private Placements at abrdn said: “We are delighted to support Ontario Teachers’ Pension Plan and Swiss Life in the refinancing of SGI. This investment allows us to support SGI’s capex plan to upgrade the existing networks in order to improve energy efficiency, ensure security of supply in Italy as well as preparation for energy transition. SGI benefits from an established and supportive regulatory framework in Italy with limited volume risk, which can provide a sustainable stream of cash flow to our clients.
“SGI will play a key role in the decarbonation of gas through transportation of hydrogen and biomethane in their pipeline. We are particularly excited to execute our first private credit transaction in Italy, underpinning a key strategic priority for abrdn to grow our core capabilities in real assets”
Manuel Dusina, Head of Infrastructure, Phoenix Group added: “Core defensive regulated assets like this in jurisdictions outside of the UK are a key element of our approach to diversification when building our portfolio. Investing in line with our sustainability agenda is also important to us, and this investment improves energy efficiency and upgrades in SGI’s network, and will play a vital role in the energy transition within Italy and Europe.”