Kames Property Income Fund fills up on liquid assets with pub portfolio acquisition

The Kames Property Income Fund has completed the acquisition of four pubs for £9.475m reflecting a net initial yield of 4.9%.
The portfolio, which features three assets located in the South East and one in the North West, is let to two of the leading operators in the sector; Punch Taverns Ltd and Green King plc, who are the second and third largest owners of public houses in the UK, respectively. The assets, which are situated in strong trading locations, are let on long leases with annual increases which will generate income growth for the fund.
The Rye House, Hoddesdon, Hertfordshire; The Ship Inn, Wilmslow, Cheshire; and The Black Prince, Weybridge, Surrey are let to Spirit Group, now part of Green King plc, until 2044. The leases have fixed annual increases of 1.25% until 2022 after which the annual increases will be 2.5% for the remainder of the lease term. The Refectory, Godalming, Surrey is let to Punch Taverns Ltd until 2034 on a lease with annual increases of 2.5%.
Richard Peacock, co-manager of the Kames Property Income Fund said: “The managed public house market is experiencing excellent trading conditions with positive like-for-like sales growth in each of the last eight years and this has resulted in a scarcity of good quality freehold sites to fuel further expansion.
“Investors have been attracted to the sector due to the robust nature of the leading industry covenants and the long lease structures favoured by operators, often with fixed rental growth. As a result, the investment market for public houses has moved from a specialist sector into the mainstream investor market and increased interest in the sector has resulted in broadening demand with assets being acquired by institutions as well as private investors. The liquid market for public house investments has seen assets regularly traded in portfolios, by private treaty and in the auction room.
“The acquisition improves the fund’s risk profile by increasing the portfolio weighted average unexpired lease term, increasing the exposure to low risk covenants and reducing the void rate. In addition, the purchase boosts the proportion of the fund held in core assets with the small lot sizes and attractive lease structures creating readily marketable investments that will provide liquidity for the fund”.