Kennedy Wilson Europe Real Estate (KWE) has completed the disposal of the underlying collateral of the Avon loan portfolio to a UK infrastructure fund for a total consideration of £100.3m, reflecting an exit yield of 6.5%.
The six-strong non-performing loan tranche was part of the wider Lloyds Banking Group £649.3m Project Avon UK loan portfolio, as reported by CoStar News in 2014.
Net cash proceeds, after transaction costs, was £99.1m, which compares to the £93.5m KWE paid Lloyds in June 2014. The yield on cost was 7.3%.
KWE’s Avon loan tranche was secured by five UK regional high-tech fire control centres (FCCs), totalling 114,900 sq ft that are leased to the UK government. The properties are located on business parks in Castle Donington, Durham, Wakefield and Wolverhampton.
The leases benefit from five-yearly rent reviews with fixed indexation of 2.5% per annum and a WAULT of 15.1 years.
Mary Ricks, president and CEO of Kennedy Wilson Europe, said: “The sale of this non-core portfolio is a great example of our debt and asset management professionals working together to improve the security of income by amending the covenant strength, thereby growing the portfolio value. We resolved the loan by selling the underlying real estate where the leases are materially over rented and we anticipate limited future growth prospects.
“The Avon portfolio has delivered robust unlevered returns to the company with 15.3% return on cost and 10.0% unlevered IRR; both ahead of business plan targets and timing. The sale forms an important part of our £300m non-core disposal programme which remains on track. A further update will be provided at our full year results on 26 February 2016.”
EY Real Estate Corporate Finance and CBRE advised KWE.
The remaining £533.4m Project Avon was won by Cerberus Capital Management in June 2014 for £352m, beating Oaktree Capital Management and KWE. The remaining Project Avon, comprised of 43 loans over 23 borrowers secured by 268 UK-wide commercial properties, generates an annual net operating income of £22.2m.
By geography, Project Avon’s assets include 89 properties in Scotland, 66 in London, 29 in the North West, 18 in the South West, 15 in both the East of England and East Midlands, 12 in the South East and a balance of 25 spread throughout the remaining regions.