FundInfo



Fund Manager
Richard Kirby
Fund Manager Commentary
	After a weak first half when total returns were negative, the market rallied strongly in the second half of 2009. The upturn was largely investment driven. By mid-year, yields had reached high levels by historic standards and capital values had dropped by more than 40 per cent from the market peak in 2007. This attracted opportunistic funds and also made property attractive to income investors – provided that the income stream was secure. Investor activity was focused on prime stock but there was little such property available. The nature of the investment market wastransformed during the year from one dominated by fund outflows, forced sales and limited buyer interest, to one where there was competitive bidding for stock, fund inflows and sharply rising prices. The year saw overseas investors providing a major support to property, especially in Central London. Although the lack of prime property did push some investors further up the yield curve in order to secure stock, with some secondary yields moving inwards as a consequence, secondary property generally remained out of favour during the year. The occupational market, affected by a steep and sudden economic downturn, remained weak throughout 2009. The IPD All Quarterly and Monthly valued funds (comprising directly held properties only) (“Benchmark”) recorded capital growth of 8.1 per cent over the quarter. In comparison the Company’s direct property portfolio recorded an ungeared capital growth of 10.2 per cent (accounting for capital expenditure and purchase costs). Over the quarter the direct portfolio produced a total return of 11.7 per cent compared with 9.6 per cent total return from the benchmark. During 2009 the Company’s portfolio, including purchases, increased in value by £78.0 million to £737.3 million.This represents an ungeared capital increase, net of purchases and capital expenditure, of 3.1 per cent. The Company’s direct property portfolio recorded a total return of 9.3 per cent over the year, compared with the return from the benchmark of 2.8 per cent. In October, the Company acquired three distribution warehouses at Hams Hall, National Distribution Centre, Birmingham for £34.85 million in aggregate, delivering a net initial yield of 9.0 per cent. Hams Hall is an established distribution and logistics park located adjacent to Junction 9 of the M42 motorway. These properties constructed between 2000 and 2002 provide, in aggregate, more than 600,000 sq ft of modern well-specified distribution units. The first property, Unit 6a, comprises 127,069 sq ft and is let to Bell Micro Products Limited until April 2019 (tenant break 2016) at a current rent passing of £707,172 per annum. Unit 8 comprises 264,369 sq ft in a mix of high and low bay accommodation and is let to Wincanton Holdings Limited until April 2025 (tenant break April 2015) at a current rent passing of £1,500,000 per annum. The third property comprises 225,808 sq ft and is let to Arvato SCM Limited, guaranteed by Bertelsmann AG, for a term expiring in July 2016, at a current rent passing of £1,130,890 per annum. Since the end of the year, the Company has completed the purchase of 77/77a Wigmore Street, London W1 for £2.96 million, reflecting a net initial yield of 4.55 per cent. This small freehold property occupies an important corner position on the St. Christopher’s Place Estate and was one of the few properties on the estate not owned by the Company. The property comprises a basement and ground floor restaurant and four upper floors of offices,comprising 3,808 sq ft in total. It is let to two tenants; Tunisian National Office of Tourism and Ayoush Restaurant,on leases expiring in 2014 and 2023. The Company sold one property, 27/28 Commercial Street, Leeds, a shop unit which was well located but considered ex-growth. The sale exchanged in late December and completed in January 2010 for £8.8 million (initial yield 5.74%), an uplift of 9.0 per cent over the last external valuation undertaken in October 2009.In 2008 the development of 24-27 Great Pulteney Street, London W1 was delayed against a background of global economic and financial uncertainty. During 2009 the fundamentals for speculative developments in Central London improved as forecasts of rental growth across the sector were markedly increased and very few, if any,developments were started.Research and analysis of the development pipeline identifies an acute lack of new Grade A space due to be delivered to the market in late 2011 and 2012. Against such a backdrop we now believe the fundamentals have turned and a commitment to the development of Great Pulteney Street offers an opportunity to take advantage of competitive building tenders and to deliver a highly specified building into a market that will be starved of new Grade A space. The Company has been successful in letting void space, as highlighted above, and vacancy levels were reduced from 4.3 per cent (excluding developments) at the start of 2009 to close to 2.5 per cent, significantly better than the IPD rate of 12.1 per cent. Rent arrears and overdue debt have been constantly and persistently managed and, at 1.6 per cent, remain extremely low for a portfolio of this size, which reflects the quality of its property assets. Total returns in 2010 are expected to be front-loaded with returns slowing in the second half of 2010 to be income driven. It is anticipated the second half of the year could see more stock offered to the market, which could lead to opportunities to acquire good quality and attractively priced properties.(As at 31 December 2009)

Monthly factsheet
Reasons why letter
Quotation
Application form
Quarterly sales aid
Video

FUND TOOLS


Factsheet

Daily factsheet

Interactive Chart

Reasons why

Create Illustration