Veteran property investor and OLIM founder, Matthew Oakeshott, rejoins Value & Income as the board considers bolstering real estate assets to extend a 33-year dividend growth record now under threat.
Value & Income (VIN ) has brought former fund manager and Lib Dem peer Matthew Oakeshott back on board as it looks to beef up its direct property portfolio after warning its dividend could be at risk following widespread equity income cuts.
The unusual trust, which has an equity portfolio alongside a property pool, has seen its market value slump by a third to £78m in the coronavirus crisis this year with the shares trailing on a steep 29% discount below net asset value.
In a stock exchange announcement last week the company said it was undertaking a review of the investment policy and that Oakeshott (pictured below), a founder of fund manager OLIM and former manager of its real estate assets, would return as a non-executive director.
In July’s annual report the trust warned that its unbroken 33-year record of dividend rises - which ranks it among the ‘Dividend Heroes’ of the Association of Investment Companies, was under threat from the income drought caused by the Covid-19 lockdown.
Total dividends for the year rose 12.1% and the company has now announced a dividend of 2.9p for the first quarter of the current financial year but chairman James Ferguson said VIN may have to dip into capital reserves in future to keep up payments. It currently yields 7%.
‘It is the board’s intention to preserve the company’s strong dividend record, if possible, by distributing part of the company’s capital reserves of 154.4p per share if necessary. However, maintaining the record for the long term will require dividend cover to be rebuilt over the years ahead.’
Investment Trust Insider understands the review of the investment policy will focus on how to maintain the current dividend. The trust is considering adding more property to the portfolio and ‘in a quiet way looking to see what the best way of keeping the dividend record intact is’, said a source close to the situation.
The return of Oakeshott, the trust’s largest shareholder with a 24.4% stake, is linked to the decision to add more real estate as he remains an active investor in property.
Generalist commercial property funds have been hit by retailers demanding rent cuts and have struggled to collect rents from other businesses during lockdown, but real estate investment trusts specialising in warehouses, healthcare and social housing have fared better.
Overall, the property sector is viewed by VIN as a possibly more reliable source of income than equities, or shares, as the economy recovers from the coronavirus-induced recession.
The trust, which Oakeshott managed with Angela Lascelles for more than three decades until they retired last year, is hunting for properties with ‘long leases and good covenants’ but they are ‘scarce and not easy to get at the right price’.
Value & Income will be forced to ask for shareholder approval if it wants to invest more than 50% of the portfolio in real estate. At the end of July 38% of assets were in property.
Louise Cleary, who now manages the property portfolio, said in VIN’s last annual report that she invests in ‘UK commercial properties with long, strong, index-related income streams to deliver above average long-term real returns’ with returns between 8% and 12% over the past 33 years.
The depressed shares have seen their long-term returns fall. The current ten-year total return of 60.4%, including dividends, has underperformed the UK stock market with the FTSE All-Share returning 70.2%.