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From Brexit and the high street to social housing and care homes: investment companies discuss prospects for property

5 November 2018

Investment company fund managers share their views.

With assets totalling £19.8bn and 22 new launches over the past five years, property has been one of the fastest growing areas of the investment company industry.

Across the five property sectors investment companies give investors access to a wide variety of different property types, ranging from office buildings and shopping malls to social housing, residential housing, healthcare and ‘big box’ logistics warehouses.

On Monday 5 November the Association of Investment Companies (AIC) held a media roundtable on property. Max Shenkman, partner at Triple Point Investment Management, which manages Triple Point Social Housing REIT, Calum Bruce, investment manager of Ediston Property and Richard Shepherd-Cross, fund manager of Custodian REIT, discussed the impact of Brexit, where they are finding opportunities and risks, and the outlook for the sector.

Their views have been collated below alongside those of Stephen J Inglis, chief executive officer of London & Scottish Investments which manages Regional REIT, and Andrew Cowley, managing partner of Impact Health Partners which manages Impact Healthcare REIT.

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies said: “The closed-ended structure makes investment companies particularly well suited to investing in illiquid assets like property and this was highlighted by the problems the open-ended property companies suffered following the Brexit vote. During this period, closed-ended property companies continued to trade and their managers were not forced to sell assets. This meant that despite discounts widening, the closed-ended managers could continue to take a long-term view of the property market.

“The greater suitablilty of the investment company structure is also demonstrated by their substantial outperformance and higher yields. Recent research by Canaccord Genuity found the average dividend yield of UK commercial property investment companies is 5.3% versus an average of 3% for heavyweight open-ended funds. Performance over the past ten years has also been considerably better: the annualised NAV and shareholder returns of UK commercial property investment companies were 7% and 10.9% versus 4.3% for equivalent open-ended funds. These outcomes may well be due to Canaccord Genuity’s finding that the average direct property exposure of the investment companies is 131% of NAV versus 78% for the open-ended funds.”

Impact of Brexit

Richard Shepherd-Cross, fund manager of Custodian REIT said: “Brexit is having much less of an impact than the pundits predicted. In the three months post the EU referendum the market took a hit but also fully recovered and has pushed on since then. There is no question that the uncertainty of the outcome of Brexit negotiations is creating some disquiet, but the day-to-day pressures of a normal property cycle are still having a much greater impact on the market. We do not believe that anyone is forecasting a wide-scale collapse of businesses leading to tenant default post-Brexit, so income returns from property should be robust.

“A more realistic and measured forecast is that domestic demand from occupiers for regional property will be broadly consistent pre- and post-Brexit and the current pressures on rents from demand, development costs and supply will also remain. In London we have witnessed a continued demand for investment property from overseas investors which bodes well for the post-Brexit market. If we experience volatility post-Brexit we believe that investors may be better served being invested in a well diversified, UK regional property portfolio with a focus on dividend income investments that are more closely linked to the wider financial market.”

Calum Bruce, investment manager of Ediston Property said: “There is no consensus view as to what will happen, but it is likely that there will be a pause and more subdued property market activity. This occurred immediately after the EU referendum in 2016, when investors and tenants alike considered the uncertainties of Brexit. This was exacerbated by the liquidity problems faced by the daily dealt open-ended real estate vehicles, many of which were forced to close to manage redemptions and sell assets to increase cash levels.

“With Brexit on the horizon there will be challenges ahead and Central London offices remain the most vulnerable sector. However, in an uncertain market where investors adopt different stances on key issues, there will be opportunities to exploit.”

Max Shenkman, partner at Triple Point Investment Management, which manages Triple Point Social Housing REIT said: “Our growing sector has inflation-linked, long-term leases and when coupled with the long-term demand/supply fundamentals. This helps to make this sector more resilient to economic downturns and turmoil, including ongoing challenges with Brexit.”

Opportunities and risks for property

Calum Bruce, investment manager of Ediston Property said: “Care must be taken to identify those assets which have the right fundamentals to best deliver good performance for our shareholders. We don’t like investing in high street or shopping centre assets and think industrial is too expensive. There is some opportunity in the regional office markets and retail warehouse yields look attractive relative to the other sectors. However, stock selection is key. We have an intensive approach to asset management and continue to unlock opportunities within the portfolio which protect and improve income as well as increasing the capital value of our properties.”

Andrew Cowley, managing partner of Impact Health Partners which manages Impact Healthcare REIT said: “We selectively acquire, renovate, extend and redevelop high quality healthcare real estate assets in the UK, in particular residential care homes, and lease those assets primarily to healthcare operators providing residential healthcare services under full repairing and insuring leases.

“Our tenants have a good track record of providing quality care and are responsible for maintaining homes and have committed to a minimum level of expenditure per bed on maintenance annually, rising with RPI. Potential investments must meet these requirements and our strict investment criteria, rigorous due diligence and return profile are expected to deliver further value for our shareholders.”

Stephen J Inglis, chief executive officer of London & Scottish Investments which manages Regional REIT said: “We have bought and sold in excess of £350m of properties over the past 12 to 18 months. We continue to see good opportunities in our core sectors, regional offices and industrial assets, and continue to employ our active asset management initiatives to generate a number of successful lettings and renewals across the portfolio.

“We are a long-term investor and we focus on income, which is derived from a wide number and spread of tenants in the sector. In addition, we have undertaken a number of debt refinances over the past couple of years, and our average debt expiry is in the region of seven years with loan to value having been managed down to circa 40%. As such, all of our debt is fixed or hedged and we therefore have a minimal risk to any interest rate movements. We believe that this makes us much more resilient than many other REITs in the commercial property sector”.

Max Shenkman, partner at Triple Point Investment Management, which manages Triple Point Social Housing REIT said: “We invest primarily in newly developed/refurbished social housing assets in the UK, with a particular focus on supported housing properties which have been adapted for vulnerable tenants with care and support needs. The group focuses on making off-market investments that are subject to inflation-adjusted, long-term (typically from 20 years to 30 years), fully repairing and insuring leases with Registered Providers. The vulnerable tenants housed in the properties we own are typically in receipt of housing benefit for the full value of their rent and this is ultimately funded by the Department of Work and Pensions.

“In addition to acquiring recently completed properties we also forward fund developments that are pre-let to Registered Providers, but we don’t directly or speculatively develop. Forward funding gives us access to high quality assets that have been designed in conjunction with Registered Providers and local authorities, with whom we work closely, to meet specified local demand, providing a competitive advantage over our peers.”

Outlook for property

Andrew Cowley, managing partner of Impact Health Partners which manages Impact Healthcare REIT said: “The number of people aged over 85 in the UK is forecast to double to 3.2 million from 2016 to 2040. In 2018, 14.7% of the over 85s required the kind of care which can only be provided in a residential care home or hospital. From its peak in 1996, the UK has seen beds declining 17% to 466,000 beds in 2018. Over that period, there was a major shift from beds provided by government entities to beds provided by independent operators. As a result, the independent sector has experienced sustained, above-inflation growth. The fundamentals of our market are strong, with growing demand for beds and limited supply.”

Max Shenkman, partner at Triple Point Investment Management, which manages Triple Point Social Housing REIT said: “The undersupply of supported housing is stark and government grant funding continues to be insufficient to meet growing demand. Demand for supported housing is increasing due to improvements in healthcare and the arrival of the Care Act 2014, which placed a statutory obligation on local authorities to house people needing care in independent living situations based in communities where possible. Supported housing assets also often offer local authorities better value for money when compared to traditional alternative forms of accommodation.

“The mismatch between supply and demand is forecast to increase over time, which leaves us continuing to be confident for the long-term prospects and growth of the sector. Through our strong established network, we currently have access to an identified pipeline of over £400 million of potential investments that meet our investment criteria and on attractive terms.”

Richard Shepherd-Cross, fund manager of Custodian REIT said: “There is a market flight from retail investment. We believe it is too simplistic to write off an entire sector and expect to see opportunities in good quality out of town retail. For the most part, we would need to see a cooling in investor demand for industrial/logistics before it represented fair value to Custodian REIT. However, the lack of development in smaller unit sized office and industrial in regional markets, combined with very high levels of employment should maintain the existing supply/demand imbalance that is producing rental growth. Out of this we expect to see investment opportunities in these sectors.”

Calum Bruce, investment manager of Ediston Property said: “The greatest issues have been on the high street and in shopping centres with many of the store closures occurring in these locations. We don’t invest in the first two sectors but see more opportunity in retail warehouses. Yields look attractive relative to other sectors and we continue to see good tenant demand for retail parks which are well-located, have the right planning consents and are let off sensible rental levels. With a number of deals in the pipeline we don’t see this trend changing as the year progresses.”


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  1. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment. Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 351 members and the industry has total assets of approximately £189 billion.
  2. Data from Canaccord Genuity report to 30 September – UK Property Investment Companies: Efficient exposure, superior dividend yields and better long-term performance.
  3. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investment company shares, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all.
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