Over the year to the end of March 2015, Value & Income’s net asset value total return was 2.5%. This lags the 6.6% return on the FTSE All-Share Index and a widening of its discount to 15.1% meant that the return to shareholders was -1.7%. The full year dividend has been increased by 5.9% to 9p.
For the equity portfolio, in capital terms the portfolio fell by 0.5%, slightly less than the 0.9% fall in the Higher Yield Index. Including income, the total return was +3.4%. Underweight allocations to the resource sectors of Oil & Gas and Mining made a positive contribution to performance. Overweighting Telecommunications (BT +15%) and Travel & Leisure also benefited the portfolio, in particular with Go Ahead Group (+25%) and Cineworld (+54%). In addition to the general underperformance of higher yielding shares, VIT’s performance was negatively affected by the Retail sector (N Brown – 44%). Their large holding of Babcock in the Support Services sector fell by 17%, as investors worried about the acquisition of Avincis, the safety and rescue helicopter company which operates in mainland Europe.
Value & Income’s property portfolio produced a total return of 13% over the year to March. The IPD Monthly Index return over the same period was 18%. Their returns were held back by their Scottish exposure Two properties were sold for £1.9m at a net yield of 4.7%. The proceeds of these sales, and a £5m five year fixed-rate loan at 4% p.a. (including all fees), were reinvested at an average net initial yield of 7% in four Stonegate pub/restaurants in Bedford, Bournemouth, Coventry and Selby and a Prezzo restaurant in Brentwood. All these properties have index-related leases with R.P.I-linked rent reviews for 25 or 30 years without a break. They were bought for £7.5m including purchase costs and valued at £7.75m at the year end. All their properties are fully let on full repairing and insuring leases, with upward only rent reviews and an average unexpired lease length of 13 1/2 years. The portfolio has been fully let and income-producing throughout the year, apart from two months’ loss of rent at Haddington (in Scotland, one of the properties they sold during the year). 10% of the rental income is reviewed annually, with 90% five yearly. This year’s purchases take the proportion of index-related income up to 52% of the portfolio (it was 35% three years ago).
Value & Income’s returns continue to be hampered by its long-term fixed rate debt – £20m of debenture stock repayable in 2026 and £15m repayable in 2021 with interest rates of 9.375 and 11% respectively.
VIN : Value & Income’s equity and property portfolios underperforming