Sirius Real Estate (SRE), the £1.3bn Anglo-German business park investor, achieved 11.3% rent roll growth year on year in the six months to 30 September. Nearly half, or 5.1%, of this came from organic growth and the rest from £150m defence-related and self-storage investments. After repaying a €400m corporate bond in June, the group has access to over €250m to invest in a “strong” acquisition pipeline. Chief executive Andrew Coombs said in a trading update that while bond and equity markets were currently “challenging” and costs of debt could rise, “we remain fully confident in our operating platform’s ability to continue to deliver double digit total accounting returns and exhibit the type of fundamental and asset valuation resilience we have achieved through the meaningful interest rate rises and market volatility of recent years.”
QuotedData senior analyst Matthew Read said: “Sirius continues to demonstrate why its hands-on operating model sets it apart from many listed property companies. Like-for-like rent roll growth of 5.1% is a strong result against a difficult economic backdrop, with Germany and the UK both contributing. Sirius is still able to acquire assets at yields above 8%, comfortably ahead of its 3.5% average cost of debt, and the increasing exposure to defence-related occupiers looks well timed given Germany’s substantial rearmament and infrastructure commitments. Meanwhile, selling smaller, mature UK assets and recycling the proceeds into properties offering greater asset management potential should help maintain returns.”
Value and Indexed Property Income (VIP), the £89m UK long-lease portfolio run by Matthew Oakeshott and Louise Cleary of OLIM Property, invested £10.2m of its cash pile in three freehold properties in the six months to 30 September: a four-screen cinema in Esher, Surrey, let to Everyman Media Group for 19.1 years with annual RPI-linked rent reviews, capped at 5% and collared at 1% per annum; a crematorium on a 31-acre site in Great Glen, near Leicester let to Westerleigh Group Holdings for 85.4 years with annual RPI-linked rent reviews, capped at 4% and collared at 1% per annum; and a new veterinary practice in Stirling, Scotland, let to Inspiring Vet Care for 20 years with five yearly RPI-linked rent reviews, capped at 3% and collared at 1%. VIP now has 29 properties with 27% in supermarkets, 20% industrial/warehouse, 14% in health club, caravan park and cinema; 13% garden centre, 10% bowling, 9% hotels, 4% other and 3% pubs. It said bowling and supermarkets rose modestly in value over the quarter with the garden centre, hotels, health club, cinema, other and pubs all stable. The values of the industrial / warehouse properties and the caravan park were slightly down with the overall portfolio rising to £143.6m from £138.4m with the £5.2m acquisitions in Leicester and Stirling included. VIP delivered a 1.8% total return over the quarter, rising to an income return of 3.8% and a capital gain of 0.2% over the six-month period. Both of these will be ahead of the MSCI UK Quarterly Property Index when it is released shortly.
QuotedData senior analyst David Batchelor said: “VIP’s update illustrates the attraction of a property strategy that can generate returns without relying on a recovery in capital values. Income accounted for almost all of the portfolio’s 3.8% six-month total return, while full occupancy and contractual rent increases provide useful visibility. The three purchases, offering an initial yield of 7.8% and long leases, should strengthen that income base. Their inflation-linked reviews offer further growth potential, although the caps mean this is not unlimited protection against rising prices. November’s interim results should show how effectively that property income translates into dividend cover after financing costs.”
Ashoka WhiteOak Emerging Markets (AWEM) is seeking shareholder approval to lift the 40% cap on sector allocation. The £76m investment trust managed by Prashant Khemka of Acorn Asset Management had 38.9% in IT stocks at the end of August. The company has called a general meeting in London on 26 October for shareholders to vote on a proposal to let it invest up to 5% more in a sector than the weighting in the MSCI Emerging Markets index. The trust is currently slightly underweight in IT versus the benchmark’s 41.5% exposure. “The board believes that the proposed change will provide the company’s investment manager with greater flexibility to reflect its highest-conviction investment views as market dynamics evolve, while not altering the company’s investment objective or overall strategy,” it said. The shares have established a strong three-year track record, returning 88% in the 36 months to 2 October, beating the MSCI Emerging Markets’ 75% return.
Matthew Read said: “As with developed markets, emerging market indices can become heavily skewed towards particular sectors – notably those exposed to AI. Under the existing 40% cap, AWEM could therefore be forced to significantly underweight a sector simply because its benchmark weight had risen above that level. Allowing exposure of up to five percentage points above the benchmark removes this constraint and gives WhiteOak greater freedom to express its highest-conviction ideas. We suspect other trusts may follow suit.
“The obvious trade-off is concentration risk. Sector limits exist for a reason and, if one area comes to dominate the emerging markets index, the proposed policy could leave AWEM with substantial exposure to it. That may work well while AI-related stocks continue to outperform, but less so if the sector suffers a prolonged setback.”
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