Value and Indexed Property Income follows broader property sector down

Value and Indexed Property Income Trust (VIP) announced its annual report for the year ended 31 March 2024. The company saw a NAV total return of -9.7%. The discount to net asset value also widened, resulting in a share price total return of -10.3%. Since the year end on 31 March 2024, however, the share price has rebounded and the discount narrowed again. Rental income growth was well above inflation last year, and since the year end, 100% of rent has become index-related.

Commenting on the performance, chairman John Kay noted:

“The weakness of the property market is principally the result of the abrupt end of the extended era of exceptionally low interest rates which followed the global financial crisis. Central banks around the world have been indicating that the next moves in rates are more likely to be down than up. But we should expect a return to historical normality rather than a resumption of the near zero cost bank financing. As a result, there are some indications that the worst is over for property, although confidence is still fragile and transaction volumes are low.”

Regarding the outlook for the trust and the broader economy, he continued:

“The economic outlook is improving for 2024, but it does depend on international conflicts staying contained. The collapse in annual inflation rates in the UK and the rest of Europe is boosting real incomes and business and consumer confidence here but it shows no signs of improving the Government’s fortunes and investors are relaxed about the general election within the next nine months. The strength of the US economy and Mr Trump’s legal travails now give him and President Biden each a 50-50 chance, according to the betting markets for what they are worth. US economic policy making under a re-elected President Biden would be more prudent than under Trump but the US election is unlikely to move markets until late autumn.

“Meanwhile, as extreme weather records are being broken month by month around the world, long term investors in direct property, even more than in other asset classes, must keep ahead of the climate change curve.

“The UK economy is growing slowly again after a flat year, annual consumer price inflation will dip below 2%, if only briefly, this summer and short term interest rates should be lower by the year end. But longer term interest rates also need to be seen as stable before the property market as a whole, as measured by the main indices, makes real progress. The key to outperformance by property portfolios on both the income and total return fronts in this tough economic climate, with public sector finances under serious long term pressure, is therefore still to stick to strong tenants, paying affordable rents on long, index-related leases for sustainable buildings in prosperous locations.

“That means avoiding office investments for the foreseeable future and focussing hard in other sectors on upgrading portfolio quality, especially on covenant strength, by constant vigilance in acquisitions, disposals and lease extensions.”

VIP : Value and Indexed Property Income follows broader property sector down