Kames Property Income Fund. February 2016 David Wise Investment Director

Transcription

1 Kames Property Income Fund February 2016 David Wise Investment Director

2 Kames Property Income Fund Target distribution yield of 5.5% pa* Monthly income Balanced UK Commercial Property Fund Tax efficient PAIF structure Launched 28 March 2014 Open ended/daily dealing AUM c. 435m** Summer Row, Birmingham Renfield Street, Glasgow Broadway, Bexleyheath Mosley Street, Newcastle Building income from property investment *The target income of 5.5% is net of charges which are take from capital. This target is not guaranteed, capital is at risk and there is no guarantee that the fund will generate a positive return or a particular level of income over any period **Fund size as at 31 December

3 Fund performance % 1 month 3 months 6 months 1 year Since inception Fund Median Quartile Solid performance from a growing Fund Source: Lipper, NAV to NAV, noon prices, GBP, as at 31 December Figures are percentage growth (%), total return including Initial charges and net of Annual management charge. B Gross (Acc) shares. Past performance is not a guide to future returns. Note: the Fund launched within the last 5 years. The median represents the median of a sample of eight comparable funds, chosen by Kames Capital plc based on similarity of fund, structure and strategy. The median is the middle value, the number separating one half of the sample from the other half. It is not the average, mode or mean number and any use of any of these calculations will give different results. 3

4 Where are we in the property cycle? % 0-10 UK investor sentiment turned positive in Q Recovery led by prime element of market Recovery now evident in secondary market Rental growth becoming more prevalent Dec 87 Dec 91 Dec 95 Dec 99 Dec 03 Dec 07 Dec 11 Dec 15 Income Return ERV Growth Total Return Source: IPD, December 2015 More traditional, income dominated returns expected 4

5 Property level performance forecasts IPD monthly index for 2015: 13.8% % 9.3% 4.6% 8.0% 9.9% % 5.4% 3.2% 4.6% 7.3% As at December 2015 Positive forecasts for UK property returns 5

6 What are the major opportunities and threats to commercial property? Opportunities Threats Rental growth Pricing stretched in some sectors Central London Industrial Supermarkets Shortage of supply Liquidity: good at present but beware Large lot sizes Shrinking prime Greater stability in retail market Offer to Bid pricing moves Still good prospects for capital growth Interest rate increases Good place for long term investors BREXIT 6

7 Prime vs Active Value property yields UK Prime vs. Secondary All Property yield (exc. central London) Yield (%) All Prime All Secondary Active Value property will offer attractive, higher yields than prime in the long term Long term prime/secondary yield gap bps Current yield gap 328bps Carefully selected assets offer attractive long term returns to investors Secondary property attractive over long term Source: CBRE, as at January Past performance is not a guide to future performance 7

8 Kames Property Income Fund structure* Direct property (up to 80%) Active Value property assets (around 50%) Core property assets (around 30%) Core/Prime property, 30% Active Value property, 50% Cash and Indirect property (up to 20%) Equities/Indirect property (around 10%) Cash (around 10%) Cash, and Indirect property, 20% *Expected asset allocation. Fund launched 28 March Targeting strong income returns with liquidity 8

9 Active Value property investment Purchased for 9.055m in October 2015 Net initial yield 9.24% Parade of 15 retails units in good secondary location within central Plymouth AWULT c. 7 years 10/44 Cornwall Street & 152 Armada Way, Plymouth Let to national retailers including Superdrug, Boots, Specsavers, Maplin, Toni & Guy and William Hill Majority of rents rebased Attractive yield and strong tenant demand 9

10 Active Value property investment Purchased November 2015 for 18.5m Net initial yield 7.5% Long leasehold 108 years from Maidstone Council Lockmeadow Leisure Park, Maidstone Odeon cinema, Hollywood bowl, David Lloyd, Gravity Trampolining plus F&B uses WAULT 10.2 years Asset Management initiatives underway 10

11 Core/prime property investment Off market purchase for 4.4 million Net initial yield 4.51% Prime retail location 6.5 years to strong covenant Rent reflecting 150 Zone A psf considered reversionary Paperchase, George Street, Edinburgh Rent review October 2016 Acquired in conjunction with Diesel Jeans unit on Buchanan St, Glasgow 11

12 Core/prime property investment Purchased in December 2015 for 8.4 m Net Initial Yield 3.82% with reversion in October 2016 Circa 11 Years unexpired to HSBC (6 years to break) HSBC, Wimbledon Hill Road, Wimbledon Prime, liquid asset adjacent to Wimbledon Station Rent reflecting 127 ZA psf reversionary Highly competitive bidding process 12

13 Case Study The Hive, Manchester Purchased in April 2015 for 16.75m Net Initial Yield 7.25% High quality office building located with Manchester s Northern Quarter Multi-let Asset management since acquisition: 5 new lettings completed 2 further lettings in solicitors hands Re-gear completed with one tenant and other discussions ongoing Rental tone increased from 17.50psf to 18.50psf Minor refurbishment of entrances and common parts reviewed and planned 13

14 Kames Property Income Fund Total Fund size c. 435m 41 purchases completed Balanced portfolio Sector Geographical Income Tenant exposure 4 REIT investments British Land Land Securities London Metric Derwent London Under offer on a further 3 properties c. 51.5m As at 31 December

15 How to access the Kames Property Income Fund Fund Type: Property Authorised Investment Fund (UK OEIC)* with a feeder fund in the form of an Authorised Unit Trust PAIF (with Gross share class) & feeder fund available Feeder Fund available *Non-UCITS retail Scheme. Please note Hargreaves Lansdown: Net class available but Hargreaves Lansdown is reclaiming tax on behalf of eligible investors. Pershing: The PAIF is available off platform with gross shareclass and on platform with feeder. 15

16 Why you should consider Kames Property Income Fund Target distribution yield of 5.5% pa* Potential for capital growth Monthly income Access to award winning team with proven track record in Active Value property investment strategy Building income from property investment *The target income of 5.5% is net of charges which are take from capital. This target is not guaranteed, capital is at risk and there is no guarantee that the fund will generate a positive return or a particular level of income over any period. 16

17 Appendices 17

18 What is Active Value property investment? c.50% fund allocation A focus on smaller lot sizes of 4m - 15m Deliver a high income return (7% plus) Enhance value through active management Change of use New lettings Refurbishment Extending leases An active approach to property 18

19 Kames Capital s competitive advantages in the Active Value market Long established track record in Active Value space We buy from motivated sellers Banks and their distressed clients (borrowers & funds) Private equity funds Institutional property funds Developers Private investors Property Companies We make ourselves a preferred purchaser Cash purchaser i.e. no debt and can move fast Discrete and reliable stock pickers Relationships and experience are key We can source and execute off-market deals Enable us to deliver asset management enhanced returns 19

20 What is Core property investment? c.30% direct property allocation Typical properties: Have longer leases Are let to higher-quality tenants Are located in better locations Higher quality buildings Income return of 4% - 6% Lots of 5m - 20m More liquid than Active Value element of the portfolio Lower expected long term returns than secondary property 20

21 Kames Property Income Fund positioning Direct property sector breakdown by capital value (%) Geographical breakdown (%) Other Out of town Retail West Midlands South East South West Industrial 8.6 London Outer 8.5 Retail 15.9 North East 14.7 Leisure Offices Scotland Yorkshire/Humberside North West Source: Kames Capital and Jones Lang LaSalle as at 31 December

22 Properties Birmingham Bromborough Middlesbrough Main occupier is Town & Country Inns Purchase price 5.8m Net Initial Yield 8.38% Active Value Bulk of income secured for 25 yrs with 5-yearly fixed uplifts base on 2.5% pa growth Operator has excellent track record in leisure sector Re-gearing/new lettings opportunity for the office space Solus retail warehouse unit Good trading location Strong national covenant, 5A2 rated by Dun & Bradstreet Purchase price 5.9m Net Initial Yield 7.27% Active Value Potential for rental growth Good value in a strong trading location Five purpose-built car showrooms Site also includes car and van spaces for vehicle display, staff and customer parking Purchase price 7.5m Net Initial Yield 8.02% Strong covenant, 3A2 rated by Dun & Bradstreet Active Value Excellent value as a result of off-market transaction Opportunities for re-gearing of lease in longer term 22

23 Properties Edinburgh Exeter York Core retail unit on Princes Street, Edinburgh s prime retailing location Purchase price 2.3m Net Initial Yield 5.50% Excellent covenant, 5A1 rated by Dun & Bradstreet Active Value Rack-rented with strong rental growth prospects Possibility of alternative uses for vacant self-contained offices above retail Multi-let secondary office building Excellent parking ratio Purchase price 5.1m Net Initial Yield 9.00% Good tenant covenants Active Value Potential to re-gear existing leases Potential to extend existing head leases in return for a capital payment Modern, purpose built bingo hall One of three Mecca Bingo properties (also included is Wood Green, London and Moor Lane, Bolton also acquired) Purchase price 3m Net Initial Yield 8.47% Mecca Bingo Ltd is rated 5A1 by Dun & Bradstreet Active Value Redevelopment potential in the longer term for residential/hotel use Rent review geared to RPI uplifts with a cap of 3% 23

24 Properties Dominion House, Warrington 2 City Walk, Leeds Knowsley Business Park Modern office building at the entrance to Warrington premier business park Purchase price 6.73m Multi-let Grade A office building Good location south of Leeds city centre Multi-let estate in established North West industrial location Let to two strong covenants Net Initial Yield 8.50% Purchase price 19.1m Purchase price 6.35m Let to Fujitsu with 5 years unexpired Net Initial Yield 6.83% Net Initial Yield 7.65% Rent passing of psf Active Value Settle outstanding rent review from June 2015 Re-gear existing lease as expiry approaches Let to AECOM, Portal Chatham and William Hill Active Value Potential to re-gear existing leases Potential to let vacant parking spaces Good rental growth potential Fixed uplift to 8.05% in October 2015 Active Value Strong rental growth potential Re-gear leases in time Potential acquisition of neighbouring site once developed 24

25 What is a PAIF (Property Authorised Investment Fund)? An open-ended investment company (OEIC) Approved by HMRC in 2008 Designed to: Provide a tax transparent version of the Authorised Property Unit Trust (APUT). APUTs withhold 20% tax on property investment income which cannot be reclaimed by individuals or non-tax payers. Minimum 60% of its NAV comprised of assets that are property investment business Direct property (commercial and/or residential) Shares in listed UK REITS and property companies Other non-listed indirect investments It reports and pays out 3 types of income for tax purposes: Property investment income, dividend income and interest Gross share class for non-taxpayers e.g. ISAs, SIPPs, pension funds and charities 25

26 Important information This document is not intended for retail distribution and is directed only at investment professionals. It should not be distributed to, or relied upon by, private investors. All data in this presentation is sourced to Kames Capital unless otherwise stated. The views expressed in this document represent our understanding of the current and historical positions of the market. They should not be interpreted as a recommendation or advice. Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and is not guaranteed. The Kames Property Income Fund is a sub-fund of Kames Capital Investment Portfolios ICVC (an Open-Ended Investment Company). Kames Capital plc is the Authorised Corporate Director of the Company (ACD). The Fund s expenses are charged to capital. This has the effect of increasing income distributions for the year but constraining the fund s capital performance to an equivalent extent. Where funds are invested in property or indirectly into property, investors may not be able to switch or cash in their investment when they want because investments in direct property and indirect property in the fund may not always be readily realisable. If this is the case and in accordance with the fund s prospectus we may defer a request to switch or cash in units. Whilst property valuations are conducted by an independent expert, any such valuation is a matter of the valuer's opinion. The spread between the price to buy and sell is likely to be wider than for other less specialist funds and may vary. There is no guarantee that investments in property will increase in value or that rental growth will take place. There is a risk that a property held in the Fund s portfolio could default on its rental payments. There is the possibility that a portion of the portfolio will be held in cash if the supply of new investment opportunities is limited which, if the situation persists, may restrict the performance of the Fund. Funds that invest mainly in one type of asset are more vulnerable to market sentiment. We reserve the right to change the pricing basis of the funds and any change will mean an increase or decrease in the price at which you may deal. References to tax are based on current regulations which may be subject to change. For clarification please seek advice from your financial or tax adviser. This document is accurate at time of writing but can be subject to change without notification. Kames Capital is an Aegon Asset Management company and includes Kames Capital plc (Company Number SC113505) and Kames Capital Management Limited (Company Number SC212159). Both are registered in Scotland and have their registered office at Kames House, 3 Lochside Crescent, Edinburgh, EH12 9SA. Kames Capital plc is authorised and regulated by the Financial Conduct Authority (FCA reference no: ). Kames Capital Investment Portfolios ICVC is an open-ended investment company with variable capital, incorporated in England under the OEIC Regulations. Kames Capital Unit Trust is an authorised unit trust. Kames Capital ICVC is an open-ended investment company with variable capital, incorporated in Scotland under the OEIC Regulations. FPID: 2016/