Threadneedle UK Property Authorised Investment Fund

Transcription

1 Annual Short Report 15 May 2017 Fund Manager s Report Don Jordison Property Market Commentary We believe that the UK commercial property market has weathered the impact of the referendum result rather better than many within the sector had anticipated. However, immediately after the result, the commercial property sector was briefly the focus of the greatest concern in terms of market impact and potential contagion. With the perception of heightened downside risks, retail investors in property funds offering daily liquidity rushed to withdraw their money ahead of expected valuation falls. Pricing duly fell, with the MSCI UK Monthly Index recording a capital value decline of -4.0% in the four months immediately following the referendum result. During the period under review, the UK commercial property market generated a positive total return of 4.1%, significantly down on the comparable figure of 10.5% over the preceding year. This decline was partly a logical, cyclical effect and partly a product of the immediate post-referendum impact described above. The income return of 5.6% was the dominant positive component of total returns, bolstered by meaningful rental value growth of 1.5%. A softening in investment yields resulted in a detraction of 2.5% as the market net initial yield moved out from 5.0% to 5.3%. (Unless stated otherwise all statistics in this section are taken from the MSCI UK Monthly Index.) Fund Suspension 6 July 2016 To protect the interests of investors, on 6 July 2016, Columbia Threadneedle temporarily suspended dealing in the Threadneedle UK Property Authorised Investment Fund (TUKPAIF) and its feeder fund, the Threadneedle UK Property Authorised Fund. At the point of suspension, liquidity in the fund had fallen from approximately 22% prior to the Brexit vote to 7%, following unprecedented levels of redemptions. By the end of April, TUKPAIF had completed, exchanged or agreed to sell 43 properties across the UK for a combined value of 234.5m. The prices achieved were on aggregate less than 1% lower than those in the last valuation, carried out prior to the referendum. Fund Re-opening 26 September 2016 On 26 September the fund re-opened on a bid basis, essentially the same basis as prior to the suspension. The fund did not impose redemption penalties and resumed its standard monthly valuations. Having experienced a significant volume of net inflow since reopening, the fund commenced a selective acquisition programme in order to reduce liquidity levels closer to its 15% target. Subsequently, over the period, the fund completed the purchase of five properties, amounting to 58m. Prudent liquidity management remains one of the hallmarks of the fund s long-term strategy. The manager continues to closely monitor market conditions, ensuring that the interests of our investors are paramount at all times. Property Market Outlook As we anticipated at this juncture last year, 2016 saw a pronounced cyclical cooling in the total returns generated by the UK commercial property market. However, the more modest performance of the UK commercial property market over the period has not diminished appetite for the sector. UK investors remain highly cognisant of the income and diversification merits of the sector and the c. 10% annualised total returns delivered by the commercial property market over the past five years. TUKPAIF is well positioned to deliver continued out-performance against the current backdrop, as evidenced by the following factors: Defensively positioned with an elevated cash position; Extremely diverse property portfolio and client investor base; Significant (c. 150 basis points) income yield advantage vs the IPD benchmark; Average lot size, at c. 6m; Out-performance opportunities via leasing of voids; Defensive fund positioning with no exposure to property company shares, speculative property development or property-level debt. Looking specifically at the forthcoming year, prospects for the UK commercial property market appear far more favourable than were widely predicted under a Leave scenario before the referendum. Investor sentiment remains very positive and occupiers are continuing to execute expansionary strategies. Continued ultra-low base rates, gilt yields and lending margins, as well as the depreciation of sterling, should all continue to attract capital into UK commercial real estate. Performance With reference to the Morningstar UK IMA OEIC benchmark for real estate funds, TUKPAIF is ranked in the third quartile (36 th out of 53 funds) over 12 months to 31 March 2017, and the second quartile (29 th out of 64 funds) over the three years to 31 March This information is provided to demonstrate performance relative to the peer group. However, please be reminded that the fund is not managed with reference to any benchmark. Strategy As at the end of April 2017, the fund s property portfolio comprised a total of 155 properties and 950 individual tenancies. Diversification is a central component of the fund s investment approach and acts as a powerful control on risk. At the strategic level, investment performance benefited from the fund s relatively high exposure to the industrial and logistics sector, which was the stand-out performer over the period. The fund s office exposure performed well in the context of the office sector. The asset management team have also delivered additional performance gains through tactical lease surrenders, with simultaneous re-lettings as well as the ongoing engagement of all occupiers. Over the 12-month period to end March 2017 (assessed quarterly), the asset management team successfully completed a total of 132 new lettings and lease renewals relating to a total rent roll of 4.6m per annum.

2 Fund Facts Fund Accounting and Distribution Dates Accounting Dates Payment Dates 15 May 15 July 15 August 15 October 15 November 15 January 15 February 15 April Ongoing Charges Figure The Ongoing Charges Figure (OCF) which is the European standard method of disclosing the charges of a share class of a fund based on the financial year s expenses and may vary from year to year. It includes charges such as the fund s annual management charge, registration fee, custody fees and distribution cost but ordinarily excludes the costs of buying or selling assets for the fund (unless these assets are shares of another fund). The non-ucits retail scheme Key Investor Information (NURS-KII) contains the current OCF. For a more detailed breakdown please visit columbiathreadneedle.com/fees. Share class 15 May 2017 Class 1 Net income shares 1.62% Class 1 Net accumulation shares 1.62% Class 1 Gross income shares 1.62% Class 1 Gross accumulation shares 1.62% Class 2 Net income shares 0.80% Class 2 Net accumulation shares 0.80% Class 2 Gross income shares 0.80% Class 2 Gross accumulation shares 0.80% Class F Gross accumulation shares 0.01% Property Expense Ratio A property expense ratio is shown which takes into account expenses that are associated with the day to day maintenance of the property assets and excludes costs associated with operating the Fund. Share class 15 May 2017 Class 1 Net income shares 0.72% Class 1 Net accumulation shares 0.72% Class 1 Gross income shares 0.72% Class 1 Gross accumulation shares 0.72% Class 2 Net income shares 0.72% Class 2 Net accumulation shares 0.72% Class 2 Gross income shares 0.72% Class 2 Gross accumulation shares 0.72% Class F Gross accumulation shares 0.72% Summary of Fund Performance Performance History (%) Share class Class 1 Net income shares Class 1 Net accumulation shares Class 1 Gross income shares Class 1 Gross accumulation shares Class 2 Net income shares Class 2 Net accumulation shares Class 2 Gross income shares Class 2 Gross accumulation shares To 30 April Shares commenced 13 May Source: Morningstar and Threadneedle. Bid to bid prices are quoted (i.e. not including any initial charge) with net income reinvested for a UK basic rate tax payer. Performance data is quoted in sterling. The performance data prior to 14 May 2016 (the launch date of the Fund) relates to the Threadneedle UK Property Trust whose assets transferred to the Threadneedle Property Authorised Investment Fund on 14 May 2016.

3 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Net Asset Value (NAV) Threadneedle UK Property Authorised Investment Fund NAV pence per share Number of shares in issue As at Share class NAV ( ) 15 May 2017 Class 1 Net income shares 2,021, ,814, May 2017 Class 1 Net accumulation shares 27,568, ,852, May 2017 Class 1 Gross income shares 504, , May 2017 Class 1 Gross accumulation shares 37,708, ,767, May 2017 Class 2 Net income shares 50,116, ,905, May 2017 Class 2 Net accumulation shares 20,713, ,983, May 2017 Class 2 Gross income shares 45,516, ,229, May 2017 Class 2 Gross accumulation shares 39,961, ,488, May 2017 Class F Gross accumulation shares 1,012,478, ,100,329 Distribution History/Share Price Range Pence per share Highest offer price (pence) Lowest bid price (pence) As at Share class 15 May 2017 Class 1 Net income shares May 2017 Class 1 Net accumulation shares May 2017 Class 1 Gross income shares May 2017 Class 1 Gross accumulation shares May 2017 Class 2 Net income shares May 2017 Class 2 Net accumulation shares May 2017 Class 2 Gross income shares May 2017 Class 2 Gross accumulation shares May 2017 Class F Gross accumulation shares Past performance is not a guide to future performance. Classification of Investments 15 May % 80% 15 May % 60% 50% 40% 30% 20% 10% 0% Direct properties Net other assets Portfolio Information Top Five Holdings as at 15 May 2017 % of Fund Fareham, Fusion Building Reading Retail Park 2.54 Larkfied Mill 1.87 Brentwood, Baytree Shopping Centre 1.56 Chelmsford, One Legg Street 1.48

4 Investment Objective and Policy The objective of the Threadneedle UK Property Authorised Investment Fund (the Company) is to obtain a total return based on income and capital appreciation predominantly through investment in certain kinds of real estate, property related securities, government and public securities and units in collective investment schemes. The Company will invest primarily in UK commercial real estate. It may also invest in US or continental European real estate, property-related securities, property investment companies, collective investment schemes (including other collective investment schemes managed, advised or operated by the ACD or its associates), cash and near cash, warrants, deposits and money market instruments. Derivatives may be used for investment purposes on the giving of 60 days notice to Shareholders. At the date of this report derivatives are used for efficient portfolio management purposes only. It is intended that the Company be a PAIF at all times and so its investment objective is to carry on Property Investment Business and to manage cash raised from investors for investment in the Property Investment Business as further described below. HM Revenue & Customs has confirmed to the ACD that the Company meets the requirements to qualify as a PAIF under regulation 69O of the PAIF Tax Regulations. The Company will be managed so as to be eligible as an ISA investment for the purposes of the Individual Savings Account Regulations 1998 (as amended from time to time). Non-UCITS Retail Scheme Key Investor Information Documentation (NURS KII) Subscription requirements The NURS-KII is a pre-contractual document and investors have to confirm that they have read the latest NURS-KII before making a subscription. Threadneedle has the right to reject a subscription if the investor does not confirm that they have read the latest NURS-KII at the time of application. Investors can obtain the latest NURS-KII from columbiathreadneedle.com. Important Information Threadneedle UK Property Authorised Investment Fund was launched on 14 May 2016 following the conversion of the Threadneedle UK Property Trust into the Company. Details of the conversion can be found at columbiathreadneedle.com/paif. Changes to the management of the ACD The following changes have been made to the directors of the ACD Appointment of Ms. Laura Weatherup on 11 July 2016 Appointment of Mr. Dominik Kremer on 22 July 2016 Resignation of Mr. Tim Gillbanks on 31 March 2017 Changes to the prospectus of the Company Increase to depositary s fee effective from 1 October 2016 Additional risk disclosures for funds investing in other funds and update to risk disclosure relating to derivatives Updates to list of directors and funds managed by the ACD Updates to taxation section Changes to the Instrument of Incorporation There were no changes to the Instrument of Incorporation during the period from 14 May 2016 to 15 May Increase to the Depositary s fee From 1 October 2016, the fee payable to Citibank Europe plc, UK Branch (the Depositary), to provide its services as the depositary of the Company, was increased from 0.008% to 0.01%. This was agreed as a result of additional services to be performed by the Depositary. Key Risks Investment Risk: The value of investments can fall as well as rise and investors might not get back the sum originally invested. Property Liquidity Risk: It may be difficult or impossible to realise an investment in the Fund because the underlying property concerned may not be readily saleable. Property Valuation Risk: The value of a property is a matter of a valuer's opinion and the true value may not be recognised until the property is sold. Property Market Risk: The performance of the Fund would be adversely affected by a downturn in the Property market in terms of capital value or a weakening of rental yields. Effect of Dual Pricing Risk: The Fund is dual priced, and there is a price to buy shares and a different price to sell them. Because of the cost of transacting in property, the difference between the two prices is likely to be wider than for other Funds. The price at which you deal may change depending on whether the Fund is experiencing inflows or outflows of cash, and any change will mean an increase or decrease in the price at which you deal. Volatility Risk: The Fund may exhibit significant price volatility. Uninvested Cash Risk: Due to the illiquid nature of property and the time it can take to buy or sell assets, under normal circumstances up to 20% of the Fund s assets may be held as cash deposits. In exceptional circumstances, the level of cash held by the Fund may be significantly higher. Holding high levels of cash will have an impact on the performance of the Fund and its distributable income until the excess cash is invested in property assets. Further risks applicable to the Company can be found in the Prospectus.

5 General Information The information in this report is designed to enable shareholders to make an informed judgement on the activities of the fund during the period it covers and the results of those activities at the end of the period. For further information, please contact Threadneedle Investment Services Limited. The Long Form Report and Financial Statements is available free of charge on request from the ACD and on our website. For more information about the activities and performance of the Company during the period and previous periods, please contact the ACD at the administration address noted below, or visit our website at columbiathreadneedle.com. Contacts: Management and Administration The Company and Head Office Threadneedle UK Property Authorised Investment Fund Cannon Place 78 Cannon Street London EC4N 6AG Authorised Corporate Director and AIFM Threadneedle Investment Services Limited Cannon Place 78 Cannon Street London EC4N 6AG Registrar Threadneedle Investment Services Limited Delegated to: International Financial Data Services (UK) Limited Authorised and regulated by the Financial Conduct Authority (FCA) St Nicholas Lane Basildon Essex SS15 5FS ACD Client Services Department: Threadneedle Investment Services Limited PO Box Chelmsford Essex CM99 2AL Telephone (dealing & customer enquiries): * Fax (dealing): (enquiries): Investment Manager Threadneedle Asset Management Limited Cannon Place 78 Cannon Street London EC4N 6AG Depositary Citibank Europe plc, UK branch (Authorised by the Prudential Regulatory Authority (PRA) and regulated by the FCA and PRA) Citigroup Centre 33 Canada Square Canary Wharf London E14 5LB Legal Advisers Eversheds LLP One Wood Street London EC2V 7WS Independent Auditor PricewaterhouseCoopers LLP Atria One 144 Morrison Street Edinburgh EH3 8EX Standing Independent Valuer: CBRE Limited Kingsley House, Wimpole Street, London W1G 0RE Colliers 35 King Street London EC2V 8EH *Calls will be recorded.

6 To find out more visit columbiathreadneedle.com Threadneedle Investment Services Limited, ISA Manager, Authorised Corporate Director and Unit Trust Manager. Registered No Registered in England and Wales. Registered Office: Cannon Place, 78 Cannon Street, London EC4N 6AG. Authorised and regulated by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com