Commercial property insight

This document is solely for the use of professionals and is not for general public distribution. The value of an investment and the income from it can...
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This document is solely for the use of professionals and is not for general public distribution. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

Commercial property insight

September 2014

Henderson UK Property OEIC

Agenda

• Why commercial property?

Centrica HQ, Windsor

• Recent trends and market outlook • Henderson UK Property OEIC • Questions

1

Why commercial property? Key reasons • Diversification

Pricing comparisons (yields) % 8

• Attractive real income …with low volatility 6

• Asset management opportunities 4

• Tight planning, limited supply 2 10-year UK government bond IPD UK All Property Net Initial Yield Dec-13

Dec-12

Dec-11

Dec-10

Dec-09

Dec-08

Dec-07

Dec-06

Dec-05

Dec-04

Dec-03

Dec-01

Dec-02

FTSE All-Share

0 Dec-00

• Attractive lease structures

Source: Henderson Global Investors, Thomson Reuters, as at 30 June 2014 IPD UK All Property net initial yield data, as at 30 of June 2014

2

Risk adjusted returns Prime vs secondary Capital value shifts since market trough 150

Prime

Secondary

Accentuated by • Property risk

CBRE benchmark

140

• • • •

130

Index

120

Quality Tenant strength Location Longevity

110



100

Market risk • • •

90 80

Liquidity Economic Access to finance

70 Jun-14

Mar-14

Dec-13

Sep-13

Jun-13

Mar-13

Dec-12

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

Sep-09

Jun-09

60

Source: CBRE Monthly Index, as at 30 June 2014 Past performance is not a guide to future performance

Pricing is a reflection of perceived risk in secondary market 3

Recent trends and market outlook

Market backdrop 2014 Key drivers of the property market •

Strong UK GDP Growth



Volatile equity markets – Geopolitical



Europe struggling



Scottish devolution



Steady inflation but below trend



Credit conditions improved



Occupier caution



Hot property investment market



Continued weight of money

Mallard Park, Bournemouth

Source: Henderson Global Investors

Competition for assets – risk on 5

Hot or not – which sector • •

Prime* verses IPD Sector Portfolio Yield IPD Pricing Spread, 2001q1 to 2014q2

Equivalent yield spread, basis points 225 200 175 150 125 100 75 50 Average 2001 to 2014 Q2

25

2014 Q2 0 Standard retail

Shopping centres

Retail Warehouse

Central & Inner London offices

South East offices

Rest of UK offices

Industrial

Source: IPD Quarterly Digest, as at Q2 2014 * Represents the 25% quartile of lowest (prime) yielding assets in IPD sector benchmark

6

2014 UK market outlook Selective rental driven performance • Competitive investment period • Long income/prime income focus to wane, less divergent market outlook

UK forecast total return breakdown, % from direct property 15.0

Capital growth Income Total return

13.0 11.0 9.0

• Progressive move up risk curve aided by improved economic picture • Capital growth to rental income driven returns

7.0 5.0 3.0 1.0 -1.0 -3.0 2011

2012

2013

2014

2015

2016

2017

2018

Source: IPD Annual Digest 2013, THRE Forecast, as at Q2 2014 Past performance is not a guide to future performance. Forecasts cannot be guaranteed.

7

Property investing insight

Investing in commercial property We consider: • Location

• Tenant strength

• Lease length

• Institutional class (landlord friendly) lease terms

• Building specification

Source: Henderson Global Investors

All five deemed prime, three out of five considered core 9

Prime location and liquidity 440, The Strand • Prime, Central London location

440, The Strand

• Providing an unbroken lease term of 23 years to Coutts (RBS) • RBS lease index linked to RPI with annual uplifts • Retail portion offers numerous asset management opportunities • Highly liquid  Location  Asset management  Liquidity

Source: Henderson Global Investors

Long income 10

Rental growth Ryder Court, St James’s •

Prime, institutional grade office building



Prestigious Central London location



Exposure to liquid London office market



Multi-let to five principal tenants



Accretive asset management opportunities

 Location  Asset management  Liquidity

Ryder Court, St James’s

Source: Henderson Global Investors

Rental growth 11

Sourcing assets – capital allowances Derby Commercial Park •

New distribution hub for Heineken



Direct access to M1 motorway



Top quality specification



High spec = £4.9m capital allowances



Use of capital allowances improves net distribution from 4.3% to 5.5%

Derby Commercial Park

Source: Henderson Global Investors

 Quality  Location  Income

Strong distribution 12

Diversification Ironbridge Studios, Exeter •

Recently developed direct let student hall that provides quality accommodation. All rooms are ensuite.



Centrally located in a Russell Group university town



The current rents are let off low levels as it was not asset managed effectively by the developer, so the asset is well placed for rental growth

Ironbridge Studios, Exeter

Source: Henderson Global Investors

 Location  Asset management  Liquidity

Diversification 13

Development Maidenhead development •

Development site in Maidenhead town centre



£6.6m site acquisition / c.£30m development cost



Strong Thames Valley location on London Crossrail



Consent for 50,000 sq. feet of offices & hotel



Hotel pre let to Premier Inn for 20 years



Expertise from Henderson’s Development Team

 Location  Quality  Growth

Maidenhead development

Source: Henderson Global Investors, as at 31 December 2013

Capital and rental growth 14

The benefits of proactive management Proactive asset management to reduce void 12.0%

IPD All Property Vacancy Rate

*Top 10 tenants by income

%

Risk rating**

7.9%

Negligible

4.3%

Negligible

4.3%

Negligible

3.9%

Negligible

3.8%

Low

3.8%

Maximum

3.7%

Negligible

3.6%

Negligible

2.8%

Negligible

2.3%

Negligible

*Fund Vacancy Rate 10.0%

8.0%

6.0%

4.0%

2.0%

Jun-14

Dec-13

Jun-13

Dec-12

Jun-12

Dec-11

Jun-11

Dec-10

Jun-10

Dec-09

Jun-09

0.0%

Source: IPD IRIS Report Q2 2014, Henderson Global Investors, as at 30 June 2014 Source: Henderson Global Investors, as at 31 July 2014 IPD UK Quarterly Index, as at Q2 2014 * Henderson UK Property OEIC * Henderson UK Property OEIC ** Risk rating carried out by Dun & Bradstreet Note: The Henderson UK Property OEIC is a Henderson Global Investors product, and the sub-investment manager is TIAA Henderson Real Estate

Income protection through a difficult climate 15

Responsible property investment Sustainability increasingly important •

Sustainable buildings an important strength in a typical* portfolio



Aligning landlord and tenant interests •

B&Q, Farnborough

EG Photo-voltaics on roofs of two B&Q holdings



Energy Performance Certificates – first ‘A’ rating



De-risk assets and prevent obsolescence



Henderson amongst the market leaders

Source: Henderson Global Investors, as at December 2013. * Typical fund used is Henderson UK Property OEIC Note: The Henderson UK Property OEIC is a Henderson Global Investors product, and the sub-investment manager is TIAA Henderson Real Estate

Future-proofing buildings 16

What does it mean on the ground Henderson UK Property OEIC • Fund size: £2.1bn • 82 assets, 401 tenancies • Top decile income rating from IPD*

Alternatives 7.7% Property Securities 3.6%

Cash 11.8%

Offices 32.1%

• 25.4% of leases have fixed uplifts Industrial 11.9%

• 65.8% South East • 10.8 year average lease length

High Street Retail 13.6%

Retail Warehouse 16.4%

Source: Henderson Global Investors, as at 31 July 2014 * Risk rating carried out by Dun & Bradstreet, Q4 2013 Note: The Henderson UK Property OEIC is a Henderson Global Investors product, and the sub-investment manager is TIAA Henderson Real Estate

Low weighting to high street retail 17

Henderson Global Investors 201 Bishopsgate, London EC2M 3AE Tel: 020 7818 1818 Fax: 020 7818 1819 Important information This document is intended solely for the use of professionals and is not for general public distribution. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. Any investment will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions, risks and fees. This document is intended as a summary only and potential investors must read the Prospectus before investing. Issued by Henderson Global Investors Limited (reg. no. 906355), (incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) is authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored. Ref: 34P

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