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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