The Freehold Income Trust (FIT), which has a 19 year unbroken track record of delivering inflation beating returns primarily through acquiring residential freehold ground rents that offer an attractive income stream and prospects of capital growth, has announced that it has delivered a total return of 6.02% for the year to March 31, 2012. Its total returns over three, five and 10 years are 18.66%, 35.20% and 97.85% respectively.
The key achievements announced by FIT for the year ending on March 31, 2012 include:
Total income distributed for the year was 5.32% of net assets, exceeding the target of 4.25% per annum for the 19th year
Total post tax return for the year of 6.02%, an increase of 9.5% on 5.5% in the prior year
Acquisition of 734 high quality freeholds all with rental uplifts (79% weighted to RPI) for £4.3 million (approx. 5.4 million)
Secured a successful sale above valuation of 1,787 freeholds of its least attractive assets for £4.6 million (approx. 5.8 million)
Freehold property portfolio increased in value by 1.8% to £151.7 million (approx. 192.5 million)
Nigel Ashfield, Managing Director, TIME Investments said: "In the last five years extraordinary turbulence has been experienced in global investment markets, and at the end of March this year, the FTSE 100 index was 16.8% below the high point it reached in December 1999. In contrast to this, the Freehold Income Trust delivered an impressive total return of 136% over the same time period.
"The Trust's performance is generally not correlated to the performance of the commercial or residential property sectors where values have declined. Instead freehold ground rents, valued on very secure income and potential for growth, are more akin to a fixed income investment except that most freehold ground rents have periodic rent reviews with many linked inflation uplifts. With no clear picture of a UK economic recovery yet evident, the Trust continues to provide a valuable safe haven in the uncertain times ahead."
Earlier this year, Trustnet, the fund data company, announced that FIT had delivered the best risk-adjusted returns of any fund in the Investment Management Association's unit trust and OEIC universe over the last 10 years.
Its research revealed that the Trust had returned 96.4% over the 10 years to April 27, 2012 with an annualized volatility only slightly higher than cash, versus a return of 68.79% over the same period by the FTSE All Share, which also delivered significantly higher volatility.
The Trust owns a portfolio of over 64,000 freehold ground rents (or freeholds) each paying an average annual rent of £121 (approx. 153). Approximately 75% of assets have a form of inflation protection through periodic uplifts linked to the Retail Price Index ('RPI'), property values or fixed uplifts.
In addition to this, the Trust can receive an additional income through commission earned as a result of arranging insurance for some of the buildings it owns the freehold to. It may also receive premiums from granting extension on leases, and some tenants may have to pay a license fee to FIT to make alterations to their property.
Ground rent payments have proved extremely secure and reliable across all market conditions. This is because non-payment carries the potential penalty of the leaseholder forfeiting their interest in their property.
The vast majority of the Trust's assets have more than a hundred years left on the lease. The long lease lengths ensure FIT carries virtually no risk of voids, or of incurring letting costs or refurbishment costs. Whereas the erosion of lease lengths over time in commercial property funds can reduce the value of their properties, in the case of FIT, shortening leases increase the reversionary value of the portfolio and increases the likelihood that the lessee will pay a premium to extend its lease.