The Charities Property Fund acquired four properties in the first quarter of 2011 and surpassed the £400 million milestone, having a Net Asset Value of £418 million (approx. 478 million).
It is the first and largest property fund designed specifically for charities. The Fund returned 2.0% in the first quarter of 2011 and 8.8% over the 12 months to 31st March. It has proved very popular with charities and new investment into the Fund was restricted temporarily during the first quarter in order to protect returns to existing investors, although dealing is expected to return to normal in the second quarter.
The four newly-acquired properties were purchased for a total of almost £50 million, reflecting an average yield to the fund of 7.5%. These properties included: a multi-let industrial estate in Epsom for 7.4%; a leisure club in Rayleigh for 7%; a modern distribution warehouse in Burton-upon-Trent for 9%; and a modern office building in Farringdon for 7.1%.
Harry de Ferry Foster, Fund Director, commented: "The Fund now provides excellent liquidity and diversification in terms of assets, locations and tenants. We concentrate on adding value through active management, mainly via lease extensions and refurbishments, while aiming to deliver a high, sustainable level of income through the construction of a defensive portfolio of good quality assets in the right sectors. However, the Fund does not speculatively develop or rely on any borrowing.
"Reducing voids in the portfolio is a priority for us and our vacancy rate remains low relative to comparable funds while covenant quality remains strong.
"The recent popularity of the Fund can be attributed to this strong performance, which has been particularly outstanding over the last three years despite the Fund doubling in size this is especially striking given the significant transaction costs and 'valuation drag' on new purchases."
The Fund was particularly active during 2010, acquiring nine properties and selling two (both at prices in excess of valuation) in eight separate transactions totaling more than £100 million. The average yield on these purchased assets was 6.8% and the average lease length was 12.6 years. Nearly a third of the income generated by these properties benefited from RPI-linked increases.
The Fund is widely diversified, with 62 properties let on long leases with few voids. Leases in the Fund have an average of 9.8 years to expiry, which compares well with the IPD Index. The vacancy rate is just 4.0% of rental value (IPD Index: 10%). 84.7% of the Fund's properties are secured on covenants rated as low/negligible risk, (IPD Index: 69.8%) (Experian, March 31, 2011). The last four distributions have been 6.6 pence per unit, which based on the current unit price NAV of 96.1 pence, produces a net yield of 6.9 %. This makes the Fund one of the highest yielding funds in the AREF All Balanced Index.
The Fund now has 1,226 charities as investors. It has no borrowing and aims to deliver a high and secure level of income. Its current gross yield of 6.8% makes it highly attractive to charities seeking income and compares favorably with other property funds, gilts and equities.
Source: Citigate Dewe Rogerson