Schroder Exempt Property Unit Trust
12 Months to 31 March 2011
UK Property
Market
Review
After a sharp fall in late 2009 / early 2010, the All property initial yield modestly
declined from 6.7% at the beginning of the period, to 6.4% (source: IPD 31
March 2011). The last two years have seen a steady pick up in investment
activity. In total there were 1,900 commercial property transactions in 2010, midway between the record set in 2006 (2,500 transactions) and the trough reached
in 2008 when half the number of properties were transacted (source: Property
Data). Foreign investors and UK institutions have been the major buyers while
the major sellers have been private property companies.
The main sector of the UK commercial property market that has seen rental
growth in the past year has been central London offices. This reflects strong
demand from international financial and business service companies. Outside
central London, tenant demand is still generally tepid, vacancy rates are above
equilibrium levels and rents have not quite bottomed out. On the high street, for
example, many long established multiple retailers are being squeezed by a
combination of sluggish consumer spending, rising commodity prices, the rapid
growth of online sales and the expansion of supermarkets into clothing and other
non-food items. Despite this, the rental income on property portfolios has held
up remarkably well. According to Investment Property Databank total net rental
income has only fallen by 1.2% since its peak in 2008, highlighting the extent to
which the upward only rent review clause on existing leases protects landlords
against falls in open market rental values. This compares favourably with gross
dividend income from UK equities which fell by 10.7% between 2008 and 2010
(source: Barclays Capital).
We anticipate that the income return will be the main driver of UK property
returns over the next three years.
Performance
The table below shows the performance of The Schroder Exempt Property Unit
Trust (SEPUT).
Total returns
Portfolio
Benchmark1
Difference
3 months
%
2.1
1.9
+0.2
12 months
%
10.2
8.9
+1.3
3 years
% p.a.
-5.8
-2.4
-3.4
5 years
% p.a.
-3.1
-0.6
-2.5
Source: Investment Property Databank (IPD) UK Pooled Property Fund Indices, 31 March 2011
Performance is calculated on a net asset value (NAV) to NAV price basis plus income distributions accrued for the relevant
periods, compounded monthly, net of fees and based on an unrounded NAV per unit.
1
Benchmark shown is the IPD UK Pooled Property Fund Indices – All Balanced Funds Index Median. The Trust benchmark has
changed over time and a composite for 10 years is available upon request
The Trust outperformed its benchmark over the 12 months to 31 March
2011.This was against a backdrop of repositioning the portfolio as the UK
property market recovered. Exposure to indirect holdings has been reduced in
favour of direct assets.
The main contributors to performance relative to the benchmark over the past 12
months were as follows:
– Sector positioning added to relative returns. The Trust benefited from an
overweight position in central London offices and an underweight position in
retail.
Issued in December 2009 by Schroder Investment Management Limited.
31 Gresham Street, London EC2V 7QA. Registered No. 1893220 England.
Authorised and regulated by the Financial Services Authority.
Schroders Investment Review
12 Months to 31 March 2011
– Indirectly owned assets investing in central London offices produced notably
strong performances. The West End of London Property Unit Trust2
(WELPUT) (+20.4% total return) and Chiswick Property Unit Trust2 (+62.9%
total return) were the top performers (Source IPD).
– Non-income producing land sites, including Maritime Industrial Estate, were
sold at substantial premiums to prior valuations.
– The sale of units In Hercules Unit Trust2, a specialist retail warehouse fund,
at a discount to net asset value detracted from relative returns. Their sale
was in line with our strategy of reducing risk, and the discount should be
considered alongside the premium pricing received on other disposals.
2
In-house Fund
Investment
Strategy &
Activity
The strategy of repositioning the portfolio was largely completed over the year.
– Exposure to indirectly owned assets and gearing levels was reduced during
the period 31 March 2010 to 27 April 2011. The holding in Chiswick Park
Property Unit Trust was sold in March 2011 on the liquidation of this Trust.
Half of the holding in the West End of London Property Unit Trust was sold at
a premium to net asset value. Following the completion of a transaction after
the period end 31 March 2011, exposure to indirect assets has fallen to
10.0% from 23.4% of net asset value at the start of the period at with a
corresponding fall in the gearing level to 6.9% from 16.3% of net asset value.
– The Trust received £19.6 million of new primary market subscriptions over
the 12 months.
– The Fund has improved the quality and duration of income through the
purchase of directly held assets with stable income streams and good
covenants.
– An office development plot was acquired at Chiswick Park with a pre-let to
QVC. The lease term is for 21 years with fixed rental uplifts at the first two
reviews, and is accretive to both the fund yield and lease profile.
– Units in Schroder Emerging Retail Property Unit Trust2 were purchased,
increasing ownership to 99.8% from 68%. 100% ownership was achieved in
April 2011, at which point the properties effectively became directly owned,
further reducing the level of indirect holdings in the fund.
– In December 2010 Hall Road Retail Park, Norwich was bought. The two
terraces of units are let on low risk covenants with an average unexpired
lease length of 13 years. Planning permission is in place for an additional
60,000 sq ft of future development. No value was attributed to the planning
consent in the price paid and this offers upside potential.
– Some non-income producing assets and potential development sites were
sold (Charlton and Uxbridge) at above previous valuations
– Stock specific risk in the portfolio was reduced through the partial sale of the
Trust’s holding in Monks Cross Retail Park, York. The reduction in the
Trust’s holding realised a valuation uplift.
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Schroders Investment Review
12 Months to 31 March 2011
Summary &
Outlook
Asset
Allocation
The strategy of repositioning the Trust is now largely complete with the portfolio
comprising predominantly direct property assets. The average lease length and
distribution yield of the Trust have increased, and the investment team are
working to keep tenant void levels low. The strategy is to have a blend of quality
income producing assets and value add opportunities.
Fund
31.03.10
%
Fund
31/03/11
%
Benchmark*
31.03.11
%
Standard retail
6.9
8.2
15.1
Shopping centres
1.9
1.9
6.2
Retail warehouses
22.0
19.6
19.6
Central London offices
17.1
16.5
14.2
South East offices
14.7
11.0
8.2
Market sectors
Rest of UK offices
Industrial
Other
5.6
6.0
5.8
19.2
19.3
16.0
9.3
7.7
8.6
Cash
3.3
9.6
6.4
Total
100.0
100.0
100.0
*IPD UK Pooled Property Fund Indices – All Balanced Funds Weighted Average. The
weighted average has been used as this level of information is not available in the
median.
Data subject to rounding
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Schroders Investment Review
12 Months to 31 March 2011
Important Information
The Schroder Exempt Property Unit Trust (The Fund) is a collective investment scheme within the meaning of Section 235 of the
Financial Services and Markets Act 2000 (“FSMA”). The Fund is not an authorised unit trust scheme, OEIC or recognised
scheme within the meaning of the FSMA and therefore constitutes an unregulated collective investment scheme. As an
unregulated collective investment scheme, the distribution and promotion of units are restricted, for the purposes of Sections 21
and 238 of the FSMA, to persons who are themselves authorised under the FSMA or who otherwise fall within the categories or
exceptions made under Sections 21 and 238. Accordingly, this material is directed at market counterparties and authorised
persons; intermediate customers; existing investors in this or a substantially similar fund; and existing clients and newly accepted
clients of the Schroder Group where reasonable steps have been taken to ensure that investment in the Fund is suitable. This
material should not be relied upon by persons of any other description.
Investment in the Fund is only available to Exempt Funds. In general terms an Exempt Fund is a person wholly exempt from
capital gains tax or corporation tax on capital gains. Investment will only be accepted following the completion of a Form of
Authority for the Fund which contains certain warranties and indemnities provided by the potential investor, particularly regarding
the exempt status of the investor and confirmation from HM Revenue & Customs that the potential investor is an Exempt Fund.
Investors and potential investors should be aware that past performance is not a guide to future returns. No warranty is given, in
whole or in part, regarding the performance of the Fund and there is no guarantee that the investment objectives of the Fund will
be achieved. The price of units and the income from them may fluctuate upwards or downwards and cannot be guaranteed.
Property-based pooled vehicles, such as the Fund, invest in real property, the value of which is generally a matter of a valuer's
opinion. It may be difficult to deal in the units of the Fund or to sell them at a reasonable price because the underlying property
may not be readily saleable, thus creating liquidity risk. There is no recognised market for units in the Fund and, as a result,
reliable information about the value of units in the Fund or the extent of the risks to which they are exposed may not be readily
available.
Neither this document nor any other statement (oral or otherwise) made at any time in connection herewith constitutes an offer to
sell or exchange units in the Fund or any other fund or product and is not soliciting an offer to buy or exchange and does not
constitute an invitation to subscribe for, buy or exchange any units in the Fund or any other fund or product in any jurisdiction
where the offer, sale or exchange is not permitted. Potential investors are advised to obtain and review independent professional
advice and draw their own conclusions regarding the economic benefits and risks of investment in the Fund as well as the legal,
regulatory, tax and accounting aspects in relation to their particular circumstances.
Any investment in the Fund must be based solely on the prospectus, or any other document issued from time to time by the
Manager of the Fund in accordance with applicable laws.
The opinions, beliefs expectations or intentions, unless otherwise stated, are those of Schroder Property Investment Management
Limited (SPrIM). All information and opinions contained in this document/presentation have been obtained from sources we
consider to be reliable. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views
and information in this document/presentation when taking individual investment and/or strategic decisions.
A potential conflict with the Manager’s duty to the unit holder may arise where a transaction is effected for the Fund in the units of
another fund(s) managed by the same Manager or an Associate of the Manager. However the Manager will ensure that such
transactions are effected on terms which are not materially less favourable than if the potential conflict had not existed.
The forecasts included in this document should not be relied upon, are not guaranteed and are provided only as at the date of
issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or
opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions
may be affected by external economic or other factors.
Use of IPD data and indices : © and database right Investment Property Databank Limited and its Licensors 2011. All rights
reserved. IPD has no liability to any person for any losses, damages, costs or expenses suffered as a result of any use of or
reliance on any of the information which may be attributed to it.
This document/presentation is intended for the use of the addressee or recipient only and may not be reproduced, redistributed,
passed on or published, in whole or in part, for any purpose, without the prior written consent of SPrIM.
For the purposes of the Data Protection Act 1998, the data controller in respect of any personal data you supply is SPrIM.
Personal information you supply may be processed for the purposes of investment administration by the Schroder Group which
may include the transfer of data outside of the European Economic Area. SPrIM may also use such information for marketing
activities unless you notify it otherwise in writing.
Schroder Property Investment Management Limited
31 Gresham Street
London
EC2V 7QA
Registered No. 1188240 England.
Schroder Property Investment Management Limited is authorised and regulated by the Financial Services Authority
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