Schroder Exempt Property Unit Trust
12 Months to 31 December 2010
UK Property
Market
Review
The UK property market produced a positive total return over the year. The fall in
yields which lifted capital values through the latter part of 2009 was sustained
into early 2010 before levelling out at c. 6.5%*. Investors continued to be
attracted in particular by the relatively high income yield on property compared
with cash and bonds.
The recovery in the UK economy and the low level of new building led to a fall in
vacancies. The void rate in the IPD Monthly Index fell to 8.7% of total income in
December 2010 from 10.1% a year earlier.
Although the balance between demand and supply is gradually improving, tenant
vacancy rates are still typically above equilibrium levels. As a result, most parts
of the market saw modest falls in open market rental values over the year. The
main exceptions were offices and shops in central London, which saw rental
growth, reflecting the buoyancy of global financial and business services and
international tourism.
* Source: IPD Average Initial Yield
Performance
The table below shows the performance of The Schroder Exempt Property Unit
Trust (SEPUT) to 31 December 2010:
Total returns
Portfolio
Benchmark1
Difference
3 months
%
2.5
2.1
0.4
12 months
%
12.9
12.3
0.6
3 years
% p.a.
-8.1
-4.2
-3.9
5 years
% p.a.
-2.6
0.0
-2.6
Source: Investment Property Databank (IPD) UK Pooled Property Fund Indices, 31 December 2010
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 twelve month period. The
Trust’s relative performance rebounded against a background of substantially
repositioning the portfolio in line with the stated investment strategy. The
analysis of performance shows that the following factors contributed to relative
performance:
–
Indirect assets recovered strongly from the trough in the UK property
market, reflecting both their levels of gearing and quality of the
underlying assets. Units in the West End of London Property Unit Trust
(WELPUT)2 were sold profitably over the twelve months period.
–
Chiswick Park Unit Trust (ChisPUT)2 reached the end of its life in 2009
and the park was brought to the market. It was offered for sale
significantly above the previous property valuation reflecting the unique
and attractive characteristics of this office campus complex.
–
Good quality properties such as Monks Cross Retail Park and Palace
House, London SE1 performed well over the year.
Issued in March 2011 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 December 2010
Investment
Activity
–
Value was realised through profitable sales of a number of non-income
producing assets. Asset management initiatives also contributed to an
increase in property valuations.
–
Land and potential regeneration sites such as Bracknell town centre,
Croydon and in the City underperformed the market. Bracknell has a
running yield of over 6%, but the lack of income generated by land sites
detracted from short term relative returns, although capital values have
been stable for over twelve months. For these types of assets, future
performance should be driven by recovery in the occupier markets and
asset management initiatives.
The repositioning of the portfolio, which began in 2009, is now largely
complete. The Manager completed over £300 million of transactions in 2010,
implementing the planned strategy, namely;
⎯
Reducing exposure to indirectly owned investments, particularly those
with gearing, to reduce risk and lock in performance. £30m of units in the
West End of London Property Unit Trust (WELPUT) were sold at a premium
to NAV and £27m units in Hercules Unit Trust2 following a rebound in
performance. At the year end indirect assets totalled 20% of the portfolio;
down from 26% at March 2009. We expect this to fall below 10% in the first
quarter of 2011. Gearing was 9.9% of NAV at 31 December 2010, from
20.6% at March 2009.
⎯
Increasing the length and quality of income
⎯
Selling or managing out existing land holdings and development
opportunities. Two development sites in Uxbridge and Charlton were sold
during the year at premiums to previous valuations.
The Trust received £47.3 million of new primary market subscriptions during
2010, with the majority received in the first half of the year. Subscriptions and
proceeds from sales were recycled into income producing assets.
Two modern office buildings were purchased in Manchester and Cardiff. Both assets
have 15 year unexpired lease terms with fixed uplifts and accretive to the yield of the
portfolio. Available cash allowed the Trust to buy an office development plot at
Chiswick Park on 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.
A relatively low risk development (the foundations were already complete and cladding
on-site) offers the benefit of development profit and a buy-back provision that would
crystallise further additional profit on cost.
£22 million of units in Schroder Emerging Retail Property Unit Trust2 were purchased
from other major unitholders, increasing ownership to 98% from 68%. The intention is
to own 100% of the fund at which point the properties will effectively become directly
owned, further reducing the level of indirect holdings in the fund.
In December the fund purchased Hall Road Retail Park, Norwich for £29 million.
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 which we consider provides additional upside
potential.
2
In-house Fund
2
Schroders Investment Review
12 Months to 31 December 2010
Asset
Allocation
Fund
31.12.09
%
Fund
31.12.10
%
Benchmark*
31.12.10
%
Unit shops
8.4
8.0
14.6
Shopping centres
2.0
1.9
6.1
Retail warehouses
20.8
20.3
19.7
Central London offices
16.6
15.9
12.7
South East offices
15.1
16.7
8.6
Market sectors
0.0
5.9
7.1
Industrial
18.3
19.1
15.9
Other
10.1
7.1
7.9
Cash
8.7
5.2
7.0
Total
100.0
100.0
100.0
Rest of UK offices
*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 December 2010
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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