Investment Report 31 March 2012
Schroders
Investment Report - Summary
Schroder Exempt Property Unit Trust
Please see below unaudited performance data as at 31 March 2012 for the Schroder
Exempt Property Unit Trust. Audited performance data by the Investment Property
Databank will be available in the quarterly investment report on the 24 April 2012 which
can be found on the fund website at www.schroders.com/seput
Performance Data
(unaudited)
Once available the performance data in the quarterly investment report replaces
the performance data provided below.
Performance
Total returns
3 months
%
12 months
%
3 years
% p.a.
5 years
% p.a.
Periods to 31 March 2012
SEPUT
Benchmark1
+1.0
+6.4
+8.4
-5.2
Source: Schroders 31 March 2012; Performance calculated on a net asset value (NAV) to NAV price plus income
distributed, 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.
Performance
Summary
After teetering on the brink of a European credit crunch in the final months of 2011,
prospects for the global economy have improved in 2012. Nevertheless, we remain
cautious about the prospects for the UK and believe growth will be flat in 2012. This year
has already been challenging for the high street with established retailers such as
Peacocks and Game going into administration. Their demises are symptomatic of some
of the difficulties facing the high street where we have seen retail rental falls of 0.5% in the
three months to February 2012 (Source: IPD). The central London office market appears
to have cooled as a result of large occupiers choosing to hold off committing to new space.
Even in the absence of a recession, we are unlikely to see any meaningful rental growth in
2012 as occupiers hesitate before committing to new space, except for some small
pockets of growth in emerging locations like Silicon Roundabout in London. The
investment market continues to be dominated by overseas capital, particularly in the
central London office market, or investment focused on prime properties with long income
streams. We forecast all property total returns in 2012 to be close to zero.
We estimate SEPUT will perform in line with the benchmark over the three month period to
31 March 2012 and continue to outperform over the 12 and 24 month periods. Recent
outperformance is largely attributable to acquisitions that have benefitted from uplifts in
valuation and asset management initiatives improving the valuation of directly owned
assets.
Portfolio Activity
Two adjoining office buildings were acquired from a distressed vendor for £18.5 million
(9.5% net initial yield), which reflects the short lease expiry profile of 3.25 years. Both
buildings are let off affordable rents with reversionary potential and are located close to the
Silicon Roundabout, an emerging technology hub in London. The strategy is to seek
income security by either refurbishing and re-letting the space or renewing leases.
A freehold parade of five shops was acquired in the affluent London suburb of Kingston
upon Thames for £4.1 million (8.0% net initial yield). It is fully let off affordable rents with
7.8 years unexpired lease term to break. The location is popular with retailers thanks to its
close proximity to the station generating passing trade.
The £9.5 million investment in Hercules Unit Trust Convertible Bond was redeemed and
the proceeds will be re-invested in directly owned property. This redemption further
reduces indirect investments to around 9% of net asset value.
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Investment Report 31 March 2012
Schroders
Investment Report - Summary
Policy
Following the Supervisory Board and Financial Services Authority (FSA) approval in
principle to convert SEPUT to a Property Authorised Investment Fund (PAIF), an
Extraordinary General Meeting (EGM) is expected to be held mid-July 2012. Further
information is available on the SEPUT website, www.schroders.com/seput.
Given the weak market prospects, we continue to take a defensive stance and favour
those parts of the market where rents are affordable and which offer a high income return.
Our preferred sectors include South East offices and industrials and niche property types
such as car showrooms, healthcare and leisure where rents are often indexed to inflation.
We also favour convenience retail in affluent areas, where rents are at levels which
retailers can readily afford such as the recent acquisition in Kingston upon Thames.
Notes
Socially Responsible Investing: Schroders Responsible Property Investment policy can be found on our website
http://www.schroders.com/property/home/. We also publish regular articles on Socially Responsible Investing, which can be found on Schroders Talking
Point www.schroders.com/talkingpoint.
Corporate Governance: Schroders Corporate Governance Policy can be found at http://www.schroders.com/staticfiles/Schroders/Sites/global/Int-CorpGov-Policy.pdf.
Important Information
For professional investors and advisors only. This document is not suitable for retail clients.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as
an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting,
legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Property Investment Management Ltd
(SPrIM) does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any
duty or liability that SPrIM has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory
system. SPrIM has expressed its own views and opinions in this document and these may change. Reliance should not be placed on the views and
information in the document when taking individual investment and/or strategic decisions.
Issued by Schroder Property Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial
Services Authority.
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