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View the article online at http://citywire.co.uk/wealth-manager/article/a759644

Trust Insider: Maxing out the property recovery

by James Carthew on Jul 01, 2014 at 00:01

Even as the UK property market started to stabilise, the pace of activity didn’t let up. In 2011 the duo bought their largest asset, St Katherine Docks (next to Tower Bridge), paying just shy of £100 million for a 60% stake in the property. In 2012, they bought nine buildings sitting on an acre of land in High Holborn for £47.7 million.

By 31 March this year they had driven the net asset value up to 164.5p (a bit ahead of the 11% compound return target) and felt ready to start handing back cash to shareholders. The first £33 million (15p per share) will come back on 23 July.

They have also said they will make no new acquisitions. They have delivered returns not just by riding the recovery in property prices since the depths of the recession, but also by working to reduce vacancies in the portfolio and refurbish tired buildings.

Not everything went to plan but it helped that they had a diversified portfolio. The best returns came from the provincial office portfolio (where they have cut the vacancy rate to 25%), closely followed by the pubs. But they didn’t do so well on the nightclubs as Atmosphere went bust.

They got the vacancy rates on the industrial estate portfolio down to 11.1% and have sold £98 million worth to date at an average 30% profit. The redevelopment of Commodity Quay, one of the largest buildings in St Katherine Docks, is about to complete and they have started to let this.

They have also been refreshing the Holborn estate, re-letting properties at significantly higher rents, and may have the chance to convert some of the space to residential use.

As Max Property begins to wind down, Prestbury has launched a new vehicle, Secure Income Reit (Sir). This fund listed on 5 June, valuing it at £293 million (Prestbury’s stake is worth £75 million).

Sir is a very different vehicle. Its aim is to provide ‘high quality, safe, inflation-protected income flows’. It started life with a portfolio of 28 freehold properties on average 25-year leases with upwards-only rent reviews.

The portfolio includes Alton Towers, Madame Tussauds, Thorpe Park and Warwick Castle and 21 UK hospitals (the two main tenants on the portfolio are Merlin Entertainments and Ramsay Health Care, an Australian private healthcare group).

The plan is to expand the fund but only when they have deals lined up, avoiding the cash drag associated with blind pools. It will take a while before it starts to throw off meaningful dividends – they say 2017.

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