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31December
2016
© Tritax 2016
Partnership Manager, AIFM of the Master Partnership and Trust Adviser(Authorised and regulated by the UK Financial Conduct Authority)
Tritax Management LLPStandbrook House4th Floor, 2-5 Old Bond StreetLondonW1S 4PD
T: +44 (0) 20 7920 1616E: [email protected]: wwwtritax.co.uk/tpif/
Tritax Property Income Fund Tritax Property Income Fund (the “Fund”) is an open-ended UK regional commercial property fund. It invests in a diversified portfolio of high quality commercial property, primarily located in major regional locations outside Central London. The Fund provides stable and growing income streams together with the potential for capital appreciation over the medium term.
UK commercial property returns have historically been dominated by income and, via its dedicated active long income strategy, TPIF seeks to provide a high income return through investing in Foundation long lease assets while also enhancing returns through a portfolio of Value and Growth assets. This strategy blends the strengths of both a Balanced UK strategy and the low volatility and security of Long Lease investing.
Investment objectivesTPIF’s objectives, through the Fund’s active long income approach, are to seek:
• A target income return, on a fully invested and geared basis, in excess of 5.5% pa
• A target portfolio IRR of 7.00%-9.00%
• A Weighted Average Unexpired Lease Term (WAULT) for the portfolio in excess of 10 years
• To utilise moderate portfolio gearing of up to 25% of GAV
• To manage portfolio risk through diversification across the target property sectors and regions, while ensuring the property investments are in a readily saleable state
Link to further information on website
70%
16%
14%
Property Strategy Weightings (%)
■ Foundation■ Value■ Growth
Waterfold Park, Bury
Waterfold Park, Bury
KEY DATA Q3 2016 Q4 2016 VARIANCE
Portfolio Property Value £74,910,000 £110,545,000 +£35,635,000
Net Initial Yield 6.84% 6.50% -0.34%
Gross Asset Value (GAV) £102,476,172 £112,435,814 +£9,959,642
Net Asset Value (NAV) £102,476,172 £112,435,814 +£9,959,642
Loan as a % Gross Asset Value 00.00% 00.00% 00.00%
Units in Issue 91,404,974 115,552,645 +24,147,671
Unit Price (Adjusted NAV per unit) 97.51p 97.30p -00.21p
Distribution per unit 1.19p 1.30p +0.11p
Number of assets 8 10 +2
WAULT (to lease break options) 12.4 years 11.6 years -0.8 years
Note: Foundation, Value and Growth are the three pillars of the Tritax investment philosophy. More detailed information is available in the Fund documentation.
Q4 Performance Review
31 DECEMBER 2016
TRITAX PROPERTY INCOME FUND (TPIF) / MASTER FUND Q4 PERFORMANCE REVIEW: 31 DECEMBER 2016
PAGE 2
Executive summary Q4The last quarter of 2016 continued the year’s theme of the political unexpected, with the US election result. The impact in the UK was muted in the immediate aftermath, with the FTSE 100 ending the year at an all-time high of 7,142.83 after the earlier volatility, although this was driven largely by ex-UK influences.
The UK property market continued to trade with a range of buyers active and returns being dominated by income, with the IPD UK Monthly Property Index returning 2.6% for the year.
TPIF’s strategic priority is to deliver a high quality and sustainable income return and to date it has provided an income return of 3.26%. The Q4 distribution figure was 1.35% and we anticipate this figure to increase during 2017 with reduced impact of portfolio cash holdings and the introduction of debt to the portfolio.
In terms of capital performance the Fund showed capital enhancement in three of the 10 assets, with an increase over the quarter of £635,000 reflecting asset management initiatives and strong off market purchasing.
Terms are agreed and negotiations are nearing completion on the introduction of debt to the portfolio, which we expect to utilise during Q1 2017. This will enable further diversification of the portfolio and enhance the income return.
Further diversificationFund commitments now total £140.6 million. £11.7 million was drawn through the quarter, taking the total to £116.5 million,
representing 100% of the initial launch equity and an initial tranche of follow up equity. At the end of the quarter the Fund had outstanding commitments of £24.1 million to invest, of which £11.9 million has been requested at the end of January 2017 for an additional asset purchase.
Asset acquisitions and pipelineThe two acquisitions the Fund had under offer in Q3 successfully completed. With valuation increases this took the portfolio to £110.545 million in 10 assets. Pierpoint Retail Park introduced retail warehousing to the portfolio and Leigh Close in New Malden was an off market acquisition within the in favour sector of Greater London industrial.
The portfolio rent roll is now £7.6 million pa through 58 tenancies.
The acquisition team continue to monitor a significant pipeline of strong opportunities to invest the remaining £24.1 million of undrawn equity, alongside the debt, which is anticipated to be available later in Q1 2017. One acquisition, of a budget hotel located in the East Midlands, is in solicitors hands and is expected to complete in February.
DistributionThe Fund’s third distribution of £1.49 million was agreed and paid following the quarter end, representing 1.30 pence per unit (1.35%). This represents a three-month annualised figure of 5.37% pa.
Performance Quarter 4 saw positive valuation enhancements in three of the portfolio assets, reflecting the improving investment market in logistics and industrial, while also recognising an uplift following a new letting in the office asset in Chorley. Valuations increased 0.21% in October and 0.43% in December.
Overall the portfolio valuation of £110.545 million represents a 1.1% uplift over the total purchase price of £109.340 million for the 10 assets.
Over the quarter the Fund acquired £35 million of new investments. The 6% acquisition costs on these assets is below the market standard maximum, but has impacted on the quarter’s capital performance.
The Fund’s third distribution (1.30 pence per unit) was paid out following the quarter end. This brings the distribution to date to 3.11 pence per unit (3.26%).
Fund returnsPERIOD INCOME RETURN TOTAL RETURN
Q4 2016 1.35% 0.41%
Q3 2016 1.22%* 1.14%*
* Restated
Cobham Gate, Ferndown, Bournemouth
TRITAX PROPERTY INCOME FUND (TPIF) / MASTER FUND Q4 PERFORMANCE REVIEW: 31 DECEMBER 2016
PAGE 3
The UK economy 2016 and the unexpectedQ4 continued the 2016 political theme of the unexpected with the election of Donald Trump as president elect in the US, following the UK EU referendum in Q2.
The UK economy has shown continued resilience to this political climate, aside from continuing weakness of Sterling against the Euro and US Dollar. UK GDP is anticipated to be 2.1% for the year, broadly in line with earlier consensus forecasts, however these same forecasts predict 2017 may be down on that figure.
In the consumer economy estimates for retail sales volumes in December increased by 4.3% compared with a year previously but fell by 1.9% compared with November 2016. Online sales increased year-on-year by 21.3%.
The Bank of England held the base rate at 0.25% following its reduction in August. In the US interest rates were raised 0.25% in December and Yellen predicted three additional rises through 2017. Inflation (RPI) continued to rise through the quarter, reaching an annual figure of 2.5% in December, compared to 1.2% 12 months previously and 2.0% at the end of Q3.
Occupational market Occupier demand remains robust in uncertain timesAlongside the political uncertainty, occupier demand and the resultant rental value growth has continued in Q4, with UK rental values rising by 1.7% across all properties for the 12 months.
Over the quarter it can be seen that the dominant sector for annualised rental growth was industrial (4% pa), with offices behind on 1.5% pa. Nationwide negative growth was recorded in retail warehousing and London offices.
Investment market A quieter year than anticipated but much of 2016 was not as anticipatedCBRE forecast the 2016 investment volume will be c.£49 billion, 30% down on 2015 and the lowest level of investment since 2012. This weakness is not necessarily structural but more a reflection on the uncertainty in the UK economic outlook due to the EU referendum.
Currency movements continue to make the UK an attractive opportunity for international investors, although this has not necessarily been evidenced to date in the early uncertain months after the EU referendum. We anticipate these investors may play a role later in 2017.
The slowdown in yield compression in certain sectors will mean that returns are dominated by income and rental growth in the short term. These returns will be enhanced by active asset management initiatives.
Outlook Brexit still to comeThe ultimate route for the UK to exit the EU remains unclear and will unfold over the coming months and ultimately two years.
The supply and demand fundamentals in certain real estate sectors, including industrial, alongside the continuing online retail revolution provide a strong case for continuing occupier demand and subsequent rental growth which will enhance the income returns further.
2017 and 2018 returns are forecast to be greatest in the TPIF target sectors as shown in the Total Return Forecast chart above.
Longer income assets remain an attractive target for many investors and are likely to appeal to the international investors once they are more active. The acquisition team will continue to target these assets, while also appraising interesting assets with shorter income streams that may not be so competitively sought in the 2017 market.
-4
2
4
6
8
0
-2
■ 2016 ■ 2017 ■ 2018 ■ 2016-2020Source: Gerald Eve
Industrial SE O�cesLogistics RetailWarehouses
StandardShops
CityO�ces
TPIF target Not TPIF target
West EndO�ces
Total Return Forecast – Q4 2016 (%)
0
-1
-2
4
5
6
3
Jan 0
1
Jan 0
2
Jun 0
3
Jan 0
4
Jun 0
5
Jan 0
6
Jan 0
7
Jan 0
8
Jan 0
9
Jan 1
0
Jan 1
1
Jan 1
2
Jan 1
3
Jan 1
4
Jan 1
5
Jan 1
6
1
2
■ O�cial Bank Rate ■ In�ation RPI Sources: Bank of England; ONS
UK Interest Rates and Inflation (%)
78
654
Jan 0
0Ju
n 00
Nov 0
0Ap
r 01
Sep
01Fe
b 02
Jul 0
2De
c 02
May
03Oc
t 03
Mar
04Au
g 04
Jan 0
5Ju
n 05
Nov 0
5Ap
r 06
Sep
06Fe
b 07
Jul 0
7De
c 07
May
08Oc
t 08
Mar
09Au
g 09
Jan 1
0Ju
n 10
Nov 1
0Ap
r 11
Sep
11Fe
b 12
Jul 1
2De
c 12
May
13Oc
t 13
Mar
14Au
g 14
Jan 1
5Ju
n 15
Nov 1
5Ap
r 16
Sep
16
1
32
0-1
■ Yield di�erential ■ 10 yr gilt (BoE) ■ IPD net initial yield Sources: Bank of England; MSCI
UK Gilt and Property Yields (%)
TRITAX PROPERTY INCOME FUND (TPIF) / MASTER FUND Q4 PERFORMANCE REVIEW: 31 DECEMBER 2016
PAGE 4
Pierpoint Retail Park, King’s Lynn.
Fund activity Capital raising and drawdownsOver the quarter the Fund received investor commitments of £4.8 million, taking total commitments to £140.68 million.
£11.78 million was drawndown during the quarter, taking the total drawn to £116.58 million, representing 100% of the initial equity. An additional £11.9 million has been requested for the end of January to fund a budget hotel acquisition in February.
AcquisitionsIn November, the Fund completed the two acquisitions referred to in the last review, taking the portfolio to 10 assets totalling £110.545 million in December.
Units 1-5 Leigh Close, New Malden, Surrey The property provides exposure to the highly sought after multi-let industrial sector. The industrial estate is strategically located close to the A3 arterial route in and out of London. The estate totals c.75,000 sq ft, arranged as five units and let to three tenants with a rent roll of £720,000 pa. The passing rent equates to £9.70 psf, which is significantly lower than other competing Greater London locations and offers the opportunity to capture rental growth and improve return to the Fund.
This acquisition was negotiated direct with the vendor. Since completion at the beginning of November the strong investment market has provided evidence to support an increase in value, which was reflected in the December 2016 NAV.
Pierpoint Retail Park, King’s LynnThe property comprises a recently reconfigured multi-let retail park totalling c.74,000 sq ft in seven units, with leases to national retailers and anchored by Next. The park has an unexpired lease term of 12.8 years to breaks with an overall rent roll of c.£1.5 million pa. The business plan includes a number of asset management initiatives to further enhance the income.
Asset management FerndownThe pre-let forward funding development at Cobham Gate, Ferndown continues to progress on schedule (see photograph on page 2). During the quarter the construction works completed on the new road junction. After completion of the steel portal frame, installation of the cladding and roofing commenced and is largely complete. The dock leveller loading bays have been cast and preparation for laying the warehouse concrete slab have commenced. External yard works and landscaping will further progress in Q1 2017.
Practical completion is on target for the beginning of May when Geopost will take occupation and complete on the agreed 25 year lease term. The Fund and its professional advisors continue to monitor progress on site at regular intervals.
Income profileIncome quality and diversification is central to the fund strategy. The fund now has a rent roll of £7.6 million pa across 58 leases to 39 different occupiers. The top five tenants are:
ASSET TENANT
Waterfold Park, Bury DSG Retail Limited
800 Capability Green, Luton Impellam Holdings Ltd
Cobham Gate, Ferndown, Bournemouth DPD Group UK Limited (Geopost)
Pierpoint Retail Park, King’s Lynn Next Group Plc
Mill House/Mill Court, Milton Keynes ID Medical Group Limited
Pierpoint Retail Park, King’s Lynn.
TRITAX PROPERTY INCOME FUND (TPIF) / MASTER FUND Q4 PERFORMANCE REVIEW: 31 DECEMBER 2016
PAGE 5
Portfolio analysis
2
8
375
4
10
9
6
1
Top 10 assets
LOCATION STRATEGYVALUATION
BAND LOCATION STRATEGYVALUATION
BAND
1. Pierpoint Retail Park, King’s Lynn Foundation £20-30 million 6. Leigh Close Industrial Est, New Malden Growth £10-15 million
2. Waterfold Park, Bury Foundation £20-30 million 7. Regent Park Estate, Princes Risborough Value £5-10 million
3. 800 Capability Green, Luton Foundation £15-20 million 8. Norfolk House, Nottingham Value £0-5 million
4. Cobham Gate, Ferndown, Bournemouth Foundation £10-15 million 9. St Hilary Trade Park, King’s Lynn Growth £0-5 million
5. Mill House/Mill Court, Milton Keynes Value £10-15 million 10. Buckshaw Office Park, Chorley Value £0-5 million
£110.55 million
9. St Hilary Trade Park, King’s Lynn
5. Mill House/Mill Court, Milton Keynes
1. Pierpoint Retail Park, King’s Lynn
3. 800 Capability Green, Luton
10. Buckshaw Office Park, Chorley
2. DSG, Waterfold Park, Bury
8. Norfolk House, Nottingham
4. Cobham Gate, Bournemouth
n Logisticsn Industrialn Officen Retail Warehousen Alternative— Major motorways
0
20
25
30
15
5
10
RoLon SE SW East W Mid E Mid NW York & NE Wal Scot Hum
Regional Weighting (%)
30%
34%
22%
14%
Sector Weighting (%)
■ Logistics■ Industrial■ O�ce■ Retail Warehouse■ Alternative
SOUTH WEST LONDONINDUSTRIAL INVESTMENT OPPORTUNITY
UNITS 1-5, LEIGH CLOSE, NEW MALDEN, SURREY KT3 3NW
6. Leigh Industrial Estate, New Malden
7. Regent Park Est, Princes Risborough
TRITAX PROPERTY INCOME FUND (TPIF) / MASTER FUND Q4 PERFORMANCE REVIEW: 31 DECEMBER 2016
PAGE 6
Unit Holder Information Investor InformationFull information is provided in the Offering Memorandum and Fund Documentation.
StructureJersey Property Unit Trust, regulated by the Jersey Financial Services Commission.
Launch Date29 January 2016.
Dealing DateThe last Business Day of each calendar month or such further specific Business Day in respect of any one calendar month as determined by the Trustee.
Offering MemorandumCopies of the Offering Memorandum and the Application Form are available from Tritax Management LLP.
Issue of UnitsMonthly. The Fund operates a commitment and drawdown system.
Prospective Investors complete an Application Form. On acceptance by the trustee, the form becomes an irrevocable “Subscription Agreement” with the relevant Investor and the maximum amount agreed to be subscribed shall be that Investor’s “Commitment”. A Commitment, once accepted, shall be available for draw down on any Dealing Date over two years (see Subscription Agreement for more details).
The minimum Commitment per Investor is £1,000,000.
RedemptionsQuarterly (subject to limits and liquidity), on three months’ notice and at a redemption price that is calculated by ascertaining the net asset value at the date of redemption and dividing it by the number of Units then in issue (subject to a redemption levy of up to 10% of the redemption price).
DistributionsIncome is distributed as soon as practicable and, in general, expected to be on a quarterly basis. Capital receipts are generally expected to be reinvested at Master Partnership level.
Borrowing for investmentUp to 25% of GAV.
Charges 0.625% pa of net asset value of the Trust plus 0.1% of acquisition and disposal price of Investments.
Performance Fee of 10% of excess over 7% IRR.
ReportingQuarterly
DataAll Fund data as at 31 December 2016, unless stated otherwise.
LegalNotice to Existing InvestorsThis quarterly update (“Update”) is provided to Investors in Tritax Property Income Fund Unit Trust (“TPIF”).
The Update comprises Confidential Information and Investors’ attention is drawn to their confidentiality obligations under clause 37 of the trust instrument governing TPIF.
Nothing in this Update should be construed as an invitation or solicitation to make a further investment in TPIF or to engage in any other transactions. This Update is not intended to provide recommendations, and should not be relied upon, for accounting, legal, tax advice or investment purposes. You should consult your tax, legal, accounting or other advisers separately. If an Investor does wish to make a further investment, it should obtain a copy of the latest offering memorandum for TPIF and read the warnings below.
Notice to Prospective InvestorsIf this Update is provided to any prospective investors, they should note the following:
• this Update is not intended to enable prospective investors to evaluate a potential investment in TPIF. A prospective investor should request a copy of the latest offering memorandum for TPIF in order assess a potential investment in TPIF;
• the information herein is provided on a strictly confidential basis;
• nothing in this Update should be construed as an offer, invitation or general solicitation to invest in TPIF or to engage in any other transactions;
• this Update is not intended to provide recommendations, and should not be relied upon, for accounting, legal, tax advice or investment purposes. You should consult your tax, legal, accounting or other advisers separately; and
• none of Fairway Fund Trustee Services Limited nor Tritax Management LLP nor any of their affiliates make any representation or warranty, express or implied as to the accuracy or completeness of this Update, and nothing contained herein shall be relied upon as a promise or representation whether as to past or future performance. To the maximum extent permitted by law none of the foregoing shall be liable (including in negligence) for direct, indirect or consequential losses, damages, costs or expenses arising out of or in connection with the use of or reliance on this Update by a prospective investor.
St Hilary Park, King’s Lynn.
Buckshaw Park, Chorley.
