£1bn fund seeing signs of life in the regions

The Guernsey-based fund, which owns the Junction 27 retail park in Birstall in West Yorkshire, said there are “tentative signs” of improving investor demand across the regions.

This demand is mainly coming from UK institutions and while the trust warned of significant disparities across location and sector it is forecasting improved values in the commercial property market.

The trust’s portfolio was valued at £1.025bn at the end of June. Although the value fell 0.4 per cent over the six months, the trust recorded the first like-for-like increase for nearly two years in the second quarter.

Chairman Christopher Hill said: “While there is no doubt that London is still the main driver of capital returns, in part due to its position as the principal location for significant foreign direct investment, we are beginning to see the increase in confidence and hence appetite for risk having a beneficial impact on investment volumes including increasing interest in property investment in the rest of the UK.”

He added that the reduced pipeline of new developments outside of the South East in recent years should increase property values in the regions.

The trust reported a net asset value total return of 2.8 per cent in the six months to June, helped by improving valuations, but behind the IPD benchmark of 3 per cent.

The trust said rental values were broadly flat over the period with growth in central London properties reducing the impact of further falls in the regions outside the South East.

The trust has increased its exposure to the industrial sector in the last two years, with scarcity of stock and investor demand leading to improved returns.

The trust said the office market has seen a definite uplift in investment demand for regional offices in the last six months with UK institutions priced out of the “ultra-competitive” central London market.

But it warned that the regional occupational market still faces challenges.

In retail, the trust’s biggest asset class, shopping centres, were the hardest hit of all sectors in the portfolio, but Birstall was the trust’s third best holding during the period with an income of 5.4 per cent.

Robert Boag, senior investment director at manager Ignis Investment Services, told the Yorkshire Post that he is close to agreeing lets with two new tenants at Birstall. They will be taking space in the site formerly let by collapsed retailer Comet.

Mr Boag said the trust bought the site, which borders Ikea and Marks & Spencer, for £54m in 2010.

“It’s a site we like. Retail warehousing is a sector that’s been more resilient than other parts of retail because of long leases and low levels of voids.”

Tenants include DSG Retail, TGI Friday’s and Pizza Express.

The trust reported an increasing degree of over-renting and void levels in the majority of the country outside London and the stronger dominant shopping centres.

While it has seen some signs of improvement in investor demand, the trust said this remains “very asset and location specific” and only for prime or good secondary centres.

The trust’s income fell 2.6 per cent to £70.1m over the period.

Facts & Figures

Net Asset Value per share of 68.9p (December 31, 2012: 69.6p), a fall of 1.2 per cent blamed on 0.4 per cent like-for-like decline in value of property portfolio

NAV total return of 2.8 per cent in six-month period to June 30, 2013, helped by strong income return from the portfolio

Share price performance with a total return of 20.2 per cent in the period, ahead of the IPD benchmark, FTSE REITs Index and also FTSE All-Share Index

Dividend yield of 6.9 per cent, above the FTSE REIT Index (3.7 per cent) and the FTSE All-Share Index (3.5 per cent)

Collection rates of 98 per cent after 28 days

Ongoing costs 1.7 per cent