Property research note says managers will need to take more active stance to generate returns into 2010
Property trust managers will have to be more active in running their portfolios if they want to generate strong returns in 2010, according to Numis Securities.
Its latest property research note says portfolio values grew 8% on average in Q4.
Analyst Colette Ord says with the property sector now trading at par and asset values not expected to grow at the levels they did last year, managers will find it harder to maintain dividends.
“The reason property values have been rising is a flood of cheap assets in the market and strong investor demand,” she says.
“In Q4, we saw the average NAV rise 12% with property value being a key factor.
“What we have seen is a yield shift, driven by rising asset prices rather than favourable rental income. The entire sector will have to get its hands dirty and churn their portfolio to maintain yields in 2010.”
Ord highlights the £74m Standard Life Investments Property Income trust as one vehicle that has been particularly active this year.
It has made four acquisitions and two disposals. This includes a recent purchase of a logistics warehouse in Bolton for £14.06m.
Manager Jason Baggaley says his portfolio’s activity has been largely opportunistic.
“At the start of last year we had a strong cash position, which we invested when rates began to fall.
“This year’s activity has been an opportunity to realise the value of those acquisitions and reinvest for higher yields,” he says.
“I did not expect them to be such short-term holdings, but I decided we should not be afraid to sell property if it performs well.”
Meanwhile, he believes asset prices will continue to rise for the first half of the year.
“Institutional and increasingly retail investors are putting their money into the sector because they do not know where else to go and they realise there is a gap between prices and yield,” he says.
“But we see property prices coming off slightly at the end of the year and that is when it will be important to add value.”
