full tenant occupancy achievement bodes well for dividends of sli property income trust
Standard Life Investment's (SLI) Property Income Trust has achieved 100% tenant occupancy, which should enable it to grow its current 6.5% dividend further, pending an official decision from the board.
Andrew Jackson, investment director, property, at SLI said the trust's full occupancy compares with the average void of 7.2% across the industry, as stated by the Investment Property Databank (IPD) monthly index.
Managed by David Stewart, the Guernsey-listed fund was launched in December 2003 and, over the subsequent 12 months, shares have delivered growth of 9.1%, according to the group.
Its market capitalisation is £108m, while the property portfolio is £160m. There is no cash in the portfolio, but undrawn debt amounts to about 10%, Jackson added.
The portfolio holds 25 properties, the average size valued at around £6.5m. In terms of sectors, the manager favours retail warehouses and is building up exposure to central London offices. While out-of-town retail parks are another overweight, Stewart is negative on high street retail outlets.
A breakdown of the portfolio shows the office sector accounts for 48.2% of assets, retail 41.5% and industrial 10.3%.
Another feature is the portfolio's geographic diversification: 35.4% is invested in the south east, 8.9% in Scotland, 15.3% in the north east, 3.6% in the north west, 4.3% in Wales, 16.5% in mid-town London and 16% in the rest of London.
While there is much talk about a bubble developing in the commercial property market, Jackson is unconvinced of this argument. His view is that property has been severely undervalued for many years and after strong performance is now fairly valued. Within the sector as a whole, he added there are parts that are overvalued and areas that are undervalued.
Concerns have emerged about the asset class following strong performance, with property outperforming equities year to date over 2004, as well as over the past three-, five- and 10-year periods.
"The main driver of the current strength of property's performance remains the pressure on valuation yields from the weight of money looking to invest in commercial property. Over the year to the end of August, £21.3bn was invested in UK commercial property, 53% more than over the same period last year," Jackson said.
He expects the UK property market will continue to perform strongly into 2005, and although capital values will slow over the next year, the market should still deliver double-digit returns.
The trust trades on a premium of 7%-8% to NAV, in line with the industry average.
As a house, SLI is rating property ahead of bonds and cash, but behind some equity markets.