Investing for income The Tritax Property Income Fund (“TPIF” or “the Fund”) is an open-ended Jersey Unit Trust. It aims to deliver regular, stable and growing income for investors, as well as long-term capital growth.
TPIF is not constrained by a benchmark, allowing it to offer the diversification benefits of a balanced fund, but with strategic elements that capitalise on the relative value offered by specific sectors across the UK regions.
The Fund’s higher income investment approach capitalises on Tritax’s 20-year track record in income-focused investing and active asset management, providing a more predictable income stream than a balanced approach and more flexibility than a pure long lease strategy.
Investment objectivesTPIF’s high-quality portfolio is well-diversified by sector, asset and tenant, in strong locations outside Central London and seeks to deliver:
• A target income return, on a fully invested and geared basis,in excess of 5.5% pa1
• A target portfolio IRR of 7.00%-9.00%
• A Weighted Average Unexpired Lease Term (WAULT) for theportfolio in excess of 10 years.
(1) Not currently fully invested and geared
Link to further information on website
Q3 Performance Review 30 September 2018
Tritax Property Income Fund
Operational highlights
PORTFOLIO VALUE
£235.0m
ASSETS
18
TENANTS
55
RENTAL INCOME (PA)
£14.4m
WAULT TO EXPIRY
11.8 years
NIY
5.7%
Financial highlights
INCOME RETURN (12 mth)
5.7%
IRR (12 mth)
10.4%
NAV/UNIT
103.7p
NAV
£192.0m
GAV
£248.0m
LEVERAGE (to GAV)
20.2%
Q2 headlines
• During the quarter, the Fund exceeded its 12 months targetincome return, delivering 5.7% pa.
• The independent valuation continues to show portfoliocapital growth in each month of the quarter.
• The portfolio weighting to industrial, logistics and alternativescontinues to benefit performance
• Looking forward, the acquisition of a new 20,000 sq ft officein the North West is progressing and expected to completein Q4.
• Also in Q4, the Fund hopes to complete on a well located lastmile distribution unit in the North East, which is currently insolicitors’ hands.
DSG, Waterfold Park, Bury.
TRITAX PROPERTY INCOME FUND (TPIF) / MASTER FUND Q3 PERFORMANCE REVIEW: 30 SEPTEMBER 2018
PAGE 2
Fund performance Income returnThe Fund exceeded its income return target for the last 12 months, distributing £10.41 million which represented 5.6 pence per unit or 5.7%.
Over the quarter the distribution of £2.51 million representing 1.4 pence per unit (1.3%) and takes the total distribution since launch to 12.2 pence per unit (13.3%).
Capital growthThe independent valuation showed portfolio capital growth in each month of the quarter, however at a lower rate than last quarter, with total quarterly capital growth of 0.6% down on last quarter’s total of 1.0%, contributing to a 12 month figure of 4.0%.
Capital growth was shown in logistics (1.9%), industrial (0.5%) and alternatives (1.0%), while overall capital falls were recorded in the office (-0.5%) and retail warehouse (-0.8%) portfolios.
The portfolio is now valued at £235.0 million, representing a 7.6% capital uplift over the portfolio net purchase price.
Total ReturnThe Fund’s annual income return continued to dominate returns (56%). The portfolio weighting to industrial, logistics and alternatives (totalling 57%) also benefitted performance, with strong market demand for longer income in these sectors continuing.
The Fund returned 2.0% for the quarter; a combination of 1.3% income return and 0.7% capital growth. This reflected continuing, but slower, yield compression for secure longer income and overall continued rental growth in industrial and logistics, although in certain retail sectors rental growth is muted.
The rolling 12 months total return reduced from last quarter to 10.4%.
Portfolio Income ProfileAs at the 30 September 2018 the Fund’s portfolio contracted rental income was £14.4 million pa across 55 different occupiers.
The Top five tenants by rental levels are:
TENANT ASSET
DSG Retail Limited Waterfold Park, Bury
Regus (Heathrow Stockley Park Centre Limited) Lakeside House, Stockley Park
Betterbathrooms (UK) Limited Purchas Road, Didcot
Blue Arrow (Impellam Holdings Limited*) 800 Capability Green, Luton
Eddie Stobart Limited Fradley Park, Lichfield
* Guarantor
Q4 ’17
1
0
2
3
4
5
6
Q1 ’18 Q2 ’18 Q3 ’18
Growing Annual Income Return (%)
1.6
2.9
4.3
5.7
■ Quarterly Income Return ■ Quarterly Total Return■ 12 Month Income Return ■ 12 Month Total Return■ Annualised Since Inception Income Return ■ Annualised Since Inception Total Return
Income Return Total Return0
2
4
6
8
10
12
Fund NAV Performance (%)
1.3%
4.8%5.7%
2.0%
10.4%
7.8%
XPO, Goole.
E 0%
D 39%
C 43%
A 4%
B 14%
Asset EPC Rating by Passing Rent (%)
TRITAX PROPERTY INCOME FUND (TPIF) / MASTER FUND Q3 PERFORMANCE REVIEW: 30 SEPTEMBER 2018
Eddie Stobart, Fradley Distribution Park, Lichfield.
PAGE 3
Eddie Stobart, Fradley Distribution Park, Lichfield.
Alban Retail Park, Bedford.St Hilary Trade Park, King’s Lynn.
Fund activity Asset acquisitions and pipelineThe acquisition of the newly constructed 20,000 sqft office in the North West progressed through the quarter, with further due diligence required and it is now expected to complete in Q4.
The Fund has also identified and placed under offer a last mile distribution unit in the North East, let for a further 15 years, in a strong location close to a junction of the M1. The investment is in solicitors’ hands and is expected to complete in Q4.
The investment team continues to monitor a pipeline of opportunities that meet the Fund’s objectives to deploy the remaining equity commitments.
Asset Management
St Hilary Trade ParkThe outstanding 2017 rent review with Majestic Wine Warehouses Limited was settled £1.00 psf ahead of the ERV of the unit, resulting in a capital uplift for the asset. The new rent represents an overall uplift of 7% and has created evidence to assist with ongoing rent review negotiations with other tenants at the Park.
Regent Park, Princes RisboroughHeads of Terms were agreed with the anchor tenant at this asset, Association for Project Management, to surrender an existing lease and to take a new 10 year lease of an alternative unit, whilst simultaneously taking reversionary leases on their two other units to extend the lease terms out to 2028. The new arrangements substantially increase the asset WAULT and secures 10 year income over 40% of the lettable space.
Eddie Stobart Unit, FradleyThe tenant applied for Landlord’s consent to under-let part of the warehouse space, as permitted under the terms of the lease. The under-letting to DHL was achieved at an inclusive rent of £13.00 psf.
Lakeside House, Stockley ParkPost quarter end the Manager has learned from the market, but yet to be confirmed by the tenant, that Regus have secured alternative accommodation on the Park. At present despite repeated attempts to make contact, Regus have not clarified to the Manager their intention regarding the property. The Fund’s solicitors have been instructed. If Regus seek to vacate the building and collapse the tenant company thereby reneging on the lease terms, then this is expected to have a negative effect on the valuation in the medium term.
Capital structureEquity commitments of c.£28 million pounds remain for investment, to take the portfolio over £250 million.
The £10 million revolving credit facility remains available to provide liquidity to the Fund.
Regent Park Estate, Princes Risborough.
TRITAX PROPERTY INCOME FUND (TPIF) / MASTER FUND Q3 PERFORMANCE REVIEW: 30 SEPTEMBER 2018
PAGE 4
Portfolio analysis
Top 10 assets
LOCATION STRATEGYVALUATION
BAND LOCATION STRATEGYVALUATION
BAND
1. DSG, Waterfold Park, Bury Foundation £20-30 million 6. 800 Capability Green, Luton Foundation £15-20 million
2. Lakeside House, Stockley Park, Hillingdon Foundation £20-30 million 7. Alban Retail Park, Bedford Foundation £10-15 million
3. Pierpoint Retail Park, King’s Lynn Foundation £20-30 million 8. Leigh Close Industrial Est, New Malden Growth £10-15 million
4. Unit DC1, Purchas Road, Didcot Growth £15-20 million 9. Highcross Street, Leicester Foundation £10-15 million
5. Eddie Stobart, Fradley Distribution Park,Lichfield Foundation £15-20 million 10. Nuffield Health, Newbury Foundation £10-15 million
7. Alban Retail Park, Bedford
2. Lakeside House, Stockley Park,Hillingdon
3. Pierpoint Retail Park, King’s Lynn
6. 800 Capability Green, Luton
1. DSG, Waterfold Park, Bury
9. Highcross Street, Leicester
5. Fradley Distribution Park, Lichfield
10. Nuffield Health
n Logisticsn Industrialn Officen Retail Warehousen Alternative— Major motorways
Regionally diverse (%)Targeted sectors (%)Core strategy (%)*
Growth 20%
Value Add 8%
Logistics 36%
Alternative 11%
Retail Warehouse 16%
O�ce 27%
South 48%(ex Central London)
North 19%
Midlands 15%
Foundation 72% Industrial 10% East 18%
* portfolio value by investment pillar (%)
SOUTH WEST LONDONINDUSTRIAL INVESTMENT OPPORTUNITY
UNITS 1-5, LEIGH CLOSE, NEW MALDEN, SURREY KT3 3NW
8. Leigh Industrial Estate, New Malden
4. Unit DC1, Purchas Road, Didcot
TRITAX PROPERTY INCOME FUND (TPIF) / MASTER FUND Q3 PERFORMANCE REVIEW: 30 SEPTEMBER 2018
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.
Cobham Gate, Ferndown, Bournemouth.
PAGE 5
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 0.1% of acquisition and disposal price of Investments Performance Fee of 10% of excess over 7% IRR
Please see the Master Fund Offering Memorandum for a full explanation of fees.
ReportingQuarterly
DataAll Fund data as at 30 September 2018, unless stated otherwise.
Nuffield Health, Newbury.
MARKET COMMENTARY: 30 SEPTEMBER 2018
The UK economy Brexit negotiations still ongoing but economy cautiously strengtheningThe deadline for a deal to be struck on Brexit draws closer and there remains much ground to close the gap between the UK and the EU, not least on the issue of the Irish border.
The latest UK GDP figures show that growth in the rolling three months June to August 2018 was 0.7% (up from the previous three month period March-May at 0.2%). The economy rebounded strongly after a weak Spring, with retail, food and drink production and housebuilding all performing particularly well during the Summer months. Annualised growth to August was 1.5%, up from 1.4% for the twelve-months to May. Consensus forecasts of GDP growth from HM Treasury have again weakened, albeit marginally, to 1.3% for 2018, down from 1.4% in June, but remain stable for 2019 at 1.5%.
Despite the modest economic performance in Q1 and Q2, the Bank of England MPC voted unanimously to raise interest rates by 0.25% in August, citing its assessment that “the UK economy currently has a very limited degree of slack” with a tight employment market and rising wages expected to feed into rising prices.
The latest inflation statistics show a modest uplift in prices with CPI reported at 2.4% in September 2018, stable relative to the 2.4% reported in June but down from 2.7% in August and still above the target of 2%.
Occupational market Retail weakening furtherThe September 2018 CBRE Monthly Index reports that quarterly rental value growth for all properties slowed marginally to 0.1% for Q3, down from 0.2% in Q2. Quarterly capital growth of 0.3% for Q3 2018 was also behind the 0.6% reported for Q2 2018.
Much of the slowing in growth for both rents and values came from retail properties, which saw stronger declines in both, but also from a slowing of rental and capital growth in industrial property. Despite this, industrial remains the strongest performing asset class with quarterly growth in rents and capital values for Q3 at 0.8% and 2.3% respectively (compared with 1.1% and 3.7% for Q2). Yields remain keen for industrial assets and have moved in further for secondary industrial estates, according to CBRE’s September 2018 Investment Yields data, which also shows a softening in yields for high street shops and secondary shopping centres.
Investment market Big-ticket deals continue to attract in Q3 Investment transaction data from Property Data shows that investment volumes fell marginally to £13.8 billion following a strong Q2 (revised to £14.6 billion). Investor appetite for large lot sizes, be it portfolios or single assets, continued in Q3 with the five largest transactions accounting for over a quarter of total investment volume. The total number of transactions again fell quarter-on-quarter and was most keenly felt in the offices sector whereas the number of transactions for industrial properties actually rose.
Outlook 2018 outlook improving but at expense of later years?According to the Summer edition of the IPF Consensus Forecasts, expectations for UK property performance in 2018 have strengthened again, particularly driven by stronger capital growth expectations for offices and industrials and despite
significant capital declines for retail, but they have moderated for the years beyond. The all property total return forecast for 2018 has lifted to 5.8% (up from 5.2% in the Spring forecast) but has fallen marginally to 3.2% and 4.0% for 2019 and 2020 (compared with 3.4% and 4.2% in the Spring forecasts).
Forecasters continue to expect industrial property to outperform: the outlook for 2018 total return for industrial has strengthened again to 10.2% for 2018, 6.4% for 2019 and 4.9% for 2020 (up from 8.7%, 5.8% and 4.8% in the Spring consensus). Forecasts for offices have also strengthened further lifting to 4.7% for 2018 (up from 3.3% in the Spring forecasts) but have moderated marginally for 2019 and 2020. However, expectations for retail property have weakened in the Summer forecasts with falls in forecasts for rental growth, capital growth and total return for all retail segments for every year in the forecast period.
0
-1
4
5
6
3Ja
n 01
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
Jan 1
7
Jan 1
8
1
2
■ O�cial Bank Rate ■ In�ation RPI
Sources: Bank of England; ONS
UK Interest Rates and Inflation (%)
PAGE 6
Investment volume vs number of transactions
60
50
40
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
10
30
20
70
0
■ Multi-region portfolios investment volume (four-quarter rolling annual total) ■ Regional investment volume (four-quarter rolling annual total) ■ London investment volume (four-quarter rolling annual total) ■ No. of transactions (four-quarter rolling annual total) (RHS) Sources: Property Data
2011 2012 2013 2014 2010 2015 2016 2017 2018
Inve
stm
ent v
olum
e (£
bill
ion)
0
2,000
2,500
3,000
1,500
500
1,000
Num
ber o
f tra
nsac
tions
4
8
6
10
12
2
0
14
■ All Property ■ Industrial ■ O�ce ■ Retail Warehouse ■ Standard RetailSource: IPF
2018 20202019 2018/22
IPF UK Consensus Forecasts, Summer 2018Total Return (%)
