‘We’ve done the sums: big doesn’t mean bet­ter’

The Daily Telegraph - Your Money - - INVESTING -

Dur­ing pe­ri­ods of mar­ket volatil­ity, the at­trac­tion of strong and steady re­turns is clear. Richard Pea­cock and David Wise, of the £755m Kames Prop­erty In­come fund, tell Tele­graph Money why com­mer­cial bricks and mor­tar can of­fer security for in­vestors.

What makes you dif­fer­ent from other prop­erty funds? David Wise:

I’d say we adopt a more en­tre­pre­neur­ial ap­proach. We op­er­ate a bit more like a prop­erty com­pany in that we fo­cus on goodqual­ity, un­der­val­ued as­sets. More typ­i­cally we will buy as­sets in the £5m to £20m range. Most of our big com­peti­tors will go for larger prop­er­ties than that.

We’ve been able to do some anal­y­sis to demon­strate that smaller prop­er­ties, on the whole, tend to gen­er­ate higher in­come re­turns. It is a grow­ing trend among our peer group that big is best, but that tends to gen­er­ate com­pe­ti­tion for the same kind of as­set. It drives down yields and

Richard Pea­cock:

pushes up prices. Small prop­er­ties help in­come and per­for­mance, as well as liq­uid­ity. There are ob­vi­ously more buy­ers for a £5m build­ing than there are for a £50m build­ing.

Who is the fund for? DW:

We fo­cus on in­come as a longterm driver of re­turns in the sec­tor and look to de­liver an at­trac­tive in­come yield.

While it wouldn’t ex­clu­sively be for this group, our typ­i­cal in­vestor would be re­tired, us­ing “in­come draw­down” and look­ing for an in­come fund that pro­vides some cap­i­tal pro­tec­tion but of­fers a good in­come of around 5.5pc.

How do you pick your hold­ings? RP:

We look at three strate­gic ob­jec­tives in our hold­ings: they should de­liver reg­u­lar in­come, pro­vide an at­trac­tive over­all re­turn as an in­vest­ment and also of­fer liq­uid­ity, which means pick­ing hold­ings we can

CV: Richard Pea­cock and David Wise RP:

Joined in De­cem­ber 2016 from Aviva In­vestors, s, where he e was the man­ager r for its Pen­sions ns Ltd Prop­erty Fund.

Joined in Oc­to­ber 2007. He was pre­vi­ously at Aviva In­vestors for 21 years.


sell if nec­es­sary.

We see an aw­ful lot of op­por­tu­ni­ties on a daily ba­sis. So we try to tie them back to our ob­jec­tives. We look at how sustainable that in­come is. Where does that build­ing sit in the lo­cal mar­ket­place, how likely are the oc­cu­piers to stay there, what does that mar­ket look like from a supply-and­de­mand per­spec­tive?

We are not a re­search-led in­vest­ment firm, so we are not pre­scrip­tive in tar­get­ing a city or a sec­tor and say­ing “go and find me a build­ing that has 6pc in­come in this town, be­cause I’m go­ing to buy it”.

We don’t own shop­ping cen­tres, we don’t have any depart­ment stores, we don’t have su­per­mar­kets that the oc­cu­piers don’t want to be in any more. Bricks-and-mor­tar re­tail will not come to an end, the high street isn’t dead. But some are go­ing to strug­gle to thrive and re­po­si­tion them­selves.

The chal­lenges in the re­tail mar­ket have not fully fed into val­u­a­tions yet, but you are start­ing to see it.

The man­agers of Kames Prop­erty In­come tell Sam Barker why their fund avoids own­ing depart­ment stores

What has been the fund’s worst in­vest­ment? DW:

It was a for­mer food su­per­mar­ket in Rochdale on a very large site that be­came a car su­per­mar­ket, let to a com­pany called Car­craft. They were a not in­sub­stan­tial oper­a­tion. Quite a num­ber of our peers had ex­po­sure to the same busi­ness. Un­for­tu­nately it failed, and we ended up tak­ing the site back.

We then turned to our plan B, which, as is typ­i­cal for us, was to look at de­vel­op­ment. We ul­ti­mately sold the busi­ness for res­i­den­tial de­vel­op­ment and came out of that.


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