ROYAL LONDON PENSION PROPERTY FUND (RLPPF) - February 2021
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
ROYAL LONDON PENSION PROPERTY FUND (RLPPF)
February 2021
PROPERTY
BENEFITS IN A MULTI ASSET PORTFOLIO
Property provides the potential Property offers a hybrid Property is a
for a high income return investment return risk diversifier
UK commercial property: long-term performance
40
30
20
Rolling 12 month %
10 Yield Impact
0 Rental Value Growth
-10 Income Return
-20 Total Return
-30
-40
'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Multi-asset historic performance
12.0
Property (MSCI UK Monthly)
6.0
UK Gilts (FTSE A All Stocks Gilt)
0.0
Equities (UK FTSE All Share Index TR)
-6.0 Cash (IBA Libor 1w)
-12.0 Commodity (Bloomberg Commodity Index GBP)
1 Year 3 Years 5 Years 10 Years 15 years 20 years
Past performance is not a reliable indicator of future results. The views expressed are the author’s own and do not constitute investment
advice. Portfolio characteristics and holdings are subject to change without notice. This does not constitute an investment
recommendation. For information purposes only.
Source: MSCI Monthly Index as at December 2020. Source: MSCI UK Monthly Index, Bloomberg & ONS
1
PROPERTY
BENEFITS IN A MULTI ASSET PORTFOLIO
Property provides a partial hedge against inflation Property can be a less volatile investment
+/-
Rolling 12 month rates of income growth vs inflation Standard deviation
20
UK Gilts (FTSE A All Stocks Gilt)
5.4
15
10
Equities (UK FTSE All Share Index TR)
5 16.0
0
MSCI UK Monthly Index
-5
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 9.9
Gross Rent Passing Growth Annual rate of CPIH
Property attracts high
Property has a residual value Property is a real asset
transaction costs
The views expressed are the author’s own and do not constitute investment advice. Past performance is not a reliable indicator of future
results. Source: MSCI Monthly Index as at December 2020. Source: MSCI UK Monthly Index, Bloomberg & ONS
2
ATTRACTION OF UK ASSET CLASSES
LONG-TERM PROPERTY OUTPERFORMANCE VS. EQUITIES AND GILTS
UK Pull Factors UK Asset Class Performance, Total Return (Dec 1999 – Dec 2020)
Dec 1999 based to 100
500
450
400
350
Time Zone Legal System Language
300
250
200
150
Regulation Culture Diversity
100
50
0
MSCI UK Monthly Index UK Gilts (FTSE A All Stocks Gilt)
Skilled
Equities (UK FTSE All Share Index TR) Cash (IBA Libor 1W)
Liquidity Workforce Transparency
Commodity (Bloomberg Commodity Index GBP)
Past performance is not a reliable indicator of future results.
Source: MSCI Monthly Index, Bloomberg & ONS as at 31 December 2020
3
THE PROPERTY MARKET
IMPACT OF COVID
MARCH Rates of capital growth
2020 0.5
0.0
Investment -0.5
market -1.0
volumes -1.5
-2.0
-2.5
Material
Uncertainty
Clause Comparison of recent market downturns
0
Cumulative fall in value
-10
Fund -20
Suspensions
(%)
-30
-40
-50
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42
SEPT
2020 Nov 89 - May 93 GFC
Number of months
EU Referendum Nov 18 - Feb 20 COVID
Past performance is not a reliable indicator of future results.
Source: MSCI Monthly Index as at December 2020
4
THE PROPERTY MARKET
IMPACT OF COVID
UK and Eurozone prime office yields
8
7
6
5
4
3
Eurozone UK
UK Investment Volumes - purchaser by region (2020) UK Investment transactions by quarter 2020 (£mil)
Unknown 20,000
8%
15,000
£m
Foreign
10,000
Foreign Local
Local 52%
40% Unknown 5,000
0
Q1 Q2 Q3 Q4
Past performance is not a reliable indicator of future results.
Source: JLL, CBRE as at 31 December 2020
5
THE PROPERTY MARKET
ACCELERATION OF TRENDS
Sector returns over 2020
Retail
Growth in online 15
10
5
0 3.6
Industrial -5 -0.7
-3.9
Growth of -10 -6.3 -6.6
logistics -15 -6.6
-11.7
-20 -14.9
-25 -16.7
Office -30 -22.5
-26.6
Post COVID -35
occupation
Alternative
Lockdown
restrictions
Income Return Rental Value Growth Yield Impact Total Return Capital Growth
The views expressed are the author’s own and do not constitute investment advice. Past performance is not a reliable indicator of future
results.
Source: MSCI Monthly Index as at 31 December 2020
6
INVESTMENT
PHILOSOPHY
STRATEGY ASSET SELECTION
Rent £200m
c.£5.38bn
Value
ERV £252m
Stock selection to drive
outperformance
Invest with a Manage and
long-term horizon maximise income
136 Reversion
Investments of £52m
Focus on prime Actively identify asset 1043 +26% of
assets management opportunities
Tenants Current rent
Timing acquisitions /
Focus on larger disposals
assets
Projected
6.9 yrs
5 Year
WAULT
Returns
to expiry
ESG 7%
Portfolio characteristics and holdings are subject to change without notice. This does not constitute an investment recommendation.
For information purposes only, methodology available on request. Capital invested in the funds is at risk and there is no guarantee that
forecast returns or targets will be achieved over the 12 months rolling periods, or any other time period.
Source: RLAM as at 31 December 2020
Our investment strategy of focusing on prime assets for the long term is key to driving
outperformance
7
SCALE ENABLES OUTPERFORMANCE
LARGEST FUND IN THE ABI / MSCI MONTHLY INDEX
Rework into 4 tiles with icons
and move sub bullets into
smaller text
Lower concentration
Increased Lot Size
risk ratios
Active development Geographical focus
Portfolio characteristics and holdings are subject to change without notice. This does not constitute an investment recommendation. For
information purposes only.
Source: RLAM and MSCI as at 31 December 2020.
8
REGIONAL BREAKDOWN
PORTFOLIO
CV £4.5bn Central London
No. Assets 136 CV £1.0bn
Avg. Lot Size £33m CV % of Total 22%
No. Assets 18
Avg. Lot Size £55m
Past performance is not a reliable indicator of future results. Portfolio characteristics and holdings are subject to change without notice.
This does not constitute an investment recommendation. For information purposes only.
Source: RLAM as at 31 December 2020
9REGIONAL BREAKDOWN
RETAIL ASSETS
CV £0.9bn
CV % of Total 20%
No. Assets 37
Avg. Lot Size £23m
Former Homebase, Weston Super Mare
Past performance is not a reliable indicator of future results. Portfolio characteristics and holdings are subject to change without notice.
This does not constitute an investment recommendation. For information purposes only.
Source: RLAM as at 31 December 2020
10REGIONAL BREAKDOWN
OFFICE ASSETS
CV £1.4bn
CV % of Total 31.0%
No. Assets 35
Avg. Lot Size £40m
South East & Eastern
25 Soho Square
3 Hardman Square,
Manchester
Past performance is not a reliable indicator of future results. Portfolio characteristics and holdings are subject to change without notice.
This does not constitute an investment recommendation. For information purposes only.
Source: RLAM as at 31 December 2020
11REGIONAL BREAKDOWN
INDUSTRIAL ASSETS
CV £1.7bn
CV % of Total 39.3%
No. Assets 48
Avg. Lot Size £35.3m
Greater London
Kings Norton
Business Centre
Past performance is not a reliable indicator of future results. Portfolio characteristics and holdings are subject to change without notice.
This does not constitute an investment recommendation. For information purposes only.
Source: RLAM as at 31 December 2020
12REGIONAL BREAKDOWN
ALTERNATIVE ASSETS
CV £0.4bn
CV % of Total 9.9%
No. Assets 13
Avg. Lot Size £32m
Capital Way, Colindale, London
Past performance is not a reliable indicator of future results. Portfolio characteristics and holdings are subject to change without notice.
This does not constitute an investment recommendation. For information purposes only.
Source: RLAM as at 31 December 2020
13SECTOR BREAKDOWN
PROPERTY LEVEL
Sector weights MSCI Monthly Index Capital Growth by Sector
8.0%
20.0%
Retail
23.2%
3.0%
30.8% -2.0%
Office
30.7%
-7.0%
39.3%
Industrial
36.2% -12.0%
9.9% -17.0%
Other
9.9%
-22.0%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 1 Year 3 Years (p.a.) 5 Years (p.a.) 10 Years (p.a.)
CV
RLPPF MSCI UK Monthly Index Retail Office Industrial Other
Portfolio characteristics and holdings are subject to change without notice. This does not constitute an investment recommendation. For
information purposes only.
Source: RLAM and MSCI as at 31 December
The Fund is positioned to produce more resilient returns being overweight to Industrial
and underweight to Retail
14INCOME
QUALITY & MIX
Concentration of rent to tenants Top 20 tenants
Contracted Contracted
Tenant Name Rent £ Rent %
Kingfisher Plc (B&Q / Screwfix) 10,015,758 5.0%
Top 5 Top 10 Top 20 Rest J Sainsbury Plc 8,922,005 4.5%
16.8% 24.0% 33.8% 63.1% Whitbread Group Plc 6,692,301 3.3%
H&M Hennes Mauritz Ltd 4,661,146 2.3%
Gartner UK Limited 3,435,186 1.7%
Tesco Stores Ltd 3,243,154 1.6%
Industrial Property Investment Fund 2,976,742 1.5%
Iceland Foods Limited 2,723,893 1.4%
Portfolio is well let to tenants and tenant industries that Studio Retail Group Plc 2,678,420 1.3%
have fared well through COVID United Biscuits (UK) Limited 2,652,470 1.3%
MSCI Jaguar Land Rover Limited 2,402,400 1.2%
Credit Risk Portfolio Monthly Relative Risk Band Percentile DFS Furniture Ltd 2,229,713 1.1%
Index
Co-Operative Group (CWS) Ltd 2,115,007 1.1%
Weighted Credit Lower to Premier Oil UK 2,047,290 1.0%
71.74 68.6 3.1 82
Risk Score* Lowest Risk Next Group Plc 1,932,873 1.0%
Regatta Limited 1,898,538 0.9%
% Income in Lower to
10.1 13.8 -3.7 25 Wren Kitchens Limited 1,838,729 0.9%
High Risk Tenants Lowest Risk
Rochpion Properties Ltd 1,802,931 0.9%
% Income in Lower to Allies and Morrison LLP 1,739,539 0.9%
59.4 54.1 5.4 80
Low Risk Tenants* Lowest Risk The First Secretary of State 1,735,358 0.9%
Total 67,743,453 33.8%
* For this measure a higher percentile means a lower risk
Portfolio characteristics and holdings are subject to change without notice. This does not constitute an investment recommendation. For
information purposes only.
Source: Source: Top 20 tenants from RLAM as at 31 December 2020. Credit Risk scores from MSCI as at 30 September 2020
15INCOME SECURITY
PROPERTY LEVEL
Risk Eye
Fund quartiles from safest
(purple) to riskiest (orange)
71.7 6.9 yrs
v v Top
68.6 7.2 yrs Upper
Lower
Fund
Weighted Bottom
V Unexp’d
10.1% risk lease term 48.7%
Benchmark companies
v incl. v
Breaks Rent
13.8% 58.2%
High risk expiring
companies
CovenantINCOME
EXPIRY PROFILE & CURRENT VOID
RLPPF MSCI UK Monthly Index
9.1% 9.0% Vacancy Rate
6.9 yrs 7.2 yrs WAULT
(including breaks)
54.9% 58.2% Rent Expiry
(INCOME
REVERSIONARY POTENTIAL
MSCI Monthly
RLPPF
Index
3.6% 2.8% Development
Exposure
Potential
5.5% 7.8% Gain/Loss to lease
(net under/over
renting %)
-6.5% -7.8% % Overrent
Space, Woking
Past performance is not a reliable indicator of future results. Portfolio characteristics and holdings are subject to change without notice.
This does not constitute an investment recommendation. For information purposes only.
Source: MSCI as at 30 September 2020.
18DEVELOPMENT EXAMPLES
Amazon Distribution Unit,
Redditch
• 360,873 sq. ft. distribution unit
• 15 years let to Amazon
Statesman House,
Maidenhead
• New 114,000sq ft. office
• Elizabeth Line
Past performance is not a reliable indicator of future results. Portfolio characteristics and holdings are subject to change without notice.
This does not constitute an investment recommendation. For information purposes only.
Source: MSCI as at 31 December 2020.
19IMPACT OF COVID
INCOME
99%
Vacancy rate - Standing Investments
12.0
Average collection rate
9.1
10.0
82% 8.0
8.7
COVID average
collection rate
6.0
4.0
2.0
0.0
3%
Proportion of CVAs/Administration/liquidation
The views expressed are the author’s own and do not constitute investment advice. Past performance is not a reliable indicator of future
results.
Source: RLAM as at 31 December 2020
20PORTFOLIO
PERFORMANCE
Periods to 31 December 2020
8.0%
6.0% 5.4%
4.0%
4.0%
Total return (%)
2.3%
2.0% 1.1% 1.2%
0.0%
-0.4%
-2.0%
-2.8%
-4.0%
-4.4%
-6.0%
1 Year 3 Years (p.a.) 5 Years (p.a.) 10 Years (p.a.)
RLPPF ABI UK - UK Direct Property-Pen
Past performance is not a reliable indicator of future results. The impact of fees or other charges including tax, where applicable, can be
material on the performance of your investment. The impact of fees reduces your return. The value of investments and the income from
them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested.
Source: RLAM, ABI as at 31 December 2020.
Over all timescales the Fund has outperformed against the ABI Peer group.
21THE OUTLOOK
FUND STRATEGY
Industrials
Maintain Industrial weighting
Central London Offices
South East Offices
Increase weighting to Central London Offices
Rest of UK Offices
Reduce weighting to High Street Retail
Retail Warehouses
High Street Shops
Continue to actively asset manage and develop
Shopping Centres
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
RLPPF fund allocations (Percent of total portfolio)
Our market expectations (5 year annualised total return)
1RLAM forecasts - Winter 2020
2As at December 2020. RLPPF also has 9.7% of its overall portfolio allocated to the Alternative sector (Hotels, car showrooms, leisure and residential)
The views expressed are the author’s own and do not constitute investment advice. Past performance is not a reliable indicator of future
results.
22RESPONSIBLE PROPERTY INVESTMENT
HIGHLIGHTS
RPI Strategy
The funds have undertaken a major review of its RPI
strategy with the completion of a strategic framework and
action plan now at an advanced stage.
Net Zero Carbon pathway
The funds are nearing the completion of developing its net
zero carbon pathway. The delivery of this ambition will
require a number of targets and actions to be met, placing
greater emphasis on the ownership and operation of
energy efficient buildings, the adoption of renewable
energy technology, reducing the embodied carbon within
our developments, and offsetting.
Development
In 2020 a thorough review was undertaken of our
Development Sustainability Standards which has led to the
creation of a fresh set of targets which we consider are
both aspirational and market leading.
Source: MSCI as at 31 December 2020.
23RESPONSIBLE PROPERTY INVESTMENT
KEY ACHIEVEMENTS
Global Real Estate Sustainability United Nations Principles for Environmental Management System
Benchmark (GRESB) Responsible Investment (UNPRI) (EMS)
• RLPPF achieved a three star rating which is an • As a signatory to the UNPRI we have committed • The funds have achieved EMS 14001 which covers
improvement on last year’s rating of two stars, to reporting on our responsible investment the largest and highest impact commercial assets.
achieving 16th place of 59 within its peer group. activity year on year across all our asset classes. This helps to ensure compliance with relevant
• In 2020 the funds received an ‘A’ against a median environmental legislation and other
score of ‘B’. requirements.
Green Apple Awards Industry Working Groups and
Memberships
• In 2020 we received 8 Green Apple Awards for the • We are now active members participating and
two funds for a variety of biodiversity initiatives contributing to the Better Buildings Partnership
including the planting of wildflower areas, the (BBP), the UK Green Building Council (UK GBC),
installation of bug hotels and bee hives. the British Property Federation (BPF) and the
Investment Property Forum (IPF)
Sustainability Interest Group.
Source: MSCI as at 31 December 2020.
24RISK WARNING
IMPORTANT INFORMATION
For professional clients only. This document may not be distributed to any unauthorised persons and is not suitable for retail clients. The views expressed are the author’s own
and do not constitute investment advice.
This document is a financial promotion. It does not provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations.
Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors
may not get back the amount originally invested.
EPM Techniques: The Fund may engage in EPM techniques including holdings of derivative instruments. Whilst intended to reduce risk, the use of these instruments may
expose the Fund to increased price volatility.
Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose
the Fund to financial loss.
Property Risk: The Fund invests in real property, the value of which is a matter of an independent valuer’s opinion and may not reflect the actual value realised upon its sale.
Investments in property are highly illiquid compared to equities or bonds and may be difficult to sell in a timely manner or at a reasonable price. Poor market conditions or times
of high investor redemptions may lead to difficulty dealing in the units of the Fund.
Investment Risk: The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested.
For more information on the fund or the risks of investing, please refer to the fund factsheet, Prospectus or Key Investor Information Document (KIID), available via the Fund
Information page on www.rlam.co.uk
All confidential information relating to any Royal London Group company must be treated by you in the strictest confidence. It may only be used for the purposes of assessing
the proposal to engage Royal London Asset Management Limited (RLAM). Confidential information should not be disclosed to any third party and should only be disclosed to
those of your employees and professional advisers who are required to see such information for the purpose set out above. You should ensure that these persons are made
aware of the confidential nature of such information and treat it accordingly. You agree to return and/ or destroy all confidential information on receipt of our written request to
do so.
Issued by Royal London Asset Management Limited, 55 Gracechurch Street, London, EC3V 0RL Registration Number 141665 which is authorised and regulated by the
Financial Conduct Authority.
25For any queries or questions please contact:
Include key contacts here from
the Stephanie Hacking
UpSlide shape library
Fund Manager - Property
Royal London Asset Management Limited
55 Gracechurch Street
London
EC3V 0RL
T +44 (0) 20 3272 5098
stephanie.hacking@rlam.co.uk
All information is correct at January 2021 unless otherwise stated. Telephone calls may be recorded.
Issued by Royal London Asset Management Limited, Firm Registration Number: 141665, registered in England and Wales number 2244297; Royal London Unit Trust Managers Limited, Firm
Registration Number: 144037, registered in England and Wales number 2372439; RLUM Limited, Firm Registration Number: 144032, registered in England and Wales number 2369965. All of
these companies are authorised and regulated by the Financial Conduct Authority. Royal London Asset Management Bond Funds Plc, an umbrella company with segregated liability between
sub-funds, authorised and regulated by the Central Bank of Ireland,Insert disclaimer
registered fromRegistered office: 70 Sir John Rogerson’s Quay, Dublin 2, Ireland.
text364259.
in Ireland number
theSociety
All of these companies are subsidiaries of The Royal London Mutual Insurance UpSlide shape
Limited, library
registered in England and Wales number 99064. Registered Office: 55 Gracechurch Street,
London, EC3V 0RL. The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the
Prudential Regulation Authority. The Royal London Mutual Insurance Society Limited is on the Financial Services Register, registration number 117672. Registered in England and Wales
number 99064.
Our ref: PR RLAM WNAR 0049 - 01/2021 - SB
ASSET MANAGEMENTYou can also read
