SLI’s Baggaley targets short lease properties
The manager of the £78m Standard Life Property Income trust says he is targeting properties with short leases.
Jason Baggaley, who has managed the trust since September 2006, said the move came as he was aiming to ensure the fund could deliver both capital growth and reliable dividends.
“To do this and to get yield I need to take a slightly different approach,” he said.
“The one area I have been taking on risk in is to try and acquire good quality offices in good central locations on short leases – because the market hates them.
“We are still in a stage of the market cycle where everyone is risk averse.”
Last week the trust announced that it had purchased a multi-let office space in Cheltenham with an average unexpired lease of eight years.
Mr Baggaley said: “This acquisition continues our strategy of buying good quality offices in good locations and let to good tenants, but with shorter leases to provide us with asset management opportunities.
“We will continue to invest into this style of investment where we can add value through active asset management.”
The Cheltenham purchase had the effect of reducing the amount of cash on the trust’s balance sheet from £18.8m to £10.3m.
However, Mr Baggaley said that the trust also had an offer accepted on a prime multi-let office in a major city for £4m, with a yield of 9.5 per cent.
The manager said the Cheltenham property would have an annual yield of 7.4 per cent on day one, rising to 9 per cent in December 2012 on the expiration of a rent freeze, and it would rise to more than 10 per cent once the property’s top floor was re-let following a lease expiry and refurbishment.
Mr Baggaley added that it was his “feeling” that the risk on short-term leasing had lead to the assets being underpriced.
“You have to look at moving costs and availability of other spaces in the area,” he said.
“If you already have a shop in one of the best buildings in town then why would you want to move somewhere else?
“I just feel the risk of taking on short leases is actually relatively small so that is why I am buying this type of property.”
On April 23 the trust was trading at a share price of 62.5p, representing a 0.5 per cent discount to its net asset value.