Nigel Chapman is the manager behind the £729.9m Standard Life Investments UK Property fund. He can boast more than 14 years’ property investment experience at the Edinburgh-based investment house, and aims to provide investors in the fund with long-term growth through a combination of income and capital appreciation.
The manager invests in a diversified portfolio of UK commercial property, primarily from the office, retail and industrial sectors and will invest in a mix of leasehold and freehold properties. He has the flexibility to invest in Europe, but is not currently doing so.
“Our investment process is inextricably linked to our distinctive investment philosophy, Focus on Change, which guides us to undertake analysis on the key factors driving the market price of an investment,” Mr Chapman explains. “For our UK Property fund this philosophy translates to ‘cash flows first, bricks and mortar second’, with each market and sector being evaluated on a one-, three- and five-year basis. This assessment takes into account major themes driving total returns such as investment liquidity and the prevailing economic environment.”
Standard Life Investments has a 130-strong real-estate team on which to draw on for the running of the fund. Mr Chapman notes: “By maintaining a full range of in-house specialised resources, including research, development and property management services, we add value at each step of the process for our investors.” While he acknowledges there is a “rigorous and dispassionate approach” to the analysis of property opportunities, the manager also has the ability to make “opportunistic” sales and purchases for the portfolio.
In August 2013 the fund was converted from an authorised unit trust to an open-ended investment company with a tax-efficient Paif structure, which means eligible investors can receive income from the fund gross of the 20 per cent corporation tax previously applied to income. Investors may want to note the ongoing charge of 1.7 per cent.
The performance of the fund has lagged the IMA Property sector over three and five years, according to FE Analytics. However, performance has picked up in the last year to June 18, with the fund returning 12.49 per cent, which places it top quartile. It is also top quartile in the IMA sector over six months, with a return of 6.06 per cent.
Mr Chapman cites a “significant improvement” in the strength of the UK economy, which has prompted an increase in investment risk appetite among investors.
He continues: “UK commercial property prices have been on the rise, confirming the cyclical recovery and providing encouraging evidence for rental growth at a faster rate than we have seen to date. Keeping in mind our philosophy of ‘cash flows first’, evidence of a strengthening economy is fundamental to the return prospects of the sector, as businesses expand and demand additional and better quality space.”
He insists the UK economic recovery is broadening beyond the “key areas” of central London and the South East, although he confirms a preference for offices in the South East as well as in the major UK cities.
Mr Chapman reveals the fund has recently completed the purchase of office buildings in Maidenhead, Woking, and Stockley Park, near Heathrow Airport. Retail is also a “favoured sector” and the portfolio recently bought a retail park in Thanet, Kent.
On the outlook for the property market, Mr Chapman forecasts: “The UK recovery continues to materialise strongly in the all property commercial real estate sector. Price increases are accelerating and rental growth is beginning to materialise in the sector. We expect rental growth to strengthen as the recovery broadens.”
He adds: “We believe poorer quality secondary and tertiary assets remain unattractive. Overall, we expect reasonable positive total returns for investors on a three-year horizon due to the elevated yield and strong capital appreciation expectations.”
Expert view
Rob Morgan, pension and investment analyst, Charles Stanley Direct
Verdict
This fund can make a good diversifier from many of the other large property funds as it is less South East-centric. This has been something of a headwind recently but it could be that growth spreads out further into the regions. Manager Nigel Chapman focuses more on total returns rather than income flow. As long as a property can be let within an acceptable time frame he is happy to buy in and make the necessary refurbishments. The managers have a strong record of this kind of ‘active’ management, and it has certainly assisted returns in the past couple of years.
