F&C UK Real Estate Investments’ Ian McBryde has sold down smaller holdings after a merger earlier this year saw the trust grow in size.
The investment trust merged with ISIS Property Trust in April, which led to a “sizeable increase” in the assets under management and meant that the managers could “obtain exposure to assets with a larger lot size”.
The trust, now £282.6m in size, returned 4 per cent in the year to June 30 according to its year-end results, which were released last week.
Mr McBryde said the trust had income of 7.1 per cent during the period, but there had been a fall in price terms of 2.9 per cent, which dragged down overall returns.
“The range of returns for individual properties and sectors was very diverse,” he said.
“West End offices, which account for 6.7 per cent of the portfolio by value, outperformed and industrial properties, making up 29.3 per cent of the portfolio, had positive returns.
“However, portfolio returns were particularly disadvantaged by rest of UK offices.”
The manager said he had sold down some smaller holdings to improve the quality of his portfolio and that such a strategy was likely to continue.
“Since the merger with IPT, [I have] sought to dispose of smaller assets that are no longer commensurate with the size of the group’s portfolio and which add little value to ultimate performance,” Mr McBryde said.
“This strategy and the recent success in issuing new shares will allow the group to reduce borrowings and associated risk.
“The improved level of working capital also gives [the trust] ready access to funds for improvements to property, as well as for restructuring leases with key tenants. Further targeted sales will also enable us to seek new investments and enhance the quality of the group’s portfolio.”
Mr McBryde said that the merger helped reduce the vacancy rate of the portfolio from 3.7 per cent at the time of the merger to 3.2 per cent as at June 30.
Elsewhere, the manager said the amount of transactions in the commercial property sector had picked up.
“Investment activity in the UK commercial property sector totalled £36bn in the year to June 2013, more than 15 per cent above the previous year, according to Property Data,” Mr McBryde said.
But he added that the challenge for property managers would be protecting the sought- after income property provides.
“The improvement has been largely investment-led and the occupational market has been more subdued, with rental growth patchy and largely focused on central London,” he said
“It has remained challenging to grow the income stream given occupier caution, the impact of rising business rates on the ability of tenants to pay higher rents and tenant administrations.
“Demand is still predominantly driven by negotiating new leases rather than growth.”