Ian McBryde has had a “conservative” year on his F&C UK Real Estate Investments trust, instead focusing on refinancing credit lines for which he had previously paid “far too much”.
The manager of the £348m trust stepped down from the portfolio at the end of 2015 and handed the reins to Peter Lowe.
In the run-up to that changeover, the bricks-and-mortar vehicle focused on credit arrangements rather than adding property exposure, due to Mr McBryde’s concerns about the real estate market becoming “warm”.
The trust rearranged its credit facilities in November, closing a loan from Lloyds and replacing it with a fixed rate £90m option from Canada Life and a £20m revolving facility with Barclays.
Interest is now at 3.3 per cent over the two loans, well below the 5.8 per cent on the Lloyds deal.
“We have been over spending [on credit] quite considerably,” he said.
“What this does is reduce our outgoings significantly, and improves our dividend cover and puts the company in a good position going forward.”
Mr McBryde said the focus on credit over property selection was down to concerns that fundraising from open-ended rivals and continued interest in the sector were pumping up prices.
The manager said there was a lot of competition for stock, meaning the number of purchases in the past 18 months had been low compared with competitors.
“I haven’t felt comfortable just going out raising capital, shoving it into the market and competing with the next highest bidder,” he said.
“We have been very conservative in our buying. We take a view that the property market is in pretty good shape, but after two or three years of exceptional returns, it is likely [these returns] will be not repeated year after year.
“We have seen a lot of yield movement in property, which is great if you’re sitting on it.”
He added: “Going forward the future is more for trying to capture rental growth, asset management and increasing your value [above what the market is giving you].”
The trust put just £28m into four properties in 2015 – out-of-town retail and office buildings in the Thames Valley and Nottingham.
The vehicle provides an annual 5 per cent dividend and thus has a keen focus on income versus capital growth.
It has an almost even split between industrial, retail and offices, but holds a significant weighting to the South East and London, at roughly 44 and 9 per cent respectively.
Mr Lowe said he saw the weightings to the South East and London as complementary.
He suggested a high London weighting would mean a low-yielding portfolio, but added that owning assets outside the M25 but in the South East gave opportunities for growth characteristics and yield premiums.
He added: “The danger of some of the inner London investments is that acquisition yields are very low, so you need rental growth to come forward to receive any kind of total return.