Threadneedle UK Property Fund II - Threadneedle Investments

Threadneedle UK Property Fund II Interim Report and Accounts 2012
Manager’s Report
(continued)
earned through hard won asset management initiatives, rather
than demand and supply imbalances in the investment market.
Whilst the Company’s current vacancy rate is 15.4% of the
portfolio’s total rental value compared to 8.3% for the IPD UK
Monthly Index (reflecting the market overall) this will reduce to
zero on completion of the Poyle development which has been
pre-let in its entirety on a 15 year lease without break.
Performance
With reference to the Morningstar UK IMA OEIC Benchmark for
Real Estate Trusts, since inception mid 2007, Threadneedle UK
Property Fund II is ranked fourteenth out of twenty eight to the
30th June 2012. Index measures are provided for information,
to demonstrate performance relative to peer groups. However,
please be reminded that the Company is not managed with
reference to any benchmark.
Strategy
Threadneedle Investment Services Ltd became the ACD of the
Company on 1st December 2011 and subsequently reviewed
the investment credentials of the underlying assets. A number
of the assets having suffered a significant downward
movement in rental value in line with the regional trend were
deemed either ‘ex-growth’ or over-rented but with underlying
investment fundamentals considered suitable for sale. Eleven
properties were extensively marketed with limited investor
interest for individual assets with the most attractive cash
proposal being received by CBRE Global Investors proposing
to acquire a portfolio of seven properties, subsequently named
the Orchid Portfolio, on extremely competitive terms.
climate has had a particularly detrimental impact on the retail
sector exacerbated by weak consumer spending, negative GDP
growth and numerous tenant failures on the UK high streets.
Property Market Analysis (Spring 2012) forecasted negative IPD
All Property Total Returns for 2012 of –0.8% with retail
contributing a Total Return of –1.7% including capital value
depreciation of –7.2%. The portfolio sale is therefore considered
strategic in light of future market conditions. The sale price of
£30,400,000 reflected a net initial yield of 6.8% but the portfolio
was considered significantly over-rented with a reversionary
yield of 5.9%.
The remaining assets within the Company generally exhibit
strong underlying investment credentials with numerous asset
management opportunities and are considered more defensive
in respect of anticipated short to medium term market
conditions.
Since the onset of the financial crisis in late 2007, prudent
liquidity management has remained one of the hallmarks of
the Manager’s long term strategy. With a market characterised
by illiquidity those with immediate cash resources available
will be best placed to take advantage of market conditions
in 2012.
Future purchasing activity will target mispriced risk, essentially
higher yielding assets with strong underlying investment
fundamentals both complement and enhance the Company’s
income return.
Transactions
No purchases were completed in the period.
The following aforementioned sale was completed in the
period:
June 2012
Orchid Portfolio
The portfolio comprised 7 properties; 4 high street retail
properties, 1 retail warehouse (2 units), 1 industrial (2 units)
and 1 car showroom let to a total of 9 tenants and generated
£2,193,002 per annum against a current estimated rental value
(31st May 2012 valuation) of £1,894,155. 70% of the portfolio
income was derived from retail assets. The weak economic
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