The legacy
Q. What are your first thoughts on the investments you are inheriting from Peter (Lowe), (the current fund manager of BREI)?
A: It’s a fantastic portfolio, in great shape. The weightings to industrials/logistics (54%) and retail warehousing (18.2%) are highly advantageous*. It means as I start managing the portfolio, I’m not chasing weightings. The most pressing goal I have is to bring in the discount at which the trust is trading because the underlying investments don’t warrant it. The discount is overstated.
Prospects ahead
Q. How do you assess the recent performance of the asset class and what do you think the prospects are looking ahead?
A. Industrials and retail warehousing have enjoyed very strong performance this last year, it’s effectively felt like 2-years’ worth of performance, accounting for pent-up performance from the lockdown period. This momentum has carried over into 2022 and it looks to be a strong start to this year. However, I’d expect to see yield compression in popular sectors slowing towards the end of 2022 and lower growth in 2023.
Post lock down winner and losers
Q. In which sectors do you still see opportunities and which do you think face challenges?
A. This year I’d expect continued capital growth in the industrials space, driven by the structural rebasing of rents, and I think we’ll see further yield compression across retail warehousing. High street pricing and rents in good locations, with strong local markets, have shown some signs of ‘bottoming out’. There’s a flight to quality in office space where occupier demands continue to increase, albeit this is a trend we have identified and positioned for before the pandemic. In the office space segment the headwinds could take a little while to settle down, in both London and regionally. We don’t know all the challenges yet regarding hybrid working and how it might develop, the repercussions on retail and other service providers operating in those office areas. This is a theme to keep an eye on, to see how working patterns develop and what it means for office space.
Two funds, one manager
Q. As well as managing BREI you will retain oversight of a segregated mandate that has been under your helm for some considerable time. How will you juggle those responsibilities?
A. BREI will absorb the majority of my time owing to the demands of the trust. I see the roles as complementary as they are both commercial real estate portfolios. The funds benefit from the significant resource and expertise of the wider team at Columbia Threadneedle Management Limited, which allows me to focus on my fund manager responsibilities. What will change is retiring my role as deputy manager of CT Commercial Property Trust once I assume management of BREI.
Investment approach
Q. Can you tell us about your track record of managing real estate assets?
A. I’m pleased to say that the segregated mandate I manage (c £410m), for a leading UK insurer, has performed well against its MSCI benchmark and peers. For our 3-year performance 2018-2022 I’m pleased to say we won an annual MSCI UK award for the best performing unlisted fund under £1.5bn in the UK MSCI universe** beating c. 65 qualifying funds.
There is further satisfaction in our results considering that since January 2018 we have ‘turned over’ almost 30% of the portfolio with c£120m sales and c£110m in purchases, therefore having to absorb the round costs of selling and buying property. Prior to joining Columbia Threadneedle Management Limited, I was at Federated Hermes as part of the fund management team looking after a multi-billion UK portfolio, for a large segregated, pension client, where we consistently achieved top quartile performance during the 5.5 years that I was involved in it.
Q. What’s your approach regarding portfolio construction in general?
A. It depends on the objectives and risk appetite of the fund but fundamentally it’s important to understand your markets and properties on a ‘bottom up’ basis. I also look at long-term trends at a macro, local and sector level. One of the great things about property is that is intrinsically connected to how we live, work, and play so there are myriad drivers – economic, social, demographic etc – that contribute performance over the short and long term. Ultimately, it’s about positioning a portfolio that will remain relevant and in high demand from the underlying and evolving occupier base, with the benefits that true diversity offers.
Find out more about CT Real Estate Investments
*Data as at 31 March 2022
**Unlisted Pooled Balanced Funds with End-Period Capital Value under or equal to £1.5bn over 3 years 2018-2020
