Investment trust awards 2017: Best property trust

Winner: Picton Property Income

Michael Morris and his team have worked wonders for Picton Property Income Trust (PCTN) since devoting themselves exclusively to it in January 2012. As a result it won our Best Large Trust award last year and claims our new Best Property Trust award this year.

PCTN holds a diversified commercial property portfolio, has much the best three-year net asset value (NAV) returns in its sector, and is the only trust to have beaten the sector average in all three years. Its 2016 NAV total returns of 10.8 per cent trounced the 2.6 per cent gain in its IPD benchmark.

Morris’s team have generated PCTN’s outperformance by actively managing its assets, thereby enabling them to raise rents, cut costs and reduce voids to 6 per cent. The portfolio has been focused down to 52 larger holdings, with the proceeds of last year’s sales used to cut gearing from 33 to 28 per cent. A reduction in the weighted average annual interest rate to 4.2 per cent has also contributed to reduced debt-servicing costs, paving the way for a 3 per cent rise in quarterly dividend payments to a respectably covered 0.85p.

Over the past five years PCTN’s net assets have grown from £400 million to £625 million. Retail exposure has been reduced to 26 per cent, whereas industrial warehouses, which are performing strongly, are up to 40 per cent. Most of the rest is offices, where central London exposure has been reduced.

Morris says the property market is currently ‘reasonably flat, which is not bad if you are getting a 5 per cent income return'. He adds: ‘There are lots of unknowns out there, but we have scope to grow our income from further increases in occupancy, from fixed rental uplifts, and from [increases in] some rents still at less than market rates. ’

The trust’s yield is modest for its sector, but Morris says he does not want to distribute income out of capital or raise gearing.

Highly commended: GCP Student Living

Launched in 2013, GCP Student Living (DIGS) was the first real estate investment trust to specialise in modern, purpose-built student residential accommodation, and has benefited from very positive returns for this sub sector of the property market.

Student demand for this type of accommodation has been strong, particularly among overseas students, and supply has been limited as universities have elected to focus their spending on educational rather than residential requirements.

DIGS offers over 2,000 beds in modern student blocks close to higher education establishments, with high-specification facilities and hotel-level concierge services. Most are in or around London, where demand is expected to hold up well, thanks to the capital’s image as a multicultural global centre of learning, with sterling weakness keeping it competitively priced.

DIGS targets modest capital appreciation combined with a rising yield, and has so far delivered on both fronts. But plans to issue a lot of new shares on a non-preemptive basis seem likely to limit any increase in its premium rating

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