Morgan Garfield writes for Estates Gazette: Behind The Numbers
Posted by Estates Gazette on 27th Feb 2016
it always pays to listen to Nick Leslau. In his recent EG Column (30 January, p58) he suggested it was time to "start
sweating income assets - the glory days of guaranteed capital growth are over
income assets is what we do at Ellandi. Not for us the glory of booking West
End capital values; we aim to be custodians of income and when it comes to
generating free cash and dividend yield, things look quite rosy in our
sole focus is UK community shopping centres where high initial yields, the low
cost of debt and a rapidly strengthening occupational market are producing very
attractive cash-on-cash returns. The three assets we have bought over the past
two months are returning more that 10%.
key factor in focusing on higher-yielding assets is the sustainability of the
income. Is the attractive yield only a temporal mirage? Will income be eroded
by a global recession, the internet or the must trumpeted death of the UK high
analysis of our 7m sq ft portfolio comprising more than 2,000 tenants and 165m
visitors a year, we are seeing many reasons to be positive rather than fearful.
We completed 112 lettings in 2015 and reduced our vacancy rate by 8%. Our
occupancy rate now stands at 95% - broadly comparable to the prime shopping
centres owned by the UK REITs.
shoppers do not fixate on international financial markets or commodity prices.
These issues may dominate the FT, but
they don't influence whether a family needs to buy new school shoes, visit the
chemist or top up on colouring books for a wet weekend. Community shopping
centres rely on normal people living normal lives and spending money on
this respect, the UK is in good shape. GDP growth is not roaring ahead, but it
is positive and we have high employment, low inflation, low interest rates,
rising house prices and reasonable availability of consumer credit. These
factors combine to create high levels of consumer confidence.
also have one of the fastest-growing populations in Europe, projected to
increase by 21% by 2050. Much of this growth is by way of an ageing population,
which puts stress on societal infrastructure but also supports local and
discount shopping patterns.
UK consumer is a relatively bright spot," says Mark Dampier, head of
research at Hargreaves Lansdown. The UK is among the healthiest sub-sets of the
European economy. ONS figures show that retail sales rose by 5% year-on-year in
November 2015, the 32nd consecutive month of growth.
macro factors create a positive backdrop for UK retail. Of course, we must be
aware of changing shopping patterns and the internet is very disruptive. Yet,
those who truly understand e-commerce realise that it will not replace the need
for local, convenient and community-focused shopping.
from Ipsos and the British Property Federation found that 83% of people prefer
to buy certain good locally, 75% visit the high street at least once a week and
92& at least once a month. Typically, community shopping centres have high-frequency,
low-value shopping visits; a basket of low-value items that consumers want
immediately is not practical to procure online.
can see from our portfolio that we are in the early stages of an occupational
recovery. There is increased tenant demand for space in dominant local shopping
centres, where occupational costs are conducive to positive trading
the precipitous fall in rents from 2007 onwards (up to 60% reduction in certain
schemes), some locations are now eminently affordable and we expect rental
growth in our portfolio from cyclical low levels. (Although it must be notes
that careful stock selection is required to identify and avoid schemes that are
heavily over-rented and where tenant demand remains weak).
are quietly confident that within community shopping centres, income is not
only robust at current levels but will see medium term growth.
there is to be a switch in focus from hunting for capital growth towards cash
generating properties that offer high and sustainable dividend yield, then
community shopping centres should become as desirable as West End
offices..sorry, I have gone too far - I'd better read the FT to calm myself down.