Advantages of the closed ended structure for property investment
In the light of the decisions by Aviva, Standard Life and M&G to suspend trading in their property funds, AIC’s Jemma Jackson looks at two Property Specialist investment companies and highlights the advantages of the closed ended structure for property investment
The Property Specialist investment company sector has accounted for a significant chunk of new shares issued this year. Enticing yields, which currently average 5.5%, are clearly a factor. The sector is on an average premium of 3.8%, and with one-year performance figures showing an average share price total return of 7% (as at 5 July 2016), it’s perhaps easy to see why investors are keen to get in on the action. However, this is a young sector, with only one company, Medicx, which invests in primary healthcare properties, demonstrating a medium-term track record, albeit an impressive one – it is up 54% over five years.
MedicX describe themselves as fundamentally ‘boring’ (although their performance record is anything but) – in essence, taking rentals from modern, purpose built healthcare facilities. They predict a boon in larger, GP-style academies: or rather, bigger, better practices joining together and offering a much wider range of medical services (even scans and consultant appointments were mentioned, to illustrate how radical changes could become). In other words, watch this space.
Another property specialist, GCP Student Living, with an aptly named ticker, ‘DIGS’, owns, leases and licenses student residential accommodation and teaching facilities. The buildings are mainly aimed at international students and tend to have high specification facilities and hotel-level concierge type services, which the investment manager believes are attractive to overseas students.
The company recently announced their acquisition of Apex House, a large scale, modern, purpose-built private student residential accommodation forward-funded development in Wembley for the 2017/18 academic year (nothing like a quick turnaround!).
Advantages of the closed ended structure
Whilst specialising in completely different areas of the property market, both companies agreed how useful the closed-ended investment company structure is, because managers are not forced to sell illiquid assets to meet redemptions and can instead focus on the long term.
For the end investor it also means that they can always sell their shares (they might not like the price, but they can always get out when they want to). This is in contrast with open ended property funds, where some have changed their pricing for sellers of these funds from the buying price to the selling price and, of course, more recently some funds have suspended trading.
It’s no secret that the investment company market houses a diverse spectrum of sectors. Even at the sector level, there’s a great deal of diversity, as the property specialist sector illustrates in its own right, from student ‘digs’, straight through to healthcare properties. To my mind that helps makes the investment company sector a natural choice for investors.
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