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Property Investments

Property Investments

Wesleyan's investment success isn't just built on stocks and shares - it's also built on bricks and mortar too.

Property Fund Manager Joe Curlett explains how Wesleyan's property portfolio is playing an increasingly important part of its investment strategy and what the prospects are for the market in the future.

Although many people are aware of Wesleyan's stock market investment success, it's a surprise to many that we also have such a diverse property portfolio.

We currently have more than 130 separate properties and assets around the country, from Stockton-on-Tees to Bury St Edmunds to Aberystwyth, with more than 330 tenants.

They are mostly commercial properties like offices and shops in town centres and out-of-town locations, industrial units for manufacturing or distribution, and of course our Head Office in Birmingham city centre.

The Head Office building is actually a prime example of our approach to long term investment. We've owned a building on this site for more than 100 years, but the current office block is just 25 years old.

The old Chief Office was no longer fit for purpose, so it was demolished to make way for a state-of-the-art landmark building that could not only be our home for decades to come, but also generate an income by renting out space to other companies, with law firm Pinsents being our current tenants.

Elsewhere around the city we have a number of locations that our employees may know very well, but are unaware they are owned by us. For example, we have a prime pitch office on Harborne High Street and the shopping centre in Knowle.

A year of upheaval

2016 has been a busy year for our property portfolio but, like many companies, we will look back and talk about pre- and post-EU referendum.

When then Prime Minister David Cameron announced back in February there would be a referendum, we had already decided we would be focusing on sales in the first half of the year.

We decided a vote to remain in the EU would see property values flat lining, while a vote to leave would likely see values fall. So, for us, all of the risk was downside, so we looked to sell properties before the vote.

Our biggest asset sale was the former Medical Sickness building in Marylebone, London. While it was an important part of our company's history, we couldn't afford to let nostalgia cloud our judgement.

A key reason to sell was the fact the property, as a proportion of our overall portfolio, had become too big. Its value was a quarter of our total portfolio, and although that's a nice problem to have, it also presented a concentration risk because so much of our portfolio was in the West End office market. Ultimately, the property was sold for £68 million.

In a post-referendum world, we've seen a slight softening of London office prices, mainly due to the fact many property funds began offloading their assets as investors clamoured for their money after the leave vote.

The good thing is, because of our contracyclical approach, where we make investments that are currently out of favour in the anticipation they will increase in value over the long term, we were able to make some excellent deals.

One in particular, in Fitzrovia, London, was acquired from a closed property fund at a substantial discount from the time before the referendum. It's an office building in a vibrant area, with a number of Michelin-starred restaurants and high end shops, and our building stands to benefit from the mixed use nature of its surroundings.

Making money from property

The recognised way to make money from commercial property is from  paper value growth - that is, they appreciate in value and are ultimately sold for more than we paid. For us, another main attraction is rental income, which acts almost like a dividend.

With property, you get stable income returns from the rent and capital appreciation over the long term. The capital value can be volatile, but over the long term they do generally show incremental gains.

What's next?

Property, for us, remains opportunity driven. We don't specifically focus on individual sectors at a given time, because second guessing what may or may not happen in them is very difficult. Instead we look generally for good opportunities. We'll do our due diligence ahead of preparing a bid, then act accordingly.

It will remain a key part of our investment strategy, but we have to be mindful about what percentage of our funds property makes up. Ideally, we'd want it to be between 5% and 15% of our investment funds.

Historically, we've been in the higher part of that range, but since the sales earlier in the year, and recent acquisitions, it's currently around the 7.5% mark for our policyholder fund. The aim is to ultimately sit in the middle of that range at around 10%.

However, even a small increase in percentage equates to a large amount of new property, so that won't happen overnight.

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Wesleyan Assurance Society and Wesleyan Bank Ltd are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Wesleyan Financial Services Ltd, Wesleyan Unit Trust Managers Ltd, Practice Plan Ltd and DPAS Ltd are authorised and regulated by the Financial Conduct Authority.  Advice about investments, insurance and mortgages is provided by Wesleyan Financial Services Ltd.

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