Standard Life Investments


Standard Life Investments' Will Fulton reveals how he cuts through the fog of Brexit forecasting to uncover buying opportunities.

UK Commercial Property Trust manager, Will Fulton, has been watching the Brexit situation closely, and his analysis led to a reorientation of his portfolio away from assets associated with bricks and mortar shopping.

'I am very cautious about weaker-quality retail in towns with poor economies where I can see declining values as low wage growth and increased inflation pressurise consumption.'

On top of this, in the absence of any kind of certainty on the economic impact of Brexit, he has refocused the Trust to those sectors of the market he is confident will grow.

This has resulted in more of the portfolio now being in industrial assets, including distribution warehouses, an area where he is enthusiastic about the potential to grow rents and contribute towards earnings.

'In the last 10 years, the building of new logistics distribution boxes and industrial space has been limited so there's currently a lack of supply.'

He says this is playing 'very nicely' into the evolving story of retailers moving away, as they have been doing for some years now, from physical sales to online sales, which is driving demand for distribution warehouses.

However, growth assets such as these are not as cheap as they once were, as more investors get hold of the story. Fulton is keen to temper his enthusiasm, with a strict focus on valuation.

'I really believe in the industrial market but a lot of it is now getting expensive, we have a third of the portfolio allocated here and have therefore benefited of late. I would buy in further but only at the right price.'

Assets already held within the portfolio include a warehouse in Burton upon Trent, bought at the start of 2017 at a yield on capital of 5.8%, with inflation-linked rent increases on a 15-year lease. Others include warehouses in the South-East, near Wembley stadium and at Hatfield close to the M25/A1(M). The Trust also owns an industrial property at Gatwick Airport that has produced around 25% capital growth over the past two years. 'We've achieved this by re-letting the stock and growing the rents over time' he explains.

Fulton has £50 million of cash and £50 million of revolving credit to use tactically within the Trust to pursue attractive opportunities as they arise. Explaining how he deploys this firepower, he said:

'My focus is on identifying assets with longer-term income, preferably with indexation at a yield that will be accretive to dividend cover; also assets in strong locations where pricing appears attractive and wider infrastructure improvements are in hand allowing external factors to enhance the prospects for rental growth.'

'I think the key point in the current market is that it is less about capital growth and more about creating and manufacturing income, increasing rents in the portfolio that will drive earnings and future performance.'

Despite consumption-led confidence dips, he sees good tenant demand in his portfolio.

'Generally, we have a very low vacancy rate at 4.4% and we are able to lease our space.