Hermes Property Unit Trust
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Excellence. Responsibility. Innovation. Hermes Property Unit Trust Annual Report and Financial Statements 2015 www.hput.co.uk Contents Introduction Key Features and Statement of Principles 1 Financial Highlights 2 Chairman’s Report 3 Trust Manager’s Report Strategic Overview 4 Trust Manager’s Report 7 Direct Property Portfolio 14 Governance Responsibilities and Governance 19 Appointments Committee and Trust Management Team 20 Advisors 21 Financial Statements Audited Financial Statements 22 Valuers’ Report to the Trust Manager 31 Independent Auditors’ Report to the Unit Holders 32 Independent Auditors’ Disclaimer Letter 33 Investor information Information about the Trust 34 Notice of Annual General Meeting 35 Distribution Analysis 36 Unit Holder Information 37 Further information 38 Front cover: Plantation Wharf, Battersea, London SW11 Annual Report and Financial Statements 2015 1 Key Features and Statement of Principles INTRODUCTION The Trust is an unauthorised, tax exempt open-ended property unit trust Statement of Principles and an Alternative Investment Fund (“AIF”) as defined in the UK Alternative Investment Fund Managers Regulations 2013 (SI 2013/1773). It was created Hermes Property Unit Trust operates under the following core principles: in 1967 to enable Unit Holders to participate mutually in a professionally ■■The Trust observes high standards of integrity and fair dealing at all times, in managed scheme investing in real property without prejudicing their tax accordance with the obligations set out in the Trust Deed for the benefit of exempt status whilst also freeing them from the burden of management. Unit Holders. The objective of the Trust is to achieve investment returns consistent with a ■■The Trust maintains an open dialogue with Unit Holders. As part of this diversified and actively managed UK property portfolio. it provides Unit Holders with timely information enabling them to make Key Features informed decisions about the Trust. The Trust is a balanced property unit trust which owns a diversified portfolio of ■■The Trust seeks to enhance the capital and income potential of its assets in real estate investments on behalf of underlying Unit Holders. Its key features a manner consistent with its risk objectives and investment policy. are as follows: ■■Performance objective – To outperform the benchmark by 50 basis points ■■The Trust will manage its assets taking into consideration the relevant per annum on a three year rolling basis. environmental and socioeconomic risks and opportunities which contribute to the potential of an investment to deliver long term investment ■■Investment philosophy – A core/satellite approach to portfolio construction. performance for Unit Holders. This reflects a core portfolio of property investments expected broadly to match property market returns, but with prospects for enhanced ■■The Trust actively engages with its occupiers to develop long term returns through exposure to higher risk/return investments in the satellite relationships in order to maximise portfolio value for its Unit Holders. component. ■■The Trust complies with The Association of Real Estate Funds’ Code of ■■Fees – To ensure alignment between the Trust Manager and returns to Unit Practice and with relevant codes or standards in force that apply to the Trust. Holders, the Trust Manager receives a base fee which is augmented with a ■■ performance fee for outperformance against the Trust’s benchmark. Fees The Trust is committed on a sound commercial basis to embedding payable to the Trust Manager are capped. the principles of responsible property investment in all of its real estate investment and asset management practices. ■■The Appointments Committee is wholly independent of the Trust Manager and is responsible for the appointment, removal and remuneration of both Further information about the Trust including its Strategy and Objectives the Trust Manager, the Trustee and the independent Auditors, each subject and Constraints is available in the General Information Memorandum at to ratification by Unit Holders and the independent valuers. www.hermes-investment.com/hput/en-gb/publications.aspx. Further information on the Appointments Committee and Trust Manager is set ■■ The Trust Manager is the legal operator of the Trust. out on page 20. 2 Hermes Property Unit Trust Financial Highlights Year to 25 March 2015 Over a 10 year period the Trust is the top performing fund in its benchmark Unit holders’ funds £1,120 million (2014: £901 million) Total return to unit holders 19.1% (2014: 13.9%) Net asset value per unit £5.49 (2014: £4.80) Distribution per unit 20.8 pence (2014: 23.3 pence) Performance for the year 1.9% ahead of benchmark* *Relative performance calculated on a geometric basis. Unit holder performance – total returns for the period (% p.a.) As at 25 March 2015 20% 19.1 16.9 15% 12.1 10% 10.8 9.5 8.6 5% 6.5 4.0 3.1 3.0 0% One Quarter One Year Three Years Five Years Ten Years HPUT IPD UK Balanced PUTs Weighted Average Returns Source: IPD UK Quarterly Property Funds Indices. Annual Report and Financial Statements 2015 3 Chairman’s Report INTRODUCTION Performance existing investors. The Trust’s debt facility expired In the interim financial statements I reported to on 20 April 2015; alternative funding arrangements you that the Trust had a strong six months; this has will be considered in due course to ensure the Trust continued through the second half of the financial Manager has flexible financing in place at times year. The Trust has delivered a top quartile return when there is no formal waiting list. of 19.1% for the year to 25 March 2015 compared with its benchmark, the IPD UK Other Balanced Appointments Committee Property Fund Index, which delivered a return of Phillip Rose will be retiring from the Appointments 16.9%. Importantly, the Trust continued to deliver Committee at the AGM on 5 July 2015. I would long term sustainable performance for unit holders like to thank Phillip for his valuable contribution over many years; he has also been a member of Simon Melliss – it was the top performing fund in its peer group both the Audit and Asset Plan Committees, and Chairman, Appointments Committee over the five and ten year periods to 25 March 2015 and in the top quartile over the one and three recently was very involved in the restructuring year periods. The distribution for the year ended 25 of the Trust following the introduction of the March 2015 was 20.8 pence per unit compared to Alternative Investment Fund Managers Directive. The Trust continued 23.3 pence per unit for the previous year. This fall is In my interim report I welcomed Sue Clayton and largely driven by asset management activities. Paul Clark as new members of the Committee; to deliver long they will each be members of the Asset Plan Property Portfolio Committee and are proposed for election at our During the year the Trust acquired six properties forthcoming AGM. Sue will also be a member of term sustainable for £66 million and made four disposals, details the Audit Committee. Further details on Sue and of which are included in the Trust Manager report. Paul are set out on page 20. performance for unit The most significant disposal is an asset with development potential where the Trust will be Outlook holders – it was the able to share in the potential profits from the Confidence in the UK economy and the property development without taking on undue risk. market looks set to remain strong in the coming top performing fund year. The Trust is well positioned to continue its The void rate in the portfolio has increased excellent performance through a combination in its peer group over during the year as a result of certain key asset of a greater exposure to London and the South management initiatives which are expected to East than the benchmark, the asset management the five and ten year bring long term benefits to the portfolio and initiatives already underway and the ability to be accretive to future income returns. The Trust undertake acquisitions that will be beneficial to the Manager has set out some examples on page 10 overall portfolio. periods of the intensive asset management activities that have been taking place. Investors and financing arrangements Since 26 March 2014 £86.3 million of new units have been created allowing the Trust to welcome new unit holders who had been on the waiting Simon Melliss list. The waiting list reflects strong demand from Chairman investors and enables the Trust to purchase new investments whilst protecting the interests of 28 May 2015 Unit holder performance – total returns for the period (% p.a.) Years ending 25 March 2011 to 25 March 2015 20% 19.1 16.9 15% 13.9 12.2 10% 10.3 9.0 7.6 5% 5.4 3.8 0.3 0% 2011 2012 2013 2014 2015 HPUT IPD UK Other Balanced Property Fund Index Source: IPD UK Quarterly Property Fund Indices. 15% 13.5 13.9 12% 12.2 10.9 10.3 9% 9.0 7.6 6% 5.4 3% 3.8 0.3 0% 2010 2011 2012 2013 2014 4 Hermes Property Unit Trust Trust Manager’s Report – Strategic Overview 1. Performance 2. Portfolio Activity The Trust aims to outperform the benchmark The Trust Manager continues to focus on asset by at least 50 basis points but with an management to maximise the long term value emphasis on long term sustainable returns. of assets including change of use, extension and refurbishments and regearing of leases Aim to maximise income from existing tenants. Acquisitions and disposals are carefully planned to maximise opportunities and to minimise risk. Chris Mathew Fund Director During the year the Trust has delivered total During the year the Trust has been a net returns of 19.1% compared to a benchmark investor, with six new properties acquired.