Brandeaux Funds Update - June 2009 Student Accommodation – trading
All holders of the Brandeaux Student Accommodation fund have now been transferred to the new share class “Brandeaux Student Accommodation A Fund”. Since reopening, the fund has seen positive cash inflows from new investors of over £22m and performance continues to be strong. Investors are now able to sell units in the fund. Dealing on the fund is monthly (5th working day of each month) and there is a six-month notice period on all redemptions. Brandeaux have indicated that if they are holding cash in the fund it is likely that they will return monies to those investors making small withdrawals before the end of the six-month notice period.
The fund is now entering its 10th year, and Brandeaux has developed strong relationships with universities across the UK. In total they have over 15,000 beds in residences located in 18 major university towns and cities, and the universities secure more than 60% of their total rents.
In 2008/2009, Brandeaux achieved 100% occupancy and average rent increases of 6.8% on a like for like basis compared to 2007/2008.
Since launch (15th June 2000) to end of May 2009, the fund has returned 128%*, which equates to an average annual return of 9.63%^. Over 5-years the returns are 59.44%*, with an average annual return of 9.78%^ and 1-year 11.22%*.
(*Source: Brandeaux Group, All returns are shown net of Brandeaux charges, ^ Compounded annually).
Ground Rent Funds – currently suspended
The Brandeaux ground rent funds were resilient in the face of the recent market turmoil and continued to produce positive ungeared net returns to shareholders of 8% for 2008# continuing into January 2009, and thereby demonstrating their limited correlation to general market conditions and the overall property market in particular.
However, during early 2009, the funds’ independent property valuers began to discuss having to take into account market sentiment which across most property sectors was by then, without doubt, poor. There was very little actual market evidence (comparable sales), thus valuers considered market sentiment as a factor in determining their valuation.
This was reflected in a modest property valuation decline which caused the share price of Ground Rent Income Fund (GRIF) to fall from its high of £3.13 at the end of January 2009 to £3.08 at the end of February and to £3.03 by the end of March#. This fall in share price of 10p represents a fall of 3.2% from the end of the January 2009 high. The decline in valuation on the ground rent portfolio reflected the valuers opinion rather than being based on actual Brandeaux portfolio sales.
The good news is that it now appears that sentiment is improving. The value of the ground rent portfolio appears to have stabilised. It is concentrated in blue chip areas of central London, which many analysts are predicting to be the first area to make a strong recovery.
There is further positive news in that Brandeaux are starting to make some sales at above valuation. This is important for two reasons: firstly, in order to create liquidity to re-open these funds, and secondly, to demonstrate that values are creeping upward. Brandeaux are cautiously optimistic that the worst is over. If the positive trend continues and they continue to make sales above valuation, then we should begin to see some increases in the property valuation which will be reflected in the share price over the next few months.
The Brandeaux ground rent portfolio is resilient with a 14-year track record of ungeared performance. It has secure and growing income streams and reversionary value, which Brandeaux is confident will enable the ground rent funds to continue to deliver consistent low volatility returns over the longer term.
Brandeaux cannot give a precise date when they expect the ground rent funds to re-open. They are optimistic that they will be able to increase liquidity sufficiently without making fire sales to safely re-open the funds toward the end of this year. Brandeaux remain committed to protecting investor value whilst re-opening the funds as quickly as possible.
(#Source: Brandeaux Group, Share price and performance figures as at 31st December 2008. All returns are net of Brandeaux charges).
Sterling, Euro and Dollar Funds – currently suspended
Brandeaux are now getting very close to re-opening the dual asset fund. These funds have a mix of both Student Accommodation and Ground Rents. They will at first only re-open for new subscription monies and following along the lines of the Student fund, a few months later, make the conversion of existing shares into the new share class, and then open for redemptions. Redemptions will be subject to a six-month notice period.
Brandeaux believe that they may be open for redemptions on the Dollar, Euro, and Sterling funds by October, subject to the same strong subscriptions they have seen for the Student Accommodation Fund. We cannot be positive on dates, but on their experience so far, Brandeaux believe this schedule to be realistic.
Chris Birch
Director
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