Brandeaux Funds Update - September 2009 Sterling, US Dollar and Euro Funds – open for new subscriptions
Brandeaux have now launched a new share class for the dual asset funds, although this is for investment into the funds only at this time. These funds have a mix of both Student Accommodation and Ground Rents. Whilst the share class is for new subscription monies only, Brandeaux are following the same process they employed for the Student Accommodation fund. After a few months of being open to new monies, existing investors will have the choice of converting their old shares to the new shares (free of charge). The fund will then be open for redemptions. Redemptions will most likely be subject to a six-month notice period, as with the Student Accommodation fund.
During the suspension period, each of the Sterling, US Dollar and Euro funds have appreciated in value, returning 3.68%, 1.29% and 4.14% respectively (Source: Brandeaux Group, All returns are shown net of Brandeaux charges, 12th December 2008 to 31st August 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 August 2009, the fund has returned 133%*, which equates to an average annual return of 9.85%^. Over 5-years the returns are 61.81%*, with an average annual return of 10.10%^ and 1-year 9.91%*.
(*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 un-geared net returns to shareholders of 8% for 2008# and continuing into January 2009, thereby demonstrating their low correlation to general equity and fixed interest 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 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, with fund prices rising from £3.03 at the end of March to £3.07 at the end of August, appreciating by 1.32%#. 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 un-geared 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 as to 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).
Chris Birch
Director
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