Citywealth caught up with Simon Martindale, fund director at Mayfair Capital Investment Management who manages their flagship Property Income Trust for Charities, a pooled property fund designed specifically for charities. He tells Citywealth about their recent activity within the warehouse sector and the challenges and opportunities they currently face to reduce their carbon footprint.
Tell us about your role
I am a Fund Director at Mayfair Capital, a specialist UK real estate investment manager and I manage our flagship property fund, the Property Income Trust for Charities (PITCH), which is a specialist Fund for charity investors.
I have overall responsibility for the day-to-day management of the Fund including formulating and implementing the investment strategy, investor reporting and portfolio analysis whilst overseeing all acquisition, disposal, debt, and asset management activities. Having worked on PITCH for almost ten years, I have developed an in-depth knowledge of the property assets, portfolio, and investor base.
Can you tell us more about PITCH?
PITCH is a pooled property fund designed specifically for charities. It is structured as an exempt unauthorised property unit trust with a particular tax advantage in that it is exempt from paying Stamp Duty Land Tax, thereby mirroring the tax benefit available to the underlying charity. It has an investment objective to deliver an attractive income return whilst maintaining capital in real terms and its 12-month historic yield to the end of June 2021 was 4.3% pa. This is distributed on a monthly basis providing a regular income flow to investors, which is particularly important for charities.
It also has ESG embedded within the Fund (see below) since its launch, with formal Ethical and Environmental Policies, to ensure the Fund is not in conflict with any investing charity’s underlying mission or objectives.
PITCH was launched in 2004 and has a strong long term track record with an annualised total return of 8% pa over the last ten years. The Fund has a current gross asset value of £668m and is invested predominantly in the warehouse and office sectors which make up around 78% of portfolio value. (As at 30.6.21)
Talk us through one of your most recent investments?
We have just completed a successful repositioning strategy which included £65m of sales, mostly of non-core warehouse assets but also some secondary offices. Given the demand for warehouses at present, driven by a continued acceleration in online retail sales, we were able to achieve an impressive result making a gain of almost £9m against valuation.
This coincided with £35m of new acquisitions, all within the warehouse sector, which ensured we maintained our high weighting to this top performing sector (now 47%) but also meant we were able to improve the overall composition of the portfolio. In 2021 alone, the Fund’s warehouse assets have risen in value by some 18%.
We are currently under offer on two new retail warehouse investments, a segment of the retail market that has performed relatively well in the last 12 months and offers the benefit of attractive lease lengths and a higher income return. Beyond this we are also seeking to invest in the residential sector which has proven to provide excellent long term real returns and typically behaves quite differently to the mainstream property sectors helping further diversification across the portfolio.
How have you embedded ESG principles into your investment strategy?
Owing to the underlying investor base, ESG has always been central to how we manage the Fund. We have had an ethical policy in place since we launched the Fund in 2004, which restricts the type of tenant we can let to, more specifically those companies where most of their revenue is derived from alcohol, gambling, tobacco, armament, or the sex industry. This ensures alignment with our charity clients’ own ethical restrictions.
ESG plays a key role in our investment strategy in terms of where to invest and what assets to acquire. We examine factors such as access to transport, labour markets, business clustering, socio-economic factors, green space, and amenity and building flexibility. Having targeted types of assets and locations, specific consideration is then given to individual properties in terms of flood risk, contamination, EPCs and energy usage. We also undertake sustainability surveys to determine how much capex is needed to enhance the energy performance of the asset.
What’s the biggest challenge you face in meeting ESG targets?
Undoubtedly the biggest challenge for all landlords is how to materially reduce their carbon footprint. Property is responsible for around 30% of all global carbon emissions meaning landlords have an inherent duty to mitigate their impact on the climate and to try to achieve carbon neutrality by 2050 in line with the Paris Agreement. This requires effective collaboration between landlords and tenants, particularly around energy usage and data, as under most tenancy agreements, the tenant has responsibility for ongoing maintenance and repairs. For us, this reinforces the importance of having a lean portfolio to foster strong relationships with tenants. PITCH currently has around 130 tenants in the portfolio, which is a relatively small number for a Fund of its size but means we can really get to know these businesses well and work with them to improve the energy efficiency of the portfolio.
Following the pandemic, how has your strategy evolved?
Being perfectly honest it hasn’t changed a great deal. That’s mainly due to our thematic investment strategy which has been in place since around 2014. This aims to identify structural changes in the market which might in turn influence occupational demand. The pandemic has accelerated many of these key trends particularly surrounding ways of working, the way we live and the way we shop, however, we had been observing many of these fundamentals prior to the pandemic.
Since the pandemic we have increased our analytical capabilities with the introduction of a proprietary asset scoring model to assess how properties can be graded against our thematic strategy. Tenants are undoubtedly becoming more discerning about their property requirements and so this model is designed to ensure that our properties remain aligned to this occupational demand. This was partly the catalyst for some of the sales implemented at the start of the year.
Name one thing you’ve missed about the morning commute.
I usually cycle to the office so I would say my fitness levels have probably suffered!
Best and worst parts of your job?
One of the most gratifying aspects of my job is the knowledge that the financial return generated by the Fund is to the benefit of so many fantastic charities and the wonderful causes that they serve. We have around 1,300 investors in the Fund ranging from educational and medical/health charities to local community foundations, to animal and conversation charities, religious charities and to grant making charities. Many of these organisations have faced significant funding challenges throughout the pandemic and it is rewarding to know that the income we generate is being used for such a valuable purpose.
Another great aspect is that I get to spend time out of the office visiting properties and meeting some truly fascinating and diverse companies from all areas of the economy, whether that’s online fashion companies, tech companies, manufacturers, or retailers. As property investors it is important that we understand the different dynamics of these industries and how this might affect the individual companies that ultimately pay the rents that we are able to distribute to investors.
The worst part is that I don’t get out on the road as much as I used to!
What’s next for Mayfair Capital Investment Management?
Apart from looking to grow our AUM, which currently stands at around £2bn, our main priority is to continue to reduce our carbon footprint across our portfolios and to publish a robust and achievable plan to achieving net zero emissions in line with the Paris Agreement. We are currently undertaking this initiative with our parents, Swiss Life Asset Managers, with the aim to become an industry leader in responsible investing.
Another focus is to ensure that our portfolios continue to be relevant and well suited to the modern occupier. This means remaining alive to the continuing structural changes affecting all markets and industries and how, in turn, that might alter the type of buildings companies want to occupy. I think we’ve been successful at steering our portfolios through these dynamic times but as we all know past performance is no guarantee of future returns!