Re: The Property Income Trust for Charities (PITCH)
Mayfair Capital Investment Management Limited, as manager of the Property Income Trust for Charities has been notified by Cushman and Wakefield, its external valuer that it is unable to value its assets at 31st March 2020 without inserting a ‘material uncertainty’ provision in the valuation certificate. This is due to the effective closure of the commercial property investment market by the measures being taken to prevent the spread of the Covid-19 / Coronavirus. Following consultation with the Fund’s Corporate Trustee and Investors’ Committee to ensure compliance with the Trust Deed, the Manager has suspended all dealings in the Fund until further notice.
The redemption provisions in the Trust Deed allow for the suspension of dealing in the Fund if ‘the property valuer expresses material uncertainty about the value of 20 per cent or more of the portfolio of investments’.
This uncertainty clause is important because, under new FCA rules to come into force on 30 September 2020 (but being applied now), the rules require authorised fund managers to suspend dealing until such time as liquidity improves. This measure is designed to protect the interests of investors and ensure all are treated equally particularly regarding unit pricing. In fact, PITCH amended its Trust Deed in 2019 to take account of these new rules meaning that it was ready to adopt best practice measures. Please also see statement from the Association of Real Estate Funds (AREF) - https://www.aref.org.uk/resource/property-fund-suspensions.html
For Mayfair Capital as Manager of PITCH it is very disappointing to have to suspend dealings, having never had to resort to this in the 15-year history of the Fund. After the uncertainty in 2019 of Brexit and political impasse, we were already adopting a defensive posture and holding above average levels of cash in order to preserve liquidity. However, the principle of treating all investors fairly must prevail.
The suspension of dealing in PITCH will therefore halt both subscriptions and redemptions, however, monthly distributions will be paid as normal to all registered holders of units in the Fund.
The Fund is holding £100m in cash with £21.6m worth of units wishing to be redeemed at the end of March. This suspension is therefore not due to an inability to meet redemptions but one of being unable to attribute a fair and accurate unit price at this time.
We expect the coronavirus to have a considerable short-term impact on the UK economy in 2020 and are now forecasting GDP growth of 0.3% down from 1.0% but with a recovery to 1.2% in 2021. Clearly certain sectors of the economy are expected to be hit harder than others, which for property reinforces the importance of sector positioning and the resilience of rental cashflow from tenants.
We believe that the PITCH portfolio is well placed to weather this impact. It continues to have a high exposure to the most robust sectors of the market with over 83% in either warehousing, offices or alternatives and a low weighting to the retail sector, comprising circa 12% in retail warehousing and circa 5% in high street retail. Within this high street exposure, PITCH only has 2.4% in restaurants spread across five tenants. Although we have no immediate concerns surrounding the financial viability of these tenants, each asset is in a strong, affluent location, where we would expect to see continued demand for leisure use should the occupiers fall into financial difficulty. Meanwhile, the government’s recent announcement to extend the business rates holiday towards retailers should ease cashflow pressures on such tenants.
In anticipation of some tenants approaching us for rent holidays/concessions we will be sympathetic but will not be seen as a ‘soft touch’ for such requests. We will assess need and the extent to which financial help is being shared with other creditors, HMRC and suppliers. In this respect we have drawn up guidelines for our managing agents to follow. Requests will be signed off by our CIO, Tim Munn. The March to June quarter rent demands are being sent out now and we will closely follow the rent collection record.
In terms of portfolio income, the Fund has a low vacancy rate of just over 5% whilst 88% of properties are let to “low” or “minimal” risk tenants as rated by Dun & Bradstreet. Meanwhile, the ten largest tenants, which make up 33% of rental income, are mostly involved in more resilient sectors of the economy such as logistics, insurance and technology. The largest tenant, Admiral Insurance, comprises 4.4% of income ensuring that the overall portfolio income is well diversified. These factors should help to ensure that the Fund can continue to maintain its relatively high income yield (historically 5.4% to December 2019) having regard to economic and market conditions.
Please do not hesitate in contacting us to discuss the situation in more detail – whilst the PITCH team are working remotely away from our office in London, we all have full operational capability with business continuity. Contact details of all the PITCH team are available on the Fund website https://pitch.mayfaircapital.co.uk/people/management-team and we will be providing more regular updates as events unfold both by email and on our COVID-19 page on our PITCH fund website www.pitch-fund.co.uk.
With kind regards,
Head of Business Development and Marketing
The Property Income Trust for Charities
MAYFAIR CAPITAL INVESTMENT MANAGEMENT LTD
Authorised and Regulated by the Financial Conduct Authority
Member of Swiss Life Asset Managers