VALUE AND INDEXED PROPERTY INCOME TRUST PLC – VIP
ANNUAL REPORT AND ACCOUNTS 2022
LONG, STRONG, INDEXED PROPERTY INCOME
Value and Indexed Property Income Trust PLC (VIP) is an investment trust company
listed on the London Stock Exchange. It now invests mainly in direct UK commercial
property, with under 15% in UK property-backed securities, to deliver secure,
long-term, index-related income. Its performance benchmark changed on 1 April
2021 from the FTSE All Share Index to the MSCI UK Quarterly Property Index.
£1,000 invested in Value and Income Trust PLC, now VIP, when OLIM took
over as Managers in 1986 had grown, with dividends reinvested, to £27,395 at
end March 2022. The total return was 9.6% p.a., against 5.3% p.a. for the FTSE
All Share Index, where £1,000 would have grown to £6,546.
VIP’s dividend per share has grown every year and risen by 908% over the
35 years, against the Retail Price Index rise of 222%. The medium term dividend
policy is for increases at least in line with inflation, underpinned by VIP’s index-
related property income.
The VIP Property portfolio delivered a total return of 20.2% over the year
against 19.6% for the MSCI UK Quarterly Property Index, the main benchmark
for commercial property performance.
VIP Property Portfolio Performance Record Over
35 Years TO 31 MARCH 2022
Real Return
RPI
MSCI UK Quarterly Index
VIP Property
Total Annualised Returns
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
35 years
20 years
10 years
5 years
3 years
1 year
20.2%
9.5%
9.5%
6.7%
5.7%
3.6%
9.9%
8.3%
10.3%
8.7%
12.2%
8.5%
8.0%
6.4%
4.3%
3.0%
3.2%
3.4%
4.9%
6.6%
6.9%
19.6%
10.3%
9.0%
Sector Weightings Since 2012
SECTOR
MARCH 2012
MARCH 2014
MARCH 2020
MARCH 2021
MARCH 2022
Offices
0%
0%
0%
0%
0%
Shops and Retail Warehouses
49%
39%
0%
0%
0%
Supermarkets
0%
5%
2%
16%
27%
Pubs & Restaurants
13%
17%
32%
24%
13%
Leisure
10%
11%
12%
8%
11%
Industrial
8%
8%
32%
35%
33%
Roadside
16%
16%
6%
3%
7%
Other
4%
4%
16%
14%
9%
Total
100%
100%
100%
100%
100%
Value and Indexed Property Income Trust PLC Annual Report and Financial Statements 2022
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Contents
Financial Calendar
29 October 2021
First quarterly dividend of 3.0p per share for the year ended 31 March 2022
12 November 2021
Announcement of Half-Yearly Financial Report for the six months to 30 September 2021
28 January 2022
Second quarterly dividend of 3.0p per share for the year ended 31 March 2022
29 April 2022
Third quarterly dividend of 3.0p per share for the year ended 31 March 2022
10 June 2022
Announcement of Annual Financial Report for the year ended 31 March 2022
8 July 2022
Annual General Meeting, Edinburgh (12.30pm)
29 July 2022
Final dividend of 3.6p per share payable for the year ended 31 March 2022
28 October 2022
First quarterly dividend payable for the year ending 31 March 2023
November 2022
Announcement of Half-Yearly Financial Report for the six months ending 30 September 2022
27 January 2023
Second quarterly dividend payable for the year ending 31 March 2023
Strategic Report
Chairman’s Statement
2
Property Manager’s Report
4
Equity Manager’s Report
23
Business Review
25
Governance
Directors’ Details
35
Directors’ Report
36
Directors’ Remuneration Report
43
Statement of Corporate Governance
46
Statement of Directors’ Responsibilities
52
Report of the Audit and Management Engagement Committee
54
Independent Auditor’s Report
58
Financial Statements
Group Statement of Comprehensive Income
66
Company Statement of Comprehensive Income
67
Group Statement of Financial Position
68
Company Statement of Financial Position
69
Group Statement of Cashflows
70
Company Statement of Cashflows
71
Statement of Changes in Equity
72
Notes to the Financial Statements
73
Additional Information
Alternative Investment Fund Managers Directive
96
How to Invest in Value and Indexed Property Income Trust PLC
98
Unsolicited Offers for Shares (Boiler Room Scams)
99
Glossary
100
Notice of Annual General Meeting
101
Contact Information
107
Value and Indexed Property Income Trust PLC Annual Report and Financial Statements 2022
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2
Chairman’s Statement
You will see from the Manager’s Report that
VIP has been successful in continuing with its
plan, that I wrote about last year, to establish
a portfolio of properties on long leases with
inflation linked rent reviews. This has involved
greater investment activity than usual, but
the re-arrangement of our portfolio has now
broadly been completed. Since VIP’s year end,
we have borrowed an additional £8 million
from an existing lender. The net decrease
in cash is due to the purchase of additional
properties, in line with the Company’s
investment policy.
Many of the Company’s index-linked leases
provide for maximum and minimum increases
at future rent review, often described as ‘caps
and collars’. The details of these are shown
in Note 9 to the Financial Statements on
pages 82 to 84. The Financial Statements
have been prepared under IFRS (International
Financial Reporting Standards) and IFRS 16
requires that these minimum rent increases,
which may arise only many years in the
future, are averaged over the whole life of the
lease. As detailed in Note 10 to the Financial
Statements on page 84, an increase in amounts
due from brokers this year has arisen due
to the sale of an investment in the quoted
portfolio which straddled the year end and the
cash was received in full two days later.
The Board is recommending a final dividend
of 3.6p per share making total dividends of
12.6p per share for the year to 31 March
2022, compared to 12.3p per share in the
previous year, an increase of 2.4%. Subject to
Shareholder approval at the Annual General
Meeting (AGM), the final dividend will be
paid on 29 July 2022 to Shareholders on
the register on 1 July 2022. The ex-dividend
date is 30 June 2022. It will be the 35
th
year of dividend increases following the
reconstruction of the Company. In the short
term this will require some use of our capital
reserves.
In the medium term, however, the
Board will aim to ensure that the dividend is
paid from rents and dividends received (after
interest costs and management expenses) and
that the indexed leases permit future increases
in line with inflation.
Net Asset Value total return (with debt at par)
and Share Price total return are considered
by the Board to be Alternative Performance
Measures (APMs) as explained further in
the Business Review on pages 31 to 32 and
defined in the Glossary on page 100. Over
the year, the Net Asset Value total return
(with debt at par) was 15.6% (2021: 12.3%)
and the Share Price total return was 15.8%
(2021: 39.3%). This compares with the
FTSE All-Share Index total return of 13.0%
(2021: 26.7%). The total return from the
property portfolio was 20.2% (2021: 2.3%)
(the MSCI UK Quarterly Property Index
total returns were 19.6% (2021: 0.9%)) and
from the equity portfolio was 24.1% (2021:
26.6%). From 1 April 2021, our performance
comparator was changed from the FTSE
All-Share Index to the MSCI UK Quarterly
Property Index to reflect the change in our
investment policy.
As provided in the Circular issued to
Shareholders in December 2020, there will be an
opportunity in the future for Shareholders who
wish to sell their shares to do so at Net Asset
Value less costs. The Board’s intention is to table
a proposal at the AGM to be held in 2026.
As noted in previous statements, the difference
between the fair value and the nominal value
of our Debenture Stock and our secured loans
is reducing over the life of the Debenture,
which would be repaid at its nominal (par)
value. The figures are set out in Note 17 to the
Financial Statements on pages 87 and 88. We
announced on 24 May 2022 that we intend to
repay this Debenture early to reduce interest
costs and provide greater flexibility in the
management of our portfolio.
This years’ AGM will be held in the offices
of Shepherd & Wedderburn LLP, 1 Exchange
Crescent, Conference Square, Edinburgh
EH3 8UL on Friday, 8 July 2022 at 12.30pm.
The Notice of Annual General Meeting
can be found on pages 101 to 106 of this
Annual Report. The Board encourages
Shareholders to vote using the Proxy Form,
which can be submitted to Computershare, the
Company’s Registrar. Proxy Forms should be
completed and returned in accordance with
Chairman’s Statement
Value and Indexed Property Income Trust PLC Annual Report and Financial Statements 2022
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3
the instructions thereon and the latest time
for the receipt of Proxy Forms is 12.30pm
on Wednesday, 6 July 2022. Proxy votes
can also be submitted by CREST or online
using the Registrar’s Share Portal Service at
www.investorcentre.co.uk/eproxy
.
I announced last year that I intended to retire
during the course of 2022 and, accordingly,
I shall be retiring after the AGM and John
Kay will become Chairman. Over the years,
I have appreciated greatly the support of
my colleagues on the Board, and also the
professionalism and attention to detail of our
Managers and Secretaries.
The outlook for markets is dominated at
present by the major uncertainties of inflation
and Ukraine. However, property with long
term, inflation-related leases offers good value
in these circumstances.
Contracted % of Indexed Income
39%
2013
2017
2019
52%
79%
2020
2021
2022
86%
91%
96%
James Ferguson
Chairman
10 June 2022
Summary of Portfolio
31 March 2022
31 March 2021
£m
%
£m
%
UK Property
155.8
83.0
81.1
46.2
UK Equities
26.9
14.3
28.6
16.3
Cash
5.2
2.7
66.0
37.5
187.9
100.0
175.7
100.0
Value and Indexed Property Income Trust PLC Annual Report and Financial Statements 2022
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Property Manager’s Report
Matthew Oakeshott and Louise Cleary
Uk Commercial
Property – Average
Annual % Growth Rates
To March 2022
3 Months
6 Months1 Year 3 Years 5 Years 10 Years
Capital Values
+14.8
+17.9 +14.9
+1.9
+2.2
+3.3
Rental Values
+4.6
+4.6
+3.1
-0.3
+0.3
+1.2
Total Returns
+18.8
+22.2 +19.6
+6.4
+6.7
+8.3
Source: MSCI UK Quarterly Property Index – Annualised
These returns to the end of March are higher than
the calendar year figures quoted above because
capital value growth accelerated through 2021
after a dull first quarter.
Property Portfolio
The Market
The MSCI UK Quarterly Property Index, the
most representative measure of the performance
of institutional investment property portfolios,
showed a total return of 16.3% over 2021, with
capital growth of 11.5%. Estimated rental values
were up overall by 1.8%, with retail 3% down
on average, offices and alternatives virtually
level and industrial property up 9%. Differential
movements in capital values were more dramatic,
with industrial property up by no less than 31%,
retail and alternative sector properties up on
average by 3%-4% and offices flat. For 2021 as
a whole, total returns, taking capital and income
together, for industrial/warehouse property
averaged 36%, with retail and alternatives
averaging 8%-10% and offices only 5%. 2021
was the first year since 2009 when retail property
in the UK outperformed offices. There will be
many more as the office sector remains locked in
long term structural decline.
Total returns will be lower but still satisfactory
over 2022 as a whole. They may be around
12% overall, with returns for industrials, retail
and the alternative sectors all in the early teens
but offices only around 5% with capital values
flat, rents under pressure and voids through the
roof. Property’s real returns will be far lower,
with the RPI already up 9% year on year. It
will stay higher for longer than the Bank of
England or the market expects. Stagflation is
here to stay for at least as long as the war in
Ukraine drags on.
Comparative Investment Yields – End December
(Except end March 2022)
March
2022
2021
2020
2019
2017
2011
2008
2006
Property
(Equivalent Yield)
5.0
5.1
5.8
5.6
5.6
6.9
8.3
5.4
Long Gilts:
Conventional
1.6
1.0
0.2
1.0
1.4
2.5
3.7
4.6
Index Linked
-2.2
-2.6
-2.6
-2.0
-1.8
-0.2
0.8
1.1
UK Equities
3.1
3.1
3.4
4.1
3.6
3.5
4.5
2.9
RPI (Annual Rate) *
9.0
7.1
0.9
2.2
4.1
4.8
0.9
4.4
Yield Gaps:
Property less Conventional Gilts
3.4
4.1
5.6
4.6
4.2
4.4
4.6
0.8
less Index Linked Gilts
7.2
7.7
8.4
7.6
7.4
7.1
7.5
4.4
less Equities
1.9
2.0
2.4
1.5
2.0
3.4
3.8
2.5
Source: MSCI UK Quarterly Property Index and ONS for the RPI (*to December except March 2022)
Value and Indexed Property Income Trust PLC Annual Report and Financial Statements 2022
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Property Manager’s Report
Property transaction volumes and market
liquidity improved markedly through
2021 with an estimated total turnover of
£65 billion, higher than in 2019 pre-pandemic
and above the long term averages. This trend
has continued so far in 2022. Industrial
property volumes were strongest but activity
increased in previously quiet sectors,
especially leisure, hotels and retail, with
relentless demand for retail warehouses
and supermarkets supplemented recently by
buyers of in town retail at high yields. Prime,
especially long-let offices were active but the
market for older secondary offices is getting
worse, with some now virtually unlettable
and unsaleable where they do not meet
environmental standards. There is a growing
“brown discount” for properties in all sectors
with non-compliant Energy Performance
Certificates (EPCs).
Property void rates rose from 8.2% at the
start of the pandemic in March 2020 to a
peak of 10.2% in June 2021 and remain high
at around 10%. As the table below shows,
industrial and retail void rates have fallen
markedly from their COVID peaks, but office
voids shot up from 13.1% in March 2020 to
19.4% now, well above the previous record
high of 14.8% for office voids in 2013.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
MSCI Monthly Index
Vacancy Rates %
All Property Types
Retail
Office
Industrial
During the COVID crisis, the Government,
under political and tenant pressure, repeatedly
suspended landlords’ traditional tools for
enforcing rent collection – eviction orders,
use of Commercial Rent Arrears Recovery
(CRAR) bailiffs and statutory demands
for winding up. They have also introduced
a fiendishly complicated legal arbitration
procedure for rent arrears run up during
COVID. This will be a bonanza for lawyers
and no real help for landlords and tenants
who should have done a deal long ago.
Apart from that, landlords are able again to
use their normal strong powers to enforce
prompt payment of rent from commercial
property tenants, including the use of
bailiffs where necessary. With all properties
throughout the UK now able to open again
and trade normally, there is no longer any
excuse for strong tenants not to pay their rent
promptly and in full; rent collection rates
should, therefore, now be back to normal
on all professionally managed institutional
property portfolios.
Value and Indexed Property Income Trust PLC Annual Report and Financial Statements 2022
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Property Manager’s Report
Property Prospects by
Sector
Warehouse/Industrials –
an Overheated Market –
Yields have Fallen Far
Enough
Warehouse and industrial property delivered
most of commercial property’s total capital
growth in 2021 for the right reasons, with
voracious demand, mainly from food and
online retailers, driving up rents right across
the UK for both “big box” warehouses near
motorways and smaller units on estates nearer
city centres. Valuation yields were forced
down to reflect improving rental growth
prospects, and the outlook for rental growth
remains good, vacancy rates for both “big
box” units and traditional industrial estates
are very low (and now negligible in parts of
the South East, Midlands and East Anglia).
Driven by the explosion of online retailing,
2021 saw the second highest ever take up of
logistics “big boxes” at 34.1 million square
feet, only slightly below the exceptional
performance in 2020 at 35.8 million square
feet and 71% above 2019. 2022 will be
slower.
Over £18 billion was invested across the
industrial/warehouse sector in 2021, nearly
double the 2020 transaction volume and
over 60% above the previous highest annual
level recorded in 2017. But the industrial
property investment market is now running
white hot, too hot in our view, with yields
bid down to unsustainably low levels by
panic buyers, who are having to make wholly
unrealistic rental growth projections to justify
the prices they are paying. Sellers are hard to
find. Rapidly rising interest rates and other
economic pressures have started to cool this
overheated market. The latest UK figures
showed online non-food retail sales down to
39% of the total, against 63% a year ago.
Amazon recorded its first quarterly loss since
2015 at the end of April, the share price fell
16% instantly and has fallen 26% to date.
The share prices of the larger property REITS
focusing on large warehouses followed suit
with Segro -25% and Tritax Big Box -22%.
Rapidly rising costs and supply chain
problems, together with a weakening economy
and consumer confidence, are already putting
pressure on the strong occupiers and may
affect some weaker occupiers more acutely
this year, although industrial property values
will still be supported by the conversion of
older and lower value sites to residential
and other alternative uses, especially in
southern England. Well-located industrial and
warehouse property in all sizes from logistics
“big boxes” on motorway junctions to “last
mile” urban sheds and estates of smaller
units should still outperform offices and
probably the property market as a whole for
the rest of the year. But risks are rising and
selling opportunities should be taken where
valuation yields have fallen too far to generate
satisfactory long-term returns.
Offices – Locked in Long
Term Relative Decline –
the Way we Work has
Changed for Good
Offices have taken over the performance
wooden spoon from retail for the first time
in twelve years and may hold it for the
foreseeable future. Investors’ long overdue
focus on ESG is hitting office values harder
than on most other sectors, because so many
older office buildings, in London in particular,
simply cannot be updated to suitable standards
at realistic cost. Occasional headline-grabbing
investment or letting deals for the very best
space are just a sign of a flight from quantity
to quality, with tenants usually downsizing at
the same time, giving owners of their old space
a hospital pass. There is still some demand for
high quality city centre offices, but for more
limited space for meeting, training and prestige
purposes.
Mid and back-office work is now being
done far more from home, or partly at low
cost non-city centre locations. Unnecessary
offices are one cost that businesses can now
cut, with break clauses exercised in most
cases and tenants demanding considerable
capital expenditure from landlords to renew
leases, even in part. Functional obsolescence
and depreciation will, therefore, need to be
factored more specifically into most office
valuations, keeping capital values under
continuing downward pressure to reflect lower
effective net rents and greater re-letting risk, as
valuers start to reflect this risk properly.
Value and Indexed Property Income Trust PLC Annual Report and Financial Statements 2022
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Property Manager’s Report
The public sector, the largest UK office tenant,
has clearly now adopted a long-term hybrid
working model, and would have serious HR
and legal problems and additional trade union
pressure if it tried to force any employee back
to the office full-time, despite the Minister
for Government Efficiency publicly applying
pressure. Many UK companies are also
downsizing, going hybrid, closing their head
office altogether and taking temporary space
nearby instead. Those employers such as
some American investment banks or law firms
requiring full office attendance will, therefore,
find staff recruitment and retention ever more
difficult in a climate where talented employees
feel more able to negotiate the way they work,
irrespective of age or sex.
Retail – Bouncing Back,
Led by Retail Warehouses
and Supermarkets
The COVID pandemic hit the high street
hard where it had already been hurting for
many years: first, by getting many more older
shoppers, in particular, used to the range
and convenience of non-food shopping in
particular, online; and second, by making
people switch from public transport or
parking in congested city-centres to easier and
safer car-borne shopping out of town. Retail
warehouse rents are rising again, especially
where well-run operators like B&Q, B&M
and Home Bargains trade alongside the
leading supermarkets, and capital values are
growing rapidly – some institutional investors
missed the market in industrial property, want
no more offices, and have money which they
are struggling to invest.
On the high street, the steepest falls in
property values happened in “prime” central
London and other prime highly valued cities
and towns which are now unaffordable for
both multiple and individual retailers. Unfair
business rates had already crippled urban high
streets in less prosperous parts of the UK,
and the Government’s latest partial attempt
at rates reform will be too little, too late for
many locations. Prosperous suburbs and
market towns with affordable rents and an
attractive mix of convenience and independent
traders have proved more resilient during
the crisis and are generally recovering better
than bigger centres. Transaction volumes are
rising again for high street shops and shopping
centres, and as rental values have been reset
at affordable and sustainable levels, there are
now growing signs of capital growth from the
retail bargain basement.
Supermarkets and convenience stores
(including petrol filling stations), have done
well during COVID, often with increases of
20%-30% in their turnover, part of which
they are able to retain with more people
working on average nearer home. Online food
sales’ market share has slipped back from
16% to 11% now with Sainsbury’s reporting
online sales down from 21% to 15% of their
total. Aldi, Lidl, and their older-established
grocery competitors are fighting fiercely for
stores under 15,000 – 20,000 sq. ft. The
leading supermarkets are also much better at
combining physical and online shopping than
most non-food retailers.
Non-Traditional
Alternatives – Index-Linked
Leases to Strong
Survivors Are Key
Property in the “Alternatives” sector – i.e.
everything except office, industrial or retail -
has been growing rapidly in importance for
institutional investors in recent years and
now accounts for one-sixth of the MSCI UK
Quarterly Property Index. It covers a wide
range of property types and tenants, often
with long, index-linked leases. With the RPI
now rising at an annual rate of 9% and the
CPI at 7%, these index-linked leases hold the
key to sustained outperformance so long as the
individual property rents are well covered by
operating profits and paid by strong multiple
tenants.
COVID with its ever-changing lockdowns
posed a once in a lifetime challenge to
alternative sector operators and investors.
Tenants with strong long-term business
models and short-term crisis management,
working with investors who knew how and
when to give help and improve leases, came
through the COVID challenge stronger
than ever before, with their weaker multiple
competitors, and many private operators,
savagely squeezed or forced out of business
altogether. Alternative investments are,
therefore, outperforming most property
Value and Indexed Property Income Trust PLC Annual Report and Financial Statements 2022
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Property Manager’s Report
sectors again, and probably even industrials
over 2022, but with strong survivor bias and
variations within and between different sub-
sectors, as outlined below.
Alternatives – Leisure
and Hotels – Strong
Tenants Trading Stronger
than Ever Outside City
Centres
Well-let pubs have proved far safer
investments than restaurants, where many
private-equity backed multiple chains were
already drowning in debt pre-COVID.
The leading pubcos, like Greene King and
Wetherspoons, as well as most traditional
regional brewers, have strong balance sheets
with plenty of freehold assets and borrowing
capacity. Profitable, spacious pubs with
outside space, have been trading exceptionally
well and above pre-pandemic levels over the
past year, apart from central London. Pubs
of this type in suburban, smaller town and
rural locations will stay short and long-term
winners whilst consumer spending on food
and drink remains at current levels.
Hotel values are also well off the bottom.
Modern hotels in prosperous smaller towns
and rural areas, serving British holidaymakers,
workers and businesses, have been performing
really strongly over the past year, proving
resilient even during the latest COVID surge.
They will continue to outperform large
city centre and airport hotels dependent on
international business and travel. Zoom,
Teams and ESG have slashed expensive
corporate frequent flying. Covenant strength
will remain crucial for hotels’ investment
value – for example, a Premier Inn is valued
well above a similar Travelodge, because
long-term investors hate CVAs (Company
“Voluntary” Arrangements). Caravan parks
should also trade very strongly for many years
to come.
Health and Fitness clubs have been rebuilding
their memberships but will be suffering from
the squeeze on real incomes. The leading
brands on large out of town sites, with good
car parking and customers often able to
work from home, offer the best long-term
investments.
The two main ten pin bowling companies,
who dominate the market, are going from
strength to strength and offer a sensibly priced
family treat which cannot be replicated online.
But bingo halls and cinemas face a tougher
future as lockdowns drove away many of
their older customers and the operators are
vulnerable to online competition.
Alternatives – Student
Housing and Care Homes –
Covenant Strength Key
Direct-let investments on long leases to well-
established universities should continue to
perform well but indirect student housing
investments with nomination agreements or
third-party providers, depending more on the
local residential letting market, are less clear
beneficiaries of yield hardening for safe, long-
let property.
COVID has hit care homes hard. Costs and
vacancy rates are rising because of more
deaths, slower admissions and severe Brexit
and vaccination-related staff shortages,
while some private-equity backed care home
providers need more equity and lower rents.
High quality homes with self-funded residents
will continue to outperform those dependent
on squeezed local authority budgets. The
rise in National Insurance contributions has
raised staff costs for care homes, and the
Government’s reforms to social care funding
will not deliver meaningful extra cash for
another three to four years. Medical centres
and private hospitals will stay in demand as
the NHS faces years of non-COVID catch up
and outsourcing more profitable work.
Value and Indexed Property Income Trust PLC Annual Report and Financial Statements 2022
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Property Manager’s Report
The Economy – an Unhappy 25th Anniversary for Bank
of England Independence
1995 MAR
2000 MAR
2005 MAR
2010 MAR
CPI Annual Rate
2015 MAR
2020 MAR
-2.0
0.0
2.0
4.0
6.0
8.0
Source: ONS
25 years ago Gordon Brown gave the Bank of
England Monetary Policy Committee the power
to set interest rates to meet a stated inflation
target. As the chart above shows, until recently,
their record has been good. Even including
the current inflation tsunami, annual UK CPI
growth over the past quarter of a century has
averaged exactly 2% (with the RPI at 2.8%).
Official interest rates have averaged 2.6%,
compared with 10.4% over the previous 25
years and 8.4% for the RPI (CPI figures are not
available). But success, as so often in business
and government, has bred complacency and
groupthink, reinforced by similar flawed
inflation models in other Western Central
Banks. Massive Quantitative Easing was the
only possible response to the 2008/9 banking
crash, which hit the UK hardest of all the main
Western economies, but the Bank persisted
with the policy far longer and stronger than
was necessary or prudent, leaving Britain in our
present agonizing double bind of unsustainably
low interest rates and high inflation. The Bank
really has no alternative now to raising interest
rates rapidly to stop inflation expectations
taking a real hold, as they did in eerily similar
circumstances in the early 1970’s after the first
oil price shock. Inflation has also rocketed in
the US to 8.3% (a new 40 year high) and 7.4%
in the Eurozone.
The March consumer price figures (CPI + 7.0%
and RPI + 9.0% year on year) clearly show
inflation heading higher over the next few
months, probably into double figures for the
CPI and 12% for the RPI Inflation may still
be around the current rates at the year end.
The latest Producer Price Indices show output
prices up by 11.5% year on year and input
prices up by 19.2%.
So Britain is now suffering stagflation, with
average real incomes likely to fall by at least
2% and maybe up to 3% over 2022 as a result
of increases in tax and National Insurance
combined with average earnings and benefits
lagging far behind price rises. UK domestic
consumer spending was the main engine of UK
economic recovery in 2021, with exceptionally
high pandemic savings being spent by better off
households, and employees gradually returning
to work. That will not be repeated in 2022, and
forecasts, like the OBR’s in March, for UK GDP
to grow by 3.8% this year now look far too
high. A technical recession may well be looming
later this year on a quarter by quarter basis. Q1
2022 may be only just up, with Q2, Q3, Q4 all
down. Although GDP figures are often subject
to major subsequent revisions. Any progress
later in 2023 will be critically dependent on
progress towards peace in Ukraine and easing
disruption to international trade, not least with
Value and Indexed Property Income Trust PLC Annual Report and Financial Statements 2022
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Property Manager’s Report
China, and supply shortages around the world.
There is still a danger of renewed outbreaks of
COVID, especially in less developed countries
where vaccination rates are very low. Food
and energy shortages, serious as they feel in
richer countries like the UK, could actually
kill millions especially in Africa, if the war in
Ukraine and disruption of world trade drag on.
Conclusion – Index-Linked
Income Still Seriously
Undervalued
UK commercial property values stabilised in
late 2020 and have since been rising rapidly.
Industrials have been by far the star performers,
but their yield re-rating must be over as
prices are clearly overheating especially at
the prime end of the market. Offices’ relative
performance is going from bad to worse.
Retail values started to recover early in 2021,
as gains for retail warehouses, supermarkets
and convenience stores offset slowing rates
of decline in shopping centres and high street
shops, which have now finally bottomed out.
The alternative sectors have also bounced back
strongly with pubs, hotels, bowling and caravan
parks booming, especially outside London.
Healthcare and nursing home investments will
stay in demand despite their staffing problems.
2022 may see a similar pattern of relative
property performance, despite current short
term interest rate rises, and possibly sharp
increases in current unsustainably low long
term bond yields, with alternatives, retail and
industrials leading the way and offices bringing
up the rear.
The COVID crisis has taught UK property
investors a stark lesson: stay on the right side
of structural change, avoid offices, and stick
wherever you can to properties let to strong
tenants at affordable rents on long, preferably
index-linked, leases. Safe, long-term indexed
income will be even more highly prized as
inflation rises faster for longer than myopic
markets and complacent central bankers expect.
Wars are always inflationary, and however long
the hot war lasts in Ukraine, the West is clearly
now in an economic cold war with Russia and
its allies, with sanctions and shortages biting for
years to come.
Secure, index-linked, UK property offers
massive yield margins over index-linked
gilts, and a comfortable yield cushion still
over conventional bonds. It is still seriously
undervalued.
Forecast Average Annual Rental
Income Growth* % over Five Years
2.0%
CPI 0%
CPI 2%
CPI 4%
3.3%
4.0%
CPI 6%
CPI 8%
CPI 10%
4.4%
4.8%
5.2
%
*Annual rental growth assuming CPI increases 0% - 10% P.A.
Value and Indexed Property Income Trust PLC Annual Report and Financial Statements 2022
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Property Manager’s Report
Portfolio Summary
VIP specialises in UK commercial properties with long, strong, index-related income streams to
deliver above average long term real returns.
PORTFOLIO SUMMARY
31 March
2022
30 September
2021
31 March
2021
Portfolio Value:
£155,478,000*
£110,050,000
£80,550,000
Contracted Income:
£8,339,944
£6,336,645
£5,151,786
Contracted income as a % of Portfolio Value:
5.4%
5.8%
6.4%
Total Number of Properties:
43
39
31
Total Number of Tenants (the Portfolio is 100% let):
43
40
32
Contracted Indexed Rent:
95.8%
92.4%
90.6%
Weighted Average Unexpired Lease Term
(if all tenants exercise break options):
12.8 years
13.8 years
15.1 years
Annual Total Return March to March:
20.2%
(MSCI:19.6%)
-
2.3%
(MSCI: 0.9%)
*Savills Valuation – NB: This figure does not include £6m committed to complete the Alnwick Hotel Development. The fair valuation given by
Savills excludes prepaid or accrued operating lease income arising from the spreading of lease incentives or minimum lease payments and for
adjustments to recognise finance lease liabilities for one leasehold property, both in accordance with IFRS 16. For further information see Note 9
to the Financial Statements on pages 82 to 84.
Performance and Independent Revaluation
Savills’ independent valuation at 31 March 2022 on the direct commercial property portfolio
increased to £155,478,000 with a running yield of 5.4% (from 5.7% as at end-December 2021).
This is up from the half-yearly valuation at 30 September 2021 of £110,050,000, the increase
driven by both net acquisitions and valuation uplift.
VIP’s property portfolio produced a total return on all 43 properties of 20.2% over the past year
to March, against 19.6% for the MSCI UK Quarterly Property Index, the main benchmark for
commercial property performance. Properties held throughout had a total return of 23.5%, the
difference reflecting the acquisition costs on 14 properties bought during the year.
VIP’s property portfolio total returns on All Assets of 20.2% over the past year and 8.8% over
the past six months were driven by a valuation uplift of 8.5% on the 38 properties held over the
six months (leisure 16.1%, industrials 12.4%, supermarkets 8.1%, other 7.1%, hotels 5.4%,
pubs 4.1% and roadside 2.0%).
Valuation Uplift on Held Properties
March 2021 to March 2022
8.6%
Pubs
Supermarkets
Other
16.9%
17.4%
All Held
Properties
Industrials
Leisure
18.6%
25.1%
25.5%
All Held Properties
23.5% Total Return
The longer term returns on the property portfolio have been between 10% and 12% a year over 3,
5, 10 and 20 years and 35 years and are above the MSCI averages over all these periods. The real
Value and Indexed Property Income Trust PLC Annual Report and Financial Statements 2022
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Property Manager’s Report
returns above the Retail Price Index from VIP’s property portfolio were 10% last year and between
5% and 9% a year over all cumulative periods from 3 to 35 years since the inception of OLIM
Property’s management.
Contracted rental income rose by 6% on held properties. The average lot size is £3,600,000,
ranging from £1,150,000 to £13,000,000.
Properties
All 43 properties are let and 100% occupied on full repairing and insuring leases (tenants are responsible
for repair, maintenance and outgoings), plus there is an agreement for lease in place at Alnwick where a
Premier Inn hotel (80 bedrooms plus hotel) is currently under construction with completion due summer
2022. All 43 tenancies have upwards only rent increases and a weighted average unexpired length of
12.8 years (19.8 years if the break options are not exercised). All the properties valued at 31 March
2022 are freehold with the exception of two which are long leasehold with 109 and 83 years to run
(Doncaster and Fareham).
Purchases to 31 March 2022
Fourteen new properties were purchased over the year for £63,430,000 in total including costs,
at an average net initial yield of 5.3% (plus there will be an additional £6,000,000 to be paid on
practical completion during late summer of 2022 of the Premier Inn Hotel at Alnwick, which is
currently under construction); their average weighted unexpired lease length at 31 March 2022 is
10.4 years (if the break options are exercised). The newly purchased freehold properties consist of
two hotels (one under construction), six industrials, three petrol filling stations with convenience
stores and three supermarkets. Seven of the properties have RPI-linked rent increases, four have
CPI-linked rent increases and three with fixed increases.
Purchases and sales since march 2019
Year March to March
Purchases
No. of properties
Sales
No. of properties
2019/2020
£10,800,000
5
£9,200,000
5
2020/2021
£17,600,000
7
£4,750,000
2
2021/2022
£63,430,000
14
£3,260,000
2
Total
£91,830,000
26
£17,210,000
9
Purchase Pipeline
Further properties with long, strong, index-linked income are under active investigation.
Sales to 31 March 2022
The sale of two short-let overrented properties completed during the year: a petrol filling station in
Southampton and a pub in Thornton Cleveleys for a combined £3.3m, 4.9% above valuation and
at a net sale yield of 8.8%.
Sales since 31 March 2022
Since the year end, two properties have completed: a Buzz Bingo in Bradford and a Co-op store in
Barton upon Humber for a combined £3.3m in total (39.5% above valuation) at a net sale yield
of 6.2%.
Value and Indexed Property Income Trust PLC Annual Report and Financial Statements 2022
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Property Manager’s Report
Rent Reviews
The portfolio now has 96% of contracted income (42 out of 43 tenancies) with index-linked or
fixed rent increases. Only one property, the industrial at Fareham, has three yearly open market
upwards only reviews (the December 2021 sweep up clause has since been agreed with a 4%
uplift and is to be documented imminently).
Nineteen rent reviews completed over the course of the year (twelve with annual rent increases
and seven with five yearly review patterns), sixteen RPI-linked rent increases and three with
fixed rental increases: 7 pubs, 5 supermarkets, 2 petrol filling stations, 1 bingo hall, 1 bowling
alley, 1 library, a driving test centre and the caravan park giving a combined 6.9% uplift on their
passing rents.
PROPERTY PORTFOLIO INDEXED RENT
REVIEWS - 96% OF CONTRACTED RENT
Retail Price Index - 68% (31 Tenancies)
Consumer Price Index - 8% (5 Tenancies)
Fixed Increases - 20% (6 Tenancies)
Open Market - 4% (1 Tenancy)
68%
20%
8%
4%
Rent Collection
100% of all contracted rents due were collected in the year to 31 March 2022 and landlords’
rights to enforce rent collection are now back to normal.
The portfolio remains well-spread with a focus on index-linked rent reviews and the sectors of
the UK commercial property market which benefit from structural change-industrials (33%),
supermarkets (27%) and alternatives (40% mainly leisure, pubs and hotels). We do not invest in
offices. VIP’S safe, long let indexed portfolio should prove resilient. It has outperformed through
previous turbulent times as shown by the Property Record Table on page 22, delivering long term
above average real returns (benchmark MSCI UK Quarterly Property Index).
Louise Cleary & Matthew Oakeshott
OLIM Property Limited
10 June 2022
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Property Manager’s Report
Property Portfolio at 31 March 2022
Industrials
Supermarkets
Roadside
•
13 Properties
•
30% of Contracted Rent
•
WAULT* 11.3 Years
•
Indexed 86%
•
10 Properties
•
30% of Contracted Rent
•
WAULT* 8.9 Years
•
Indexed 100%
•
3 Properties
•
7% of Contracted Rent
•
WAULT* 10.4 Years
•
Indexed 100%
Leisure – Pubs
Alternatives
(Caravan Park &
Library)
Leisure – Hotels
•
10 Properties
•
15% of Contracted Rent
•
WAULT* 22.7 Years
•
Indexed 100%
•
2 Properties (3 Tenants)
•
8% of Contracted Rent
•
WAULT* 11.1 Years
•
Indexed 100%
•
2 Properties (Alnwick
under Construction)
•
4% of Contracted Rent
•
WAULT* 13.5 years
•
Indexed 100%
Leisure – Bowling
& Bingo
TOTAL RETURN
FOR THE YEAR
20.2%
•
3 Properties
•
6% of Contracted Rent
•
WAULT* 18.9 Years
•
Indexed 100%
*Weighted Average Unexpired Lease length if all break options exercised
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Property Manager’s Report
Top ten Holdings by VALUE
Property
Tenant
Sector
% of
Portfolio
by Capital
Value
Newport Isle of Wight
Marks and Spencer
Supermarket
8%
Dover
Park Resorts
Caravan Park
8%
Garstang
Sainsbury’s
Supermarket
6%
Catterick
Premier Inn
Hotel
5%
Aylesford
Kier
Industrial
5%
Milton Keynes
Winterbotham Darby
Industrial
5%
Gloucester
H.M. Government
Industrial
4%
Fareham
Local Authority
Industrial
4%
Stoke on Trent
MKM Building Supplies
Industrial
3%
Chester
MKM Building Supplies
Industrial
3%
Total
51%
DOVER
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Property Manager’s Report
Sector Weighting %
Capital Value
by Region %
Capital Value
Industrials - 33%
Supermarkets - 27%
Pubs - 13%
Other (Caravan Park &
Library) - 9%
Roadside - 7%
Hotels - 6%
Leisure (Bowling & Bingo) - 5%
33%
27%
13%
6%
5%
7%
9%
South East - 33% (9 Properties)
North - 31% (15 Properties)
South West - 12% (5 Properties)
Scotland - 8% (5 Properties)
East Anglia - 6% (3 Properties)
Midlands - 6% (3 Properties)
London - 3% (2 Properties)
Wales - 1% (1 Property)
33%
31%
8%
12%
6%
6%
3%
1%
Contracted Income by
Tenant %
Contracted Income by
lease expiry % (if all
break options exercised)
Marks & Spencer
Co-operative Group
10%
14%
Stonegate
9%
8%
Sainsbury’s
H.M. Government
7%
Park Resorts
6%
Ten Entertainment Group
5%
Kier Group
5%
Local Authorities
5%
MKM Building Supplies
5%
Premier Inn
2%
2%
2%
2%
4%
4%
4%
Winterbotham Darby
2%
Shepherd Neame
1%
Buzz Group
Screwfix
Tesco
Halfords
Arla Foods
Brake Brothers
A.F. Blakemore
Greene King
BP Oil Uk
1%
1%
1%
20 - 25 years - 14%
25 - 30 years - 2%
15 - 20 years - 11%
10 - 15 years - 31%
5 - 10 years - 40%
Less than 5 years - 2%
WAULT 12.8 years if all
break options exercised
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Property Manager’s Report
VIP PURCHASES: 12 MONTHS TO 31 MARCH 2022
Dundee – Faraday Street, Dryburgh Industrial
Estate
Sector
Industrial
Tenant
Screwfix
Lease expiry
November 2032
Indexation
Five yearly fixed: 2.5% pa
Purchased
April 2021
Blandford Forum – Langton Road
Sector
Supermarket
Tenant
Marks & Spencer
Lease expiry
July 2030
Indexation
Five yearly RPI-linked: 1% to 3% pa
Purchased
April 2021
Thurrock – 680 London Road
Sector
Industrial
Tenant
Halfords Autocentres
Lease expiry
May 2036
Indexation
Five yearly CPIH-linked: 1% to 3% pa
Purchased
May 2021
Staines – Laleham Road
Sector
Industrial
Tenant
Halfords Autocentres
Lease expiry
May 2036
Indexation
Five yearly CPIH-linked: 1% to 3% pa
Purchased
May 2021
Catterick – Princes Gate Shopping Park, Richmond
Road
Sector
Hotel
Tenant
Premier Inn Hotels
Lease expiry
September 2040
Indexation
Five yearly CPI-linked: 0% to 5% pa
Purchased
May 2021
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Property Manager’s Report
Louth – Spar Fairfield Services, Bolingbroke Road
Sector
Roadside
Tenant
A.F. Blakemore
Lease expiry
June 2032
Indexation
Five yearly RPI-linked: 1.5% to 3.5% pa
Purchased
June 2021
Bebington – 152 Kings Road, Wirral
Sector
Roadside
Tenant
Sainsbury's Supermarkets
Lease expiry
October 2036
Indexation
Five yearly RPI-linked: 2% to 4% pa
Purchased
July 2021
Alnwick – Willowburn Trading Estate
Sector
Hotel
Tenant
Premier Inn Hotels
Lease expiry
25 years from completion
Indexation
Five yearly CPI-linked: 0% to 4% pa
Purchased
July 2021
Melton Mowbray – Egerton Park Service Station
Sector
Roadside
Tenant
BP Oil UK
Lease expiry
September 2033
Indexation
Five yearly Fixed: 2.5% pa
Purchased
November 2021
Chester – Winsford Way, Sealand Industrial Estate
Sector
Industrial
Tenant
MKM Building Supplies
Lease expiry
January 2038
Indexation
Five yearly RPI-linked: 1% to 3% pa
Purchased
December 2021
Under Construction –
Completion Summer 2022
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Property Manager’s Report
Stoke on Trent – Stanley Matthews Way
Sector
Industrial
Tenant
MKM Building Supplies
Lease expiry
January 2039
Indexation
Five yearly RPI-linked: 1% to 3% pa
Purchased
December 2021
Westbury – 50 Cory Way, West Wilts Trading Estate
Sector
Industrial
Tenant
Arla Foods
Lease expiry
November 2035
Indexation
Five yearly RPI-linked: 2% to 4% pa
Purchased
December 2021
Newport, Isle of Wight – Litten Park
Sector
Supermarket
Tenant
Marks & Spencer
Lease expiry
March 2027
Indexation
Annual fixed: 1.95%
Purchased
December 2021
Garstang – Park Hill Road
Sector
Supermarket
Tenant
Sainsbury's Supermarkets
Lease expiry
June 2035
Indexation
Five yearly RPI-linked: 1.5% to
4% pa
Purchased
March 2022
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Property Manager’s Report
VIP Property Portfolio at 31 March 2022
Address
Tenants
Industrials
Aberdeen – Gateway Business Park, Moss Road
H.M. Government*
Aylesford – Broadmead House, Bellingham Way, New Hythe
Kier Group*
Chester – Winsford Way, Sealand Industrial Estate
MKM Building Supplies*
Dundee – Faraday Street, Dryburgh Industrial Estate
Screwfix***
Fareham – Mitchell Close, Segensworth East
Hampshire County Council
Gloucester – Falcon Close, Green Farm Business Park, Quedgeley
H.M. Government*
Milton Keynes – Wimblington Drive
Winterbotham Darby*
Staines – Thameside Service Station, Laleham Road
Halfords**
Stoke-on-Trent – Stanley Matthews Way
MKM Building Supplies*
Thetford – Units 1-4, Baird Way, Fison Way Industrial Estate
Brake Brothers*
Thirsk – Dalton Airfield, Dalton
H.M. Government*
Thurrock – 680 London Road
Halfords**
Westbury – 50 Cory Way, West Wilts Trading Estate
Arla Foods*
Supermarkets
Aberfoyle – Main Street
Co-operative Group Food**
Barton upon Humber – 12 Market Lane (
Sale completed May 2022
)
Co-operative Group Food*
Blandford Forum – Langton Road
Marks and Spencer*
Cleethorpes – 52 St Peters Avenue
Co-operative Group
Food*
Garstang – Park Hill Road
Sainsbury’s*
Harrogate – Skipton Road
Co-operative Food Group*
Invergordon – 110 High Street
Co-operative Group Food**
Kirriemuir – 33 The Roods
Co-operative Group Food*
Newport, Isle of Wight – Litten Park
Marks and Spencer***
York – 103-104 Hull Road
Co-operative Group Food***
Pubs
Bedford – The Rose, 45 High Street
Stonegate*
Bournemouth – Slug and Lettuce, 2 Dean Park Crescent
Stonegate*
Canterbury – The Bishop's Finger, 13 St. Dunstan Street
Shepherd Neame*
Cheltenham – The Spectre, 73-75 High Street
Stonegate*
Coventry – Castle Grounds, 7 Little Park Street
Stonegate*
London – The Bishop's Finger, West Smithfield
Shepherd Neame*
London – The Prince of Wales, 48 Cleaver Square
Shepherd Neame*
Newcastle-upon-Tyne – The Percy Arms, Percy Street
Stonegate*
Oxted – The Old Bell, 18 High Street
Greene King***
Selby – The George Inn, Market Place
Stonegate*
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Property Manager’s Report
Address
Tenants
Other
Dover – St. Margaret's Holiday Park, Reach Road
Park Resorts*
Risca – 77 Tredegar Street
Caerphilly Borough Council***
Tesco*
Roadside
Bebington – 152 Kings Road, Wirral
Sainsbury's*
Louth – Spar Fairfield Services, Bollingbroke Road, Fairfield
Industrial Estate
A.F. Blakemore and Son*
Melton Mowbray – Egerton Park Service Station, Leicester Road
BP Oil***
Hotels
Alnwick – Willowburn Trading Estate
(Development)
To be Premier Inn** (Practical
Completion summer 2022)
Catterick – Princes Gate Shopping Park, Richmond Road
Premier Inn**
Leisure
Bradford – Tong Street (
Sale completed May 2022
)
Buzz Group*
Doncaster – The Leisure Park, Bawtry Road
Ten Entertainment Group*
Stafford – TenPin, Greyfriars Place
Ten Entertainment Group*
*
RPI-linked rent increases
**
CPI-linked rent increases
***
Fixed rent increases
KIRRIEMUIR