Slide 1: Investing through the cycles
First Property Group plc Commercial Investment Real Estate Investing through the cycles
Slide 2: Table of Contents
Table of Contents Liquidity: Property vs. Equities vs. Bonds 3 Costs of Buying Commercial Property 4 The Need for Yield 5 Income Return 6 Prime London vs. Prime Warsaw Yields 7 Obsolescence 8 Green Issues/ Sustainability 9 Inflation Hedge Debunked 10 Conclusions 11 First Property UK Track record 12
Slide 3: Liquidity: Investment Property vs. Stock Market vs. Gilt market
Investing Through the Cycles Liquidity: Investment Property vs. Stock Market vs. Gilt market 1200% 1000% UK Gilt Market (7+ years) Value Traded vs Avg Annual Amount in Issue 800% 2010: £2,900 billion [517% of £564bn market value] UK Stock Market Value 600% Traded vs Market Cap 400% 2010: £2,500 bill
Slide 4: Cost of Buying Property
Investing Through the Cycles Cost of Buying Property The cost of trading property is relatively high: 4% stamp duty 1% agent’s fees 0.8% legal and valuation fees 5.8% The cost of trading publicly quoted stocks is relatively low: 0.5% stamp duty 0.25% broker’s fees 0.75% Just to break
Slide 5: The Need for Yield
Investing Through the Cycles The Need for Yield 10.00% 9.00% Yield gap gone for secondary properties 8.00% Average 7.00% Secondary Yields 6.00% Average 5.00% Prime Yield Yields 4.00% Bank Base 3.00% Rate Yield gap reversed for prime properties 2.00% 1.00% 0.00% Mar 1999 Mar 2000 Mar 2001 Mar 2002 Ma
Slide 6: Capital Value Volatility
Investing Through the Cycles Capital Value Volatility 8.0% 7.5% 7.0% 30% reduction 11% increase in value in value 6.5% Poland (Warsaw) Prime Yields 6.0% Yield 20% increase 5.5% in value UK Prime Yields 5.0% 47% reduction in value 4.5% 4.0% 2005 2006 2007 2008 2009 2010 2011 Source: CBRE UK Prime Yie
Slide 7: Income Return as % of Total Return
Investing Through the Cycles Income Return as % of Total Return 25 20 15 10 5 Capital Growth 0 % Income Return -5 -10 Total Return -15 -20 -25 -30 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20 10 5 Years 3 Years Years Years Source: Investment Property Databank (IPD) All Property UK Universe O
Slide 8: Obsolescence
Investing Through the Cycles Obsolescence Simple buildings are best: Retail warehousing; Functional offices; Warehouses. Need to keep costs/ rents low, especially in this environment. Simple/ cheap construction allows this. Old buildings in prime locations can be better than Class A buil
Slide 9: Green Issues/ Sustainability
Investing Through the Cycles Green Issues/ Sustainability A lot of attention to this subject recently. It is in fact a small part of a property’s costs. Key is overall cost to tenant: rent and services charges, not service charges alone. Service charges are a small percentage of overall tena
Slide 10: The Inflation Myth
Investing Through the Cycles The Inflation Myth Commercial property is not an obvious hedge against inflation. Supply side led inflation is BAD for property. Rampant demand led inflation is ultimately BAD for property. Mild demand led inflation is good for property. 10
Slide 11: Conclusions
Investing Through the Cycles Conclusions Property is illiquid and expensive to transact. The only sure way to overcome this illiquidity and expense is to target high yields. There must always be a gap between the cost of funds and the yield earned on property. Prime property is low yielding
Slide 12: First Property UK Track Record
Investing Through the Cycles First Property UK Track Record 8.5% 8.0% 2 2 2 4 3 3 Sale (with 7.5% 2 Average UK Yields (CBRE) the number 2 sold) 7.0% 2 2 3 Purchase 6.5% 3 (with the 2 number 6.0% 2 2 purchased) 3 5.5% 2 2 5.0% 5 3 4.5% Mar 2000 Mar 2001 Mar 2002 Mar 2003 Mar 2004 Mar 2005 Mar 2006 Ma