Ainslie McLennan, Co-Manager of the Janus Henderson UK Property PAIF, explains how the investment team are proactively managing the property portfolio despite the fund being suspended for dealing.

    Key takeaways

• As a result of COVID-19 the independent valuer to the Janus Henderson UK Property PAIF, CBRE, applied a material market uncertainty clause to the fund valuation on 17 March 2020 and, in line with new rules from the Financial Conduct Authority, the decision was taken to temporarily suspend dealing in the fund and its associated feeder fund to protect the interests of all investors.
• Tenant strength remains a focus for the fund. With the pressure on many businesses to shut during the time of the COVID-19 lockdown it is worth noting that around 25% of the fund’s income is from food stores, the logistics industry, businesses deemed as essential services, and the government.
• The investment team have been working closely with tenants, offering all the opportunity to pay rent monthly, rather than quarterly, to help their cash flow. Vacant space and potential use of car parks in shut assets have been offered to the NHS and the government for use where appropriate.
• Communicating with tenants has also allowed for in-depth conversations on how the investment team can work with occupiers on sustainability matters and energy efficiencies, and potentially taking longer leases as a trade-off for any rental breaks.

Transcript

Hi this is Ainslie McLennan, and this is an update on the Janus Henderson UK property PAIF on behalf of myself, Marcus [Langlands Pearse, Co-Fund Manager] and the entire PAIF team. Clearly, like everybody else we’re working from home. We have daily calls and it is very much business as usual in terms of what we’re doing day to day. In fact, it’s intense because we are trying to liaise with so many tenants in this quite extraordinary time but we’re getting that job done. It’s going pretty well so I’m going to give you a quick update on where we’re at.

The first thing to say is of course the fund is suspended [for dealing applied on 17 March 2020] as a result of the market uncertainty clause that was applied by CBRE, [the fund’s independent valuer], to our valuation and it was applied across all subsectors of the property market and it was applied by all fund valuation houses to all the open-ended [PAIF] funds and many other fund structures in fact suspending too.

Despite this, we’ve had a very proactive time in terms of what we’ve been doing. We had suspended [for dealing] with considerable amounts of cash [17.2% as at 31 March 2020¹] and we’ve continued with some asset management and have even managed a sale. It is, I think, just worth noting that over this time of lockdown probably the most restrictive thing we’ve got going on, in terms of where we are looking to do a sale, is the fact that prospective purchasers physically can’t get around assets to do surveys and that’s pretty much impossible at the moment. And that in itself is of course going to slow the market. We have to accept, I think, that where there may be small bits of progress legally on some potential deals, it’s very hard to see through an entire transaction when basic surveys like building surveys and measurement surveys can’t be undertaken. We have a pipeline of potential sales and most of those still stand.

We have a strong tenant base as many of you are aware and that’s been a focus for us over our quality theme that we’ve had over the last eleven years. So that’s been a huge focus for us and that tenant base should stand well over the test of time. But it is important to acknowledge that this is an extra, extraordinary time for businesses and despite having around 25%² of income to the portfolio in assets that are either logistics or essential services, supermarkets [and the government], we’ve got a fair spread of that kind of assets in the fund. There are many, many businesses that have had to shut their doors and it’s important for us as landlords to work with those tenants to make sure that they get through this because we need them there on the other side [of the COVID-19 crisis]. It’s hugely important that we have at the other end of this journey a tenant basis in situ and able to undertake their business styles and that’s the lifeline of the of the fund is having that tenant base and collecting that rent.

So, we have been working very closely with tenants. We did offer all tenants to pay monthly rent if that was something that would help them from a cash flow perspective and in fact around 25% of our tenants have taken us up on that. Others are still looking to pay quarterly. And I think that as we go through the next quarter that will be an interesting signal for us as to whether that’s viable for them still or whether they would rather pay on a more frequent but smaller incremental basis.

We are also working with a particular tier of the tenant base on rent deferments where that’s appropriate where we can add rent back over a certain number of quarters and once we get through this particular episode. I think you will have to be flexible with that to make sure that we can maintain as many of them as possible and we may find that actually opens doors for us particularly on our ambition to take the fund to be operationally net zero carbon by 2030. It’s actually allowing us very in-depth conversations with a number of businesses that have up to now not really been prepared to talk to us about these types of themes. So, in many ways it’s actually opening the door on what we can be doing with them to work on energy efficiencies and then potentially taking longer leases as a result of this as a trade-off for taking some rental breaks at the moment. So that’s all work in progress and that’s a huge job for the team.

In terms of offering up either void [vacant] assets; we don’t have a lot of voids in the fund but we do have a lot of buildings that are shut. So, where we have got either void or we’ve got buildings where they maybe have free car parks currently as a result of occupiers not using them that are near hospitals. We have offered and gone right through our whole portfolio and offering space to the NHS and CBRE are currently acting for the NHS and we are very keen to play a role in the future to see if we can deliver anything that would be helpful. And by the same token and we’ve got some buildings that are being considered either by government – whether it’s the home office or local government – for foodbank space, for even temporary hospitals. So, all of that is in play as well. I hope that gives you a flavour of what’s going on for us. And I’ll do another update shortly.

¹Source: Janus Henderson as at 31 March 2020.

²Nuveen Real Estate as at 31 March 2020

 

Glossary

Asset management – can include refurbishment work to improve valuations and attract a better quality of tenant, changing the planning use of assets to increase rental revenue, or renegotiating existing leases to extend tenancies.