Louise Cleary, Manager of Value and Indexed Property Income Trust (VIP), said: “As at 30 September 2021 the trust had 92.4% of contracted rental income on index related leases. The last quarter of 2021 has been busy with new property acquisitions which has increased the indexation further. The trust’s shareholders are therefore well placed to benefit from the current surge in inflation, which will feed through into increased rents, earnings and, in due course, valuations for the trust. Additionally, the trust has largely fixed rate borrowings, which will provide attractive gearing to these inflationary benefits. Rent collection levels have been high throughout the pandemic, emphasising the quality and resilience of the portfolio’s tenants.”
Paulo Almeida, Manager of Tufton Oceanic Assets, said: “Shipping tends to perform very well in periods of high inflation and we have been explaining this to the investor community for the past 12 to 18 months. Ships in operation tend to increase in value more than new builds in inflationary periods because steel, machinery, energy and labour are the key cost drivers. In the three five-year periods of high inflation in the past 50 years, ship values increased 80 to 200%.”
Nick Preston, Manager of Tritax EuroBox, said: “We are successfully implementing our strategy, acquiring prime assets in excellent locations, extracting value from the existing portfolio and continuing to advance our ESG agenda. We have a stable diversified income profile with compounding annual indexation in 78% of our leases. Leasing and asset management captures rental growth. Our acquisitions are through trusted development partners, with further value being delivered through speculative forward funding and investing in building extensions/development, as well as profitable sales. These help us to deliver a strong financial performance and meaningful dividend growth.
“Our market remains highly attractive, with strong occupier demand driven in particular by the accelerated growth of e-commerce, combined with limited supply of large, high-quality and sustainable space to rent in prime markets. We see attractive opportunities to add assets to the portfolio that have built-in value creation opportunities and remain confident of delivering further growth.”
The outlook for inflation
Louise Cleary, Manager of Value and Indexed Property Income Trust (VIP), said: “We are concerned that the current bout of inflation may endure, caused by the tardy response of the Bank of England to the surge in prices. Higher interest rates are clearly a risk for property valuations but there remains a significant gap between gilt yields and property yields that should protect property investors as interest rates rise.”
Phil Kent, Manager of GCP Infrastructure Investments, said: “My expectation is that higher inflation will not persist over the medium-term. The combination of higher costs, particularly energy, contributing to the significant inflation we are seeing currently, and prospect of higher interest rates, are likely to ultimately serve as a brake on demand growth, ultimately reducing costs.”
Paulo Almeida, Manager of Tufton Oceanic Assets, said: “We don’t try to forecast inflation but we believe most of our investors are concerned about potentially sustained high inflation, and shipping tends to perform well in this environment.”
John White, Co-Manager of LXI REIT, said: “Inflation growth is forecast to be materially higher than the forecast for open market rental growth and there is further government tolerance for increased inflation to erode the value of the national debt. Forecasts for inflation from the Office for National Statistics (ONS) are 3.2% in 2021, 4.1% in 2022 and 3.5% in 2023.”
