Baillie Gifford’s Scottish American Investment Company (SAINTS) will be expanding its property portfolio in a move that goes against the market consensus of recent years, which has caused many investors to sell out of the unloved asset class.
In its annual report, Alpha managers, James Dow and Toby Ross said the property investments returned 25% for SAINTS last year.
This contributed to its 21.5% increase in net asset value (NAV) over the year, up 7 percentage points on its 14.5% gain the previous year.
Due to the sector’s success, SAINTS borrowed £15m over the course of the year to invest predominately into more property holdings.
Total return of trust vs benchmark and sector in 2021
Source: FE Analytics
This goes against the grain, as the property sector has been a difficult market for investors to navigate since the start of the pandemic.
With remote working lowering demand for office space and less customers risking a trip to physical shops, the need for commercial property was reduced.
The pandemic caused widespread issues across the property sector and investment was no different. Many open-ended property funds, were forced to suspend trading in an effort to sell properties and meet vast investor withdrawals.
One such fund was the M&G Property portfolio, which only reopened in April last year after removing 38 of its holdings.
Yet, while many funds made losses from retail and office properties, SAINTS said that its holdings in “less well-trodden parts of the UK property market” protected it from this trend.
For example, the trust sold a data centre for £23.9m last year at a premium of 45.9% since its valuation in December 2020.
While the need for customer-facing properties dropped during the pandemic, demand for places such as data storage facilities has continued to rise, allowing the trust to make gains in an otherwise tricky sector.
The sale of the data centre has left the property portfolio around £10m smaller than at the start of 2021, now standing at £74.9m. It accounts for 7.3% of the trust’s total assets.
Some proceeds from the deal have been re-invested into a Premier Inn now that a successful vaccination rollout has created a more favourable outlook for the tourism and hospitality sector.
They added that it has been particularly useful in recent months as inflation has run rampant and central banks have threatened to raise interest rates.
Dow and Ross, said: “We and the board continue to believe that the property portfolio remains a good fit for SAINTS' aim of delivering a resilient income stream that out-paces inflation. It has proven to be impressively resilient through periods of stress.”
Elsewhere in the report, the managers announced a total dividend for the year of 12.675p, 5.6% higher than in 2020 – ahead of inflation at 5.4%.
Although property is a growing part of the portfolio, equities remain the majority, making up 94.1%. Here the trust made an average return of 21%.
SAINTS bought into five new holdings in 2021 to ensure future returns, most notably Starbucks, as the managers anticipate substantial dividend growth over the next five to ten years.
They also predicted that the share price of Spanish motor insurer Linea Directa, which the trust invested in last year, will increase as the company expands into other areas of insurance, much like Admiral did in the UK.