Managing estates from an investment perspective

Matt Peake shares his commentary in this preview article, part of the Charity Finance Yearbook 2019: Challenges and opportunities in managing estates, which will be published early next year.

Charities rely on income from their investments to fund grant giving and for other beneficial uses. One of the challenges in managing a portfolio of investments is to ensure a robust and sustainable income stream, particularly in the current economic climate of low yields. As such, property plays an important role in fulfilling these objectives. Cluttons Investment Management advises a number of charities on the strategic direction and long-term planning of their property investment portfolios. We recognise the importance of maximising income whilst minimising the risks associated with achieving this aim.

Protecting income

Limiting rental voids is key. We take a pro-active, ‘front foot’ approach to occupier liaison and to developing close relationships with the tenants across our clients’ portfolios. This is crucial when approaching critical lease dates such as rent reviews, break options and expiries. Early engagement with the tenants in the portfolio increases the chances of securing future income and reduces the risk of losing it. 

Each lease event is also an opportunity to add value by growing income through rental increases. At rent review, typically every five years, this might be from a fixed rental increase written into the lease, a rent linked to the growth of an index (such as the RPI or CPI) or by successfully arguing that the rent is below the prevailing market tone. 

Alongside this, maintaining a rigorous approach to individual stock selection within the portfolio will ensure that lost income is more easily replaced. Each asset in the portfolio should demonstrate the core fundamentals of location, building quality and income security. In the event of a vacancy, the period of rental void is significantly reduced with a high quality, well located building where there is plenty of occupier demand. 

Diversifying the income across tenant type, property sector and geographical region ensures that risk to a portfolio’s income profile is further minimised. Maintaining a spread of lease expiry and tenant break option dates across the portfolio avoids a ‘bunching’ of lease events in any one year, and therefore removes the chances of a sudden reduction in income. 

Finally, we regularly review the quality and security of income in the portfolio to ensure that the tenants remain financially robust and capable of meeting the rent demands. Persistent late paying or a request to pay more frequently is a sign of potential tenant default.

Achieving superior total returns

Whilst safe-guarding portfolio income is paramount, so too is protecting and enhancing capital through opportunistic asset management. This can the take the form of physical improvements to the building or legal improvements to the lease or tenure, for example.

Prudent stock selection, active asset management and maintaining a defensive, high quality income stream form an important part of a Cluttons Investment Management strategy to maximise risk adjusted total returns while minimising portfolio volatility.


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Matthew Peake


Managing estates from an investment perspective

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