Morden College have significant income requirements to maintain their charitable operations, as such, we carry out an income analysis to construct an income curve over five to ten years based on positive, median and negative forecasts around rental growth, tenant breaks etc. This is a very useful tool in identifying peaks and troughs in future income stream and identifying particular points in time where overall income is at risk and where action should be taken now to mitigate such exposure.
Other useful analysis relates to income exposure to retail price index (RPI) or fixed uplift leases as opposed to pure market rental growth. Again, for endowment funds, such income is highly beneficial in seeking to match income growth Using Morden College as an example again, we identified this as a major consideration given that the portfolio at that time had a significant number of over-rented properties and no exposure to fixed or index linked income, with a consequential declining income curve. Through our disposal and acquisition strategy we have now constructed a portfolio where 41% of the income is matched to RPI or fixed rental increases, with 34% of all income secured on leases in excess of 20-year terms.