Fund information

May 2012

Performance in May was almost identical to April with the FTSE EPRA/NAREIT Europe Index Total Return (in GBP) falling -2.45%. As with April the index fell in the first half of the month, only to recover slightly in the second half. Real estate share prices have now returned to their end of January levels but are still up +4% year to date. Whilst the multi-layered and interwoven issues affecting the entire Eurozone continue to dominate market sentiment, property shares have continued to outperform the broader equity market with Stoxx Europe 600 down -6.8%in the month and down -2% year to date. We believe that the quality of income and the high dividend yield offered by the sector continues to attract investors. In all this turmoil the opportunity to buy exposure to high quality physical assets in core markets is driving demand. The fund continues to increase its exposure to key cities and regions including London, Paris, Germany and Scandanavia. German property shares were the only national group to have a positive return in May and the residential stocks were particularly strong with GSW +12.2%, Deutsche Wohnen +12.6% and Gagfah +7.3%.

Whilst investors continue to worry about property companies' ability to refinance loans it is encouraging to report that a number of businesses continue to diversify their sources of debt. Great Portland announced that it raised $200m in a US private placement and Unite raised £121m in a 10yr deal with L&G borrowing at 5% at 60% loan to value. This is another example of an insurance group participating in commercial property lending - we are confident that they will continue to compete with traditional bank finance in certain subsectors of the commercial property market. Primary Health Properties raised 10% of their equity in an overnight placing to institutions at 305p raising £19m. The fund participated and the price was at a 6% discount to the previous closing price.

Whilst German property companies performed, the peripheral eurozone continued to suffer with Italian stocks falling -19.3% and Greek (just one stock) -38.2%. Year to date, Spanish property shares are down -49.7% whilst Norway is +12.3% and Sweden+1.2% (in local currency). There continues to be huge regional performance disparency which is not unexpected and the portfolio is positioned accordingly.

Preliminary annual results were published on 23rd May including the announcement of the final dividend of 4.2p, a 10% increase on the previous year. Combined with the interim of 2.4p, the trailing dividend yield at the end of May was 4.5%.


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