
Ordinary Shares

Price (p)	149.00
Published NAV	170.30
Yield	3.89
Discount	-13.91

Prices correct as of close 2010-09-06. Last Published NAV is as at the previous business day. Source: Trustnet

Sigma Shares

Price (p)	66.70
Published NAV	88.10
Yield	3.00
Discount	-24.69

Prices correct as of close 2010-09-06. Last Published NAV is as at the previous business day. Source: Trustnet

For Ordinary Shares

October 2007
Through October and into November, European property shares have been testing new lows almost every day. Dealers are trying to find a pricing level at which generalist investors will smell so much value that they can no longer resist temptation – and unfortunately it’s the catarrh season. The background news flow from the companies remains generally solid but the market is in that mood where all news is bad news. The problem is a pricing issue, not (yet) a fundamental issue. With little over-development and low risk of sky-high interest rates, the fundamental that could hurt most is probably a sharp and sustained rise in UK unemployment. That will hurt tenant demand and rental values, bash house prices and retail sales and adversely affect the economy and the stock market. Back to the present, the cause of the current slide is the news that banks across Europe are withdrawing their willingness to lend on commercial deals on all but ultra-safe terms. This hurts the Continent as much as the UK. Price falls in commercial property are now a reality and the question is how fast and how far. UK property stocks generally have low and stable leverage so their average 37% discount to NAV may imply that property values have another 20%+ to fall. Such a fall will take average initial yields in the UK from 4.7% to 5.6% and equivalent yields from 5.6% to 6.7%. This looks cheap in the context of the last three years but maybe bargain hunters will want more. It is hard to draw lines in the sand under these conditions. For us and for the shareholders these are frustrating times. During October the benchmark fell 2.51%, with the UK down 3.75%. The Trust’s NAV declined 2.34% and the share price dropped by 4.43% as the discount to NAV widened. The major disposal was of the Slough office building, ThamesCentral, which was sold for £18.5m cash (equal to September valuation and ahead of March valuation and an exit yield of 5.5%). The proceeds on deposit raise our cash holdings to around £30m, so, taking in account the outstanding debentures of £32m, the Trust has virtually no net debt. The proceeds of other sales are being used in part to repurchase shares. We bought back 1.65m in October and continue to nibble away in November.