April 2012

By | 16th May 2012

April was the first negative month of 2012 for real estate equities (and the European equity market in general). The FTSE EPRA/NAREIT Europe Index Total Return (in GBP) fell 2.47% in the month. Real estate shares fell over 7% between mid March and the last week of April, recovering into the end of the month. We have entered another ‘risk-off’ period as the markets fretted about the French presidential election, the Greek general election and the fall of the current Dutch government. Economic data was of little comfort in the period with the UK in particular delivering a -0.3% quarterly GDP figure. Whilst the total return for the sector was -2.5%, the capital fall was 3.75% such were the weight of dividends paid in the month. We would highlight that the dividend yield in the sector is over 5% and our investee companies generally remain confident of the sustainability of this income. Not unexpectedly, it was the Eurozone which bore the brunt of the sell-off with the Eurozone subset of our index falling 5.7%. Putting this into a wider equity context the Euro Stoxx 50 dropped -6.9% in the month.

The Fund has 35% exposure to UK equities and 11% to UK physical property. Over 80% of the physical property is in London, which is our preferred geographical exposure in the UK. The UK property stocks produced a positive, albeit modest return of 0.4% in the month. Particular outperformers included Shaftesbury (+3.9%) which owns prime retail assets across Soho and Covent Garden.

Net debt in the share class was reduced by £2.7m as sales exceeded purchases and some of our revolving facilities were paid back. Our preferred German residential play, GSW, issued shares via a rights issue and we participated. The company will use the proceeds to bid for another significant Berlin focused portfolio.

Big Yellow, the self storage operator announced that it had entered into a new £100m 15-yr loan with Aviva. The deal is underwritten with first charge over 15 properties valued at £260m. The stock rose 4.4% in the month. We expect to see more insurance companies lending to the real estate sector rather than buying property directly as a direct consequence of the Solvency 2 regulations. It is very encouraging to see this form of lending to a non-traditional property use such as self storage. The Trust owns both Big Yellow and Safestore and we are positive on the sector. The Trust’s annual results will be released on 23 May and will include the announcement of the final dividend following the Board meeting on 22nd.

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