April 2018

By | 15th May 2018

Pan European real estate equities had a strong month with the FTSE/EPRA NAREIT Developed Europe Index (in GBP) returning 4.36%. Continental Europe returned 4.1% (in EUR) a little behind the UK at 4.9%. The Trust NAV Total Return was 5.01%, 66bps ahead of the benchmark.

The tailwinds for the sector were a mixture of changes to the macroeconomic environment coupled with a mixture of strong earnings news and corporate activity in several regions. Both the Bank of England and the ECB signalled the likelihood of a more dovish response to recent economic data. In the UK’s case this deceleration of growth has been apparent for some time and has pushed the UK to the bottom of the European growth table (with just Italy below us). The political backdrop has not improved and business confidence is ebbing away as the range of negotiated outcomes around Brexit remains so broad. On the Continent, weaker output data has pushed expectations of accelerating monetary tightening further out. Property continues to be viewed as a levered asset play and therefore maintaining rates at historically low levels is seen as a positive with the 10 yr Bund dropping from 76bps (late Feb) to nearer 50bps (end of April).

The strongest performer was Beni Stabili (+16.0%) where Fonciere des Region announced a paper offer for the remaining 48% which it doesn’t already own and will merge the two businesses. Also in France, Klepierre returned 9.7% as Hammerson formally announced a reversal of its decision to acquire Intu having also rebuffed Klepierre’s final offer of 635p. The whole sorry tale is a debacle but for those Klepierre holders who feared huge share issuance (to acquire Hammerson) the relief rally has been c10% (adjusted for the dividend) since the low point of mid March. Klepierre can’t approach Hammerson again for six months. Intu, the jilted bride, was the worst performer (-1.4%) and the only stock in our universe to have a negative return in April. The only certainty is that the saga is not over with Hammerson promising to “update the market in the near term on our plans to accelerate the delivery of further value for shareholders.” given that its proposed plans (buying Intu and having more UK exposure and more debt) have been reversed.

Decent Q1 numbers were evident in many regions but particularly evident in Sweden where Fabege (+17%) announced record breaking value and earnings gains followed more modestly, but still very positively by Kungsladen (+12.7%) who also have significant Stockholm office exposure. Sweden and particularly Stockholm have begun to see residential value corrections but this does not apply to the rental market where D. Carnegie was the top performer (+10.7%) as it recovered from its recent capital raise technical selling pressure as well as the Starwood bid on their direct peer Victoria Park AB.

Also outstanding in the month were other European retail names (but notably not UK ones) particularly the higher yielding and generally more highly leveraged who benefited from this expectation of ongoing monetary easing. Strongest performances were from Wereldhave (+9.7%) and Vastned Retail (+10.6%), the latter announcing a voluntary bid for the remaining listed shares in its subsidiary Vastned Retail Belgium.

The UK saw some very strong performance from self storage with Safestore (+11.6%) and Big Yellow (+8.0%), student housing with Unite (+7.3%) and logistics with Segro (+7.5%) and London Metric (+6.8%) all helping our relative performance in the month.

The full year results to 31st March including the final dividend will be announced on 31st May.

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