April was a strong month for pan-European property shares, with the benchmark rising +7.2%. The Trust’s net asset value (NAV) rose +8.2% and the share price +8.5%, so a good month all round. While currencies do not impact relative performance (as all exposure is in line with the benchmark), they do clearly affect absolute returns. The Trust’s non-sterling exposure is c75%, and therefore a weaker sterling provides additional valuation gains. During the first quarter of the year, sterling strengthened against all European currencies by over 5%; this was partially reversed in April. As a consequence, the benchmark when measured in euros returned only +4.9% versus +7.2% in sterling. So, while this was a good month for real estate equities, an important component was currencies, as opposed to organic growth.
Sweden (+10.7% in Swedish krone), France (+6.5% in euros) and the UK (+6.1% in sterling) were the strongest regions but for different reasons. Swedish property companies have the highest average loan-to-value (LTV) ratios in our universe, and most of this corporate debt is short term. As a result, optimism around economic growth translates quickly into asset-growth expectations. The most leveraged stocks SBBB (+19.3%) and Nyfosa (+15.4%) saw the strongest performance, alongside the pure industrial/logistics play Sagax (+18.6%). Shopping centre owners’ share prices continued their collective recovery as investors banked on the vaccine rollout driving a return to physical sales, initially in the UK, but then reopenings were anticipated across Europe in late May and June. The French names Klepierre (+11.0%), Mercialys (+17.7%) and Carmila (+8.2%) helped drive performance in that region. This retail theme dominated all markets, with strong numbers from Germany’s Deutsche Euroshop (+8.1%), Retail Estates in Belgium (+9.4%) and Eurocommmercial (+14.5%) in the Netherlands. The one exception was Unibail (+0.4%), which had enjoyed an extraordinary recovery in earlier months. The UK names were collectively impacted by the reopening of non-essential shops and accelerated vaccine rollouts to younger age groups. Again, retail names did well, with Hammerson (+14.4%) and New River Retail (+8.3%) rising, joined by student accommodation stocks Unite (+10.4%) and Empiric (+11.0%). It was also the turn of a disparate group of externally managed, diversified small caps (which we collectively refer to as the ‘REIT Petites’), which caught the imagination of private investors looking for discounts to asset values and pure UK exposure. Schroders REIT (which has a market cap of £220m) rose +11.4%; Standard Life Investments (market cap of £300m) gained +19.9%; and UK Commercial Property REIT (market cap of £620m) rose +11.5%, in a record-breaking month for all.
The German Constitutional Court ruled that the Meitendekel (rent freeze) imposed by the State of Berlin was unlawful and that rent controls were the preserve of federal law not local state regulation. Our exposure to Berlin is through Phoenix Spree (+10.5%) and Deutsche Wohnen (+13.1%), which both enjoyed a relief rally. However, the German political landscape is in a state of flux ahead of the general election in September, and the demands for further rent controls (beyond the already strident restrictions) will always be vote winners. We can only hope that the collapse in the number of new apartments under construction in Berlin, a direct response to the rent cap, is a message now understood by lawmakers looking beyond the self-interest of those fortunate enough to already be renting at sub-market regulated rents. Equity markets often struggle to price political risk, and while we do anticipate some price weakness, we view it as an opportunity, given the market fundamentals.
The Trust will report full-year results alongside the final dividend announcement on 27th May. The AGM will be held at the RAC on 27th July.
Discrete rolling annual performance as at 30.04.2021 (%):
Past performance should not be seen as an indication of future performance