Pan European property equities were broadly flat over the month (+0.4%) when measured in EUR. In GBP the return was 3.6% such was the continuing weakness of GBP against all other currencies. From the end of April to the end of August, GBP/EUR dropped over 8.6% with August reporting 2.8%.
The weakness of GBP reflected a further degrading in expectation and sentiment towards the UK economy – particularly when compared with the strong performance across both Western and Southern European nations. The UK property names – heavily domestic in exposure – was the only regional group to have a negative total return in the month. The Trust’s NAV rose 4.11%, 56bps ahead of the benchmark whilst the share price rose 4.4%. The worst performers in the UK were Capital & Counties (-5.7%), Tritax (-4.6%) and Helical Bar (-3.8%). The fund is underweight all three stocks. Our underweight to Switzerland (-1.1% in CHF) also contributed to relative performance.
German residential had a strong month with the Berlin names, ADO (+7.3%) and Deutsche Wohnen (+6.6%). The former aided by potential takeover activity in its Israeli listed parent company. However all the residential stocks performed strongly with the newest arrival to the index, Phoenix Spree returning 5%. The 10 year Bund fell from 54bps to 36 bps over the month and whilst we think that investors should not view these stocks as bond proxies, there is still a strong correlation. Given the increasing expectation of the reappointment of Merkel and thus political stability in Europe’s largest economy combined with little new news at Davos from Draghi has encouraged the market to believe that the ECB will remain dovish. We have begun to take profits in some of these positions.
French stocks had a weaker month, particularly the retail names with Klepierre and Mercialys the worst performers year to date. The negative structural theme of the impact of eCommerce continues to dominate regardless of the delivery of strong stock specific returns. We believe a large amount of the potential downside is now priced into many of these names.
The Spanish economy continues to improve and the summer saw record growth in tourist spend. Collectively the Spanish real estate names have returned 21.6% YTD , the strongest national return alongside Italy. However August saw a pause in performance with the market awaiting results in early September from Merlin the largest listed owner of Madrid offices.
Within the property portfolio we continue to progress a number of asset management opportunities. This month we completed the rent review for our industrial building in Plymouth increasing the rent by 14% from £298,000 p.a. to £341,000 p.a. This is a great result as we have exceeded both the valuers’ and our own expectations by 6%. This concludes the asset management programme for this property and it will be marketed for sale in the coming months.