Category Archives: Factsheet

October was a difficult month for pan-European real estate equities, with the benchmark (FTSE EPRA Nareit Developed Europe Total Return Index, in sterling) falling -4.76%. The net asset value (NAV) dropped a little more, at -5.12%. The bright spot was the share-price performance at +1.0%, which saw the discount to net asset value tighten to 6% (from 10%).

Sentiment has weakened again as Europe grapples with a new set of lockdowns. Retail, hospitality and travel-related industries once again bore the brunt of these measures. Encouragingly, schools and universities have stayed open and employees can generally go to work (where they can’t work from home). From an economic perspective, these measures are far less draconian than those imposed in March and reflect the clear imperative to keep all economies running as normally as possible.

Pan European real estate equities fell -0.58% (when measured in GBP) with the Trust’s NAV falling slightly less at -0.22%. The share price fell -4.3% as the discount widened to an attractive level of -15%. When viewed in EUR the sector fell -1.5%, the weakening of GBP added to absolute returns.

Pan European real estate equities rose +1.49% (when measured in GBP) with the Trust’s NAV +2.15%. The share price rose an encouraging +5.4% as the discount tightened towards 10%. The month was characterised by a continuation of the theme of the top performing sectors (industrial/logistics, residential, long income) keeping on winning and weakened sectors (retail, hospitality, short income) falling further. The most prominent casualty was Unibail Rodamco which fell -12% as short sellers were emboldened by the (so far unfounded) rumour of an equity raise. The problem for URW is partly one of size, if it does need to raise then it requires several billion euros. The second issue is that the problems in the US portfolio will be harder to resolve. This is amplified by a newly configured management team following the departure of previous (Westfield) management. However, the poorest performance in the month goes to Hammerson (-24.5%) as investors were presented with the details of a £525m emergency deeply discounted rights issue alongside the disposal of its 50% share in the VIA Outlets to its JV partner for c.£275m. The wilful ignoring of clear market trends and the siren call of (short lived) earnings enhancement through increased (cheap) leverage ensured the mass destruction of shareholders’ equity firstly at Intu and now at Hammerson. Across Europe, retail names fared poorly with Mercialys (-16%) as the major shareholder, Casino, tries to reduce its holding. The only bright spot was Vastned (+14%) but that looks short lived with the largest shareholder (a private investor) demanding managerial change which we don’t agree with.

The Trust’s net asset value (NAV) with income rose +1.39% versus a return of +0.07% for the benchmark, while the share price returned +2.55%. The discount still stands at an attractive -13%.

European property companies, measured by the FTSE EPRA Developed Europe Index, generated total returns of +1.2% in euros, outperforming general equities (measured by the EuroStoxx 600 Index, total returns, in euros), which returned -0.9% in July. They were helped by depressed bond yields (the 10-year German bund fell -7 basis points (bps) in the month, ending at -52bp) and the spread of negative real interest rates across several major economies.

Pan European real estate equities started the month very much continuing the late May theme of benefiting from the rotation  away from growth focused (and more expensive) stocks towards the ‘value’ (cheaper multiples) names. However mid month that macro tailwind petered out and the sector corrected almost -7% in 5 days, this was followed by an equally sharp but short lived rally with the sector ending the month just +1.8% having been +9% at one point. ‘Volatile’ remains the most commonly used adjective. In essence markets are constantly torn between the attraction of equity valuations when bond yields are set to remain very flat for long periods (and real rates are negative) and the daily news that much of the real economy is in dire straits. The consumer (beyond the immediate post lockdown spending spree) is unlikely to come to the rescue given expected rising unemployment levels and job insecurity leading to higher savings ratios.