Category Archives: Factsheet

On the face of it, an encouragingly positive month for pan European real estate equities with the Trust’s benchmark returning +2.73%. Continental property shares steadily rose over the month (+3.5%) with a large number of outstanding individual performances (13 companies returned more than 10% in the month with just 2 from the UK). However, the UK was much more a rollercoaster with the group down -3.2% by the middle of the month before recovering to finish +2.3%. The culprit continues to be politics and the risk of a ‘no deal’ or hard Brexit initially drove investors away from UK domestic stocks. Real estate names are a disproportionately large constituent of any ‘Brexit basket’ given their almost entirely domestic earnings profile. The recovery in UK equities in the second half of the month surprised us but probably reflected the hard line which the new Prime Minister is taking with his critics and the EU. Some investors perceive an opportunity for an improved negotiation with the EU given the real risk of a ‘no deal’ exit. At the very least, markets sense an end to some of the unknowns with events moving quickly over September.

Pan European real estate equities returned a respectable +2.1% when viewed in GBP but a more paltry +0.5% when measured in EUR. This was clearly a consequence of the weakness of GBP following the new Prime Minister’s sabre rattling (and Leave dominated new Cabinet) and the increased risk of a ‘no deal’ Brexit. TR Property’s NAV rose +2.73% in the month, the share price also rose +2.7%.

Pan-European real estate equities suffered a poor month, with the FTSE EPRA Nareit Developed Europe Capped Index in sterling falling -1.73%. The net asset value (NAV) total return of the Trust fell slightly less at -1.48%, delivering a modest outperformance of +25 basis points.

Against the recent trend, it was continental Europe (-3.5% in euros) that fared much more poorly than the UK (+0.3% in sterling). The primary culprit was the sharp correction in German residential names (ranging from -3% to -25%) following the news on 6 June 2019 of a potential 5-year rent freeze (‘Mietendeckel’) in Berlin. The bill still has to be passed in October; the majority of legal experts consider the bill, proposed by Berlin’s state government, to be unconstitutional because: (i) the state government lacks legal competence, i.e. such laws can only be passed at the federal level; and (ii) such a law would be an undue and severe infringement on property owners’ rights. However, the market is now pricing in a high probability that it will become law, but will then be followed by a multi-year appeal process.

May was a strong month for pan-European real estate equities when viewed in sterling, with returns of 2.44%. The picture in euros was very different, however, with a negative performance of -0.38%. Essentially, both sterling and UK property companies were poor performers over the month. Sterling fell -2.7% against the euro and UK property companies were down -3.1%, driven by poor performance from major stocks; both Landsec and British Land fell more than 10% on the back of anaemic results for the 2019 financial year. There was also ongoing weakness in retail companies, both large and small. Even though Hammerson managed to fall -15.8%, it was not the worst retail performer, as Capital & Regional was down by -22.4%. With a high loan-to-value ratio, the collapse in the share price becomes self-fulfilling – an ‘equity cure’ is no longer an option, given the gulf between the net asset value (NAV) and the share price. The weakness in sterling reflects the ongoing political saga as the Conservative Party meanders through its convoluted hustings process as it elects a new leader and prime minister. The expected shortlist are all fervent Brexiteers and the range of outcomes must now include a greater risk of a no-deal Brexit at the end of October. The strongest performers in the UK were those with the greatest security of income, such as Assura which rose 7.6%. It owns primary health properties with leases underpinned by income from the NHS.

Pan-European real estate equities drifted sideways in April, returning a slightly weak -1.2% over the month. This stood in stark contrast to the strong performance in March (+4.8%), which took the first quarter’s total return to 9%. The Trust’s net asset value (NAV) fell less than the benchmark, at -0.36%, leading to 84 basis points (bps) of relative outperformance. The share price was even stronger, returning +1.6% in the first month of the new financial year.