Another difficult month for pan-European real estate equities, battered by further uncertainty over the trajectory of short-term rates with the longer end of the rate curve also rising. The UK has particularly suffered as the 10-year gilt yield has now risen 60bp (basis points) to c.4.6% in the last quarter of 2024. The new government’s Budget continues to be viewed negatively with tax increases denting consumer and business confidence whilst also likely to be inflationary. The listed property companies we focus on remain conservatively leveraged with strong cashflows in sectors which are experiencing negligible new supply. However, concerns around reduced demand – particularly in industrial and self-storage – dominate the mood. We believe all of this negativity is (more than) factored into share prices. At the same time, we see clear signs of rental growth across the very best real estate in all sectors. This comment even applies to CBD offices with vacancy for prime West End at a record low (less than 3%) reflecting the almost complete lack of development post the pandemic.
December saw the Trust’s NAV fall -5.9%, in excess of the benchmark at -5.2%. Encouragingly and counter-intuitively the share price total return saw a far smaller correction at -1.4%. Investors may well feel, as we do, that the fear/ greed pendulum has swung too far in the direction of miserableness. Our relative underperformance was heavily impacted by performance of several small caps as well as our sizeable gearing (17%), which reflects our fundamentally driven optimism. Argan fell -8.7% in the month to €60 per share only to announce on Jan 6th a slight yield compression (i.e. valuation increase) in its H2 independent revaluation. The detailed NAV will be published on 16th Jan and is likely to be over €82 per share. The portfolio is 100% let and management continue to meet all their milestones including completing 1.7m sq ft of industrial development in 2024. Picton Property, our diversified UK small cap (where we own 15% of the company) fell -6.8% in December despite announcing the successful sale of a Chiswick office asset for conversion to residential. The NAV per share is 96p, the share price 64p (31/12/24) and the gearing is 25%, all fixed until 2032. All positive metrics, instead the issue is that the company is just too small, at a market cap of £340m.
Whilst our year end is March not December, we know that investors appreciate the calendar data. Over 2024, the NAV total return was -6.8%, slightly better than the benchmark which fell -8.0% whilst the share price total return was -5.8%. Currency has played its part in the absolute return figures with the Euro weakening by 3.8% over the year, whilst the Swedish Krona weakened by 7.5%. When measured in Euro terms, the benchmark fell just -2.8% in 2024. These currency moves – particularly in Q4 – reflect the growing expectation that the European Central Bank and the Riksbank are likely to continue to cut base rates harder and faster in 2025 than the UK. We like to remind investors that only 1/3 of the Trust’s assets are in the UK.
As we move into the last quarter of our financial year, we continue to seek out those businesses with robust earnings growth. The change in outlook (during the last quarter) for rate cuts in 2025 was priced into pan-European real estate names. with the Trust’s NAV total return in Q4 2024 of -13.0%. All of our companies are trading at significant discounts to both asset value and rebuild cost, with implied earnings yields significantly higher than their cost of capital.
Notwithstanding the surge in government bond yields and swap rates over the last quarter, the access to funding remains excellent for listed European REITs. The average credit yield spread on their bonds compressed by 62bp (in OAS), outperforming the index which tightened 36bps. Overall, the average borrowing cost (bond yield to maturity) for European REIT issuers reduced from 3.9% to 3.3% over the year. In our view, this represents an important tailwind for short term performance.
Discrete rolling annual performance (%)
Performance data is in GBP £ terms. Investors should be aware that past performance should not be considered a guide to future performance. All fund performance data is net of all fees and expenses.
As at date 30.06.2026
| 2025/2026 | 2024/2025 | 2023/2024 | 2022/2023 | 2021/2022 | |
| NAV (Inc) | – 0.5 | 11.6 | 22.5 | – 19.3 | – 16.5 |
| Benchmark | – 0.1 | 9.7 | 21.4 | – 19.8 | – 21.5 |
| Share Price | – 2.0 | 13.8 | 22.5 | – 24.5 | – 13.5 |
