During February, the Pan European real estate equities sector was the worst-performing sector in the STOXX 600 (+1.8%). Inflation data proved stickier (falling slower) than hoped, and expectations around the timing of interest-rate cuts by central banks were pushed out from spring to early summer. The Trust’s benchmark fell -7.5% during the month, while the net asset value (NAV) with income fell -7.7%. The share price performed better, with a correction of -5.8%. The sector has now corrected -11.6% year to date as investors continue to row back from the year-end conviction on near-term base rate cuts.
For us, the month was dominated by (1) a busy earnings season as companies announced results; (2) more UK mergers and acquisitions activity and speculation; (3) the sale of the Trust’s largest physical asset; and (4) the largest overnight raise by a UK property company. Earnings were generally in line with top-line growth, driven by indexation (rents adjusted with inflation) but also market rental growth in a number of sub-sectors. Underperformance was invariably driven by consensus underestimating changes in debt expenses (often increased hedging costs). Unibail-Rodamco announced the recommencement of its dividend (after a three-year suspension), albeit initially at a subdued level. It still has not made progress with the planned exit from the US but retail sales (in the US) remain buoyant and this contributes to earnings in the short term. Consolidation of listed property companies continues to be a theme in the UK. The agreed deal between two diversified minnows, Custodian REIT (£320m of market capitalisation) and Aberdeen Property Income (£206m of market capitalisation) has been gate-crashed by an approach from Urban Logistics REIT. Given the latter’s industrial focus, its involvement makes no strategic sense in our view. The overriding rationale from both the potential acquirers is growth in assets (given they are externally-managed vehicles). While we do not own any of these names, we do feel that shareholders should demand more of the synergies through fee reductions if these vehicles remain externally managed. Of much greater importance to us is the ongoing saga around UK Commercial (£850m of market capitalisation), where the two largest holders (54% amalgamated) have provided Letters of Intent for an all-paper NAV for NAV offer from Tritax Big Box. Again, the lack of strategic fit is glaring, but the prize is a diversified REIT with the lowest gearing (borrowing at 16%) in the sector. We have built a £26.5m (2.5% of NAV) position (in UK Commercial Property REIT) since August 2023 following the appointment of a highly regarded new Chair, Peter Pereira Gray. We note that he has yet to give his support to the bid from Tritax and we have encouraged the Board to ensure they conduct a comprehensive strategic review given potential wider interest.
The Trust has sold its largest physical asset, a retail block anchored by a 40,000ft Waitrose in Bayswater for £33.5m (September book value £35.0m). The net initial yield was 6.6%. The Trust had owned the asset for over 20 years, separately acquiring both the long leasehold and freehold interests releasing residential marriage value in 242 flats. This was followed in 2014 by a comprehensive refurbishment and repositioning of the commercial space, doubling the supermarket and creating an additional 16,000ft of retail space. Waitrose took a new 20-year lease in 2015.
At month-end, Segro announced a £900m overnight raise at 820p (5% discount to the closing price), which the market took positively (868p as at 5 March 2024). We participated fully, investing almost all the proceeds of the Colonnades sale.
Following on from the -11% correction in property equity prices so far this year, we will continue to rotate proceeds into the equity market (where we see plenty of value) while we search for more value-add physical opportunities.
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 |
