Interest rate-sensitive sectors (including real estate) took a breather in January after a very strong finish to 2023 (our benchmark returned +25.2% over November and December). The net asset value fell -4.2% during the month, while the benchmark fell a little further at -4.4%. As expected, the most rate-sensitive names (which had rallied the most in the fourth quarter of 2023) experienced the sharpest pullback. For some, these movements were quite severe; for example, DIC (now renamed Branicks) fell -37% alongside fellow German names, Aroundtown (-16%) and Grand City Properties (-11%). As we have highlighted many times, Swedish property companies generally have higher leverage (borrowing) than the rest of the universe and will be more impacted by rate expectations. The tempering of expectations towards early rate-cutting resulted in negative performance across all Swedish names. The worst performances came from those also exposed to the office markets, such as Fabege (-8.9%) and Atrium Ljungberg (-9.8%).
The negativity towards office names persisted across geographies almost regardless of asset quality (Derwent London (-9.3%), Workspace (-6.5%) and the deeply indebted minnow, Regional REIT (-15.3%)) as investors woke up to the 55% loan-to-value and the impending refinancing of a retail bond. The largest correction in the UK was Custodian REIT (-17.9%), which announced an all-paper merger with Aberdeen Property Income (+3.6%). The latter had fallen -9% in the first week of the new year, only to rally +12.5% on the day of the announcement. The deal valued API at a 29% premium to the undisturbed share price. This premium reduced as the Custodian REIT share price corrected. This merger follows hot on the heels of the proposed tie up between LXI and London Metric. Consolidation should lead to synergy benefits for shareholders through significant cost savings. We will need to see the detailed terms of each transaction to be sure that the boards of the respective targets have striven for these benefits. The Trust holds significant positions in LXI and LMP.
The pullback in real estate equity markets is to be expected given rate sensitivity. However, in so many of our sectors, there is a shortage of high-quality accommodation. Build cost inflation over the last two years has squeezed forecasted developer margins, leading to even greater reluctance to commence development. This restriction on supply is ultimately beneficial to rental values. The Trust currently has no exposure to those businesses with London office development exposure (Derwent London, GPE and Helical), but we do have exposure to industrial developers where we are much more confident of the maintenance of profit margin given shorter build times and robust tenant demand.
In our physical portfolio, we completed the surrender of a unit at our industrial estate in Gloucester and a simultaneous reletting to Infusion GB, which occupies the other units on the estate. This replaces a tenant underutilising the space with a tenant in need of more space, while securing a longer lease. Infusion, a tea-packaging business, has recently won a new contract to package tea on behalf of a well-known tea brand. We will now work with the tenant to improve the sustainability characteristics of the property by removing the gas heating and installing photovoltaics on the building’s roof.
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 |
