July 2019

By | 16th August 2019

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%.

The month saw a large number of companies report H1 results and they broadly conformed to market expectations however the largest UK listed retail landlords (Hammerson and Intu) reported worse falls in like for like rental values than expected. Both companies have far too much leverage and the geared impact of asset devaluation (weaker net income and yield expansion) is stressing their respective balance sheets. Intu fell -37% and Hammerson -23% in the month. Quite something. On the Continent we saw much more modest corrections from retail landlords with Mercialys (-12%) and Wereldhave (-14%) the worst performers whilst Klepierre (-2%) and Unibail (-4%) reflected much more robust performance from their high quality European shopping centre portfolios. Unibail was dragged down by its UK exposure but its prime malls in the US have enjoyed the benefit of solid retail sales. Both companies appear confident about their ability to sell assets in Europe, in stark contrast to the record low volumes in the UK shopping centre investment market.

Logistics and industrial names continued to outperform with Segro’s H1 results helping to deliver a monthly return of +4.7%. This was in marked contrast to the UK Majors, who were weak again with Landsec (-4.4%) and British Land (-5.6%). Unite, the student accommodation specialist, announced a capital raise to part fund their cash and shares £1.4bn deal to acquire Liberty Living. The accretive deal was well received and the stock closed the month +5.9%, the best performer amongst all UK names. This was an important contributor to the Trust’s performance given our 4.4% holding.

German residential names enjoyed a good month benefiting from their correlation with long dated Bunds where the 10 year benchmark increased its negative yield to -0.4% yield. Vonovia (the largest listed residential company) announced H1 results on 2nd August and highlighted that they didn’t expect the potential for a rent freeze in Berlin to spread to other jurisdictions. However the likelihood of the rent freeze in Berlin commencing in October is very high. If this legislation passes in the Berlin Senate, then we expect large landlords to launch an appeal to Germany’s highest court claiming that such intervention at an individual State level is unconstitutional at a Federal level.   

Sweden was the strongest performing country (+6.8% in SEK terms). Given that many of its constituent companies are amongst the more leveraged in our universe it is little surprise that the more dovish rhetoric from the central banks has been taken positively. The Swiss names also did well in the month enjoying not only the prospect of negative bond yields for longer but also seen as a safe haven given heightened geo-political risk not only within the UK/European context but also globally with the lack of progress in Sino/ US trade talks.

The Trust’s AGM took place on 23rd July and the Board announced the final dividend of 8.6p, bringing the year’s pay out to 13.5p, an increase of 10.6% over the previous year. The AGM presentation is available here.

Discrete rolling annual performance as at 31.07.2019 (%):

Share Price20.322.1021.9424.022.65