June 2017

By | 22nd July 2017

After the strong returns in April and May, June saw a pause and then a drift downwards in most sectors of the pan European real estate world. The Trust’s benchmark fell -1.11% and the net asset value (NAV) fall was in line at -1.15%. June 30th marked the end of the first quarter of the financial year and the strength of April and May is reflected in the overall Q1 numbers with the NAV rising 7.51% and the benchmark +6.48%. The strongest performance was from the share price which returned 10.2% and reflects a further narrowing of the NAV discount to around 9%.

The UK has been an underperformer in the first quarter. Real estate equities are one of the few pure domestic plays on the London stock market. The calling of the snap election and more importantly the result has clearly unsettled investors increasing the (political) risk premium. It is of little surprise that the poorest UK performers in the month were all London-centric names, Helical Bar (-8.4%), Capital & Counties (-6.9%), Great Portland (-4.9%) and Land Securities (-4.2%) whilst the top performers were high yielding, diversified names with little London exposure, Redefine (+7%), F&C UK REIT (+3.6%), and Custodian (+2.8%). The fund has continued to increase its non-London exposure as well as sourcing further income streams with inflation protection qualities. After the investment in PRS REIT last month, we expect to find further opportunities in the coming weeks. In terms of corporate actions, New River Retail announced a £230m raise at 335p (a 5% discount) to fund further acquisitions and development and Assura raised £98.4m. Although the raise was at a discount to the previous close, the price reflected a 15% premium to the asset value, such is the demand for government backed, index-linked income.

The strongest performing market was Finland (+14.3%) where Sponda announced an agreed bid from Blackstone at an 18% premium to the undisturbed price. The Trust had a holding in line with the benchmark. As an underperforming business which has looked cheap for some time, the privatisation reflects the private equity buyer’s ability to leverage the purchase.

The sector weakened towards the end of the month following a speech by the President of the European Central Bank which was interpreted as a signal indicating that the markets should anticipate the end of the central bank’s asset buying programme. The mini taper tantrum which followed was quickly quashed with clarifying comments from the bank. However real estate stocks continued to weaken into the month end and beyond with the most liquid European names being amongst the weakest performers. The two largest shopping centre names fell sharply with Unibail down -3.9% and Klepierre falling -3.5%. Sentiment towards the Paris office market were boosted by M&A activity. Gecina announced the purchase of Eurosic (Paris office portfolio) from its institutional owners. The result will be €15bn Paris portfolio, twice the size of its nearest rival. The transaction will be financed through a €1.5bn bond issue and a €1bn rights issue.

The final dividend of 6.4p, (full year 10.5p) went ex on 22nd June and will be paid on 1st August. The AGM will be held at the Grosvenor House Hotel, London W1 on 25th July at 2pm.

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