A modest fall of -0.5% for the FTSE EPRA/NAREIT Developed Europe TR Net (GBP) benchmark in the month belies a more active intra-month movement with the sector falling 5.3% to 10th, only to recover all losses and then settle back to a modest negative return for the month. With the full year 2014 reporting season predominantly completed by the first week of the month, the drivers of the sell-off were once again macro focused.
The euro weakened further in the first 10 days (2.6% v GBP) only to stage a full recovery and finish the month where it started, Continental European property companies followed a similar pattern of performance as investors focused on improving economic data from core eurozone countries. A combination of QE, a weakened currency and signs of improving consumer sentiment were enough to drive eurozone stocks upwards in the second half of the month. The Euro Stoxx 600 TR Net (EUR) index rose +1.7% in March. Amongst the property stocks, the French names were the best performers rising +4.4% and now 16.8% YTD (second only to Italy YTD +21.3%). Whilst the DAX rose almost 5% (responding to the expected export growth fuelled by a weakened currency) the domestic focused German property names (dominated by the residential businesses) fell -4.6%, led by Deutsche Annington (-8.9%). In the case of DA, investors have become increasingly concerned that whilst this large business (it now has 230,000 flats following the merger with Gagfah) offers liquid exposure to German residential property the synergies and further refinancing benefits were more than priced in.
Sweden, the star performer in February, suffered a severe bout of profit taking with the listed property companies collectively falling -11% in 9 consecutive negative days. This was followed by a sharp recovery resulting in the group’s monthly performance of -3.7% (in SEK). The Swedish names still remain a strong performer YTD +18.1%. The dramatic price movements in February and March reflect the fact that the real estate companies are a large part of the Swedish mid and small cap indices (21% of OMX Small /Mid) and are popular amongst active private local investors who appear to experience herd like sentiment surges.
Switzerland, another strong performer YTD, suffered in March as investors focused on the underlying weakness in demand for office space particularly in the Zurich market. PSP Swiss (-7.4%) also suffered from falling foul of negative interest rates which meant that it might have to pay its banks on part of its derivative book where in normal conditions it would have expected to receive a payment – a perverse but legal consequence of the extreme monetary environment we live in.
The Trust’s year end is March 31st and the NAV at the month end included the six monthly valuation of the physical portfolio (c7%) of assets. On a like for like basis and excluding capital expenditure, the increase in valuation was a modest £4.3m. The year-end valuation, which includes the acquisition of the Wimbledon office building in November 2014, was £75.95m. This valuation gain helped the NAV rise +0.29% in the month, outperforming the benchmark which fell -0.48 by 77 bps.
For the financial year to 31st March, the NAV increased by +28.15% whilst the benchmark rose +23.34% resulting in 481bps of relative outperformance net of all fees. The share price total return was +31.5%.