March 2021

By | 16th April 2021

A positive month for equities across the board with real estate equities performing broadly in line when measured in local currency. EPRA (ex UK) when measured in EUR returned a respectable +3.2% but in GBP just +1.3% given the continued strengthening of GBP over the last quarter. GBP has now risen over 5% versus EUR since the beginning of the year. This has an impact on our NAV given that the base currency of the fund is GBP. The month’s NAV movement was +1.4% whilst the benchmark rose +1.5%.

Unlike previous months, performance was not driven by surges in a particular asset class which carried all names in that group. It was much more stock specific with Unibail (+12.4%) outperforming its peers such as Klepierre (+1.7%) and Eurocommercial (+6.8%) as the tech billionaire Xavier Niel increased his holding to over 15%. However he has capped his upside with a series of put/call structures which leads us to believe that this is as much about soaking up sellers. The stock is now trading within 10% of consensus trough 2022 NAV.

Given the rise in long duration yields it was pleasing to see our largest position, Vonovia (+5.6%) perform well , however other residential names such as Deutsche Wohnen (+2.1%) and LEG (-0.9%) had a tougher time as investors insist on viewing German residential as ‘bund proxies’ . The yield on 10yr Bund has risen from -0.6% to -0.3% in Q1 2021 and now trades at a level last seen on a sustained basis pre the pandemic. The nominal return for such fixed income assets is still negative (-0.3%) whilst the fundamentals of supply/demand for rented residential property remain reassuringly firm.

A steady drip of corporate activity also kept us busy. In Sweden, Klovern (controlled by Arnhult Rutger) has been bid for by Corem (controlled by Arnhult Rutger). Mr Rutger has recently resigned from the board of Klovern to become Chairman of Castellum…the Swedish for ‘small world’ should now be used to complete this sentence. For ESG focused Anglo-Saxon institutional investors the furrowed brows and general head scratching is universal.

On a brighter note, we saw the IPO of CTP, a Central and Eastern European industrial / logistics developer with a market cap of €6.2bn. The free float is just 18% with 82% owned by the founder, Remon Vos.

In the UK, LXI and Supermarket Income Reit both raised capital. LXI raised £125m and now has a market cap of £785m whilst Supermarket increased their raise to £150m and now have a market cap of £885m. A successful journey from their IPO of £100m in July 2017 when the Trust cornerstoned with 12% of the raise. McKay Securities, one of our micro cap investments (market cap £212m) has commenced a buyback programme of 5% of the equity. We applaud this strategic move as the stock was trading at a 30% discount to NAV whilst its portfolio comprises entirely South East office and industrial assets.

The reflation / reopening trade continues to attract investors in the UK where the government look set to honour their promises of staged domestic reopening. Hammerson (+34%) was again a major beneficiary of positive sentiment but the stock remains very volatile with aggressive bull / bear pulls. Unite (+9.9%) gave an upbeat outlook and reminded investors of the demographic tailwind of increased numbers of 18/19yrs entering tertiary education from this year. Purpose built student accommodation is now cheaper than privately owned ‘houses in multiple occupation’ once internet and other third party costs are taken into account.

We successfully exchanged and completed on the sale of our logistics unit let to Yodel at Almondsbury, outside Bristol. The sale at £10m was 25% ahead of the independent valuation as at September 2020. The net initial yield was 4.5% and the lease has a further 3.5yrs to a tenant break.

March 31st marked the Trust’s year end and the 12 month NAV total return was +20.5%, the benchmark total return was +15.9% and the share price total return was 28.3%.

Over the last decade, the NAV total return has been 173.7% whilst the benchmark returned 98.1%. The share price total return was +208.1%.

Discrete rolling annual performance as at 31.03.2021 (%):

20212020201920182017
Fund20.57-11.669.0715.458.03
Benchmark15.88-13.975.6110.236.47
Share Price28.32-16.816.2125.459.09

Past performance should not be seen as an indication of future performance