May 2011

By | 15th April 2011

The share class total return for May was +2.2% versus the index, FTSE EPRA/NAREIT Developed Europe Index (TR in GBP) of +1.9%. When viewed at the capital level, the monthly return was +1.6%, such was the weight of dividend ‘ex’ dates (23 companies in the month) and the total return figure includes these. This steady return from the sector brings the quarter-todate to +6.1% and year-to-date to +12.8%, significantly outperforming the FTSE All-Share and Euro Stoxx 600, both up less than 2% YTD. In fact, broader equity markets had a weak month and investors sought out not only gilts but also perceived ‘safe’ stocks. Real estate equities offer exposure to a real asset class (as inflation fears persist), prudent leverage and the prospect of recurring earnings (with Continental income streams index-linked). With share prices close to current NAVs this is an attractive proposition.

May is always a busy month. This year we had 25 companies reporting full year (March year ends are common in the real estate sector) or first half 2011 figures. The UK outperformed Continental Europe for the third month in a row bringing the quarterly returns to +8.8% (UK) and +5.1% (CE). Results were generally in line or slightly ahead of consensus. However, Land Securities produced stunning results, driven primarily by improved valuations of their London assets – both standing investments and developments. This helped propel the performance of other stocks with a London focus and continued the outperformance of real estate shares compared to the wider market.

Looking forward, the Fund’s gearing is modest at 6% and even the effect of this is dampened by virtue of our 7% of assets in unencumbered physical property. With the holiday season approaching we feel now is not the time make a significant directional call. But rather to continue focusing on our bottom-up approach and seeking out the dispersion of returns we believe these market conditions will continue to reveal. The abrupt flattening of the yield curve and the expectation of further slowing in global growth will, in the short term, help leveraged assets such as real estate. The Ordinary class share price rose 7.4% in May further reducing the discount between the share price and the NAV.
Following the publication of the preliminary results on 25 May, the Board declared a final dividend of 3.70p (FY 6.0p). The shares will go ‘ex’ on 6 July with the dividend payable on 2 August.

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