European real estate stocks enjoyed another positive month with the Trust’s benchmark, FTSE EPRA/NAREIT Developed Europe Capped Net Total Return (in GBP) rising 3.0% bringing the year to date figure to 11.2%. Once again property shares outperformed the broader European equity market which has returned YTD 7.6% (EuroStoxx 600 Index in EUR).
The Eurozone property companies again outperformed the UK names rising 6.1% (in EUR) versus 3.0% for the UK. For the first time since 2009, the Eurozone has outperformed the UK over a 6 month period when viewed in local currency. At the time of writing (5th June) the ECB announced a package of measures designed to boost the credit transfer mechanism through further loosened monetary policy with some key interbank rates set negative rates and other incentives for banks to lend more to the private sector.
The outperformance of Eurozone stocks over the last couple of month had been increasingly driven by the expectation of the ECB’s plan of action. Mr Draghi did not disappoint. Whilst there was no large scale asset purchasing programme (‘QE’), there was confirmation that the ultra low base rate would be extended further into the future (‘ lower for longer’). It is no surprise that a leveraged asset class such as property has continued to benefit from these historic central bank policy moves.Sovereign bond yields have continued to fall across the Eurozone with record lows in the core countries of Germany and France as well as dramatic improvement in the peripheral nations. The combination of lowering the risk free rate and the anticipation of cheaper borrowing is driving property equity values upwards. However occupational market fundamentals require real growth (and greater employment and /or spending power) and there remains precious little of that outside of Germany.
Where fundamentals do continue to improve in the UK, particularly office and industrial rents in the South East. The lack of new development over the last 5 years is leading to a shortage of choice for businesses with larger requirements. In the logistics space we continue to see more ‘build to suit’ as tenants can’t find existing space. House prices across the UK, Germany and Sweden continue to rise and in the UK some lenders are endeavouring to cool demand by imposing stronger loan limits based on borrowers earnings.The UK’s largest property companies, Land Securities and British Land both reported March full year results this month.Whilst both sets of results were broadly in line with market expectations there is now a growing difference in their respective balance sheet strategies. Land Securities is likely to reduce leverage through sales, even with a significant amount of capital expenditure in its ongoing year development pipeline whilst British Land not only raised capital in 2013 but has maintained higher leverage through acquisitions.The Trust also reported its March full year results with a 12month NAV increase of 22.4% and announced a final dividend of 4.6p to be paid in August. This brings the full year dividend to 7.45p.