May 2020

Pan-European real estate equities continued the range-bound, yet volatile performance (which we have experienced since the end of March) for most of the month. However, the last ten days of May and early June saw a sustained rally as investors preferred value stocks (seen to be undervalued) to growth stocks (companies that are expected to grow faster than the market). On a global perspective, the gap between the two had rarely been wider, and this snap back was sharp. In our universe, this has translated into a strong correction from those stocks that have had the weakest performance since markets began to react to COVID-19 in mid-February. This was primarily in retail, hotels and other consumer-facing real estate.

The Trust’s net asset value (NAV) rose 6.33%, ahead of the benchmark at 4.96%. The share price rose 6.6%, responding well to the announcement of the financial year 2020 final dividend on the last day of the month. The final dividend of 8.8p brings the full-year pay-out to14p per share, an increase of 3.7% from the prior year. The full-year results and report from the Manager are available on the Trust’s website, www.trproperty.com.

The performance of UK real estate equities in May was collectively flat over the month, returning 0.3%. However, this hid wide variations. The poorest large-cap performance was from Landsec (-8.5%), which produced lacklustre results, particularly from its retail assets where the prognosis for rent collection and tenant failure looks poor. Other retail stocks such as Intu (-8.2%) and New River Retail (-20.4%) continued their downward trajectories, although Hammerson (+4.3%) began its recovery (from a 43p all-time low) following the announcement of the CEO’s departure (when a new hire has been selected). A South African investor also announced that they owned 10%+ of the equity. European shopping centre owners initially fared poorly before participating in the rotation to ‘value’ and recovering some of the dramatic price falls experienced in the early part of the month. Klepierre ended down 7.7% and Unibail Rodamco was 11.2% lower.

Logistics and industrial stocks performed well, with Tritax Big Box rising 15.1% and London Metric up by 8.0%. Segro stood at a healthy premium to its asset value, at just +1.2%.

German property companies – both residential and commercial – were strong performers, collectively returning 9.3%. Sirius, a UK listed owner of German office and industrial property, also performed strongly. It rose 12.6% in anticipation of good results that were announced on 1 June and didn’t disappoint. The expectation of further support from the European Central Bank through bond buying and a range of other supportive initiatives drove bond yields down further, and sent German residential stock prices higher; LEG (+6.9%) and Vovonia (+14.9%) both reached all-time highs in the first days of June. Deutsche Wohnen (+8.7%) will join the DAX Index with a market capitalisation of €15bn, replacing Lufthansa.

In Scandinavia, there was an enormous disparity of returns, which is entirely reflective of the volatility we are seeing. Catena, the logistics developer/investor, returned 18.8%, while Kungsladen, the office developer and investor, fell -8.7% even after satisfactory first-quarter results and a tentatively positive outlook.

As announced, the AGM in late July will now be a closed meeting without the usual manager presentation. Instead, the manager will post a webcast (in the format of the usual presentation held at the AGM) on our website, on Wednesday 1 July covering the year to March 2020 and an update to June. If shareholders would like to submit questions to enquiries@trproperty.co.uk by noon on 30 June, these will be responded to in the Q&A element of the webcast.