May 2021

May was another positive month for real estate equities, but not quite as dramatic as April, with the benchmark (FTSE EPRA Nareit Developed Europe Total Return index in sterling) up +3.3%. The Trust’s net asset value (NA) grew +3.8%. Continental Europe returned +4.4% in euro terms, comfortably ahead of the UK (in sterling) at +1.8%. The standout performance came from Sweden (up +13.5% in Swedish krone), where we saw very strong performance from the most indebted companies, SBBB (+12.2%), Nyfosa (+10.0%) and Balder (+8.1%).

Elsewhere, we saw strong performance from a range of sectors including Paris offices (Gecina +7.2%, Icade +13.2% and Colonial +8.1%) and self-storage (Safestore +10.8%, Big Yellow +9.4% and Shurguard +8.6%). Retail names which have announced a return to paying dividends (Eurocommercial +12.9%, Klepierre +7.2%) also fared well.

The big M&A news at the end of the month was the agreement of the all-cash bid by Vonovia for Deutsche Wohnen at €53.03 per share, an 18% premium to the undisturbed price. The merged entity will have more than 500,000 flats worth €90bn. Vonovia will raise capital through a rights issue, but the market hasn’t yet warmed to the deal, with the stock returning -6.4% in the month versus +16% for Deutsche Wohnen and +6.9% for LEG (the smaller rival). The Trust holds both stocks, but most of our Berlin exposure is through Phoenix Spree Deutschland (+1.6%), which didn’t respond to the news and trades at a large discount to its asset value. After the month-end, the company announced an acceleration of its buyback policy to close this discount and the stock responded +9% in three days.

In the UK, we had a busy reporting season (for March year-ends) with Landsec (-2.4%) and British Land (-1.6%) producing well flagged strategies but with no game-changing imperatives. Retail remains in trouble, but retail warehousing (excluding fashion parks) is experiencing renewed demand from investors who anticipate tenant affordability in these open-air parks. These parks lend themselves to ‘click and collect’, given their edge-of-town locations and good access. The return to the office gathers pace, and sentiment towards office names has improved, with Great Portland (+5.2%), Derwent (+3.8%) and Workspace (10.5%) all rising.

London Metric’s results reinforced our continued positive view towards logistics, particularly urban locations and the value-add from developments. Across Europe, we saw good performance from a range of logistics names which helped our relative performance. These included WDP (+6.4%), Montea (+7.7%) , Catena (+7.0%) and Argan (+7.6%), which all reflected new leasing transactions in their respective markets.

The Trust announced its full-year results on 27 May. The final dividend increased modestly from 8.8p to 9.0p, bringing the full-year to 14.2p (FY20 14.0p). The Board utilised some of its revenue reserves, given that earnings were 12.25p. The Board highlighted the strong return to paying dividends from all our companies, with the exception of the small cohort of shopping centre owners.

Discrete rolling annual performance as at 28.05.2021 (%):