November 2015

By | 16th December 2015

Pan European property shares fell -3.1% (in GBP) in November underperforming the broader European equity markets. The month was dominated by the interim result announcements from a number of UK companies with March year ends. Land Securities’ results undershot market expectations by a very small margin (1-2%) but the stock was punished falling over 8%. British Land’s results were more inline but the stock still corrected -4.1%. The rate of capital growth (particularly in London) is clearly moderating but it remains positive with rental growth rates remaining robust. Consequently earnings growth looks sustainable and this is particularly the case where companies such as Land Securities, Great Portland and Derwent London have material development programmes as well as exposure to subsectors with rental growth. Even with our large position in Lands (and its –ve contribution to the month’s return) the NAV movement outperformed the benchmark by 57bps falling -2.5%.

The UK large caps pulled down the country performance to -3.3% (in GBP) whilst Europe ex UK (in EUR) fell just -1.2%. Germany (+0.9%) and Sweden (+0.2%) were only positive performers amongst the larger markets. In both cases it was the residential stocks which performed well. In Germany, LEG (our largest German overweight) rose 3.4% as it upped its 2015 guidance. It also completed a €306m capital raise to fund the purchase of a large portfolio (from Vonovia). The Trust participated in the raising at €68 per share. Other strong performers were the smaller residential names – Grand City (+7.4%) and ADO (+5.4%). In Sweden, Balder (+6.8%) reported great numbers following the performance post-flotation of Collector, a strategic investment. Klovern (+11.3%) was the top performer as investors continued to happily buy the Swedish high leverage story backed by a dovish Riksbank who remain committed to weakening their currency.

The Swiss stocks outperformed the rest of Europe with the largest two names PSP Swiss (-0.8%) and SPS (+1.8%) reflecting the move to what is generally viewed as a safe haven when sentiment weakens. We remain underweight the Swiss names on property market fundamentals and our view that the economy will continue to struggle with its strong currency.

The Trust announced its interim results on 25th November and the Board increased the interim dividend to 3.15p, a 6.8% increase on last year’s interim. The property portfolio (9% of assets) was also revalued as at 30th September and on a like-for-like basis (excluding the one purchase in the period) rose by 8.4%. The full statement on the first half’s performance can be found in the Interim 2015 Report together with the Chairman and manager’s outlook for the second half.

The Trust also announced with the interim results agreement on the replacement of our long term debt financing. The 11.5% 25 year debenture due for repayment in February 2016 will be replaced with a £15m 15 year loan note carrying a coupon of 3.59% and a €50m 10 year loan note with a coupon of 1.92%. The total servicing cost of these two loans will be less than the current debenture.

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