The correction in global equity markets in October looked set to break with a significant rally in the first two weeks of November however this was followed by a bout of renewed weakness as investors again focused on the key issues of the slowdown in global growth, China/US trade war, Brexit and whether the Fed would maintain its hawkish stance. Pan European real estate equities performance was again bifurcated between UK stocks (-4.5% in GBP) and European names (+0.5% in EUR) with the gap opening wider towards the end of the month. The Trust’s NAV fell -1.21%, underperforming the benchmark which fell a modest -0.84%.
The UK’s performance was dominated by the announcement that the consortium bidding for Intu had withdrawn their potential offer (an indicative 210p) and the stock fell back to an all time low of 114p. The inability of the largest shareholder (John Whitaker and Peel Holdings) to secure backing for an acquisition of the remaining shares in the business at more than a 50% discount to the independent valuation is a ‘neon signpost’ for all investors as to the direction of travel for these large, over rented shopping centres. The valuation community can no longer rely on a lack of market evidence to defer writedowns, nor can vendors rely on non disclosure agreements to prevent market participants from proving that best bids in an open marketing situation are now significantly below the last ‘independent’ valuation. This is the next shoe to drop and all stocks with retail exposure suffered varying degrees of price weakness in November with Hammerson (-12%), Capital & Regional (-13%) and British Land (-4.6%) and Landsec (-3.4%).
On a more positive note, many other sectors of the UK property landscape, provided safe havens away from the retail malaise with healthcare (Assura +1.9%), student accommodation (GCP +1.3%, Empiric +0.7%, Unite -2.1%) and even London offices (Great Portland +0.1%, Helical Bar (+3.7%) providing positive or modest negative performance in the month. However as always it was also stock specific and occasionally surprising with Workspace (-13.4%) us given a perfectly adequate set of interim results.
The only major corporate activity was Grainger announcing a rights issue to acquire APG’ stake in the GRIP a London-focused private-rented residential portfolio, which sent the share price down -6.6%.
German residential remained much more robust and the German component of the benchmark (c85% residential) rose 4.0% in the month aided by the 10yr Bund yield falling from 0.38% to 0.31% with the largest player (and the Trust’s largest position) Vonovia (+5.8%) being the best performing residential stock . However this performance was soundly beaten by TLG (+7.6%) which is enjoying a resurgence in popularity following a change in management and ongoing share purchasing by its largest shareholder.
Other European companies to buck the negative trend included NSI (+3%) and Befimmo (+6.7%), the common denominator was that both companies’ had well received capital markets days.
The weakest markets in Europe were those companies exposed to shopping centres and Paris offices. The former seeing spillover in negative sentiment from the UK and the latter suffering from the political unrest and disturbances in Paris. Unibail continues to suffer with -5.2% in the month and -22.5% YTD. Icade (-6.5%) was the worst performer amongst the office names.
The Trust’s went ex div 4.9p (an increase of 5.5% on the previous H1) on 29th November.
Discrete performance as at 30.11.2018 (%):
Source: BMO Global Asset Management, Lipper.