November 2019

By | 19th December 2019

Pan-European real estate equities enjoyed a solid month. The Trust’s net asset value (NAV) increased by 2.5% in November, while the benchmark rose 1.4%. At the regional level, the UK and Europe (in local-currency terms) performed almost identically, with the UK up 2.4% and continental Europe up 2.5% in euro terms.

Politics dominated news flow in the UK. Sterling continued its steady climb (from the August lows), gaining 1.2% in November and a further 1% in the first week of December. This points to the market’s (current) expectation of a business-friendly outcome. UK property stocks’ earnings are almost entirely domestically generated, with a handful of exceptions (c.45% of Segro and a handful of small-caps, such as Sirius Real Estate and Phoenix Spree Deutschland, that have 100% European exposure). UK property stocks returned 2.4%, but with sterling strengthening, European stocks rose just 1.0% (in sterling terms). Large caps and alternatives dominated performance. The former group offers generalist investors liquid access, and the latter group saw buying interest on the back of results and market updates. The standout contributors for the Trust were Safestore (+7.9%), Unite (+11.2%) and Sirius (+10.2%). Sirius, the German workspace provider, has enjoyed a stellar year (+37.6% in the year to date); it has been justly rewarded with inclusion into the FTSE 250. London office stocks had a strong month, as investors factored in the expectation of a Conservative majority unleashing pent-up occupational decision-making. Great Portland gained 6.1% and Workspace was up by 9.5%. Investors continue to buy London offices, and our largest micro-cap holding (McKay Securities) is rumoured to have strong interest in the sale of its flagship office investment, 30 Lombard Street.

Landsec (+3.2%) and British Land (-7.3%) both released interim results. The subsequent gap in share-price performance reflected the market’s unhappiness with British Land’s relative overweight exposure to retail versus Landsec. However, the gulf in performance between the two has corrected in early December. Both companies suffer from little organic growth (outside of developments) and are weighed down by underperforming retail. The good news is that both have loan-to-value ratios of under 30%, and therefore have firepower for the future. Landsec announced that Mark Allen will succeed Rob Noel as CEO. We are pleased with this appointment. given Mark’s track record at Unite and St Modwen.

In Europe, Sweden was the standout performer, returning 6.4% (in Swedish krone) following a weak October. SBBB announced that it was taking over Hemfosa, which duly rose 17.5%, close to the bid price. Catena, the logistics investor/developer returned 12.2%, as the sector continued to attract capital and register record transaction evidence.

Spain (-1.6%) was the weakest region, with all three companies in the benchmark recording small negative performances. Our largest exposure is to Arima (+11.9%), which responded well to an upsized capital raise (€150m). The Trust participated in the raise at €10.4 per share and the stock ended the month at €11.5 per share.

In the physical portfolio, we are delighted to confirm that we have received planning permission, subject to completion of a section 106 agreement, on Ferrier Street Industrial Estate, Wandsworth. Currently 35,000 square feet (sq ft) of light industrial in 16 units, the consent significantly increases the built area, with 106 residential units, 60,000 sq ft of light industrial and 50,000 sq ft of office accommodation. Also included are significant upgrades to the public realm, increasing the size of the station square and a new public playground for local residents.

Discrete rolling annual performance as at 29.11.2019 (%):

20152016201720182019
Fund15.344.7223.463.8920.11
Benchmark9.845.3217.751.1113.91
Share price9.44-1.0236.884.9824.41