October 2021

By | 23rd November 2021

Pan European real estate equities enjoyed a healthy recovery after the weakness seen in September. The Trust’s net asset value (NAV) rose +4.4%, while the benchmark gained +3.7%. The share price didn’t quite keep up with the NAV and rose +3.6%. Continental European real estate equities performed strongly and collectively rallied +5.5% in euro terms. Meanwhile, UK companies gained +3.6% in sterling terms.

Sweden was the strongest single market and rose +14.1% in Swedish Krona. With the expectation that the Riksbank will remain as dovish as the ECB, investors bought back into the risk/reward of highly leveraged property companies. The strongest performers were, indeed, the most leveraged, namely SBBB (+18.8%), Sagax (+22.7%) and Nyfosa (+17%). Corem’s +22.8% price gain surprised us as the bulk of its assets are the ex-Klovern portfolio, which has never traded at this type of premium to its asset value. Many Swedish companies have returned to valuation levels which we consider to be unsustainable, however, momentum remains strong.

Elsewhere, we saw several strong individual rebounds such as Safestore (+14.6%) and LondonMetric (+9.3%) in the UK. Neither of these companies had delivered new information to the market, but both had suffered -9% corrections in the previous month. In our sector, a big negative movement came from Deutsche Wohnen (-16.3%), which fell sharply from Vonovia’s €53 per share bid as the latter reported offer take-up of 88% from Deutsche Wohnen shareholders. This triggered substantial downward re-weighting in various indices. An even larger correction occured in Germany, where Adler (-23.7%) was publicly accused of fraud by a short seller. Vovonia stepped in to acquire a 13% stake through an 18-month call option. Meanwhile, a few days later, another large residential business called LEG signed a letter of intent to buy €1.3bn of assets through a share deal with Adler. As we own both Vonovia and LEG, we are hopeful that they have identified an over stretched vendor; but, only time will tell. Also in Germany, CTP (the newly listed Eastern European logistics developer) agreed to buy Deutsche Industrie (DI) at a 48% premium to the undisturbed price. DI owns industrial property and development land in Germany, which is a market that CTP has been trying to enter. This is positive news for our German holdings in Sirius and VIB Vermoegen given that the bid price reflects a net yield of 3.6% versus DI’s pre-bid yield of 4.5%.

In France, Icade postponed the listing of its healthcare subsidiary, Icade Sante, due to volatile market conditions in September. We expect them to try again in the first quarter of 2022. Healthcare, with its traditionally long, secure and index-linked income streams, remains a popular inflation hedge for institutions looking to match long term liabilities.
The weight of capital seeking real assets remains strong. We expect more M&A activity from either existing listed companies using premium rated paper (e.g. CTP) or from private equity, which can use higher levels of leverage (than public markets will accept) to ‘juice’ returns.

Our interim results (for the six months to 30th September), and the interim dividend will be announced on 3rd December.

Discrete rolling annual performance as at 29.10.2021 (%):

20212020201920182017
NAV33.92-12.2015.796.5913.52
Benchmark27.54-16.1311.423.109.15
Share Price44.42-18.5815.4911.0328.44

Past performance should not be seen as an indication of future performance