Pan-European broad equities (measured by the STOXX Europe 600 index, in euros) generated total returns of +6.7%. They shrugged off poor corporate earnings releases and dreadful macroeconomic news flow in April, warmed by the enormous central bank and government support actions. Pan-European property stocks (EPRA Developed Europe, sterling, total returns) returned +1.7%, lagging the wider market. This was possibly due to concerns over surging debt spreads, lease length potentially undermined by bankruptcies, dividend cuts, and a worsening outlook for the consumer-facing property sub-sectors, such as retail, hotel, leisure and serviced offices. However, the picture wasn’t quite so bleak when viewed in euros, with total return for the month at +3.7%. Sterling strengthened over 2% versus the euro over the month, carrying on its bounce from the mid-March lows. The Trust’s net asset value (NAV) rose +2.0% while the share price was up +5.5%, as the discount percentage tightened to single figures.

March 2020 saw the most dramatic real estate equity market performance in living memory (and certainly in the 24 years I have been involved in the management of TR Property). The net asset value (NAV) fell -19.8%, while the benchmark was down -19.1%. The share price fell by -26.7%. These were all unprecedented figures over the course of 22 trading days. When viewed from the sector’s peak of 19 February to the most recent trough (18 March), the NAV fall reached -37%. This information is historical, but what is still evolving – in real time – is companies’ response to the downturn in consumption and the dramatic falls in GDP. Our focus is on assessing the security (or fragility) of earnings alongside balance-sheet strength. To be clear, we do not currently draw strong parallels with the global financial crisis of 2008; the distress is on the balance sheet of the few rather than the many. The banks are not the real villain this time. Lenders and creditors have the backstop of central banks; margins will rise but liquidity is still broadly available. The exceptions to this statement are in the retail sub-sector, which was already drawn into the whirlpool of further devaluation long before COVID-19. The structural headwinds will now blow even harder as more consumers experience shopping without entering a shopping centre. There will be an immediate rebound in footfall when the lockdown ends, but we believe that this will be short-lived.

Pan European real estate equities – much like many other equity sectors – reached all time highs this month. This record statistic was swiftly followed by another more ominous one, that of consecutive daily market corrections. In the case of our index a fall of -9.1% between 21^st and 28^th February. The UK element of the benchmark was even weaker at -11%. Given the strong performance earlier in the month, the final tally for the benchmark return was -5.4% with the Trust’s NAV falling a similar amount in the month.

The start of the new decade saw a pause in the six-month long recovery of UK property stocks from their August lows. The ‘Boris bounce’ and election euphoria has dissipated for the moment, with UK property stocks collectively returning -2.8%. However, Continental European stocks picked up the baton, returning +3.1% in euro terms and +2.3% in sterling. With the two regions combined, our benchmark return was 0.87%, slightly ahead of our net asset value (NAV) total return of 0.68%. The weaker sentiment in the UK weighed on the share price, which fell -2.3%.

The last month of the decade saw a continuation of the theme that has been running since after the summer in listed real estate names, namely the outperformance of the UK and Sweden over the rest of Europe. The UK returned 4.6% (in sterling terms) and Sweden returned 6.6% (in Swedish krona terms), while the eurozone managed just 0.8%. Looking back over the calendar year, the UK returned 29.8% (in sterling terms) and Europe ex UK returned 25.2% (in euro terms), with Sweden over contributing at 52.6%. Given these hugely positive returns, it is a surprise that Switzerland – which usually outperforms when investors are nervous – delivered 39.3% (in Swiss franc terms). The answer lies, once again, in the market’s expectation of interest rate progression. Sweden’s Riksbank indicated that it was going to return its base rate to zero (from negative) but recent expectations point to nothing higher than that. The Swiss rates, meanwhile, remain firmly in negative territory, and therefore the offer from a local-listed property company of a solid 3% dividend yield, even if it has little hope of capital growth, seems ok. We believe there are better forward-looking returns to be had elsewhere in 2020 and have therefore very little exposure to Switzerland. Our UK overweight served us well in the second half of 2019 as investors took comfort from the growing expectation of a parliamentary majority for the Conservative Party. In the end, few predicted the scale of the majority and markets are now encouraged that the prime minister can drive a sensible dialogue with Brussels, ignoring the demands from the more extreme elements of his party. However, businesses need clarity as quickly as possible.