September 2014

By | 16th October 2014

Equity markets across the globe weakened in September and pan European property equities were no exception. The Trust’s benchmark, FTSE EPRA / NAREIT Developed Europe TR Net (in GBP) fell -3.8%, whilst the Income NAV fell a little less at -3.1%. The share price ended the month -5.1%. September marks the interim valuation point (March year-end) and the NAV in the first half rose 4.49% whilst the benchmark returned 2.58%. Property equities underperformed the Euro STOXX 600 which rose 0.42%.

The anticipation of the next development within the ECB’s evolving stimulus package continues to dominate market behaviour. Investors were disheartened by the initial lack of take up by the banks of the offer of further cheap loans. The hope is now for more aggressive asset purchases, although of course, the question of which nation’s assets are acceptable collateral highlights one of the Eurozone’s more fundamental flaws.

Purchase of Greek bonds will have conditionality – the deficit reduction programme must continue. With no firm balance sheet expansion target figures given by the ECB, investors remain in a state of uncertainty as to how to quantify this latest response.

Coupled with further poor manufacturing and purchase pricing data which points to more deflationary pressures, the short term market reaction was as expected.

Amongst the larger Eurozone nations France was the poorest performer, -7.1%, reflecting continued weak economic data and negativity towards consumer facing businesses (particularly retail) Mercialys fell -8.4%. Fonciere des Regions suffered from its Italian subsidiary, Beni Stabili (-6.6%) announcing a deeply discounted rights issue. Finland was weak again, -9.0%, with the impact of sanctions in Russia weighing on its major trading partner and neighbour.

The UK fell -2.8%, whilst this was less than the broader index when measured in GBP, the Eurozone matched that return when viewed in local currency. It was the weakness of EUR which drove 1/3 of the weaker performance as the fund and its benchmark are measured in GBP. Within the UK, the weakest names were residential (Grainger -10.6%) followed by Hammerson (-5.6%) which announced a 9.9% overnight raising to fund additional investment in Leicester and its outlet mall JV.

The fund’s direct property portfolio is valued at the interim and full year. The like for like valuation growth was 5% in H1. With the completion of the sale of Vauxhall (£14.47m) and the acquisitions of Plymouth (£3.43) and Bristol (£4.82m) the property portfolio is currently valued at £69.9m (8% of net assets).

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