September 2020

By | 9th October 2020

Pan European real estate equities fell -0.58% (when measured in GBP) with the Trust’s NAV falling slightly less at -0.22%. The share price fell -4.3% as the discount widened to an attractive level of -15%. When viewed in EUR the sector fell -1.5%, the weakening of GBP added to absolute returns.

The sector has now travelled in a tight 6% peak to trough range since the end of May. September saw the range tested with a +6% move mid month which then fell away, recording the small negative performance by month end. However a key feature of the current market environment is the constant reminder that ‘not all property is born equal’ and the spread of returns at the asset class, country and stock levels remain historically wide. This month the outstanding result came from Sweden. Investors couldn’t get enough of the country which appears to have found a path of virus management coupled with a strong return to the office and a sense of ‘almost business as usual’. Clearly lower population densities and smaller cities helps with environmental health but the return to the office is a self-fulfilling prophecy and investors like what they see. Six companies saw monthly returns in excess of 20% with Balder returning +32.1%, office focused stocks such as Wihlborgs (+28.3%), Kungsladen (+24.3%) and Fabege (+18.0%) did well with just Pandox (+5%) the hotel owner as the underperformer.

Elsewhere, retail property names were again under pressure with the conclusion of the Hammerson £550m (virtually) total recapitalisation (24 for 1 rights issue) with 94% take up amidst the rumour that an extra bank was drafted in last minute for the underwriting. However, Unibail was the new news and main focus with its announcement of a €9bn ‘Reset’ comprising €3.5bn capital raise, dividend cancellation coupled with a planned €4bn of disposals. The share price fell -19.6% bringing the YTD correction to -73.8%. The huge divergence in relative sub-sector performance continues to be brought sharply into focus with a number of offensive (ie positive) capital raisings as opposed to the ‘defensive’ deeply discounted ones we have seen from the likes of Hammerson and Unibail. Vonovia raised €1bn in an overnight ABB whilst Supermarket Income REIT and Urban Logistics REIT both announced raises to acquire further assets in their respective popular sub-sectors.

London continues to suffer from low levels of office occupancy and this combined with the 10pm entertainment closing requirement and limitations on gatherings has impacted office, retail and hospitality assets. Shaftesbury and CapCo, both tested 10 year lows before recovering slightly. Sentiment also weighed on student accommodation names as local lockdowns on campuses fuelled renewed concerns. Unite fell -13.3% in the month but we continue to believe that the Government will focus on keeping educational premises of all levels open.

September is the half way point in the financial year and the physical property assets are revalued at the interim and at the year end. The September independent valuation was £92.37m (c7% of net assets) which adjusted for capital receipts and expenditure saw a -2.6% decrease in value over the six months. This fall was primarily due to the valuer’s reduction in estimated rental values of the small number of non-food retail units at the Colonnades in Bayswater. Post this valuation movement, the six months NAV total return was +14.7%, whilst the benchmark rose +9.8% and the share price total return was 11.3%.

Discrete rolling annual performance as at 30.09.2020 (%):

Share Price9.8019.8615.877.31-15.59

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