Premium income or discounted ‘growth’? – The Property Chronicle
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Premium income or discounted ‘growth’? The latest on the real estate investment trusts

The Fund Manager

Abstract arrows and numbers

In the last few weeks central bank watchers claim to have detected a new mood emerging from this summer’s gathering of the clan. A desire to follow the Fed down a path which leads to ‘normalisation’ of interest rates and the unwinding of QE in an informal ‘Sintra pact’. Even our own Mark Carney has added his two penneth with a heavily conditional hint that if the UK economy survives Brexit, it will be necessary to raise rates. That would be a nice problem to have. In the meantime, we are going to need all the help we can get.

The upshot was another taper tantrum, taking the US ten year from 2.15% to nearly 2.40%, the German Bund from 0.25% to 0.55% and our own ten year gilt yield from 1.00% to 1.30%. These are big moves by any standards but it is important to keep them in context: the ten year gilt was 1.50% at Christmas. The damage to the listed real estate sector was modest but it did take the major REITs back to levels last seen a year ago in the wake of the Brexit vote.

In past cycles the tone has been set by the majors which sustained premia to NAV when property values were expected to grow quickly and discounts when they were expected to decline. Fast growing smaller companies traded at bigger premia in the upswings and bigger discounts in the downswings. It all made sense. Which makes it all the more difficult to rationalise current pricing across the sector.

The Fund Manager

About Adrian Elwood

Adrian Elwood

Adrian Elwood has been researching and investing in the listed real estate sector for over thirty years. He was a member of the listed real estate team at Henderson Global Investors from 2004 to 2010. In September 2012 he established The Clerkenwell Matterhorn Fund, a Malta domiciled PIF with an absolute return mandate to invest in the sector.

Articles by Adrian Elwood

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