Standard Life’s property trust brushed off the losses made across the commercial real estate sector last year, after the political upheaval of 2016 created a tricky environment for the UK market.
The £446m Standard Life Investments Property Income trust saw its share price total return reach 7 per cent over the course of 2016, racing ahead of the FTSE All Share real estate investment trust index, which made a loss of 7 per cent over the same period.
The company also posted a net asset value total return of 4.4 per cent last year, helped by positive investment activity, according to a trading update published today (23 March).
While open-ended property funds have had a difficult year after suffering at the hands of the panicking investors following the Brexit vote, the closed-ended sector has not been as traumatised and recovered more quickly.
The trust’s chairman Robert Peto described 2016 as a “watershed year”, pointing out the real estate market was the first casualty of the political fallout, as Reit share prices fell and open-ended funds closed to redemptions.
Yet against such a background, he said Standard Life’s trust has performed well last year, even though it was anticipated real estate returns would slow in 2016, particularly after then chancellor George Osborne announced an increase in stamp duty.
Mr Peto said valuations have been volatile since the European Union referendum, falling in September but recovering somewhat by December.
Figures released this week showed that demand for property funds has returned after investors rushed to leave the sector in the months after the Brexit vote.
The trust had cash of £13m at the end of the year, which meant it could take advantage of opportunities, the trust chairman said.
The trust’s shares traded at a premium to NAV of 6.8 per cent at the end of 2016.
Despite the unprecedented levels of uncertainty, Mr Peto pointed out real estate still has some significant attractions as an asset class.
“In addition, there remains a significant gap between the attractive and historically stable yields currently being produced on real estate and those produced by other mainstream asset classes,” he said, adding this provides a buffer against any small increases in interest rates.
He said the portfolio is weighted towards the industrial sector, which is expected to be the strongest performing sector this year.
The management team decided to sell out of one of its largest assets last year, London office White Bear Yard, which they felt would come under pressure given the potential for a ‘hard’ Brexit, and where there was “letting risk” that could need significant capital expenditure.
Mr Peto added: “Overall, the company has a secure balance sheet, significant financial resources and a portfolio of assets which is continuing to provide strong income generation for shareholders.”