Indirect investment market: Jones Lang LaSalle market commentary

UK market overview

The Jones Lang LaSalle Balanced Fund Index showed a 1.07% monthly increase in February, reflecting a 1.8% increase over the past 12 months – the first positive 12-month figure for some time, writes Julian Schiller. Taking into account secondary market pricing, the index has moved closer to par, at -6.39% for the 12 months to the end of February.

Balanced funds

Activity in the balanced funds sector has been relatively high, but this has taken the form of many small deals, rather than significant volumes being transacted. Given the high level of demand for balanced fund units and the continued lack of availability of larger holdings for sale, pricing has been at, or even above, funds’ offer price (typically a 3-6% premium to prevailing net asset value). These premiums to NAV will remain for the time being, or at least until the number of vendors is enough to dilute this pent up demand.

Retail warehouse funds

Investors’ opinions on the medium-term prospects for retail warehouse funds continue to diverge, with a corresponding impact on views of fair market value. That said, sizeable deals continue to occur in the Henderson Retail Warehouse fund and Hercules Unit Trust at quite substantial premiums to January NAV.

Shopping centre funds

The limited number of deals that have occurred have been completed at premiums of 3-7%. Pricing has fallen since January on a relative basis only, as the funds have by and large increased on an absolute price per unit basis over the month. The most sought after shopping centre funds include Lend Lease Retail Partnership, and those managed by Henderson and Standard Life.

Industrial funds

A small number of significant deals have taken place in the industrial sector. There was a trade in IPIF, the most frequently traded industrial fund, at a premium of around 7% to December NAV. However, in the final month of each quarter there is usually a pause in trading, as investors seek clarity on fund pricing prior to their results being released. So activity is now expected to be limited until the start of the second quarter. Demand is still restricted to those funds with lower gearing and more prime assets.

Offices and alternative sectors

There have been no transactions of note in the office sector this month to our knowledge, mainly because of the relatively large difference between buyers’ and sellers’ opinions of pricing. Vendors continue to seek premiums of above 6% for the HLCOF and WELPUT funds – a price that most potential buyers refuse to meet.