Indirect investment market: Jones Lang LaSalle market commentary

UK market overview

The Jones Lang LaSalle Balanced Fund Index rose 0.34% in April, compared with 0.30% in March, writes Julian Schiller. The index has risen 1.32% since the start of the year and 4.18% in the past 12 months.

Taking into account secondary market pricing, the 12-month return falls to 1.18%, suggesting that the average cost of entry to balanced funds via the secondary market is 3% lower than a year ago.

Balanced funds

The marginal fall in secondary pricing is largely down to a slowdown in balanced funds’ net capital inflows. The most liquid funds are trading at above net asset value, while less frequently transacted funds are priced by the market at just below NAV.

However, in most cases, pricing is above the bid price for frequently traded funds. This is common when unit holders expect to achieve redemptions quite quickly and acts as a floor for secondary market pricing. A number of sub-£5m deals recently occurred in Hermes PUT and Threadneedle PUT at small premiums to NAV.

Shopping centre funds

The ungeared shopping centre secondary market is still buoyant, with several recent deals in funds managed by Henderson and Standard Life. Furthermore, following Lend Lease Retail Partnership’s restructuring, this fund has seen a notable increase in interest from potential buyers.

Pricing is in a relatively narrow range for these three ungeared funds, but is, of course, influenced by volume. However, in general,  these funds transact at discounts of around 3-7% to most recent NAV.

Interest in geared shopping centre funds, such as the Mall and Grosvenor Shopping Centre Fund, has increased, but deals have yet to materialise. The market expects liquidity to pick up in the coming months, driven by improved property fundamentals and gearing-related issues being resolved.

Retail warehouse funds

Secondary pricing in this sector has further improved, with a number of deals suggesting that discounts continue to move closer to NAV. Discounts for those funds managed by Standard Life, Henderson and Schroders ranges from around 3% to 8%, but demand for units in other funds remains minimal.

Industrial funds

The difference between buyers’ and sellers’ price expectations is still too big an obstacle for most investors in this sector. With only a few active buyers and sellers, deal volumes are very low, with a focus on IPIF and Falcon.

Deals that do occur remain at discounts of around 2-5% to prevailing NAV for these funds. In Falcon’s case, these relatively small discounts are largely driven by favourable liquidity provisions and an ungeared portfolio.

Some interest has emerged for the sector’s higher geared funds, such as Industrial Trust and Ashtenne, and their associated discounts have improved slightly.

Office funds

Several investors remain focused on gaining central London exposure, but the premiums of around 1-2% on offer are insufficient to tempt most potential vendors, specifically of Henderson Central London Office Fund and WELPUT. Activity for regional office funds remains practically nonexistent.