UK market overview
Over the summer, the overall picture has been one of an improving economy and increasing demand for indirect property exposure, writes Ashley Marks. This has caused an increase in bids from potential investors, with a material and positive impact on pricing across all sectors.
Of all the types of funds, UK balanced funds continue to attract the most interest. Large sums have been allocated to some, with cash queues starting to form. In addition to the typical indirect buyer, much of this equity has come from asset allocators seeking real estate exposure that is representative of the entire UK market. Increased interest has moved secondary market pricing far closer to funds’ offer prices. For example, Lothbury and Hermes PUT have attracted 3%-plus premiums. Schroders UK Property Fund and Threadneedle PUT are close behind at above 2% premiums. Pricing in other balanced funds continues to improve, such as Blackrock UKPF (now at around a 1% premium) and Henderson UK Property (priced just below NAV).
Retail demand has been buoyant, although volumes have not been as high as in previous months. Sellers of the stronger performing funds remain scarce, unless at levels buyers are largely unwilling to meet. Lend Lease’s, Standard Life’s and Henderson’s shopping centre funds, typically prominent in the secondary market, are all priced at around 5-8% discounts to NAV.
It will be interesting to see how much impact Hansteen’s recent takeover of Ashtenne’s management will have on secondary market pricing. The injection of equity in particular can be expected to have a positive impact on pricing, which has stood at discounts of 40% for some time. Pricing for L&G’s IPIF continues to improve and now stands at around NAV, compared with around a 3% discount just two months ago. SWIP AIPUT also remains in demand, with pricing moving from around a 1% discount in July to between NAV and NAV +1% premium. But sellers of both funds are still scarce.
Pricing for WELPUT remains stable, with some transactions occurring at around a 2% discount to NAV. HCLOF pricing continues to move outwards and is now close to a 5% discount to NAV, as investors wait for the outcome of its proposed extension.
L&G Leisure remains at above a 1% premium to NAV. Despite its on-going equity raising, Unite continues to transact at modest discounts of between 2% and 5%.
Appetite for European funds has continued to build, with a larger number of participants expressing interest in performing vehicles with exposure to core locations and modest gearing.