Legal & General has reduced the writedown of assets in its Legal & General UK Property Trust PAIF (GB00BK35DT11) and UK Property Trust Feeder (GB00BK35F390) funds from 15 to 10 per cent in response to what the manager says are stabilising conditions after the vote for Brexit.
Legal & General UK Property was one of a number of funds that imposed a fair value adjustment in the aftermath of the vote due to concerns over the value of its assets. The value of this fund was adjusted down by 5 per cent immediately before the referendum, and a further 10 per cent on 6 July, resulting in a 15 per cent value adjustment overall.
However, this week Legal & General Investment Management (LGIM) said it was reducing the level of the adjustment, one of the first positive pieces of news for the property market after being hit by a period of intense volatility following the vote. "While it remains difficult to predict the exact impact of the vote to leave on commercial property values, conditions in the market and within our peer group have started to stabilise since 6 July," said LGIM.
However, the manager has moved to weekly portfolio valuations to keep on top of shifts in the market.
After the vote for Brexit property funds were hit by high numbers of investors running for the exits, but property assets can take time to buy and sell, so property fund managers suspended redemptions to avoid having to sell assets at fire-sale prices and disadvantage remaining fund investors.
Many of these funds, including Standard Life Investments UK Real Estate (GB00BJZ2V336), Henderson UK Property (GB00BP46GG64), Threadneedle UK Property (GB00B5YCSL38) and Aviva Investors Property Trust (GB00B7RBQM86) remain closed.
Despite downgrading the value of its portfolio, Legal & General UK Property still allows investors to buy and sell the fund. A number of other funds, including Henderson UK Property, F&C UK Property and Kames Property also implemented fair value adjustments, downgrading their portfolios by between 5 and 15 per cent in anticipation of receiving lower prices for their assets when they came to sell.
Aberdeen UK Property Fund (GB00BTLX1G31) and Aberdeen UK Property Feeder Unit Trust (GB00BTLX1Q39) imposed a 17 per cent exit penalty on investors wanting to leave instead of halting trading, to protect investors remaining in the fund from the cost of selling out of assets. It suspended trading on 6 July before reopening on 13 July to allow investors to change their mind before redeeming with the levy.
Those moves were taken with little evidence to go on due to a lack of buying and selling in the wake of the vote.
Property funds affected
| Funds with market value adjustments | Funds closed to investors |
|---|---|
| Standard Life Investments UK Real Estate | Standard Life UK Real Estate |
| Henderson UK Property | Henderson UK Property |
| Aberdeen UK Property | Threadneedle UK Property |
| Kames Property | Aviva Investors Property Trust |
| F&C UK Property | M&G Property Portfolio |
| M&G Property Portfolio | |
| Legal & General UK Property |
Source: Hargreaves Lansdown as at 18 July 2016
Despite uncertainty over the value of UK commercial property, five UK property investment companies have reported no substantial changes in their net asset value (NAV) over the second quarter. Custodian REIT (CREI), Ediston Property (EPIC), F&C UK Real Estate (FCRE) and Picton Property Income (PCTN) achieved positive NAV returns over this period, while F&C Commercial Property's (FCPT) only reduced by 0.70 per cent. Ediston Property experienced the biggest uplift in NAV, increasing by 0.54 per cent over the second quarter.
But Ewan Lovett-Turner, analyst at Numis Securities, said any Brexit impact would not yet appear in the figures due to the fact that none had been buying and selling assets between 23 June and the end of the month.
"We expect a clearer picture on NAVs to emerge at 30 September once a material number of post-Brexit transactions have completed," he said.
Share prices, by contrast, dipped dramatically last month before rebounding. "Shares are pricing in an expectation of yield correction," explained Mr Lovett-Turner.
