Columbia Threadneedle is to reopen its property fund after suspending it from trading on 6 July following significant outflows from retail property funds and high levels of redemption requests, due to the vote to leave the European Union (EU). Investors will be able to take money out of and put new money into Threadneedle UK Property Trust (GB00BQ3G0Y06) and its feeder fund (GB00BQ3G0Z13) from 26 September.
A number of open-ended commercial property funds suspended redemptions because they did not have enough readily realisable assets to meet them. However, since July Threadneedle UK Property has completed, exchanged or agreed to sell 25 properties worth £167m across various UK regions and property types. Threadneedle says the prices achieved were in aggregate less than 1 per cent down from the last independent valuation before the referendum.
One of the other suspended funds, M&G Property Portfolio (GB00B89X8P64), has reported being able to sell assets at a price not less than they were valued at before the vote for Brexit.
Threadneedle says £100m of prospective sales were identified and prepared in advance of the EU referendum to mitigate any potential adverse consequences. This meant that ready buyers were found for properties that offered undemanding lot sizes and reasonable income returns with defensive characteristics. The company added that robust management of liquidity is core to its investment process and that it does not populate the portfolio with trophy assets, which can carry high levels of execution risk when selling.
Threadneedle UK Property also has minimal exposure to large Central London properties where international demand is focused, particularly offices in the City of London. This are concerns that this area maybe affected by redundancies or companies relocating abroad as a result of the Brexit vote.
Threadneedle UK Property Trust will reopen without redemption penalties on a bid pricing basis just as before its suspension. During the suspension the fund's price was not altered through any form of fair value pricing adjustment, something that has been applied to other property funds.
However a number of UK commercial property funds remain closed, including Henderson UK Property and Standard Life UK Real Estate (GB00BYPHP643). Aviva Investors Property Trust (GB00B7RBQM86) says that it will not reopen until at least February next year due to the time it takes to sell commercial properties.
However, Sam Lees, head of research at fund information and dealing site FundExpert.co.uk, argues that UK commercial property is in a better situation than in 2007-08, with lower debt levels and less financial engineering driving performance.
"London property was expensive before the vote, but there was value around the rest of the country," he says. "We are certainly not likely to see the double-digit levels of returns that we saw back in 2014-15. But commercial property outside London still offers attractive yields and we're already seeing a reversal of the post-referendum sell-off. In a world where income is increasingly hard to come by, commercial property funds remain attractive."
Mr Lees has analysed a number of open-ended funds and finds that the downward property price adjustments - fair value adjustments - have started to be reversed.
UK commercial property funds sorted by maximum fall from pre-vote point
| Fund | Trading status | Maximum fall (%) | Current position (%) | Income yield (%) |
|---|---|---|---|---|
| F&C UK Property | Open | -12.33 | -3.76 | 3.5 |
| Henderson UK Property | Closed | -10.2 | -9.28 | 3.2 |
| Kames Property Income | Open | -13.86 | -10.67 | 4.82 |
| L&G UK Property | Open | -13.57 | -3.83 | 3.9 |
| M&G Property Portfolio | Closed | -14.17 | -12.63 | 3.42 |
| Threadneedle UK Property | Open | -8.23 | -8.23 | 4.4 |
Source: FundExpert.co.uk as at 8 September 2016
"If the experience of L&G is anything to go by both Kames and Threadneedle still have the potential to erase 5 to 10 per cent of the original fall," he says. "And these funds also have attractive yields for income-starved investors."
Meanwhile, Don Jordison, managing director of property at Columbia Threadneedle Investments, argues that "any effects of the Brexit vote on the overall UK economy - negative or otherwise - will take many months if not years to transpire and some time after that for the property market. In the current climate of low growth and low returns from other asset classes, and with the UK property market yielding 5 per cent, UK property offers a significant inbuilt risk premium for long-term investors."
