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Wednesday, 26 February

Two...Make that Three Multi Billion Property Funds - Trading Suspended

 

Both Aviva and Standard life have suspended trading in their UK commercial property funds - Standard Life announced the move on Monday with Aviva following suit on Tuesday afternoon...although both funds were officially frozen at noon on July 4.

On Tuesday July 5 (with the announcement available on Wednesday morning) M&G Investments (M&G) announced a temporary suspension of trading in the shares of the M&G Property Portfolio and its feeder fund.

'Investor redemptions in the Fund have risen markedly because of the high levels of uncertainty in the UK commercial property market since the outcome of the European Union referendum' the international asset management firm stated. 'Redemptions have now reached a point where M&G believes it can best protect the interests of the funds’ shareholders by seeking a temporary suspension in trading. This will allow the fund manager time to raise cash levels in a controlled manner, ensuring that any asset disposals are achieved at reasonable values'.

JLL's Guy Grainger, speaking on Radio 5's morning Money programme at about 5:00am on Wednesday said it would not be unusual to suspend trading if there was a big run of individuals attempting to remove their investments from Funds as the fund manager will have to dispose of properties to release the money...this naturally could take some time.

Fortunately for investors, the M&G and Aviva Funds have been growing at 30 and 40 per cent - they have made fantastic returns despite yields (rent to property value) being relatively low. Some experts were expecting investments in UK commercial, office, retail and industrial & warehousing property to slow as they had peaked in value before any suggestion of a Brexit referendum. However, that said, Bank of England Governor Mark Carney has reported a 50 per cent decrease in commercial property investments in the first quarter of this year...getting worse as an Out vote loomed as a possibility.

The Standard Life, Aviva and M&G Funds are all 'retail funds' meaning that they are open to individual investors and it is those individual investors who have been attempting to withdraw their investments. Institutional investors, utilising different Funds, do not seem to have panicked in the same way...and indeed may well be hovering in the hope of picking up some commercial property at lower prices as a result of selling and a low value Pound.

 

Aviva

An Aviva Investors spokesperson said: “The extraordinary market circumstances, which are impacting the wider industry, have resulted in a lack of immediate liquidity in the Aviva Investors Property Trust. Consequently, we have acted to safeguard the interests of all our investors by suspending dealing in the fund with immediate effect.

"Suspension of dealing will give Aviva Investors greater control in managing cashflows and conducting orderly asset sales in order to meet our obligations to investors wishing to redeem their holdings.”

 

Standard Life Investments UK Real Estate Fund

A Standard Life Investments spokesperson provided ThisWeekinFM with a written statement which read: “Due to exceptional market circumstances, Standard Life Investments has taken the decision to suspend all trading in the Standard Life Investments UK Real Estate Fund (and its associated Feeder Funds) from 12:00 noon on  July 4 2016.

“The decision was taken following an increase in redemption requests as a result of uncertainty for the UK commercial real estate market following the EU referendum result. The suspension was requested to protect the interests of all investors in the fund and to avoid compromising investment returns from the range, mix and quality of assets within the portfolio.

“The Standard Life Investments UK Real Estate Fund invests in a diverse mix of prime commercial real estate assets from across the office, retail, industrial and other sectors. Its lower risk positioning should be beneficial for performance in times of market stress and uncertainty. The fund continues to offer a stable and secure income return with a distribution yield of c3.86% (SLI UK Real Estate Fund, Institutional Income Share - class on 15 June 2016).

“However, unlike investing in equities, the selling process for real estate can be lengthy as the fund manager needs to offer assets for sale, find prospective buyers, secure the best price and complete the legal transaction. Unless this selling process is controlled, there is a risk that the fund manager will not achieve the best deal for investors in the fund, including those who intend to remain invested over the medium to long-term.

“Approval for the suspension was received from Citibank Europe plc, in its capacity as Depositary for the fund. The suspension will end as soon as practicable. It will be formally reviewed at least every 28 days.”

 

28 day review

M&G, like its counterparts will review the suspension every 28 days. Orders placed after 12pm on 4th July 2016 will not be processed until the suspension is lifted. The M&G Property Portfolio invests £4.4 billion in 178 UK commercial properties across retail, industrial and office sectors. On July 1 M&G applied a 'fair value adjustment' equivalent to a 4.5 per cent reduction of the net asset value of the Fund.

 

Aviva facts and figures

At the end of May the fund size was £1.8 Billion. Aviva Investors manages £290 billion. Over recent months Aviva has been experiencing higher than usual volumes of requests to redeem investment in the Trust. This, coupled with challenging market conditions and investor sentiment, has led to a lack of immediate liquidity and thus Aviva has taken the decision to suspend dealing.

"We expect the strategic changes made to the portfolio in recent years will help the fund weather the headwinds facing the UK real estate market," said ThisWeekinFM's contact. "Importantly, the Trust’s overall positioning has reflected our desire to reduce risk in the portfolio as we have moved towards the end of the current property market cycle."

Income payments will continue as normal. The level of income from the Trust depends on the investment income it generates from rents and tenants, so is not directly affected by the suspension in dealing.

The Aviva portfolio has been upgraded in recent years by selling older assets and reinvesting the proceeds in modern, well-located properties in markets with an imbalance between available supply and occupational demand. Properties that are considered to be at the end of their growth cycle and those where there are opportunities to obtain premium prices may be sold.

Picture: Trading has been suspended in both the Aviva and the Standard Life property funds

Article written by Brian Shillibeer

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