M&G property portfolio remains suspended as it struggles to boost cash levels
The M&G Property portfolio remains suspended, according to the fund's latest update this morning, as both the fund's authorised corporate director and depositary continue to agree they can "best protect the interests of all its investors by continuing the temporary suspension in dealing in its shares."
Originally suspended on 4 December 2019 due to "unusually high and sustained outflows", which the firm attributed to "Brexit-related political uncertainty and ongoing structural shifts in the UK retail sector", the update has also restated that its independent value, Knight Frank, continues to apply a statement of material uncertainty to its valuation, which it has since 17 March 2020.
The fund has also cited the lockdown leading to transactions in commercial real estate stalling, noting that it currently has approximately £197m under offer for sale, "albeit with reduced certainty of completion whilst social distancing measures continue".
A reopening of the fund is contingent on both cash levels rising, which are set to increase from 7.3% to 17.7% assuming all assets under offer are completed, and on the removal of the material uncertainty clause.
Tony Brown, global head of M&G real estate, said: "Although there is a significant amount of capital waiting to enter the market, for practical reasons we are seeing a considerable slowdown in capital markets activity and it is likely to be some time before investment volumes recover to more normalised levels.
"In the interim, the fund management team remains focused on actively managing the portfolio through this challenging period."
Commenting on the continued suspension of the fund, Ryan Hughes, head of active portfolios at AJ Bell, said: "This is not likely to be a problem solved overnight, particularly when you consider that even once lockdown restrictions are eased and the property market can pick up again, a number of businesses will have failed and no longer need premises while the future of office space has a large question mark over it as more people adopt working from home practices."
He also noted M&G's warning that income will be hit due to less rent collected in March, which is "a trend that is likely to continue into summer", and pointed to "a sharp reduction in the value of assets when the funds do re-open".
"Current direct property funds are only down around 3% year to date, but many real estate investment trusts are down a much sharper 25% to 50% and trade on wide discounts to net asset value."
Hughes concluded: "As a result, investors in the suspended funds should brace themselves for potential sharp falls in value once property transactions pick up and valuers have a sense of how much commercial properties are now worth in a very different economic environment."
by Tanya at http://www.ifacareers.today
Daniel van Niekerk
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