M&G Property Portfolio

Questions you may have about the reopening of the M&G Property Portfolio and its feeder fund

We have announced the resumption of trading in our UK commercial real estate funds – the M&G Property Portfolio and its feeder fund.

In July, we took the decision to suspend trading in the funds in order to best protect the interests of the funds’ investors, as redemptions rose markedly because of high levels of uncertainty in the UK property market following the European Union referendum.

The M&G Property Portfolio is a broadly diversified fund which invests in UK commercial properties across retail, industrial and office sectors on behalf of UK retail investors. The fund’s value stood at £4.1 billion as at 19 October 2016.

Why has M&G decided to resume dealing?
We committed to resume dealing in the funds as soon as possible. For that to happen we needed confidence that the market had stabilised and the time to raise sufficient cash in order to meet likely investor redemptions. We are now in a more normal market environment and have raised sufficient cash from asset disposals to meet any likely redemptions.

When will you resume dealing?
As of midday, Friday 4 November. From that time, you will able to buy, sell or switch your investment in either of the funds.

What happens if I placed a buy/sell order during the suspension?
All sell and buy orders placed with M&G during the period of suspension will be processed on Friday 4 November. Proceeds of sales will normally be paid three days after the deal is placed.

What about switch orders?
Switch orders received before Friday 4 November will not be accepted. Should you wish to place a switch order for the day trading resumes, please give us your instruction on Friday 4 November before midday.

How can I find out what the value of my investment in the fund is?
The latest share prices which enable you to calculate the value of your holding can be found on the property prices and updates page  or you can phone us to ask for a current valuation.

Why did it take four months to reopen the fund?
The fund’s manager, Fiona Rowley, has carefully balanced her wish to resume trading as quickly as possible with the need to ensure that the portfolio is sufficiently well positioned to weather continued political and economic uncertainty. The temporary suspension has allowed Fiona to raise cash in a carefully controlled manner, taking a selective approach to disposals, and so in the best interests of the funds’ investors.

How many properties have you sold?
Up to 19 October, 58 properties had been sold, exchanged or placed under offer for a total value of £718 million.

Have you lost money selling these assets?
The overall discount on all properties sold, and agreed for sale, has been between 3% and 4% of pre-referendum values, supporting the decision to temporarily suspend the funds.

Has the fund materially changed as a result of the asset sales?
Fiona has tilted the portfolio towards more prime, higher quality assets and sold a greater proportion of lesser quality assets in sectors that are forecast to perform less strongly in the medium term.

Is the fund manager still selling properties?
As the funds are actively managed, at any one time we have a number of properties up for sale, reflecting the natural turnover of the portfolio.

What is the cash level in the M&G Property Portfolio?
The cash holding, as of 19 October, is £540 million – equivalent to 13.2% of the fund’s value. Several property sales are due to complete prior to 4 November, which will raise the cash holding to above 19%.

Will you maintain a larger cash balance moving forward?
The fund’s cash balance is likely to remain slightly above the 7.5% to 12.5% range, to help manage inflows and outflows that are likely to be more volatile during a period of continued market uncertainty. Fiona will aim to keep the cash level at around 15% in the near term.

Is there any chance the funds will suspend again?
We cannot predict the future. Property funds have been known to suspend trading, only to reopen again, as some have in this instance. The ‘Brexit’ vote was an extraordinary event. Suspension is an accepted tool to preserve shareholder value and we believe the fund is well positioned to meet potential investor redemptions.

Did suspension prove the right thing to do?
Yes – we believe suspension was the right course of action to take to best protect the interests of our funds’ investors. The alternative was to ‘fire sell’ the highest quality assets at considerable discounts to meet heightened redemptions. Suspension created an environment more akin to normal conditions, enabling the best selection of and orderly sale of assets, and so preserving the integrity and future of the funds.

Why have fund charges continued to be payable?
The funds have been actively managed throughout the suspension to raise cash as soon as practically possible selling assets at reasonable values. Income has continued to be paid out to investors or, where accumulation shares are held, reinvested.

How has the fund performed?
At a sector level, UK commercial property capital values fell by 4.0% in the third quarter of the year. Total returns, after taking rental income into account, were -2.7%. Over the same three-month period ending in September, the M&G Property Portfolio also generated a negative total return, of -4.2%. Comparisons with the fund’s peer group over these periods are somewhat meaningless, however, as performance figures have been distorted by a fair value adjustment and a price swing.

We have taken the following action during the suspension, which we believe will be beneficial moving forward:

  • Initiatives to secure longer leases, refurbishing properties, improving tenant mix etc.
  • The sale of good secondary assets to increase the proportion of prime assets
  • Reducing portfolio risk with the disposal of properties with lower occupancy rates, particularly in the office sector

What is Fiona Rowley’s short term view of the UK property market?
The market is more resilient than Fiona initially expected after the ‘Leave’ vote and transactions have recovered more quickly than anticipated. The latter is partly due to the falling value of the UK pound, which has made purchases cheaper for overseas buyers in their local currency. However, on balance, she feels property prices have not fully corrected yet and does not rule out further periods of weakness going forward, particularly as ‘Brexit’ negotiations begin.

What is Fiona’s long term view?
In Fiona’s opinion, many of the fundamentals that underpin the property market are still reasonably solid and it is not all ‘doom and gloom’. Compared to the aftermath of the global financial crisis, oversupply in the market is less evident; tenant demand is stronger; the banking sector is much healthier and equity, rather than debt, financing has played a more important role in property purchases over the past few years.

 

The value of investments will fluctuate, which will cause fund prices to fall, as well as rise, and you may not get back the original amount you invested.

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The value of investments will fluctuate, which will cause fund prices to fall as well as rise and investors may not get back the original amount invested. 
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