M&G Property Portfolio — Important information on the suspension of dealings

The Authorised Corporate Director of the M&G Property Portfolio (“the Fund”) has decided, with the agreement of the Fund’s Depositary, it can best protect the interests of all its investors by continuing the temporary suspension in dealing in its shares.

In addition, the Fund’s March month-end valuation, carried out by the Fund’s Standing Independent Valuer – Knight Frank – will include a statement of material uncertainty. This move has been taken by Knight Frank due to the spread and impact of COVID-19 on the commercial property market. In the absence of enough transactions on which to base accurate valuations, a higher degree of caution should be attached to all UK property assets than usual.

Unsurprisingly, potential buyers, particularly in the Retail and Leisure sectors, are pausing to reflect on the impact of COVID-19, but the fund managers remain encouraged by the continued purchaser interest - despite delays to contractual agreements.

Since our last update on 25 February, a £4.9 million asset has been sold with a further £39.8 million exchanged, bringing the total of assets which have exchanged or are under offer to £296.8 million.

Cash levels as of the end of February 2020 were 4.65% and assuming all assets under offer and exchanged complete, this will increase to 17.8%*. Please note, however, that despite an increasing cash position, re-opening the fund for dealing will also be contingent on the valuer removing the material uncertainty clause.

Tony Brown, Global Head of M&G Real Estate, says: “As anyone who has bought or sold a property will know, a key aspect to an asset sale is an inspection. In the current climate, however, buyers are either curbing travel plans or are not granted access by tenants, so this part of the process is taking much longer than usual. Our immediate focus is to exchange and complete on all assets that are already well progressed.”

Looking ahead, as the fund managers rebuild liquidity they will target a higher cash level than the previous range. As part of this process, we want to ensure the cash position stabilises at this increased level, having met client redemptions once the fund reopens for dealing. We will share more information with you on this in due course.

The Fund continues to be actively managed during suspension, with income payments and fund reporting as normal. M&G also continues to waive 30% of the Fund’s annual charge in recognition of the inconvenience caused to our clients and customers.

Fund activity update

• Exchanged since the last update: £39.8 million
• Cumulative total of completions since suspension: £74.8 million
• Exchanged/under offer: £296.8 million

We thank you for your continued patience and hope everyone is staying as healthy and safe as is possible at this difficult time.

*As at the end of February 2020, the cash held by the Fund was 4.65%. £296.8 million of assets are now in solicitors hands, or under offer, which will take the total cash holding to 17.8%, assuming all deals complete. There is no guarantee all deals will complete.

On 17 March, the M&G Property Portfolio’s Standing Independent Valuer - Knight Frank - advised that effective immediately, all UK independent property valuers agree there is material uncertainty on commercial property valuations. Unsurprisingly, market activity is being significantly impacted by Novel Coronavirus (COVID-19).

What does this mean? With buyers unable to inspect properties and subsequently not enough transactions on which to base accurate valuations, all valuers are faced with the same set of unprecedented circumstances. Consequently, less certainty – and a higher degree of caution – should be attached to all UK physical properties than usual.

The temporary suspension for M&G Property Portfolio and its feeder fund, which took effect on 4 December 2019 remains in place and the Authorised Corporate Director (ACD) and the Fund’s Depositary, have been informed of this material uncertainty. The Fund will continue to be valued at month end, or more regularly if required.

The ACD and the Depositary will continue to review the temporary suspension on a 28-day cycle – or earlier if needed – and we will provide you with our next update on 24 March.

M&G Property Portfolio makes good progress in raising cash

The Authorised Corporate Director of the M&G Property Portfolio (“the Fund”) has decided, with the agreement of the Fund’s Depositary, it can best protect the interests its investors by continuing the temporary suspension in dealing in its shares.

The fund managers of the M&G Property Portfolio are making good progress in raising cash to rebuild liquidity to meet redemptions when it re-opens.

Dealing in the Fund’s shares was temporarily halted in December to give the fund managers the opportunity to raise cash without being forced to sell assets at below market values or compromising the structure of the portfolio. Notably - for both assets sold and on course to exchange - Retail represents 80% of the total, which will reduce the Fund’s exposure to the sector from 38% to 32%.

As at the end of January 2020, the cash held by the Fund was 4.8%. £245 million of assets are now in solicitors hands, or under offer, which will take the total cash holding to 16%, assuming all deals complete*.

Tony Brown, Global Head of M&G Real Estate, says: “We are making good headway in a more liquid market than last year and every effort is being made to ensure we can reopen as soon as possible – we appreciate your patience in this matter.”

The Fund continues to be actively managed during suspension, with income payments and fund reporting as normal. M&G also continues to waive 30% of the Fund’s annual charge in recognition of the inconvenience caused to our clients and customers.

Fund activity update

• The Fund’s retail vacancy rate (as of end January 2020) is below the MSCI IPD Quarterly Universe Index at 3.4% versus 4.8%.
• Completions since the last update: £19 million
• Cumulative total of completions since suspension: £70.1 million
• Under offer/in solicitor’s hands: £245.1 million

*As at the end of January 2020, the cash held by the Fund was 4.8%. £245 million of assets are now in solicitors hands, or under offer, which will take the total cash holding to 16%, assuming all deals complete. There is no guarantee these deals will complete.

The Authorised Corporate Director of the M&G Property Portfolio (“the Fund”) has decided it can best protect the interests of investors in the Fund by maintaining the temporary suspension in dealing in its shares.

Continued suspension will allow the Fund’s managers to carry on raising cash to meet client redemptions in an orderly fashion, while preserving value for the Fund’s shareholders in the long term.

Dealing in the units of the M&G Property Portfolio was temporarily suspended on 4 December 2019, due to high levels of withdrawals by investors related to ongoing uncertainty over Brexit during 2019 and structural shifts in the UK retail sector. Since then, the Fund’s managers have made good progress in raising cash by making selective disposals at market prices, while maintaining a balanced portfolio which allows them to continue to deliver the Fund’s objective of providing income and growth.

Since the Fund’s suspension, we have exchanged or completed on the sale of £70.4 million of assets and a further £172.2 million are either under offer or in solicitors’ hands. As at the end of December 2019, the cash held by the Fund was 4.8%.

Jack Daniels, Chief Investment Officer of M&G plc, says: “Since suspending the Fund, we’ve been encouraged by the support of many investors in the Fund, who understand our decision to give the managers room and time to complete disposals from the portfolio at fair prices. While customers want ready access to their investments, it’s also important that their long-term interests are protected.”

“Historically, we have held a low cash buffer in the conviction that our customers pay us to invest their money, not to keep it idle - particularly in times of near-zero cash interest rates. We believe that as an asset class, commercial property continues to have an important role to play in helping customers diversify their investment portfolios.”

The Fund continues to be actively managed during suspension of dealing, with income payments and fund reporting as normal. M&G will continue to waive 30% of the annual charge for the Fund in recognition of the inconvenience caused to investors.

Fund activity update

• The Fund’s retail vacancy rate (as of end December 2019) is below the MSCI IPD Quarterly Universe Index at 3.4% versus 5.14%.
• Completions since the end of December: no change
• Contracts exchanged since the end of December: no change
• Under offer/in solicitors’ hands: £172.2 million

M&G is to continue the temporary suspension of dealing in the M&G Property Portfolio and its feeder fund until further notice. The decision has been taken by the Fund’s Authorised Corporate Director (ACD) in the interests of protecting the Fund’s investors with the agreement of the Fund’s Depositary. The Financial Conduct Authority has also been informed.

The immediate priority is to raise cash levels in a controlled manner. The fund managers and associated teams are working hard to increase the Fund’s cash position and since the end of November, they have exchanged or completed on £70.4 million of assets and a further £67.2 million is either under offer or in solicitors’ hands. Once cash levels have been sufficiently restored, the Fund’s ACD will re-open the Fund for dealing.

Naturally, the Fund is still being actively managed and M&G is regularly communicating with clients, customers and other stakeholders. Whilst under continuous review by M&G and the Depositary, the ACD will formally report on the status of the suspension on a monthly basis and clients and customers will be notified in advance of reopening the Fund.

The Fund’s assets under management as at 30 November 2019 is £2.5 billion, with a cash position of 4.8%.

Fund activity update

• The fund’s retail vacancy rate is below the MSCI IPD Quarterly Universe Index at 3.8% versus 5.1% as of 30 November.
• Completions since the end of November: Ravenside Retail Park in Edmonton for £51.4 million.
• Exchanges since the end of November: 20 Kingston Road, Staines for £19 million.