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‘Bumpy ride’ warning for property investors as M&G continues fund suspension

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08/09/2020
The M&G Property Portfolio will continue with its trading suspension – nine months after being implemented.

The fund was suspended in December 2019 due to high levels of withdrawal requests by investors at a time of Brexit uncertainty and structural shifts in the UK retail sector.

And as the coronavirus pandemic evolved causing fresh market uncertainty, M&G has continued its suspension of the property fund on a month-by-month basis.

It confirmed around £129.9m of assets are under offer for sale, adding there’s no guarantee transactions will complete.

Re-opening the fund for dealing will depend on cash levels – currently at 8.2% – as well as the ‘Material Uncertainty Clause’ (MUC) being adequately lifted.

The fund’s independent valuer, Knight Frank, applies this clause due to reduced transactional evidence available on which to base valuations. However, it has now lifted MUCs from all sectors apart from retail, leisure and hospitality.

The clause was previously lifted from central London offices and professionally managed, institutional grade student accommodation. It was also removed for UK industrial and logistics properties in June.

M&G confirmed a total of £1.1bn of the fund’s direct property assets are no longer subject to the MUC, equating to 54% of the fund’s net asset value as of 28 August. This rises to £1.4bn (64.7%) if cash, REITs and indirect holdings are taken into account.

The fund’s current size stands at £2.1bn. The fund continues to be actively managed and it continues to waive 30% of the annual charge “in recognition of the inconvenience caused to clients and customers”.

The next update on the fund is scheduled for 6 October.

‘Bumpy ride for property investors’

Ryan Hughes, head of active portfolios at AJ Bell, said investors in commercial property funds are “stuck between a rock and a hard place” with a number of funds being suspended from trading since March in addition to the regulatory environment and the market changing significantly.

“With Covid forcing so many businesses to work from home, there’s a lot of pressure on the valuation of office buildings and retail space. This can be seen in the monthly valuation changes of the big property funds, and their investors are seeing their values fall with no way of selling. The big property funds have seen 3-9% falls since the start of 2020,” he said.

Hughes added: “Although many will be thankful that more transaction volume is being released, the regulator, the Financial Conduct Authority recently announced a consultation changing the dealing frequency from daily to quarterly. As soon as the funds reopen, many investors will aim to sell their holdings before more changes occur and the funds may have to snap quickly into suspension again as they’re forced to sell commercial properties into a very uncertain market.

“Property fund investors should be prepared for a very bumpy ride over the next few months.”

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