M&G Property Portfolio enters eighth month of suspension
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.
However, there was some hope for investors in the latest announcement as independent property valuers Knight Frank have removed material uncertainty clauses from two further sectors in the market.
As of 11 July, that material uncertainty will no longer apply to central London offices and professionally managed, institutional grade student accommodation, which together account for 5.4% of the fund.
A total of 28.4% of the fund’s property assets are no longer subject to this clause after the material uncertainty clause for UK industrial and logistics properties was lifted in June.
Several of the fund’s tenants are now paying rents on a monthly basis. This means 71% of the fund’s billable rent and service charge for June has been collected and income returns will continue to be influenced by the level of rental income received from tenants.
However, no assets have exchanged this month. The fund still has about £180m of assets under offer for sale or in solicitors’ hands but M&G warned “there is no guarantee these sales will come to fruition”.
M&G said that reopening the fund for dealing will depend on cash levels but will also be contingent on the material uncertainty clause being adequately lifted.
The fund’s current size stands at £2.2bn. It continues to be actively managed and reported on during suspension and M&G continues to waive 30% of the fund’s annual charge in recognition of the inconvenience caused to its clients and customers.
Laura Suter, personal finance analyst at investment platform AJ Bell, said: “Investors have endured more than seven months of suspension so far and it now feels likely that the extension could continue until the end of the year.
“This update provides a small glimmer of hope, as the independent valuers on the fund say they have clarity over pricing in another two areas of the property market: central London offices and student accommodation. Along with industrial and logistics properties, this means that they can accurately price 28% of the fund. However, that means more than 70% of the fund is still invested in assets where there is no certainty over their value – the fund has a long way to go before it gets below the FCA’s 20% threshold for uncertainty over valuations.”
“The M&G property fund is fighting fires on two sides before it can re-open: one on the accurate valuation of its assets and another on the level of liquidity in the fund. Investors will be disappointed that no properties have been offloaded since last month’s update and there are still £180m of assets either under offer or exchanged on. Considering over the past seven months of the fund closure there has been almost £150m of assets sold, there could be a long road to go before there is sufficient cash to re-open.”