Predicting is an unpredictable pursuit, but, in my Property Week article a year ago, I did forecast that the surprise of 2017 would be the bounce-back of UK-listed real estate equities.
This came to pass as the FTSE 350 Real Estate Index delivered a total shareholder return of 14.3% versus the FTSE All-Share at 13.1% last year. The vast majority of companies delivered a positive total shareholder return. By contrast, in 2016 50% of the companies that we track delivered negative returns and only one company outperformed the FTSE All-Share.
Of course, we do have to look at this performance in the wider context: 2017 was truly a stellar year for global equities, returning 24.6% in USD terms, its strongest result since 2009, led by global tech equities and the Chinese market. Even so, with a respectable 14% total return, global real estate’s performance was comfortably ahead of global bonds at 7%.
Taking a look at the longer term, this is the fifth year of my Property Week equity market review, which provides a timely opportunity to step back and review the performance of real estate equities over the last five years. As the legendary investor Benjamin Graham once said: “In the short run, the stock market is a voting machine but in the long run, it is a weighing machine.”
Our team has tracked the total shareholder return (share price plus dividends) of companies that have been listed on the stock market for five years, have a market capitalisation in excess of £200m and have a free float in excess of 50%.
| Company | 5 year TSR (%) | 1 year TSR (%) | Approx market cap (£m) | |
|---|---|---|---|---|
| Total shareholder return for listed property companies with a listing date pre 01/01/2013, a market cap above £200m and a free float in excess of 50%. Where no market cap is supplied for non-index entries, no information was available. Source: Bloomberg |
||||
| 1 | Safestore Holdings | 445.6 | 47.3 | 1,008.10 |
| 2 | Workspace | 268.8 | 29.8 | 1,605.30 |
| 3 | Unite Students | 226.3 | 36.7 | 1,915.80 |
| 4 | SEGRO | 205.6 | 38.7 | 5,804.90 |
| 5 | Big Yellow Group plc | 197 | 31.4 | 1,348.30 |
| 6 | Picton Prop Income | 193.9 | 15.1 | 453.6 |
| 7 | Grainger plc | 162.2 | 23.9 | 1,202.10 |
| 8 | Assura | 145.5 | 17.2 | 1,496.80 |
| 9 | Capital & Regional | 140.2 | 13 | 414.4 |
| 10 | NewRiver REIT | 133.3 | 5.6 | 972.3 |
| 11 | Hansteen Holdings | 131.2 | 31.9 | 590.5 |
| 12 | F&C UK RE Inv | 130.8 | 9.4 | 247.9 |
| 13 | McKay Securities | 124.4 | 43.4 | 216.1 |
| 14 | LondonMetric | 122.1 | 25.3 | 1,304 |
| 15 | S Life Inv Prop Income | 115.8 | 13.7 | 368.4 |
| 16 | Shaftesbury | 103.1 | 16.8 | 3,180.50 |
| 17 | Schroder RE Inv Trust | 96.6 | 10.5 | 313.7 |
| 18 | St Modwen | 89.9 | 35.9 | 897.1 |
| 19 | A&J Mucklow Group | 78.7 | 14.8 | 325.3 |
| 20 | Primary Health Prop | 75.9 | 10.2 | 714.8 |
| 21 | UK Comm Prop Trust | 73.2 | 9.4 | 1,160.40 |
| 22 | U+I | 70.2 | 19 | 241.2 |
| 23 | FTSE 350 Real Estate | 68.6 | 14.3 | |
| 24 | F&C Comm Prop Trust | 65.6 | 3.9 | 1,079.10 |
| 25 | Helical | 65 | 18.7 | 403.3 |
| 26 | FTSE All Share | 63 | 13.1 | |
| 27 | Derwent London | 62.3 | 16.8 | 3,398.90 |
| 28 | FTSE 350 | 62 | 12.9 | |
| 29 | MedicX Fund | 59.1 | 0.1 | 360.2 |
| 30 | FTSE 100 | 57.2 | 12 | |
| 31 | British Land | 52.2 | 15.3 | 6,708.60 |
| 32 | Great Portland Est | 50.6 | 4.5 | 2,229.90 |
| 33 | Redefine Int | 47.7 | 0.6 | 693.5 |
| 34 | Landsec | 46 | -1.6 | 7,271.40 |
| 35 | Capital & Counties | 35 | 8.1 | 2,612.60 |
| 36 | Hammerson | 34.8 | -0.4 | 4,284.10 |
| 37 | Intu | 0.3 | -5.1 | 3,368.60 |
Over the last five years, UK real estate equities have outperformed the wider market, as evidenced by the FTSE 350 Real Estate Index, which delivered a total shareholder return of 68.6% versus the FTSE All-Share’s 63.0% total shareholder return.
The performance spread of listed real estate companies over the five-year period ranges from 0.3% to 445.6%, but the majority of listed real estate companies outperformed the FTSE All-Share.
Overall, those companies that have outperformed over the last five years are generally sector-focused, providing attractive dividend growth and/or NAV growth. In the long run, the main driver for total returns in the direct real estate market is income returns and the equity market is no different.
Size matters
Size also seems to be a factor, with the top-10-performing companies having an average market capitalisation of £1.6bn, while the bottom 10 have an average market of £3.1bn.
Looking back to 2017 specifically, in a LinkedIn post of my top-six surprises for 2017, I also said that a UK major REIT would receive a takeover approach and there is no doubt that the UK corporate headline last year was the proposed merger between Hammerson and Intu.
So what surprises could be in store for 2018?
Stock market indices are at record levels and many leading investment bank analysts are forecasting another record year for equities based on the Goldilocks scenario of co-ordinated global GDP growth, low inflation, low interest rates and continuing central bank liquidity support.
I am somewhat sceptical of this Goldilocks scenario for 2018 but whatever happens in the wider equity markets, I do expect UK real estate equities to outperform the FTSE All-Share by a substantial margin, and global real estate to outperform global equities and global bonds. I also believe there will be further UK corporate real estate activity.
Whatever 2018 brings, we can all influence our own year ahead. In the words of Estée Lauder: “I never dreamed about success. I worked for it!”
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