Globally, 2014 was an excellent year for real estate with the FTSE EPRA/NAREIT Global Index delivering a USD return of 14.73% and the US index leading the way with a sparkling performance of 30.43%.
Much of this has been driven by capital growth from yield compression.
It is not surprising that real estate has performed well over the past three years when you consider that 83% of the world equity markets are underpinned by zero interest rate policies.
In 2014, the UK real estate quoted sector delivered a total shareholder return of 21.8%, out-performing UK equities All-Share at 1.4% and UK 10-year gilts at 10.8%.
2013 was an exceptional year in terms of total shareholder return for the UK quoted real estate sector, and as I said in my article on 10 January 2014, I thought that the prospects for the quoted sector in 2014 were encouraging, although the level of performance was unlikely to match the 2013 results.
This has, indeed, been the case. In both 2013 and 2014 share price growth was the main driver of total shareholder return. For example, if an investor bought a basket of shares from the companies listed in the table at the beginning of 2013, that investor would have been rewarded with a 36% increase in share price while receiving an overall dividend that yielded 3%. The same basket of shares in 2014, delivered a 28% increase in share price growth and an overall dividend yielding 2.5%.
In 2014, there were 16 companies that delivered total shareholder returns over 20%, compared with 32 companies in 2013 and six companies that delivered negative shareholder returns in 2014, a significant increase from 2013, when there was only one company.
So the pace of growth fell in 2014, but even so, relative to other investment classes, it has been a great year.
Unlike 2013, the interesting feature of the 2014 league table is the excellent performance of the large cap real estate companies. Half the top 10 companies are large cap companies. This broadly reflects the fact large cap companies in the wider global equity markets have out-performed small caps, perhaps suggesting a flight to liquidity.
In first place is Songbird and even though the recent bid for the company has influenced its share price in the past couple of months, prior to the bid, this company was on track to deliver a total shareholder return of circa 40%.
Having delivered a 53% total shareholder return in 2013, I am not surprised that my own company, NewRiver’s 2014 total shareholder return was lower than in 2013. However, based on a two-year look back, our total shareholder return would place us in the top half and what is very pleasing is that we have one of the fastest growing dividends, sixth out of 35 companies that pay a dividend
in the quoted real estate sector.
It is my view that those companies that consistently deliver dividend growth will out-perform over the longer term.
The pace of share price growth in 2015 is likely to continue to reduce as it did in 2014, with real estate fundamentals becoming more influential in delivering performance.
What is more difficult to assess is the impact of external influences on the UK real estate sector, of which the main one will be the UK general election.
That said, the UK quoted real estate sector is in good shape to cope with market turbulence, with many quoted companies conservatively geared and managed by talented teams. This year, I think that real estate should once again out-perform the wider equity markets, but as Woody Allen once said: “I’m astounded by people who want to know the universe when it’s hard enough to find your way around Chinatown.”
Allan Lockhart is property director of NewRiver Retail
Listed real estate companies ranked by total shareholder return in 2014
|Company||Return (%)||Market cap (m)|
|5||Big Yellow Group||33||£951.3|
|6||British Land Company||28||£7,916.2|
|8||Great Portland Estates||25||£2,538.2|
|9||Picton Property Income||25||£294.3|
|14||Land Securities Group||23||£9,146.2|
|15||Capital & Regional||21||£367.9|
|17||F&C UK Real Estate Investments||18||£214.7|
|18||Town Centre Securities||17||£142.0|
|19||Standard Life Inv Prop Inc Trust||17||£182.7|
|20||Conygar Investment Co||16||£155.7|
|22||Schroder Real Estate Investment Trust||15||£285.2|
|26||Primary Health Properties||12||£411.7|
|27||Capital & Counties Properties||12||£3,048.2|
|29||UK Commercial Property Trust||8||£1,013.4|
|31||St. Modwen Properties||6||£854.1|
|32||F&C Commercial Property Trust||5||£951.2|
|33||LXB Retail Properties||4||£247.9|
|34||A&J Mucklow Group||2||£286.0|
|35||Quintain Estates and Development||-1||£501.1|
|40||Raven Russia||- 41||£342.8|
|*approximate at 31.12.14|
|Excludes companies with a market cap of below £100m|
|Companies listed in red are REITs|
|source: NewRiver Retail|