Columbia Threadneedle and St James’s Place are reopening their open-ended real estate funds after the Royal Institute of Chartered Surveyors (RICS) lifted a “material uncertainty” clause that forced their suspensions following the coronavirus pandemic.
Their funds will be the first to reopen the suspended raft of open-ended investment companies in March, after receiving the green light for the RICS decision this morning.
Although real estate investment trusts and closed-end real estate investment trusts remained open for trading throughout the foreclosure, shares of most generalist trusts fell at significant discounts below asset values. because landlords struggled to collect rents from commercial tenants. Investors are hopeful that RICS ‘move will start to improve sentiment towards the asset class.
In response to RICS, transactions in St James’s Place Property mutual fund, life insurance funds and pension funds will resume from tomorrow, while the suspension of transactions in the Threadneedle UK Property fund d ‘£ 1 billion will be raised on September 17th.
“We are delighted to reopen transactions in the fund,” said Gerry Frewin, manager of the Threadneedle fund. “We are aware that the suspension of trading in the fund may have caused some inconvenience to our clients, but the decision to suspend trading meant that no unitholder would be at a disadvantage.”
Withdrawals are still blocked from eight UK property funds for retail investors which were suspended in March, then representing more than £ 10 billion in assets.
A ninth fund, the £ 2.3 billion M&G property portfolio, remains on hold after blocking withdrawals in December last year, citing Brexit uncertainty and problems in the UK retail sector.
The lifting of the “material uncertainty” clause by RICS means that these funds could now reopen, although the decision rests with the fund manager.
Oliver Creasey, equity research analyst at Quilter Cheviot, said the decision to reopen would be based on the amount of cash held, depending on the size of investors’ withdrawal requests.
“The funds have not been open for trading for almost six months now, and there will be a backlog of transactions that will close as soon as they reopen,” he said.
“Fund managers will be absolutely desperate to avoid a scenario in which the fund reopens and then a week later is forced to close due to liquidity issues.”
Creasey said the UK’s largest real estate fund, L&G UK Property, £ 2.9 billion, would likely be among the first to reopen given its 27% position in cash and shares, while the Aegon Property Income fund of £ 429million, with just 7% in cash at the end of July, was “less well positioned”.
The March suspensions were triggered by a decision by CBRE and Knight Frank, appraisers of the funds, that the impact of the coronavirus pandemic on the UK economy had created “significant uncertainty” over the valuation of UK properties.
Financial Conduct Authority rules due to go into effect in September require fund managers to suspend trading when the valuation of more than a fifth of their assets is uncertain. The regulator plans to force the funds to abandon their open structure of providing daily access and moving to 120-day notice periods instead.
RICS said this morning that the “material uncertainty” clause would be lifted from UK property, “to the exclusion of certain assets valued with reference to trading potential”.
“With the lifting or easing of many of the government restrictions on business and society, there is sufficient evidence of market activity to justify recommending this general lifting,” he said. -he declares.
Prior to today’s change in RICS, BMO Real Estate Income and Growth Fund was the only open-ended fund to reopen after being suspended in March.
Unlike funds that remain suspended, direct property holdings represent a minority of the £ 447million fund’s assets, with the bulk of the fund held in shares of real estate companies, which are easier to value and trade.