By Kristy Dorsey
Aberdeen Standard Investments is preparing to re-open its property funds next month following the latest sector-wide suspension in dealing triggered by the onset of the coronavirus pandemic.
Dealing in the £1.6 billion Standard Life Investments UK Real Estate Fund and the £900 million Aberdeen UK Property Fund will resume on November 16 following advice in March from independent valuers that it was not possible to provide reliable valuations in the face of the upheaval created by Covid-19.
This has included the massive shift to home-based working, putting a question mark over the value of office buildings. Lockdown restrictions have also drained footfall away from retail and leisure venues, leaving landlords struggling to collect rent from these commercial tenants.
All UK property funds open to retail investors were suspended in the third week in March when the Royal Institute of Chartered Surveyors issued a “material uncertainty” clause that forced trading to come to a halt, leaving investors unable to withdraw their money. RICS lifted that clause in early September, allowing asset managers to re-open their funds if they see fit.
Aberdeen Standard Investments (ASI) said the material valuation uncertainty clauses were removed from all properties held by its two funds at the end of September. After “careful consideration” of other factors such as liquidity levels and expected fund flows, the management house has confirmed it will implement the re-opening process.
George Shaw, manager of the UK Real Estate and UK Property funds, said ASI was “delighted” to announce the news.
“We recognise that the dealing suspension will have been inconvenient to investors, however, the decision was made to ensure the fair treatment of all clients and customers,” he said. “Despite the market disruption due to the Covid-19 pandemic, we still consider UK commercial property has a role to play in a diversified portfolio for the longer-term investor.”
Nearly 42 per cent of the SLI UK Real Estate Fund’s holdings are in industrial property, which has held up relatively well amid the market disruption. According to the latest UK “snapshot” issued by real estate advisory firm Colliers earlier this month, the industrial sector attracted nearly £1bn worth of capital in September, up from £250m in August and 40% above the 2019 monthly average of £640m.
Retail transactions during September were £550m, Colliers said, up from £150m in August and the highest monthly figure since April 2019. The office sector reached £700m, an improvement from the £370m transacted in August but still well below the 2019 monthly average of £1.5bn.
Retail properties account for 27.3% of holdings in the SLI UK Real Estate Fund, followed by offices at 25.2%. The Aberdeen UK Property Fund is dominated by retail at 39.6%, followed by industrial property (18.6%) and offices (11.6%).
At the end of September, Aberdeen UK Property had a cash weighting of 25%, and that of SLI UK Real Estate was 22.3%.
The sector-wide suspension in March was the third in a dozen years for UK property funds, the others being triggered by the financial crisis of 2008 and the Brexit vote in 2016.
Because properties don’t change hands quickly, there is no up-to-minute price for them as is the case with shares, meaning the opinion of the valuer takes on greater importance. In open-ended funds like property vehicles available to retail investors, what the valuer says the assets are worth determines the price which people pay to buy in, and what they receive when they sell out.
The Financial Conduct Authority has introduced rules which require property funds to automatically suspend when there is material uncertainty over the pricing of 20% or more of their assets. The FCA is also consulting on rules that would require investors to give notice of potentially up to 180 days before they can cash out of an open-ended property fund.
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