As at 31 March 2025

The CT Real Estate Equity Market Neutral Fund returned -0.69% in EUR B class (-0.57% in GBP C class) leading to a flat 2025 year-to-date return in EUR B class (+0.45% in GBP C class).

The sector performance was dominated by the weakness of German residential businesses which collectively returned -15.6%. These names – with their virtually full portfolio occupancy and very stable earnings – are often viewed as Bund proxies. Germany’s ‘whatever it takes’ moment to stimulate the economy via the ‘fiscal bazooka’ saw the 10-year Bund yield rise from 2.4% to 2.9% in the first two weeks of March, which impacted share prices of these names.

Swedish property companies were also weak, collectively falling -9.3% (in SEK) reflecting their higher leverage and shorter-dated debt which leads to greater risk and volatility in their earnings.

The strongest performance came from the UK (1.1%), which was buoyed by a variety of potential M&A activity. In the case of Assura (13.1%) the board had rejected an earlier bid from KKR as ‘materially undervalued’. Following consultation with shareholders they are now ‘minded to recommend’ a bid which was just 2% higher than the previous bid, but crucially now matching the last published net asset value (NAV). Elsewhere, the board of Warehouse Reit (31.5%) confirmed that it would be minded to recommend a revised offer, which is at c.10% discount to the last published NAV. The “Put up or shut up” timer runs until 28th April. Urban Logistics Reit (12.5%) received a requisition for an EGM which includes resolutions to replace the Chairman and other directors. Impact Healthcare, now known as Care Reit (38.4%) received an agreed cash takeover bid from a US healthcare Reit, CareTrust. Whilst all of this activity is encouraging, with the exception of Assura (market cap (£1.5bn), these companies are all sub-£500m market-cap. We continue to believe that there are significant economies of scale to be reaped from amalgamating the majority of the remaining listed, diversified UK micro-cap property companies.

Our portfolio activity of 33% was extremely elevated in March, driven by the extraordinary level of volatility induced by the German fiscal reform announcement. Our net exposure was trimmed to +5.0% from +9.3% (average +4.6%) and the portfolio’s gross exposure was reduced to 126%. In Europe, we increased our long position to European shopping centres (2.1%) and reduced short positions in German offices (1.5%). We trimmed our long position in French offices (-2.3%) and Nordic residential (-2.0%). We moved from a modest long stance to being short European healthcare on the back of renewed operational concerns for nursing home operators.

The main positive contributors to the fund’s gross performance were German offices (27 bps), Retail (25 bps), Stockholm offices (19 bps) and healthcare (14 bps) sectors. These were offset by negative contribution from Nordic residential (-62 bps), German residential (-39 bps), Swedish diversifieds (-38 bps) and Student housing (-17 bps).

US REITs, representing 18% of the fund’s average gross exposure at month-end, returned +18 bps of gross alpha, as positive contributions from hotel REITs (7 bps), industrials (6 bps) and retail (5 bps) were partially offset by offices (-3 bps).

US REITs (TR, USD -3.6%) outperformed the S&P 500 (-5.6%) in March as the S&P sold off on concerns of an economic slowdown and fears of reductions in hyperscaler and AI technology capex. Year-to-date, US REITs are up 1%, compared with the S&P 500 -4.3%. Treasury yields continued their downwards trend in March. The short end of the curve moved down -12 bps whereas the 10-year moved down -4 bps. Since the start of the year, the treasury yield curve has shifted downwards by approximately -40 bps. The downward shift in the US treasury yield curve has been driven by concerns about the potential impact of tariffs on the wider economy, which subsequently impacted consumer confidence. In March, job growth slowed down; unemployment ticked up by 0.1%; inflation missed expectations; Powell delivered a dovish speech citing multiple uncertainties regarding the wider US economy; and the Federal Reserve GDP growth forecast was revised down -40 bps to 1.7%. The US 10-year currently stands at 4.17%, broadly unchanged compared to a year ago but -24bps lower compared to the start of the year.

Economic REIT sensitive sectors hotels (-10%) and malls (-9%) were amongst the worst performers. Data centres traded down -9% following a broader sell-off in technology. The strongest performers in the month were defensive sectors, including towers (7%) and Triple-Net (2%). Single family rental was also an outperformer (2%), having been amongst the weakest subsectors on a 12-month basis.