Investing in Irish commercial property - Green REIT plc

Gary said:

B As a reference, the Aviva fund recently changed its basis of pricing and the uplift was in the order of 5%.

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Are we certain on this? My records show EOM unit prices for the Aviva Irish Commercial Property fund (gross) since last December as 0.98; 0.98; 0.98; 0.98; 0.96; 0.95; 1.0; 1.0 and 1.0 (latest price). The unit price dipped in May to 0.95 and then increased to 1.0. If the change in the basis of pricing caused the uplift to 1.0, what caused the drop to 0.95? If the price dropped just before the uplift occurred it’s not really a 5% increase; Aviva’s latest fund factsheet show the YTD increase as 1.7%, a figure with which I would not disagree.

This is the information I have from Aviva. The unit price has recently moved from €2.12 to €2.23 removing the final 5% discount.

What would assist investors in unit-linked funds is better fact sheets on the insurance company websites. In my own analysis piece - which Brendan provided a link to earlier (for those who are willing to part with a modest sum) - I had to go to the insurance companies and ask many questions as the information required to make an informed decision was simply not available online.

In contrast, information on investment trusts and ETFs, which are listed on markets, is freely available online. And no one is charging you entry or exit fees for listed funds (because they require no one to sell them).

In my most recent weekly bulletin to subscribers of GillenMarkets, I provided an in-depth analysis of the Standard Life GARS Fund. It is a complex fund and it appears to me that while many Irish people have an investment in it their understanding of what they are invested in and why is very low.

Rory Gillen said:

This is the information I have from Aviva. The unit price has recently moved from €2.12 to €2.23 removing the final 5% discount.

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Hi Rory

You refer to the "final" 5%. Was there an earlier 5%? I thought that they were valued on either a bid basis or an offer basis. Is there an option to value them midway?

Brendan Burgess said:

Hi Rory

You refer to the "final" 5%. Was there an earlier 5%? I thought that they were valued on either a bid basis or an offer basis. Is there an option to value them midway?

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In 2010, when property prices were still falling and investors were trying to redeem and the funds could not sell property they had to price the property portfolio on the assumption they were sellers and generally revalued their own properties down at a discount to reflect that. Seems logical.

When I spoke with Aviva in 2010, the discount applied then was circa 12%. In mid-2012, Aviva sold the AIB head office building and went net cash so that their was no longer any pressure on the fund to sell property even if policy holders wanted to redeem. With the recent firming of the market they eliminated the final discount.

I don't believe this have anything to do with the bid-offer spread. That's my understanding, but I'm fairly new to unit-linked funds so I can't say it for definite.

On Friends First's Irish Commercial Property Fund, it remains at a circa 12% discount and I have assumed that this reflects the greater proportion of retail property in the portfolio - as you know the retail sector has yet to show the same signs of recovery as is evident in the office market.

Irish Life did not have the good grace to clarify the issue on their Irish commercial property fund for me despite repeated calls on my part. As you will see in my note, the Irish Life Irish property fund is up 20% year to date. As the IPD Index of Irish commercial property was up only 3.5% YTD at the time of my note, I have assumed that a portion of the YTD gain has been the unwinding of a previous discount applied to the underlying property portfolio. Irish Life did confirm that the fund was not priced at a discount which again makes sense since the fund has a much bigger weighting in office property. But it would have been nice to understand where the 20% unit price gain YTD came from!

Rory

Thanks Rory

This is how I understood how it works.

In an active fund they buy €100 worth of properties and acquisition costs were around 8% including 6% stamp duty, so the value of the fund was €106.

So I buy or sell units at €106.

If there are more sellers and they have to sell properties - assuming the value of the properties has not changed - they will get only €98 after selling costs, so the value on a sell basis is €98.

If prices fall, but there is no switch of basis, they just mark down the values of the units to reflect the lower value of the properties, but this would be a gradual reduction.


Brendan

would it be possible to get a record

Irish Life property fund

I too have spent a good deal of time trying to understand what has been driving performance.

Last November they changed the basis of pricing resulting in a gain of c 5.5%. The major part of recent gains has simply been an unwinding of previous heavy write downs - I got some jargon about moving from one basis of valuing the properties to another.