TR Property Investment Trust : August 2023

On the face of it, it was a quiet month, befitting of the holiday period. The net asset value was down -0.6% and the benchmark -1.0%, with trading volumes heavily reduced. In fact, it was a rollercoaster, with the market selling off -9% between 10 and 21 August, only to recover 8% by month-end. Once again, the culprit was bond markets and market concerns ahead of Jackson Hole. This bankers' symposium turned out to be a calm affair, unlike the previous year, with no unexpected news, leading to the rally as bonds recovered their early losses. It was no surprise that it was the German residential names that responded well, given their bond proxy behaviour, gaining over 4% collectively during the month. It was also not surprising that the most leveraged in Germany, Aroundtown (+18.1%) and Grand City (+9.9%), were the best performers during the month. However, they are still -23.6% and -10.3% over the year to date, respectively.

Property equities modestly outperformed broader European equities (the STOXX 600 fell -2.5%) and gave the slightest of inklings of what a real belief in the 'peak rate' narrative would do for a heavily under-owned sector. We continue to focus on earnings growth, which is found in companies with one of two (and, where possible, both) key characteristics: exposure to market rental growth and/or fixed debt costs. Indexation has been a big driver of earnings growth over the last year, but we expect/hope that the heightened levels of inflation continue to fade, which, in turn, allows central bankers to pause their rate-hiking cycle. Those sectors with genuine market demand and limited supply remain our focus; logistics, multi-let industrial, student accommodation and retail warehousing remain key sub-sectors but are accessed via companies with appropriate leverage.

Kojamo, a Finnish residential owner/developer, became the latest casualty to suspend its dividend as it seeks to improve its balance sheet. The stock has fallen -31% over the year to date, although it recovered strongly in August given that its woes are tied to the cost of floating-rate debt.

Arima (-10.6%), our Spanish office investor/developer and microcap, continues to surprise investors with sales and acquisitions (limited information on disposals) while trading at a huge discount to its asset value and being reluctant to put shareholders' interests foremost. The stock has now dropped 24% since the mid-June high. We continue to press the company for a shareholder-friendly strategy given the very high environmental rating of all of the refurbished assets and the company's low level of debt.

Elsewhere, office names remained under pressure, particularly in the UK, where Derwent London fell -12.2% and Helical Bar fell -12.6%. Our office exposure is primarily through Workspace, which returned +1.1% during the month.

Mergers and acquisitions speculation continues. In the UK, it was the turn of Ediston to follow up from its March announcement of a strategic review, with confirmation that it was in advanced discussions with a US REIT, Realty Income Corp, for the sale of the entire portfolio. The Trust owns 16% of Ediston.

Discrete rolling annual performance as at 31.08.2023 (%):