TR Property Investment Trust : April 2023

After a poor March, April was a much more positive month for Pan European real estate equities. The benchmark rallied +5.6% while the Trust's net asset value (NAV) rose 7.8%. A large part of the relative outperformance during the month came from the announcement on 3 April of an all-cash offer for Industrials REIT by Blackstone at a 40% premium to the previous closing price. The Trust owns 11.2% of Industrials REIT and we have been long-term supporters of management and their strategy. They have been at the forefront of bringing property management and marketing into the digital era. Blackstone's premium bid looks appropriate given the value of the platform. We firmly believe that there are many other listed property companies that are too small and too illiquid to attract institutional owners. In several cases, the operational capabilities (such as the case at Industrials REIT) are undervalued when the valuation appraisal focuses solely on the property NAV. We are hopeful that we will see more consolidation (between listed entities) as opposed to privatisation, thus keeping assets in the listed space.

During April, the UK (+6.3% in in sterling terms) outperformed Europe (+5.3% in euro terms) as investors took on board the Industrials deal, coupled with improving MSCI/IPD valuation data that showed a halt in the valuation decline in many sectors, particularly industrial, logistics and retail warehousing. The UK valuers had adjusted capital values much faster than their European counterparts, with a renewed effort not to be 'behind the curve' (a perennial criticism). The swift correction in values has been very encouraging and allowed the market to quickly reach clearing prices. As a result, transaction volumes are picking up.

Although yields have been rising (in response to the increase in the cost of capital), rents have also continued to increase, not only from indexation but also, in many sub-sectors, from market growth. Among the strongest performers during April were our industrial overweights such as Segro (+8.7%), London Metric (+9.7%), Tritax Big Box (+10.9%) and our diversifieds (with large industrial exposure), such as Picton (+10.1%).

The much maligned German residential sector enjoyed a strong month as Vonovia (+13.2%) announced sales alongside ongoing relief that it only reduced, as opposed to cancelled, its dividend. These names all remain hugely correlated to Bund yields, and the slight retrenchment in bond yields provided a further tailwind. However, those stocks that are seen as having serious balance sheet issues continued to be punished as debt availability (as opposed to price) will be an issue for some. In Germany, Adler fell -39% while, in Sweden, SBB fell -14%, even as many of their countrymen saw double digit gains, such as Atrium Ljungberg (+12.7%) and Balder (+11.9%).

In France, our preferred retail name, Klepierre (+10.1%), had a good month, while our underweight Unibail (-1.7%) continued to labour under the need to reduce its liabilities through sales in the US. The failure of some regional banks in the US and the loan book exposure to real estate is clearly weighing on investors' minds.

The Trust's annual results for the year to 31 March, including the final dividend, will be published on 1 June.

Discrete rolling annual performance as at 28.04.2023 (%):