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TR Property

TR Property

A UK based investment company, listed on the FTSE 250 index investing in Pan European property equities & UK direct property

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August 2016

About TR Property

16th September 2016

After the dramatic performance of the sector in July (+7.4%) which was a combination of pricing recovery (post the Brexit selloff) and continued strengthening of EUR (which pushed up performance of the GBP denominated benchmark), August was a much calmer affair. It felt like the market took a collective holiday from the volatility and noise of the immediate aftermath of the Referendum. The index rose 1.1% in August and the NAV was just ahead at 1.19%. Encouragingly the share price rose 5.4% in the month narrowing the discount a little.

UK property stocks rose 1.5% continuing the sustained recovery seen since mid July. Europe was more mixed with stock specific moves driving national performance. Finnish property companies were very strong led by the month’s top performer Sponda (+14.2%) rallying on a combination of half year results beating expectations and recapturing some of the relative underperformance versus the Swedish companies. Swedish commercial and residential businesses all reported further yield compression and healthy rental markets in their first half results. Combined with the super accommodative Riksbank policies these stocks have seen dramatic performance up +11.3% in the quarter. Norway’s performance has been even stronger at 14.1% in the quarter driven by an expectation of an improving economy as the oil price returned to the $45-50 per barrel range.

For once Austrian residential businesses eclipsed their much larger German neighbours. Buwog rose +7.5% as the new, highly respected CEO reported on the success of work in progress and strategy. The stock is the Trust’s 4th largest overweight position. Conwert, another stock in the midst of a turnaround strategy rose +7%. Post the month end, Vonovia announced an all stock bid for Conwert. German residential remains a significant position for the fund, with our Berlin small cap, ADO Properties rallying 8% whilst LEG, owning assets across the wider North Rhine Westphalia region fell -2.5%.

Post the holiday season we expect to see a flurry of investment transactions which will deliver much needed post Brexit price discovery. Our view is that whilst rental growth expectations (particularly in London offices) will have been dialled back, the significant drop in bond yields post the Referendum merely exacerbates the hunt for yield. It is therefore of little surprise that recent anecdotal evidence around the highest yielding asset class – industrial/distribution – reflect very little price depreciation since June. Equity market participants also remain positive towards these sectors with Tritax Bigbox and Segro exceeding or very close to all time highs. The latter completed a 9.9% accelerated cash raise on 1st September at 435p, which was where the shares traded in mid June.

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