Pan European real estate equities bounced strongly in July, outpacing all the Eurostoxx equity sectors with a +8.9% monthly return (FTSE EPRA Nareit European Index TR in GBP) vs second best sector +5.6% and +2.2% for the broader Eurostoxx 600 index.
The Trust’s NAV rose +9.1% and the share price +8.7% in the month.
UK property equities rose +7.3% in the month following a better-than-expected CPI data which drove a -30bp reduction in UK swap rates (following a cumulative +110bps over the prior 3 months). This reignited the ‘are we close to peak rate’ and the potential for disinflation narrative leading to a short squeeze in this under owned and undervalued sector. Athough the short interest in the sector has reduced for the fourth consecutive month it is still significantly more shorted than the Eurostoxx All Sectors (-13% vs 6% respectively). Even with the strong July print, the pan European listed real estate sector remains a clear laggard YTD (+1.2% absolute and -12.7% underperformance versus Stoxx 600). This underperformance amplifies the magnitude of short-term squeezes as the bears have had their negative conviction reinforced over many months. Central bank behaviour is highly data dependent as highlighted by the BoE comments on 3rd August alongside the 25bps move.
The most interest rate sensitive names (‘bond proxies’) had a strong month with German residential recovering well with Vonovia (+18.7%), LEG (+22.3%) and the highly indebted Aroundtown (+33.5%). The same applied to most of the Swedish names, particularly Corem (+40.1%) and Balder (+24.8%). Castellum continued to strengthen (+16.5%) post its balance sheet reconstructing rights issue. Amongst all of the UK focused listed companies, the only negative performance in the month came from the provincial office specialist and small cap, Regional Reit (-4.3%). We continue to have a strong negative conviction towards secondary offices, particularly in cheaper markets where the cost of energy efficiency improvements (required by regulation over the next few years) and rising refurbishment costs (skilled labour shortages) is disproportionate to the capital value.
We participated in the offensive £300m equity raise (equating to 8% of market cap) of the UK student housing specialist Unite Group. For some time the fund has been neutral; we believed in the structural growth story of what is a very well-run business, however also believed that this was fairly reflected in the share price given the small discount to NAV and the mid 4% forward earnings yield. The raise allows Unite to commit to 2 development schemes, without increasing balance sheet risk. In reality, with the developments not delivering until 2025 (Temple Quarter, Bristol) and 2027 (Meridian Square, Stratford), and the proceeds of the raise not geared, the main feature of the raise was arguably more to shore up the balance sheet. However, by using the proceeds to pay down an expensive in-place debt facility the company is able to delever “for free” (LTV to 25% from 31%) whilst slightly increasing earnings. This is a sensible move and the raise has been well received as the company offers a low risk proposition to deliver an enhanced, dependable earnings profile.
The AGM took place on 27th July and the fund update presentation is available on our website, www.trproperty.com. The final dividend was paid on 1st August following the AGM and the current dividend yield based on 15.5p full year dividend is 5.5%.
Discrete rolling annual performance as at 31.08.2023 (%):
| 2023 | 2022 | 2021 | 2020 | 2019 | |
| Fund | -13.30 | -23.27 | 31.94 | -4.66 | 4.32 |
| Benchmark | -14.16 | -27.58 | 27.64 | -9.41 | 0.99 |
| Share Price | -16.73 | -24.22 | 41.90 | -12.52 | 4.11 |
Performance data is in GBP £ terms. Investors should be aware that past performance should not be considered a guide to future performance. All fund performance data is net of all fees and expenses.