July 2025

Cyclicals outperformed defensive equities by 3.2% in July as tariff concerns receded. Consequently pan-European real-estate equities (-2.9% in GBP / -3.8% in EUR) trailed the wider European equity market (STOXX 600 was up 1.0%). The Trust’s net asset value (NAV) total return was -2.7%, slightly less than the fall in the benchmark, whilst the share price total return was -2.0%.

In the listed property sector, companies with either high leverage, being prime beneficiaries of easing funding conditions, and/or acquisitive business models are often perceived as ‘cyclicals’. These included some of the top performers in July: Merlin Properties (9.4%), VGP (8.3%) and Covivio (6.3%). In terms of subsector leadership shopping centres stood out (3.8%), being the only subsector with a positive return, This was on the back of solid H1 results from the likes of Klepierre, Unibail and Eurocommercial both in terms of asset capital growth and accelerating operating fundamentals, as illustrated by rental uplifts on relettings and renewals.

We remain constructive on the outlook for the real-estate sector given its late-cyclical and defensive nature, which provides resilience in uncertain economic environments, and an increasingly supportive financing environment. Levels of bond issuance have been elevated in recent months, showing that credit is widely available to the sector. REIT funding spreads continued to tighten in July to 85 basis points (bps) from 100 bps, leaving a 3.2% bond yield to maturity for European issuers (source: Bloomberg Euro-Aggregate EUR REITS). Overall pan-European real-estate equities are collectively trading on an undemanding -21% discount to net tangible assets (NTA), with an earnings yield of 6.6% and a dividend yield of 4.2%. These levels are towards the bottom of historical ranges for the sector, hence our optimism and high level of gearing.

We are becoming increasingly bearish on the UK economy (and particularly the fiscal outlook) characterised by sluggish growth and sticky inflation. The broad telegraphing by government of further tax increases in the autumn is weighing heavily on sentiment. We have continued to focus on UK names with lower correlation to economic growth such as private residential, supermarkets, and healthcare sectors. Student accommodation falls into this category, but we have become concerned about Unite’s share price performance. The stock was the worst performer in July (-11.7%) and that brings the year-to-date total return into negative territory (-4.5%). The shares have been punished for a combination of reasons. We view market fears around letting progress through the student cycle, which has been behind recent years, as overdone. The company has repeatedly confirmed that while occupancy progress has been behind the last two years (periods which benefitted from a post-Covid glut of demand and were never likely to be repeatable), it still expects to achieve full occupancy this year and achieve 4% to 5% like-for-like rental growth. We believe the company will meet these targets. We halved our overweight position at higher prices but are a holder at these, subdued, levels.

Another market concern is the potential acquisition of ESP (Empiric Student) by Unite Group. Despite the transaction not being subject to a shareholder vote we have engaged the company on more than one occasion to express our concerns, both over the nature of the portfolio it is looking to acquire and the limited earnings and NTA accretion we believe the deal will generate. That said the fundamental case for Unite Group remains strong, with the supply and demand factors clearly still favouring asset owners. The company’s sizeable development pipeline and ability to unlock valuable joint-venture (JV) deals directly with universities to solve their accommodation needs are additional strengths overlooked by the market at this time. In our view the market is focusing on short term negatives and these are now more than compensated in the equity valuation, with the shares trading at an attractive 6.3% forward earnings yield and a -25% NAV discount.

Other significant trades in the month included sales in Shaftesbury Capital, the West End specialist landlord, which posted a strong of results with solid leasing momentum and 5-7% medium-term estimated rental value growth. However, the shares valuation screened less attractive following a 27% year-to-date return.

On the last day of the month, we participated in the 10% capital raise by Hammerson. This was an offensive (as opposed to defensive) raise to fund the acquisition of the 50% of the Bullring and Grand Central in Birmingham from their JV partner. The transaction will add about 4% to earnings per share, and the shares have added nearly 5% from the placing price of 287p. However, the company needs to resolve its highly inefficient and sub-optimal portfolio, with assets spread across 3 countries. Sales of the last remaining French assets is the straightforward solution, even if conducted below the highly-optimistic book values.

In our physical portfolio, we have completed phase two (of five) of our net-zero, ultra-urban, industrial-refurbishment project in Wandsworth. The first unit of this three-unit refurbishment has been let to a luxury car-servicing business on a new 10-year lease at a rent of £67 per square foot, a record rent for the estate. The client is an existing occupier on the estate and were attracted by the high specification as well as the sustainability credentials of the refurbished buildings. There is good interest in the two other vacant units and this letting follows on from the pre-letting of the first phase (two units) in 2024. The estate comprises16 units in total and we anticipate the phased refurbishment will run to the end of 2026.

The AGM took place on 23rd July and the manager’s presentation is available on www.trproperty.com.

	2025/2026	2024/2025	2023/2024	2022/2023	2021/2022
NAV (Inc)	– 0.5	11.6	22.5	– 19.3	– 16.5
Benchmark	– 0.1	9.7	21.4	– 19.8	– 21.5
Share Price	– 2.0	13.8	22.5	– 24.5	– 13.5