The fund manager behind TR Property Investment Trust says the “gulf in performance” between British Land and Landsec “has never been starker” owing to their focus on debt.
The fund this morning posted half-year results covering the six months to 30 September. Net asset value per share held steady at 304.74p, with a net asset value total return of 3.3% against a benchmark return of -0.8%. Revenue earnings per share fell by almost 40% quarter-on-quarter to 7.31p.
Fund manager Marcus Phayre-Mudge said its largest pair trade – in which an investor offsets long and short positions in certain stocks – was to own shares in Landsec but not British Land.
“The gulf in performance between the two names has never been starker with the difference over six months, in total return terms, of -13.8% (-1.6% versus -15.4%),” Phayre-Mudge said. “The major differentiation between these two large diversified UK-only businesses was their attitude to debt, with Landsec working hard to reduce leverage through selling long income, mature, low yielding assets, particularly London offices.
Phayre-Mudge added that M&A had been “a crucial feature of the period” for TR Property, pointing to the sale of Industrials REIT to Blackstone and Realty Income’s move for Ediston Property’s assets.
TR Property owned a 16% stake in Ediston at the date of the announcement. “This is a classic example of European public market under-valuation, with a more highly rated US REIT able to take advantage,” Phayre-Mudge said.
The fund also held a 10% stake in CT Property Trust, which was acquired by LondonMetric. “Reviewing our performance attribution, it is no surprise that our exposure to these cases of M&A were all key contributors to performance,” Phayre-Mudge said.
The fund manager said cooling inflation is providing “a psychologically important boost for markets”, adding that when interest rates peak, “property equities recover more sharply than the wider stock market”.
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