TR Property Investment Trust is optimistic despite NAV, shareholder funds and market capitalisation falling by more than a third.
In its full-year results, out today (2 June), the investment trust said its market cap had fallen nearly 40% from £1.45bn to £885m.
Net assets per share had dropped by 38% to 305.13p, while the share price had plunged 40% to 279p.
The trust, which is invested in a range of REITs and real estate equities, as well as its own bricks and mortar, shows the scale of the fall of capital values – slightly below benchmark at -35.5% – but the resilience of rental income, reflected in a 25.8% rise in revenue earnings per share.
Chairman David Watson said: “Markets have had to absorb huge increases in the cost of capital, and real estate equities have suffered consequential price adjustments. However, this is an unusual cycle, where both interest rates and rents are rising. In many of our markets, property fundamentals are sound, and we see few signs of oversupply.”
Fund manager Marcus Phayre-Mudge (pictured) noted that the annual figures represented “an unflattering snapshot in extremely volatile times”.
To illustrate this, he showed that TR Property’s universe rallied 14.5% from October 2022 to January 2023, before giving up all those gains in the subsequent nine weeks.
“For a sector where returns are anchored by income, these levels of volatility and multiple directional shifts are almost unparalleled,” he said. “The whole period has been dominated by the ebbs and flows around interest rate expectations, and real estate fundamentals have taken the proverbial back seat. However, looking forward, we anticipate a renewed focus on those sectors offering rental growth.”
He added: “Encouragingly, top-line revenue is benefiting from inflation via indexation, with most investee companies having debt arrangements fixed until at least 2026 or beyond. The company has plentiful revenue reserves and is optimistic that revenue growth will return over the medium term.”
TR Property has also benefited from consolidation in the market, such as LondonMetric’s £200m all-share offer for CT Property Trust. The 34% premium to CTPT’s share price is a welcome boost for TR Property, which owns 10% of CTPT.
It is also a large holder of Ediston Property Investment Company, which in March announced that its strategic review could include a sale or merger given its subscale size.
Consolidation will be, or at least should be, the near future for the market, Phayre-Mudge said. “The listed property sector has a long tail of small-cap companies, and we urge boards to explore opportunities for consolidation where it improves share liquidity and reduces costs. Otherwise, we will continue to see the steady stream of privatisations, as these smaller companies are attractive bite-sized morsels for large private real estate owners.”
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