REG - TR Property Inv. - Half-year Report
02/12/2024 07:00
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RNS Number : 2519O TR Property Investment Trust PLC 02 December 2024
TR Property Investment Trust plc
London Stock Exchange Announcement
Unaudited results for the six months ended 30 September 2024
Legal Entity Identifier: 549300BPGCCN3ETPQD32
Information disclosed in accordance with Disclosure Guidance and Transparency
Rule 4.2.2
Kate Bolsover, Chairman:
" The rapid rise in interest rates over the last three years led a number of
our companies to pause dividend payments but these are starting to pick up
again. Falling interest rates are helping to reduce borrowing costs, which in
turn supports real estate values and boosts income. We needed patience for the
peak in interest rates and the focus has now shifted to further rate cuts,
with attention on their timing and scale. This progress reinforces our
confidence in the future."
Marcus Phayre-Mudge, Fund Manager:
"We are seeing an encouraging, albeit bumpy, recovery in listed real estate.
Demand for top-quality properties is outstripping supply in nearly all
sectors. Over this period, there has been a positive shift in sentiment,
marked by a renewed wave of offensive capital raising alongside continued
merger and acquisition activity. However, we remain in a divided market: the
best buildings in prime locations are attracting strong tenant demand, while
others are struggling. This bifurcated environment supports TR Property's
investment approach and appeal given our underlying asset exposure."
Financial highlights and performance
At At 31 March
30 September
2024 2024 Change
Balance Sheet
Net asset value per share 378.61p 351.50p +7.7%
Shareholders' funds (£'000) 1,201,522 1,115,503 +7.7%
Shares in issue at the end of period (m) 317.4 317.4 0.0%
Net debt(1,5) 13.9% 10.8%
Share Price
Share price 355.50p 325.00p +9.4%
Market capitalisation £1,128m £1,031m +9.4%
Half year ended Half year ended
30 September 30 September
2024 2023 Change
Revenue
Revenue earnings per share 8.16p 7.31p +11.6%
Interim dividend per share 5.65p 5.65p 0.0%
Half year ended Year ended
30 September 31 March
2024 2024
Performance: Assets and Benchmark
Net Asset Value total return(2,5) +10.9% +21.1%
Benchmark total return +9.3% +15.4%
Share price total return(3,5) +13.0% +22.9%
Ongoing Charges(4,5)
Including performance fee 0.87% 1.81%
Excluding performance fee 0.74% 0.82%
Excluding performance fee and direct property costs 0.72% 0.78%
1 Net debt is the total value of loan notes, loans (including
notional exposure to contracts for differences ('CFDs')) less cash as a
proportion of net asset value ('NAV').
2 The net asset value total return is calculated by reinvesting the
dividends in the assets of the Company from the relevant ex-dividend date.
Dividends are deemed to be reinvested on the ex-dividend date as this is the
protocol used by the Company's benchmark and other indices.
3 The share price total return is calculated by reinvesting
the dividends in the shares of the Company from the relevant ex-dividend date.
4 Ongoing Charges are calculated in accordance with the AIC
methodology. The ratio for 30 September 2024 is based on forecast expenses and
charges for the year ending 31 March 2025.
5 Considered to be an Alternative Performance Measure.
Chairman's statement
Market backdrop
My concluding remarks in the Annual Report in June focused on our hope and
expectation that we were much closer to the peak in the interest rate cycle.
This turned out to be the case. The various false dawns which had punctured
investor optimism in the previous year are now behind us. The focus is now on
'how many cuts and when' following the initial moves by the US Federal
Reserve, the Bank of England and the European Central Bank.
This step change in central bank behaviour, whilst largely anticipated, did
extend the boost to real estate equity prices which, even after the springtime
recovery, were still heavily discounted and unloved. This ongoing price
recovery helped the Company's net asset value total return reach +10.9% for
the six months, with the share price total return of +13.0% exceeding that
figure. Over the same period, the total return from the benchmark index was
+9.3%.
The period under review saw not only short-term base rates begin to fall but
also growing stability in the longer end of the yield curve (3-5 years+) which
is where most property companies seek to maintain the majority of their
finance. This improvement has also led to further margin reductions as more
lenders re-enter the market. The cost of capital therefore fell in the period
and this encouraged not only capital raising by a wide range of listed
companies but also merger and acquisition ('M&A') activity. Such interest
from both public and private equity in a range of undervalued listed companies
provides a valuable pricing underpin. Much more detail is provided in the
Manager's Report, covering our participation in capital calls as well our
positioning in the M&A activity.
Our physical property exposure remained at an historic low over the period.
Whilst I have already reported that this reduced level would be temporary, the
timing of the rotation of capital from our largest ever property sale (£33.5m
in March) into equities proved beneficial.
Revenue Results, Outlook and Dividend
Earnings at 8.16p per share are around 12% ahead of the level reported for the
half year to 30 September 2023 but still significantly below September 2022
levels.
We are seeing a recovery in earnings. However, as anticipated, some of the
companies which suspended dividends in 2023 have returned to distributing at
lower levels than previously and a few have yet to resume. Encouragingly, we
are seeing growth in some areas. Our rental income from the direct property
portfolio has significantly reduced following the sale of The Colonnades and
due to the development activity at Wandsworth but we expect this to be
temporary as we are seeking to add to the portfolio and as the refurbished
units at Wandsworth come on stream.
Against that backdrop the Board has maintained the interim dividend at the
prior year level of 5.65p. Although we expect the improving trend to continue
through the second half of the financial year, we do anticipate that it will
take some time to build earnings back to previous levels and that the full
year distribution will not be covered by our earnings.
Net Debt and Currencies
Gearing increased over the period as the interest rate outlook and sentiment
towards the sector improved.
Sterling strengthened by around 3% over the half year creating a headwind in
income terms for non-sterling denominated income (around 65% of income is
usually received in the first half). Although the currency exposure of our
portfolio is hedged in line with the benchmark, income is unhedged and subject
to exchange rate variations.
Discount and Share Repurchases
The Company's shares have traded at an average discount of just over 7% over
the period, moving from 7.5% at the end of March to 6.1% at the end of
September. This is slightly wider than the five year average of 6.2%.
The Company did not repurchase any shares during the period.
Awards
I am pleased to report that the Company has won two awards this year, the
Active Property category at the AJ Bell Investment Awards and the Citywire
'Best Specialist Equities' Investment Trust. The Citywire award is
particularly pleasing as the shortlist is a broad range of Investment Trusts
and it is the fourth time we have won this award in the last five years.
Outlook
These results cover the six months to the end of September, a period of
growing optimism for our sector. However, October has been a reminder of how
quickly macro influences can once again weigh on sentiment, particularly
towards a leveraged asset class such as real estate. In the UK (broadly one
third of our portfolio) the new Government's tax and spend strategy will see
an average additional borrowing of £28bn per year. This has unsettled markets
and the yield on ten year Government bonds has climbed back to where it was at
the beginning of March. At the same time both the Bank of England and the
Riksbank have continued to reduce base rates which is supportive for short
term debt costs.
Germany, Europe's largest economy and largest exporter has seen a slowdown in
demand particularly from Asia and our expectation is that the ECB may well
prove to be more dovish with larger cuts to their base rate as recessionary
forces grow. The US election result has also contributed to investor concerns
about the new administration's attitude towards tariffs and the impact on EU
exports. Additional geo-political tensions around the outcome for Ukraine and
the likely increase in defence spending by the European members of NATO adds
to an air of collective concern across Europe.
This leads us to focus even more on those businesses with healthy, affordable
income streams and strong balance sheets. Our Investment Manager remains
optimistic that there is ongoing demand/supply disequilibrium across key
sub-sectors and the recent pull-back in real estate equity prices is an
opportunity given the downward trajectory in the cost of capital.
As the listed sector has performed better and physical property once gain
offers better value, we have been actively seeking out direct property assets.
Following the end of the half year, the Company has acquired two industrial
assets, a single let unit in Northampton and an estate in Bicester for a
combined cost of £19.3m. On a proforma basis, physical property is now 5.3%
of our net assets.
Kate Bolsover
Chairman
29 November 2024
Manager's report
Performance
The net asset value ('NAV') total return for the six months was a healthy
+10.9%, whilst the share price total return was slightly better at +13.0%. The
benchmark, the FTSE EPRA/NAREIT Developed Europe Capped Net Total Return Index
(in sterling) returned +9.3% in the period. After a long period of decline
from 2021 to late 2023, real estate equities have broadly been on a path of
recovery since then.
As always, the path of equity market price recovery is never a straight line.
The opening period of this half year was a rollercoaster of initial market
weakness in April, followed by a strong May and then a significant pullback in
June. This resulted in the first quarter of the financial year actually
delivering a negative total return. Investors continued to be skittish about
whether inflation was under control and whether central banks were back in
control of the monetary policy narrative. The answer to that question, since
mid summer, has been a resounding yes. We passed peak interest rates with the
first US cut in September, albeit widely anticipated by markets given the
signals from the US Federal Reserve. European central banks followed suit and
the inflation data, whilst mixed in parts (particularly service sector wage
inflation), is trending down below the key 2% rate.
Real estate is a leveraged asset class. In the early stages of a valuation
recovery, the price of debt is the critical driver. The dramatic improvement
in swap rates (lending on physical assets generally has a duration of three to
five years rather than the short end of the yield curve) has been coupled with
a return of banks and other lenders to the market. For our larger companies,
those with a rating, the bond markets have reopened and this has
re‑energised a competitive lending environment for those with the right
assets and sustainable cashflows.
I wrote in the Annual Report that our focus had returned to market
fundamentals after several years of concentrating on balance sheet liabilities
and risks to cashflows from the rising cost of debt. Positive market
fundamentals are the next phase of price recovery and our focus is now on
portfolio quality where there is positive disequilibrium (increasing demand
facing a lack of supply).
Alongside share price recovery, there has been a raft of offensive (as opposed
to defensive) capital raises taking advantage of market opportunities.
Encouragingly, this has been across a broad range of sectors and geographies.
The Company invested over £30m (2.7% of NAV) in eight separate transactions
in the period. More detail is given in the Investment Activity segment.
M&A activity continues to remind investors that undervalued listed
companies will attract private capital. We believe that consolidation which
leads to a smaller number of larger, more liquid companies with improved
operating efficiencies is a large part of the solution for the sector. We
supported the part cash/part paper bid by New River Retail (market cap £300m)
for another retail minnow Capital & Regional (market cap £151m). This
also required a capital raise by New River in September.
Benchmark Performance Over Three Years
The board of Tritax Eurobox, an externally managed portfolio of logistics and
industrial assets geographically spread from Spain to Sweden, initially
accepted an all paper offer by Segro. This was trumped by a cash bid from the
private equity giant, Brookfield. Leveraged private equity buyers have also
been active in the UK, where Starwood acquired Balanced Commercial Property
Trust ('BCPT') for cash following the completion of a strategic review. Whilst
the price of 96p is 9% below the last published NAV, shareholders voted for
it. The loss of BCPT leaves LondonMetric as the remaining large, diversified
REIT with a sector agnostic strategy.
In Spain, Arima (market cap €240m) was the subject of a cash bid from a
private property fund (backed by a large Brazilian bank). The deal was
announced in May and completed in November. The Company was the second largest
shareholder (8.1% of issued equity). Whilst the bid was at a 39% premium to
the undisturbed share price, it was still a 20% discount to the net asset
value of this portfolio of high quality, central business district ('CBD')
offices in Madrid.
Reviewing our performance attribution, these M&A situations did contribute
but not on the scale of the previous period (where we benefited from large
ownerships in Industrials REIT, Ediston and CT Property Trust). The premium
bid for Arima generated 37bps, the fifth largest single stock contributor in
the period. The largest single contributing factor was the decision to not
only increase the gearing but also to move to a record high equity exposure at
over 96% of assets. The Company has the ability to own physical property in
the UK alongside its pan-European equity exposure. Typically, this has been in
the range of 7-10% of assets. Following the sale of the Colonnades (£33.5m)
in February this year, the physical property exposure dropped temporarily to
3% of the portfolio, the lowest level since the Company began specialising in
property in 1984.
At the sector level, it was European Shopping Centres and UK Diversifieds
which were the real drivers of alpha generation. In the former it was all
about Klepierre and the latter, it was Picton. Klepierre enjoyed a strong six
months with a total return of +27.1%, driven by improved earnings outlook, a
credit upgrade and two large acquisitions all taken positively by the market.
For Picton, the sale of its largest office asset, for conversion to
residential, was a game changer. In one transaction they dramatically reduced
the perceived office 'overhang', selling ahead of book value and enabling
further debt reduction.
German Residential, the largest sub-sector enjoyed strong performance and we
were able to 'hold our own' in performance terms with our small cap exposure,
Phoenix Spree Deutschland (market cap £165m) returning +16.5% coupled with
TAG (+30.1%) as our large overweights offsetting the +23.4% return from the
sector behemoth Vonovia, where we hold an underweight position.
The weakest performing sector was Industrial/Logistics where the large number
of highly rated names suffered a change in sentiment as market indicators
pointed to a slowdown in the pace of rental growth. Whilst we are not
overweight to the sector as a whole, our French small cap Argan returned
-12.2% in the period. The portfolio remains fully let with a pipeline of
pre-let developments and steady earnings growth baked in. We have added to our
position on share price weakness given the difficulties in delivering projects
through the convoluted French planning and regulatory bureaucracy.
In London offices, we hold only Workspace, the flexible office and light
industrial specialist and not the development focused companies, Derwent
London, Great Portland and Helical. This was the correct call with Workspace
returning +31.0%, double the next best performer Derwent London at +15%.
However, all these companies, including Helical at +9.0%, beat the wider UK
element of the benchmark (which returned just +6.1%). Given the weakness in
sentiment towards offices and the clear lack of valuation improvement at the
asset level, these statistics are a reminder of equity markets ability to
swing between being overly pessimistic and overly optimistic. In the case of
office names, they had become too cheap in the prior period and experienced
strong share price recovery even though fundamentals show little sign of
improving.
Offices
The bifurcation between the best and the rest continues at pace. The
structural shift in how and where businesses want to use office space is
compounded by the overarching need to improve the energy efficiency of all
buildings. Its lack of popularity is selectively generating opportunities.
Here in London, the latest wave of West End pre-lets is at record-breaking
rents of £120 -130 per ft and these levels are no longer the preserve of
small suites deals for price insensitive tenants. Meanwhile in Docklands, you
can have as much space as you want at record low rents. New developments in
the City of London have given occupiers options which did not exist 15 years
ago. Why be in Docklands when you can be close to a major rail terminus such
as Liverpool or Cannon Street stations. Multi-nodal transport has driven the
growth of new offices in Paddington (British Land) and Victoria (Landsec).
We see the same across Europe with Gecina's Paris CBD assets massively
outstripping La Defence or other peripheral markets in terms of tenant demand
and rental growth. Paris continues to have the lowest vacancy of the 24
European markets covered by Savills European Cities Report. We continue to
remain overweight to Paris through Gecina.
Building quality is also paramount and this is neatly exhibited by data
provided by Derwent London the largest listed specialist London office
owner/developer. In the first half of 2024, their assets valued at over
£1,500 per ft fell in value on average by 0.8%. For those assets valued at
less than £1,000 per ft, the fall was 3.5%. These may seem small numbers but
they are just for the last six months and continue a trend already evident in
previous data series.
The good news is that demand for the best space continues to grow. Savills
report that office take up across Europe reached 1.6m sq metres in Q2 2024, a
9% increase on the same period last year. The first half of 2024 saw a 5%
improvement ahead of the same period in 2023. These figures are lower than the
5 year average, reflecting the structural shifts but nonetheless encouraging
for owners of the best space.
Retail
The situation across retail markets remains encouraging, particularly in
Continental Europe where consumer spend has been resilient and shopping centre
occupancy is higher than in the UK. Cushman & Wakefield ('C&W') track
107 shopping centre sub-markets and just 2% of locations reported falls in
rental values. This is in stark contrast to the same period a year ago when
the figure was 18%. In the 214 high street markets they cover, 42% reported
increased rental growth and 53% reported steady. Back in 2022, the combined
figure was just 22%. The conclusion, and we see it in the reported data from
our listed companies, is that rents have reached their low points and in many
markets are climbing again.
In the UK, the strongest sector remains retail warehousing and tourist focused
towns and cities. MSCI reported a +8.8% total return for the first nine months
of 2024 from this sector. We have been strong advocates for this sub‑sector
for several years (through our ownership of Ediston Property where we owned
16% of the company before it was acquired by Realty Income) and now through
LondonMetric.
We continue to see a dispersion in performance between the UK and Continental
European retail markets. The data from C&W highlights this. The malaise in
UK shopping centres has been documented in this report over many years.
However, there is some renewed optimism towards this sector driven by the
broadening consensus that major retailers have right-sized their occupational
requirements. In some instances they are seeking larger stores in the dominant
centres to provide an even fuller offer to consumers.
Industrial and Logistics
For the first time in several years, the message from this sector is not one
of universal unbridled optimism. There are hints of caution in various
markets. In the UK, rents have grown rapidly and whilst they continue to grow,
the rate of growth is slowing. JLL reported an increase of 1.7% in headline
rents in the second quarter of 2024 across the 32 UK logistics markets that
they track. The figure for the last 12 months was a very healthy 5.0% but that
was a slowdown from 9.5% in the previous 12 months. Take up mirrors this
slowing data with 2023 only matching the 10 year average and 2024 looking
likely to undershoot given that the first half was only 79% of the decade
average.
However, any pessimism must be tempered by the fact that supply of 39.4m sq ft
represents just 18 months' take up. Nationwide availability for grade A
logistics is back to 9%, a figure last seen pre-pandemic. We expect the
5% rental growth (12 months to June) will slow further in the second half and
the figure for 2024 will definitely fall below the 10 year average (2014-2023)
of 6.6% per annum. It is interesting to note that investors continue to buy
the sector (in preference to any others) with volumes of £2.7bn in the first
half of 2024 close to matching the £2.8bn seen in the same half in 2023.
The situation in Continental Europe is similar but slightly more attractive
for several reasons. Structural growth across the region continues with more
onshoring/ nearshoring, particularly in the cheaper eastern markets. The Czech
Republic continues to have the lowest vacancy (3.1%). Bifurcation is evident,
with logistics platforms constantly seeking to optimise locations and building
efficiencies. Urban markets continue to see the most rapid rental growth due
to lack of availability. Vacancy levels remain at record lows in Dublin (1.7%)
but Barcelona has risen from 2.3% to 4.6% in a year and in Madrid the figures
are much poorer with vacancy now at 12.2%. Average vacancy is now 6% across
the whole region and rental growth, whilst positive (2.2% annualised), has
slowed from 5.8% a year earlier. For our portfolio, the attraction in the
Continental European markets remains the exposure to development opportunities
where we still see excellent returns and good demand for new build. Our
developer names include Argan (France), Catena (Sweden), Montea (Belgium) and
CTP (Eastern Europe).
Residential
The structural undersupply persists across virtually all markets. Regulated
(or partially controlled) rents across Germany, Sweden, Ireland, France and
Scotland stifle development and ensure only modest rental growth. Exposure to
Germany dominates the listed space and we have maintained a broadly neutral
position, owning more of the smaller companies (such as TAG) and less of the
largest name (Vonovia). Building permits have been in steady decline, leading
to historically low completion numbers.
Berlin remains a market where the gap between regulated and open market rent
remains widest and we continue to see an opportunity through Phoenix Spree
Deutschland which has moved to a steady wind-down phase. It continues to rank
as one of the cheapest cities to rent in, as a % of post-tax disposable income
(that is, if you can find an apartment). New apartments can be let at open
market value, at least initially and that figure is, according to JLL, 17.6%
ahead of a year earlier. A quite staggering impact of undersupply.
Open market regimes such as the UK have continued to see strong rental growth,
given wage growth and employment levels. Finland, where Helsinki dominates,
has been the one urban market where rents have fallen due to oversupply.
Kojamo's share price is down 21% year to date. We do not own the company and
our UK exposure has been through PRS Reit, the single family housing rental
specialist. The company has recently been the subject of shareholder activism
resulting in the share price rallying 30% since June. The newly invigorated
board has announced its determination to close the gap between the share price
and asset value.
Alternatives
As a loose collective of all sectors which are not office, retail, residential
or industrial/logistic, this group continues to grow in importance.
Purpose-built student accommodation ('PBSA') remains an important part of our
investment universe. We would very much like to have more exposure to
Continental European PBSA where we see consistent demand, affordability and,
crucially, better university funding models than the UK. Research by JLL notes
that no UK city is in the 10 most undersupplied cities, yet the UK boasts 6
out of the 10 cities with the strongest demand. The conclusion is that the UK
is a much more mature market but nonetheless capable of sustained rental
growth. Many European cities are experiencing strong demand but it is patchy,
with the most affordable and those with the strongest international draw
seeing the most growth.
Self storage continues to be of interest as share prices of all three listed
operators have recovered from concerns around slowing growth as markets
normalised in a post pandemic environment. Data from the Self Storage
Association does show falling occupancy nationwide (from 79.5% to 77.5% for
mature stores) but, as we have maintained for many years, the larger listed
names have much more market presence and digital reach than the vast array of
small operators. Shurgard continue to drive forward with consolidation - we
think the Lok n'Store deal was expensive but with a founder selling out that
was always likely to be the case.
Operators of healthcare and senior living businesses have seen pressure on
margins from wage inflation, whilst top line growth remains subdued. In the
UK, primary healthcare providers Assura and PHP are stuck with the state
regulator (the Valuation Office) restricting rent increases which prevents the
funding of new facilities. Frustrating for all involved. Our focus is on the
primarily privately funded (76% of fees paid) nursing home business at Target
Healthcare.
Debt and Equity Markets
Capital raised in the first nine months of 2024 has reached €20.4bn, almost
double the amount raised in 2023 (€10.4bn) and back to the 2020 figure
(€20.5bn). EPRA reports that the weighted average coupon rate which peaked
in 2023 at 5.1% has dropped to 4.2% so far this year and will fall further in
the final quarter of 2024. It is also encouraging to note that only 8.8% (down
from 10% six months ago) of all listed debt is due to mature in the next 12
months.
It should be noted that these figures relate to new issuance. Some of which
will be required to replace existing/expiring lines of credit. There continues
to be a large amount of restructuring, extending and renegotiation given the
ongoing maturity of low interest vintage loans across our universe. However,
these published statistics are a useful indicator of the improving capital
environment for debt markets.
Equity issuance has been stronger than in the same period last year. In the
industrial space it was Argan, Sirius and Catena all using proceeds to make
further investments. In the UK office sector, the Regional REIT and Great
Portland ('GPE') capital raises were driven by very different requirements.
For the former, this was a hugely dilutive raise at 10p (previous share price
40p) as it sought to restructure its impaired balance sheet. For GPE, the
raise was more front footed; it did need the capital but it does have a clear
strategy for the use of proceeds in its development pipeline. With the shares
trading at a large discount to its NAV, the dilution was 8%. Merlin will
deploy into its capital hungry data centre development programme, whilst Unite
has identified a large project in joint venture with Newcastle University for
the redevelopment of their central accommodation campus.
Investment Activity - property shares
Portfolio turnover (purchases and sales divided by two) totalled £248m. Given
average net assets of £1.13bn, this equated to turnover of 22%. The
equivalent last year was 18.6%. The large amount of capital raising in the
period, coupled with the M&A activity (higher capital rotation) and the
increase in the level of gearing all contributed to higher turnover.
There were only modest adjustments in our largest overweight and underweight
positions (versus their respective positions in the benchmark), i.e. our
greatest convictions. UK Commercial Property Trust was acquired by Tritax
Bigbox in an all paper transaction. I liquidated the position not wishing to
increase my net exposure to Tritax Bigbox. Balder, our preferred Swedish
residential play, just missed out on remaining in the highest conviction group
as I took profits post the huge summer rally in this highly leveraged name.
The exposure to Industrial & Logistics was reduced over the period. I
liquidated our position in Eurobox once the Segro paper bid emerged (in
hindsight I should have held on for the small additional gain from the
Brookfield cash counter bid). On the other hand, I remain more optimistic
about the prospects for the smaller Continental European logistics owners who
have substantial development pipelines and a solid path to earnings growth.
Both Argan (France) and Catena (Sweden) remain in the highest conviction
group.
Within the UK Diversified space, I continue to favour LondonMetric as the
large cap play and Picton as the small cap exposure. The diversified sector
continues to shrink with the privatisation of both BCPT and more recently the
sale to a private consortium of Aberdeen Property Income. I have recently
acquired a holding in Schroders Real Estate Investment Trust (market cap
£242m), one of the last micro caps in this sector. This externally managed
vehicle will shortly need to name its new lead manager following the internal
promotion of the incumbent who becomes global head of Schroders' real estate
business.
I remain a believer in the high earnings generating model of the European
shopping centre companies, particularly Klepierre and Eurocommercial. I also
closed most of the underweight position in Unibail as I became increasingly
comfortable with the US exposure. However, the announcement of huge cost
overruns (+€500m) on the Hamburg project has stopped me from doing anything
more than neutralising the situation versus the benchmark weighting.
Hammerson, with retail assets in the UK, France and Ireland completed the sale
of its minority interests in a range of outlet malls (which included some
exposure to the flagship Bicester Village). It has reduced its debt burden and
promises both buybacks (of its shares) and potential buyouts of some of its
co-owned UK malls. I still feel that owning a small number of assets in three
geographies will not deliver superior, market beating returns and sold our
position. If they are able to sell their two French assets then the UK/Irish
assets may well attract a domestic buyer.
In the alternatives space I returned to buying Unite, participating in the
placing in July and also adding subsequently to the holding. Their ability to
extract strong returns from their development programme together with the
relentless pruning of sub-scale exposures and weaker educational partners
continues to drive returns. This is a classic case (much like Industrials REIT
or the self-storage names) where the equity market is in danger of
undervaluing the management platform which delivers not only economies of
scale but would be hard to replicate as efficiently.
German residential remains the largest sector in our universe and all stocks
have enjoyed significant price recovery. Given the very high correlation to
bund pricing, the performance is not a surprise but the anaemic top line
growth prospects deterred me from adding to our holdings. Our largest relative
overweight remains Phoenix Spree Deutschland, the special situation and
microcap. The message around the deep embedded value in central Berlin
apartments is finally getting through to investors. Unique amongst the listed
residential companies, this portfolio has the regulatory approval to convert
(over time and depending on tenant move-out rates) 75% of its apartments to
owner-occupation which has a much higher value than units occupied by
regulated renters.
Our only meaningful office exposure outside of Paris CBD was to Madrid via
Arima (1.4% of assets) which was taken private in November.
Our London holding remains Workspace who have a new CEO, Lawrence Hutchings.
Recruited from Capital & Regional where he did an excellent job turning
round a deeply overleveraged small shopping centre business, we are excited
about the hire.
Physical Property Portfolio
The physical property portfolio produced a total return of +2.5%, made up of a
capital return of +1.5% and an income return of +1.0%. At our industrial
estate in Wandsworth, SW18 we completed the refurbishment of the first phase
of 6,000 sq ft. The work included replacing roofs, installing PV panels and
achieving an A+ EPC enabling occupation on a net zero 'in-use' basis. The
double unit was pre-let to a global high end fashion brand and includes a
photographic studio on a 10 year lease at a market leading rent. We are now on
site with the next phase of rolling refurbishment (three units totalling 9,500
sq ft) with completion set for December 2024.
The only retail unit was let to Joe & the Juice following a competitive
bidding process from a range of national coffee chains. They have taken a new
10 year lease at a 35% increase on the previous rent paid by Costa Coffee.
Revenue and Revenue Outlook
At 8.16p our interim earnings are almost 12% ahead of the prior year, but
still significantly behind the levels seen in the few years before that. The
impact of rising interest rates on our underlying companies' earnings was
flagged in the last two annual reports, added to that has been the cost of
increased interest and tax charges on our own revenue account over the last
year and a half.
On the plus side, programmes to restructure balance sheets in some of our
underlying companies has been largely completed and interest rates are
beginning to ease. Most companies which had suspended dividends have returned
to distributing, or at least announced their intention to do so. The
timetables mean that this will have limited impact for the current financial
year, but we expect an improvement for the year to March 2026.
We still expect it to take some time for earnings to return to previous
levels, but we do see areas where there is the opportunity for revenue growth.
We also see opportunities for capital activity and capturing some of those
capital events for our shareholders may come at the expense of income. The
prudent distribution policies adopted by our Board in the past, which has
created significant revenue reserves, together with the advantages of our
closed-ended structure, enables the Manager to remain focused on the Company's
total return objective whilst the Board is still able to maintain distribution
levels.
Gearing and Debt
At the beginning of the financial period our revolving credit facilities were
undrawn. As sentiment towards the sector improved through the period the
gearing was increased. By the end of September, the facilities were fully
drawn and gearing had increased from 10.8% to 13.9%.
The facility with ING was not renewed on maturity in July 2024. We chose to
enter into a new agreement with RBSI for a further one-year £30m
multicurrency revolving credit facility in October. This is in addition to the
existing £60m facility from RBSI (which matures in February 2025) together
with our fixed rate loan notes as well as the ability to gear through the use
of CFDs.
Outlook
In the Annual Report, I reviewed how the expectation of a peak in the interest
rate cycle and the correction in the cost of debt had resulted in us turning
our focus from the liability side of balance sheets back towards the asset
side. After two years of focusing on the debilitating impact of ballooning
debt, we returned to identifying which companies have returned to organic
growth and who has the strongest financial position to take advantage of
market opportunities. This shift from defensive to offensive thinking by the
investment community has resulted in more M&A and more capital being
raised. We expect more of this as the current cycle continues.
Investors want larger, stronger listed real estate companies. They want to
capture economies of scale and they want accretive acquisitions. We have
already witnessed (and benefited from) a considerable amount of corporate
activity but there is more to go.
As the cost of capital falls, the number of privatisations (as opposed to
consolidation) also continues. Boards of all small listed property companies
need to be proactive. Do not allow the sins of the past, such as non-alignment
of management contracts leading to a lack of focus on shareholder returns, to
dominate future behaviour. Atrato, the manager of Supermarket Income REIT, has
announced that they will switch the basis of their management fee from net
asset value to market capitalisation. We applaud this decision and encourage
others to follow.
Whilst this heightened level of corporate activity is a useful valuation
underpin, the focus remains on identifying growth opportunities for well
financed property companies with high quality portfolios. We are in a
bifurcated universe with the best buildings in the superior locations
attracting good tenant demand, whilst the remainder struggle.
Marcus Phayre-Mudge
Fund Manager
29 November 2024
Investment portfolio by country
as at 30 September 2024
Market
value % of total
£'000 investments
Belgium
Warehouses De Pau 26,570 2.2
Aedifica 19,521 1.6
Montea 17,642 1.4
Xior Student Housing 7,762 0.6
Shugard Self Storage 5,788 0.5
Icade 3,164 0.3
Care Property Invest 3,157 0.2
Cofinimmo 1,631 0.1
85,235 6.9
Finland
Kojamo 6,589 0.5
6,589 0.5
France
Klepierre 52,627 4.3
Gecina 47,893 3.9
Argan 42,953 3.5
Unibail Rodamco Westfield 19,165 1.6
Covivio 10,761 0.8
Carmila 7,025 0.6
180,424 14.7
Germany
Vonovia 93,934 7.6
LEG Immobilien 47,240 3.9
TAG Immobilien 36,071 2.9
Aroundtown 8,201 0.7
Grand City Properties 5,079 0.4
190,525 15.5
Ireland
Irish Residential Properties 1,181 0.1
1,181 0.1
Netherlands
Eurocommercial Properties 22,954 1.9
CTP 8,803 0.7
NSI 416 -
32,173 2.6
Spain
Merlin Properties 29,590 2.4
Arima Real Estate 16,259 1.3
45,849 3.7
Sweden
Fastighets Balder B 46,726 3.8
Catena 40,978 3.3
Sagax 28,737 2.3
Castellum 28,307 2.3
Wihlborgs 24,425 2.0
Dios Fastigheter 10,913 0.9
Pandox 10,585 0.9
Nyfosa 7,162 0.6
Samhallsbyggnadsbolaget 3,654 0.3
Cibus Nordic Real Estate 3,055 0.2
204,542 16.6
Switzerland
PSP Swiss Property 45,655 3.7
Swiss Prime Site 38,392 3.1
84,047 6.8
United Kingdom
LondonMetric Property 71,354 5.8
Segro 49,389 4.0
Picton Property Income 37,972 3.1
Unite Group 37,686 3.1
LandSec 36,764 3.0
Sirius Real Estate 30,299 2.5
Phoenix Spree Deutschland 28,871 2.4
Workspace 23,569 1.9
Safestore 6,469 0.5
Supermarket Income REIT 6,196 0.5
Primary Healthcare 5,966 0.5
Schroder REIT 5,740 0.5
Target Health Care 4,934 0.4
NewRiver REIT 4,773 0.4
Big Yellow 2,850 0.2
Cap & Regional 2,576 0.2
Atrato((1)) 2,573 0.2
PRS REIT 1,772 0.1
Tritax Big Box REIT 1,457 0.1
Empiric 893 0.1
Ediston Property((1)) 319 -
362,422 29.5
Direct Property 39,360 3.2
CFD Positions (included in current assets and current liabilities) (1,049) (0.1)
Total Investment Positions 1,231,298 100.0
Notes
> Companies shown by country of listing.
> The above positions are the physical holdings included in
the investments held at fair value in the Balance Sheet. The CFD positions is
the net of the profit or loss on the CFD contracts (i.e. not the investment
exposure) included in the Balance Sheet current assets and liabilities.
((1)) Unlisted equities.
Group statement of comprehensive income
Half year ended Half year ended Year ended
30 September 2024 30 September 2023 31 March 2024
(Unaudited) (Unaudited) (Audited)
Revenue Capital Revenue Capital Revenue Capital
Return Return Total Return Return Total Return Return Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Income
Investment income 26,893 - 26,893 23,156 - 23,156 39,956 - 39,956
Rental income 724 - 724 1,865 - 1,865 3,471 - 3,471
Other operating income 393 - 393 464 - 464 877 - 877
Gains on Investments held at fair value - 84,557 84,557 - 16,374 16,374 - 160,791 160,791
Net movement on foreign exchange; investments and
loan notes - 3,013 3,013 - (335) (335) - (1,195) (1,195)
Net movement on foreign exchange; cash and cash
equivalents - (2,368) (2,368) - (1,891) (1,891) - (2,755) (2,755)
Net returns on contracts for difference 4,737 11,204 15,941 3,722 622 4,344 6,522 16,719 23,241
Total income 32,747 96,406 129,153 29,207 14,770 43,977 50,826 173,560 224,386
Expenses
Management and
performance fees (note 2) (791) (3,910) (4,701) (745) (7,334) (8,079) (1,513) (14,622) (16,135)
Direct property expenses, rent payable and service
charge costs (64) - (64) (567) - (567) (673) - (673)
Other administrative expenses (721) (294) (1,015) (659) (284) (943) (1,336) (575) (1,911)
Total operating expenses (1,576) (4,204) (5,780) (1,971) (7,618) (9,589) (3,522) (15,197) (18,719)
Operating profit 31,171 92,202 123,373 27,236 7,152 34,388 47,304 158,363 205,667
Finance costs (915) (2,744) (3,659) (826) (2,479) (3,305) (1,771) (5,315) (7,086)
Profit from operations
before tax 30,256 89,458 119,714 26,410 4,673 31,083 45,533 153,048 198,581
Taxation (4,356) 2,555 (1,801) (3,195) 2,123 (1,072) (7,322) 5,088 (2,234)
Total comprehensive income 25,900 92,013 117,913 23,215 6,796 30,011 38,211 158,136 196,347
Earnings per ordinary share 8.16p 28.99p 37.15p 7.31p 2.14p 9.45p 12.04p 49.83p 61.87p
The Total column of this statement represents the Group's Statement of
Comprehensive Income, prepared in accordance with UK-adopted international
accounting standards. The Revenue Return and Capital Return columns are
supplementary to this and are prepared under guidance published by the
Association of Investment Companies. All items in the above statement derive
from continuing operations.
The Group does not have any other income or expense that is not included in
the above statement therefore
"Total comprehensive income" is also the profit for the period.
All income is attributable to the shareholders of the parent company.
Group statement of changes in equity
Share Capital
Share Premium Redemption Retained
For the half year ended Capital Account Reserve Earnings Total
30 September 2024 (Unaudited) £'000 £'000 £'000 £'000 £'000
At 31 March 2024 79,338 43,162 43,971 949,032 1,115,503
Total comprehensive income - - - 117,913 117,913
Dividends paid (note 4) - - - (31,894) (31,894)
At 30 September 2024 79,338 43,162 43,971 1,035,051 1,201,522
Share Capital
Share Premium Redemption Retained
For the half year ended Capital Account Reserve Earnings Total
30 September 2023 (Unaudited) £'000 £'000 £'000 £'000 £'000
At 31 March 2023 79,338 43,162 43,971 801,875 968,346
Total comprehensive income - - - 30,011 30,011
Dividends paid (note 4) - - - (31,259) (31,259)
At 30 September 2023 79,338 43,162 43,971 800,627 967,098
Share Capital
Share Premium Redemption Retained
For the year ended Capital Account Reserve Earnings Total
31 March 2024 (Audited) £'000 £'000 £'000 £'000 £'000
At 31 March 2023 79,338 43,162 43,971 801,875 968,346
Total comprehensive income - - - 196,347 196,347
Dividends paid (note 4) - - - (49,190) (49,190)
At 31 March 2024 79,338 43,162 43,971 949,032 1,115,503
Group balance sheet
30 September 30 September 31 March
2024 2023 2024
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Non-current assets
Investments held at fair value 1,232,347 964,884 1,112,107
1,232,347 964,884 1,112,107
Deferred taxation asset 903 903 903
1,233,250 965,787 1,113,010
Current assets
Debtors 60,664 61,934 58,212
Cash and cash equivalents 29,506 20,401 19,145
90,170 82,335 77,357
Current liabilities (65,297) (22,651) (17,116)
Net current assets 24,873 59,684 60,241
Total assets less current liabilities 1,258,123 1,025,471 1,173,251
Non-current liabilities (56,601) (58,373) (57,748)
Net assets 1,201,522 967,098 1,115,503
Capital and reserves
Called up share capital 79,338 79,338 79,338
Share premium account 43,162 43,162 43,162
Capital redemption reserve 43,971 43,971 43,971
Retained earnings 1,035,051 800,627 949,032
Equity Shareholders' funds 1,201,522 967,098 1,115,503
Net Asset Value per:
Ordinary share 378.61p 304.74p 351.50p
Group cash flow statement
Half year ended Half year ended Year ended
30 September 30 September 31 March
2024 2023 2024
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Reconciliation of profit from operations before tax to net cash flow from
operating activities
Profit from operations before tax 119,714 31,083 198,581
Finance costs 3,659 3,305 7,086
Gains on investments and derivatives held at fair value
through profit or loss (95,761) (16,996) (177,510)
Net movement on foreign exchange; cash and cash
equivalents and loan notes 1,188 1,331 1,570
Scrip dividends included in investment income and net
returns on contracts for difference (7,167) - (5,928)
Accrued income in the prior year received as scrip dividends (1,680) - (1,557)
Sale of investments 230,730 171,842 455,539
Purchase of investments (239,395) (162,886) (435,415)
Decrease in prepayments and accrued income 2,269 3,263 888
Decrease/(increase) in sales settlement debtor 2,929 (3,113) (152)
Decrease in purchase settlement creditor (5,561) (8,390) (2,975)
(Increase)/decrease in other debtors (12,525) (1,441) 7,379
(Decrease)/increase in other creditors (7,282) 4,554 7,615
Net cash flow from operating activities before interest and taxation (8,882) 22,552 55,121
Interest paid (3,659) (3,305) (7,086)
Taxation paid (2,006) (1,767) (3,016)
Net cash flow from operating activities (14,547) 17,480 45,019
Financing activities
Equity dividends paid (31,894) (31,259) (49,190)
Drawdown of loans 59,170 - (10,000)
Net cash flow from financing activities 27,276 (31,259) (59,190)
Increase/(decrease) in cash 12,729 (13,779) (14,171)
Cash and cash equivalents at start of period 19,145 36,071 36,071
Net movement on foreign exchange; cash and cash equivalents (2,368) (1,891) (2,755)
Cash and cash equivalents at end of period 29,506 20,401 19,145
Notes to the financial statements
1 Basis of accounting
The accounting policies applied for these half year financial statements are
consistent with those applied in the financial statements of the Company's
most recent annual report. The statements have been prepared on a going
concern basis, in accordance with UK-adopted international accounting
standards and in conformity with the requirements of the Companies Act 2006.
The financial statements have also been prepared in accordance with the
Association of Investment Companies Statement of Recommended Practice,
"Financial Statements of Investment Trust Companies and Venture Capital
Trusts," ('SORP'), to the extent that it is consistent with UK‑adopted
international accounting standards.
The financial statements are expressed in sterling, which is the Company's
functional and presentational currency. Sterling is the functional currency as
it is the currency of the primary economic environment in which the Group
operates.
In assessing Going Concern the Board has made a detailed assessment of the
ability of the Company and the Group to meet its liabilities as they fall due,
including stress and liquidity tests which considered the effects of
substantial falls in investment valuations, revenues received and market
liquidity as the global economy continues to suffer from geopolitical and
economic pressures.
In accordance with IFRS10 the Company has been designated as an investment
entity on the basis that:
• it obtains funds from investors and provides those investors with
investment management services;
• it commits to its investors that its business purpose is to invest
funds solely for returns from capital appreciation and investment income; and
• it measures and evaluates performance of substantially all of its
investments on a fair value basis.
Each of the subsidiaries of the Company was established for the sole purpose
of operating or supporting the investment operations of the Company (including
raising additional financing) and is not itself an investment entity. IFRS 10
sets out that in the case of controlled entities that support the investment
activity of the investment entity, those entities should be consolidated
rather than presented as investments at fair value. Accordingly, the Company
has consolidated the results and financial positions of those subsidiaries.
Subsidiaries are consolidated from the date of their acquisition, being the
date on which the Company obtains control, and continue to be consolidated
until the date that such control ceases. The financial statements of
subsidiaries used in the preparation of the consolidated financial statements
are based on consistent accounting policies. All intra-group balances and
transactions, including unrealised profits arising therefrom, are eliminated.
The standards issued before the reporting date that become effective after 30
September 2024 are not expected to have a material effect on equity or profit
for the subsequent period. The Group has not early-adopted any new UK-adopted
international accounting standards or interpretations. Standards, amendments
and interpretations issued but not yet effective up to the date of issuance of
the Group's financial statements are listed below:
IFRS 18 Presentation and Disclosure in Financial Statements (effective date 1
January 2027): the amendments specify the requirements to provide investors
with more transparent and comparable information about companies' financial
performance. The amendments are not expected to have a material impact on the
Group's financial statements.
2 Management and performance fees
Half year ended Half year ended Year ended
30 September 2024 30 September 2023 31 March 2024
(Unaudited) (Unaudited) (Audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Management fee 791 2,374 3,165 745 2,233 2,978 1,513 4,540 6,053
Performance fee - 1,536 1,536 - 5,101 5,101 - 10,082 10,082
791 3,910 4,701 745 7,334 8,079 1,513 14,622 16,135
A provision of £1,536,000 has been made for a performance fee at 30 September
2024 (30 September 2023 - £5,101,000, 31 March 2024 - £10,082,000). Any
payment is not due until the full year performance fee is calculated at 31
March 2025.
A summary of the terms of the management and performance fee agreements is
given in the Report of the Management Engagement Committee on pages 54 and 55
of the latest Annual Report.
3 Earnings per ordinary share
The earnings per ordinary share can be analysed between revenue and capital,
as below.
Half year ended Half year ended Year ended
30 September 30 September 31 March
2024 2023 2024
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Revenue profit 25,900 23,215 38,211
Capital profit 92,013 6,796 158,136
Total comprehensive income 117,913 30,011 196,347
Weighted average number of ordinary shares in issue during the period 317,350,980 317,350,980 317,350,980
Total earnings per ordinary share 37.15p 9.45p 61.87p
The Group has no securities in issue that could dilute the earnings per
ordinary share. Therefore the basic and diluted earnings per ordinary share
are the same.
No ordinary shares have been purchased and cancelled during the half year
ended 30 September 2024.
4 Dividends
Half year ended Half year ended Year ended
30 September 30 September 31 March
2024 2023 2024
Record Payment (Unaudited) (Unaudited) (Audited)
Dividends on ordinary shares date date £'000 £'000 £'000
Interim dividend for the year ended 31 March 2024 of 5.65p 15-Dec-23 11-Jan-24 - 17,931 17,931
Final dividend for the year ended 31 March 2024 of 10.05p 28-Jun-24 01-Aug-24 - - 31,894
Interim dividend for the year ended 31 March 2025 of 5.65p 13-Dec-24 10-Jan-25 17,931 - -
17,931 17,931 49,825
The final dividend of 10.05p (2023: 9.85p) in respect of the year ended 31
March 2024 was declared on 10 June 2024 and paid on 1 August 2024. This can be
found in the Group Statement of changes in equity for the half year ended 30
September 2024.
The interim dividend of 5.65p (2024: 5.65p) in respect of the year ending 31
March 2025 was declared on 2 December 2024 and will be paid on 10 January
2025 to all shareholders on the register on 13 December 2024. The shares will
be quoted ex-dividend on 12 December 2024.
The interim dividend has not been included as a liability in these interim
financial statements in accordance with IAS 10 "Events after the reporting
period".
5 Fair value of financial assets and financial liabilities
Financial assets and financial liabilities are carried in the Balance Sheet
either at their fair value (investments) or the balance sheet amount as a
reasonable approximation of fair value (due from brokers, dividends and
interest receivable, due to brokers, accruals and cash at bank).
Fair value hierarchy disclosures
The table below sets out fair value measurements using IFRS 13 fair value
hierarchy, including investment properties to show the fair value level of the
complete investment portfolio:
Financial assets/(liabilities) at fair value through profit or loss
Level 1 Level 2 Level 3 Total
At 30 September 2024 £'000 £'000 £'000 £'000
Equity investments 1,190,095 - 2,892 1,192,987
Investment properties - - 39,360 39,360
1,190,095 - 42,252 1,232,347
Contracts for difference - (1,049) - (1,049)
1,190,095 (1,049) 42,252 1,231,298
Foreign exchange forward contracts - 121 - 121
1,190,095 (928) 42,252 1,231,419
Level 1 Level 2 Level 3 Total
At 30 September 2023 £'000 £'000 £'000 £'000
Equity investments 890,751 - 2,573 893,324
Investment properties - - 71,560 71,560
890,751 - 74,133 964,884
Contracts for difference - (3,509) - (3,509)
890,751 (3,509) 74,133 961,375
Foreign exchange forward contracts - 38 - 38
890,751 (3,471) 74,133 961,413
Level 1 Level 2 Level 3 Total
At 31 March 2024 £'000 £'000 £'000 £'000
Equity investments 1,070,827 - 2,892 1,073,719
Investment properties - - 38,388 38,388
1,070,827 - 41,280 1,112,107
Contracts for difference - 6,098 - 6,098
1,070,827 6,098 41,280 1,118,205
Foreign exchange forward contracts - 14 - 14
1,070,827 6,112 41,280 1,118,219
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset as follows:
Level 1 - quoted (unadjusted) prices in active markets for identical assets or
liabilities, including investments listed on recognised exchanges.
Level 2 - other techniques for which all inputs that have a significant effect
on the recorded fair value are observable, either directly or indirectly,
including forward foreign exchange trades, contracts for difference, and
equity investments with no recent trading history.
Level 3 - techniques that use inputs that have a significant effect on the
recorded fair value that are not based on observable market data, including
direct property and unlisted investments.
Contracts for Difference are synthetic equities and are valued by reference to
the investments' underlying market values. There were no transfers during the
half year between any of the levels.
Investment properties are carried by the Group at fair value in accordance
with IFRS 13, revalued twice a year, with changes in fair values being
recognised in the Group Statement of Comprehensive Income. The Group engaged
Knight Frank LLP as independent valuation specialists to determine fair value
as at 30 September 2024. Determination of the fair value of investment
properties has been prepared on the basis defined by the RICS Valuation -
Global Standards (The Red Book Global Standards) as follows:
"The estimated amount for which a property should exchange on the date of
valuation between a willing buyer and a willing seller in an arm's length
transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion."
The valuation takes into account future cash flow from assets (such as
lettings, tenants' profile, future revenue streams, capital values of fixtures
and fittings plant and machinery, any environmental matters and the overall
repair and condition of the property) and discount rates applicable to those
assets. These assumptions are based on local market conditions existing at the
balance sheet date.
In arriving at their estimates of fair values as at 30 September 2024, the
valuers have used their market knowledge and professional judgement and have
not only relied solely on historical transactional comparables.
Reconciliation of movements in financial assets categorised as level 3 for the
half year ended 30 September 2024
Movement in
Valuation unrealised Valuation
31 March Realised appreciation/ 30 September
2024 Additions Disposals losses (depreciation) 2024
£'000 £'000 £'000 £'000 £'000 £'000
Unlisted investments 2,892 - - - - 2,892
Investment properties 38,388 455 (3) (3) 523 39,360
41,280 455 (3) (3) 523 42,252
The Group held two unlisted investments as at 30 September 2024 (31 March
2024: two). See the Investment Portfolio above for details.
All appreciation/(depreciation) as stated above relates to movements in fair
value of unlisted equity investments and investment properties held at 30
September 2024.
Sensitivity information for investment property valuations
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy of investment
properties are:
Weighted average estimated
rental value Weighted average
(per square foot) capitalisation rates
30 September 31 March 30 September 31 March
2024 2024 2024 2024
Investment property £30.15 £25.60 5.4% 5.4%
Significant increases (decreases) in estimated rental value and rent growth in
isolation would result in a significantly higher (lower) fair value
measurement. A significant increase (decrease) in long-term vacancy rate in
isolation would result in a significantly lower (higher) fair value
measurement.
6 Borrowings
Loan notes
On the 10th February 2016, the Company issued 1.92% Unsecured Euro 50,000,000
Loan Notes and 3.59% Unsecured GBP 15,000,000 Loan Notes which are due to be
redeemed at par on the 10th February 2026 and 10th February 2031 respectively.
At the Balance Sheet date the fair value of the 1.92% Euro Loan Notes was
£42,067,000 (30 September 2023: £43,419,000; 31 March 2024: £42,806,000)
and the 3.59% GBP Loan Notes was £ 14,320,000 (30 September 2023:
£14,116,000; 31 March 2024: £14,292,000) and are deemed to be categorised
within Level 2 of the IFRS 13 fair value hierarchy.
The loan notes agreement requires compliance with a set of financial covenants
as shown in note 11.7 of the 2024 Annual Report. These covenants have all been
complied with during the half year ended 30 September 2024.
7 Called-up share capital
As at 30 September 2024, 317,350,980 ordinary shares of 25p nominal value were
in issue (30 September 2023: 317,350,980; 31 March 2024: 317,350,980).
During the half year ended and since 30 September 2024, no ordinary shares
have been issued or purchased and cancelled.
8 Net Asset Value per ordinary share
Half year ended Half year ended Year ended
30 September 30 September 31 March
2024 2023 2024
(Unaudited) (Unaudited) (Audited)
Net asset value per share (pence) 378.61 304.74 351.50
Net assets attributable to shareholders (£'000) 1,201,522 967,098 1,115,503
Number of ordinary shares in issue at the period end 317,350,980 317,350,980 317,350,980
9 Going concern
The Directors believe that it is appropriate to continue to adopt the going
concern basis in preparing the financial statements. The assets of the Company
consist mainly of securities that are readily realisable and, accordingly,
they believe that the Company has adequate financial resources to meet its
liabilities as and when they fall due and continue in operational existence
for a period of at least 12 months from the date of approval of this Half Year
Report.
10 Comparative Information
The financial information contained in this Half Year Report does not
constitute statutory accounts as defined in section 435(1) of the Companies
Act 2006. The financial information for the half year periods ended
30 September 2024 and 30 September 2023 has not been audited or reviewed by
the Company's auditors. The figures and financial information for the year
ended 31 March 2024 are an extract from the latest published financial
statements and do not constitute statutory financial statements for that year.
Those financial statements have been delivered to the Registrar of Companies
and include the report of the auditors, which was unqualified and did not
contain a statement under either section 498(2) or 498(3) of the Companies
Act 2006.
Directors' Responsibility Statement in respect of the Half Year Report
Principal and Emerging Risks and Uncertainties
The principal risks and uncertainties facing the Company have not changed
since the date of the Annual Report 2024 and continue to be as set out in that
report.
The principal risks and uncertainties facing the Company include, but are not
limited to, poor share price performance in comparison to the underlying NAV;
poor investment performance of the portfolio relative to the benchmark; market
risk; the Company is unable to maintain dividend growth; accounting and
operational risks; financial risks; loss of Investment Trust Status; legal,
regulatory and reporting risks; inappropriate use of gearing and personnel
changes at Investment Manager. An explanation of these risks and how they are
managed are set out on pages 34 to 37 of the Annual Report for the year ended
31 March 2024 (which can be found on the Company's website
www.trproperty.com).
Going Concern
As stated in note 10 to the financial statements, the directors are satisfied
that the Group has sufficient resources to continue in operation for a period
of at least 12 months from the date of this report. Accordingly, the going
concern basis is adopted in preparing the condensed financial statements.
Directors' Responsibility Statement
In accordance with Chapter 4 of the Disclosure Guidance and Transparency
Rules, the Directors confirm that to the best of their knowledge:
• the condensed set of financial statements has been prepared in
accordance with applicable UK Accounting Standards on a going concern basis
and gives a true and fair view of the assets, liabilities, financial position
and net return of the Company;
• the half year report includes a fair review of the important
events that have occurred during the first six months of the financial year
and their impact on the financial statements;
• the statement of Principal and Emerging Risks and Uncertainties
shown opposite is a fair review of the principal and emerging risks and
uncertainties for the remainder of the financial year; and
• the half year report includes a fair review of the related party
transactions that have taken place in the first six months of the financial
year.
On behalf of the Board
Kate Bolsover
Chairman
29 November 2024
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
By order of the Board
Columbia Threadneedle Investment Business Limited
Company Secretary,
2 December 2024
ENDS
A copy of the Half Year Report will be submitted to the National Storage
Mechanism and will shortly be available for inspection
at data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
The Half Year Report will also be available shortly on the Company's website
at www.trproperty.com (http://www.trproperty.com/) where up to date
information on the Company, including daily NAV and share prices, factsheets
and portfolio information can also be found.
For further information please contact:
Marcus Phayre-Mudge
Fund Manager, TR Property Investment Trust plc
020 7011 4711
Mark Young
Stifel
020 7710 7633
Tom Scrivens
Panmure Gordon (UK) Limited
020 7886 2648
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