TIDMTRY
RNS Number : 4112B
TR Property Investment Trust PLC
02 June 2023
TR PROPERTY INVESTMENT TRUST PLC
LONDON STOCK EXCHANGE ANNOUNCEMENT
Results for the year ended 31 March 2023
LEI: 549300BPGCCN3ETPQD32
Information disclosed in accordance with Disclosure Guidance and
Transparency Rule 4.1
TR Property Investment Trust plc, announces its full year
results for the year ended 31 March 2023
Chairman David Watson commented
"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 over-supply."
Manager Marcus Phayre-Mudge commented
"For a sector where returns are anchored by income, these levels
of volatility and multiple directional shifts are almost
unparalleled. 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."
Year ended Year ended
31 March 31 March
2023 2022 Change
--------------------------------------- ---------- ---------- ------
Balance Sheet
Net asset value per share 305.13p 492.43p -38.0%
Shareholders' funds (GBP'000) 968,346 1,562,739 -38.0%
Shares in issue at the end of the year
(m) 317.4 317.4 +0.0%
Net debt(1,6) 12.3% 10.2%
--------------------------------------- ---------- ---------- ------
Share Price
Share price 279.00p 456.50p -38.9%
Market capitalisation GBP885m GBP1,449m -38.9%
--------------------------------------- ---------- ---------- ------
Year ended Year ended
31 March 31 March
2023 2022 Change
------------------------------------- ---------- ---------- ------
Revenue
Revenue earnings per share 17.22p 13.69p +25.8%
------------------------------------- ---------- ---------- ------
Dividends(2)
Interim dividend per share 5.65p 5.30p +6.6%
Final dividend per share 9.85p 9.20p +7.1%
Total dividend per share 15.50p 14.50p +6.9%
------------------------------------- ---------- ---------- ------
Performance: Assets and Benchmark
Net Asset Value total return(3,6) -35.5% +21.4%
Benchmark total return(6) -34.0% +12.2%
Share price total return(4,6) -36.2% +19.9%
------------------------------------- ---------- ---------- ------
Ongoing Charges(5,6)
Including performance fee 0.73% 2.19%
Excluding performance fee 0.73% 0.60%
Excluding performance fee and direct
property costs 0.67% 0.58%
------------------------------------- ---------- ---------- ------
1. Net debt is the total value of loan notes, loans (including
notional exposure to CFDs and Total Return Swap) less cash as a
proportion of net asset value.
2. Dividends per share are the dividends in respect of the
financial year ended 31 March 2023. An interim dividend of 5.65p
was paid on 12 January 2023. A final dividend of 9.85 p (2022:
9.20p) will be paid on 1 August 2023 to shareholders on the
register on 30 June 2023. The shares will be quoted ex-dividend on
29 June 2023.
3. The NAV Total Return for the year 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.
4. The Share Price Total Return is calculated by reinvesting the
dividends in the shares of the Company from the relevant
ex-dividend date.
5. Ongoing Charges are calculated in accordance with the AIC
methodology. The Ongoing Charges ratios provided in the Company's
Key Information Document are calculated in line with the PRIIPs
regulation which is different to the AIC methodolgy.
6. Considered to be an Alternative Performance Measure.
Chairman's statement
Market Backdrop
This has been a very difficult year for the property market, for
property shares and for the Company. Net asset value total return
was -35.5%, slightly worse than our benchmark at -34.0%. The share
price total return was -36.2% as the discount between the NAV and
the share price widened slightly, reflecting weaker investor
sentiment as a whole. Although the change in the second half was
modest (first half NAV total return of -33.6% March to September
2022) we have experienced some very dramatic price action in the
intervening six months.
Macro-economic forces continued to dominate. The drivers and
trajectory of inflation remained everyone's focus. Central bankers
appeared as unsure of the consequences of their actions as market
participants. Volatility remained elevated. Whilst our total return
figures are clearly very poor, the autumnal rally in property
stocks, somewhat punctured (in the UK) by political events in
November, did resume in earnest in January. This three month rally,
based squarely on a change in the expected trajectory of interest
rates, gave us, at last, a taste of a more optimistic attitude
towards our asset class. The last few weeks of the financial year
saw market sentiment damaged by the failure of two regional banks
in the US and the final take out of Credit Suisse. This raised
knee-jerk concerns of bank contagion which here feels
sensationalist given the enhanced levels of regulatory oversight
and controls on European banks post the global financial
crisis.
The investment management team have a long track record of alpha
generation through dynamic stock selection. It is fair to say that
the investment dynamics of the last 12 months have not been their
preferred context. The dramatic price falls and bear market rallies
have been largely undiscriminating between the good and the bad.
Forced sellers were interested in volume not price. Small caps, as
usual, struggled in these conditions. This macro-driven environment
is hopefully, finally, abating as investors appear increasingly
interested in differentiating between individual companies'
prospects following the significant correction.
Our investment universe has now seen a number of companies who
have suspended or reduced dividends. These were, in the main, the
likely suspects and it would be a surprise to us if many others now
emerge given the economic cycle. One of the core attractions of
real estate investing is the potential of indexed income and this
is showing through and remains our focus.
Revenue Results and Dividend
Earnings per share increased by 26% from 13.69p per share to
17.22p. This is an all-time high. Although company earnings did in
general recover to pre-Covid-19 levels, our headline earnings were
further flattered by changes in the timing of some dividend
payments. More detail of this is set out in the Manager's
report.
The Board is pleased to announce a final dividend of 9.85p
taking the full year dividend to 15.50p, representing a 6.9%
increase. In determining the dividend the Board has been very
sensitive to investor appetite for income but has also been
conscious of the underlying income growth and the potential impact
of interest and exchange rates on future earnings.
Revenue Outlook
Following a record level of earnings in 2022/23, the Board
expect to report a reduction in net income for the year to 2023/24.
This is not only as a result of the non-recurrence of certain items
which enhanced the current year earnings, but also because of the
number of companies that have announced dividend cuts or
suspensions. All companies have had to adjust to the change in the
price of debt. For some the impact has been immediate, while for
others it will be somewhat delayed as they continue to benefit from
historic fixed rates. However, on the income side of the equation,
index-linked rents will benefit. Companies need to balance the
pluses and minuses and some have reacted quickly and cautiously to
protect their balance sheets. The medium to longer-term outlook for
interest rates is difficult to predict so it could be a while
before companies feel confident about the longer-term outlook.
Net Debt and Currencies
Gearing at 12.3% is an almost identical figure to that at the
half year. Inevitably these numbers are just snapshots in time; the
level of gearing has varied in response to the market volatility
and as investment opportunities have occurred.
Sterling weakened over the year by just over 4%. This marginally
enhanced our income account as non-sterling dividends were worth
more in sterling terms.
As our balance sheet is denominated in sterling a weaker pound
served to help the reported value of non-sterling assets. The
balance sheet exposure remains materially in line with the
benchmark as we hedge exposure to match the benchmark.
Discount and Share Repurchases
The discount of the share price to the NAV widened slightly over
the year from -7.3% to -8.6%. However, the spread over the year has
been much wider, swinging between close to -1% and over -10%. This
volatility is indicative of the rapid changes in sentiment towards
the sector. The average over the year under review was -5.8%, close
to the 10-year average of -4.9% and an improvement on the -6.6%
average since the invasion of Ukraine.
In light of the transient nature of the discount volatility, no
share buy-backs or issues were made during the year.
Board Changes
I reported at the half year that we had commenced the search for
a new Director who would broaden and strengthen the Board and add
diversity of age, experience and ethnicity. In January this year we
were delighted to announce the appointment of Busola Sodeinde to
the Board as an independent Non-Executive Director and we have
greatly appreciated her early insight and perspective on a wide
range of issues.
We also announced my intention to step down from the Board with
effect from the conclusion of the forthcoming AGM. As announced,
Kate Bolsover will succeed me as Chairman and Tim Gillbanks will
succeed Kate as Senior Independent Director.
Environmental, Social and Governance ('ESG')
ESG reports within annual accounts are becoming longer and
contain more and more detail. This is wholly appropriate for an
operating company and we welcome the additional disclosure. As an
investment trust company and primarily an investor in companies, we
have to think about what ESG should mean for us.
Our ESG approach covers three areas. Firstly, the governance and
policies which apply directly to the investment trust as a Company
under the direct control of the Board. Secondly, ESG considerations
as part of the investment process for our equity portfolio adopted
by our Manager. Although our Manager cannot have any direct control
over ESG policies in underlying investee companies, it can, and
does, use its influence carefully through corporate voting and
engagement with the companies in which we invest. Thirdly, our
Manager does have control over our direct property portfolio and
here we continue to drive for greater energy efficiency and
environmental care in all that we do.
Our Responsible Investment Report within the Annual Report sets
out our approach in each of these areas with some case study
examples. This is of course an area of active evolution.
Outlook
Macro considerations continue to dominate. Markets have had to
absorb a huge adjustment in the cost of capital and real estate
equities have certainly borne their share of price adjustments.
However, this is an unusual cycle where both rates and rents are
rising. In many of our areas of focus, real estate market
fundamentals are sound and we see few signs of over-supply. Our
central assumption is that the interest rate cycle will peak this
year but that inflation will remain above central banks' targets.
Listed property companies are generally more conservatively geared
than their private counterparts and this should stand them in good
stead. The sector has been hit hard and many of our companies are
trading at large discounts to asset values that have also been
recalibrated. As in previous cycles, if the sector
is undervalued then private capital will be quick to step in.
Just after the year end, Industrials REIT, one of the Company's 10
largest holdings, announced a recommended bid for cash at a 40%
premium to the undisturbed share price. More recently in early May,
Civitas, the social housing landlord announced a cash bid from an
Asian conglomerate at a similar premium. These businesses are chalk
and cheese but both have proved attractive to very different groups
of investors. These events remind us that, for many, real estate is
seen as a crucial part of the investment jigsaw particularly in
these inflationary times.
David Watson
Chairman
1 June 2023
Manager's report
Performance
The Company's net asset value ('NAV') total return for the 12
months to 31 March 2023 was -35.5%, whilst the benchmark, FTSE EPRA
Nareit Developed Europe TR (in GBP), fell -34.0%. These figures are
clearly disappointing but not materially different from those
reported at the half year, where the NAV had fallen -33.6% in the
first six months of the financial year. Equally important to note
is that these figures are snapshots in very volatile times. To
illustrate the point, the first four months of the second half of
the financial year (i.e. October to January) saw our universe rally
+14.5% only to then give up all of those gains in the subsequent
nine weeks. The end result was a finish to the year which was
marginally worse than where we were at the half year stage.
In the half year review, I wrote that shareholders will no doubt
be concerned that given the scale of the correction, the direction
of travel was obvious and more protective action should have been
taken. It always looks clear in hindsight but as we walk through
the year in the next few paragraphs, the dramatic swings in
sentiment will help explain some of the difficulties we faced in
trying to rotate the portfolio into the headwinds, avoid the rip
currents but then also catch the spring tides of sentiment
recovery
The first quarter of the financial year saw the sector fall 24%
as investors really focused on the impact of rising interest rates.
However, you could still have made money over a four-week period
(in May and early June) and this highlights the sense of sentiment
rather than facts driving markets in mid-2022. Everyone became
central bank-focused whilst real estate fundamentals were ignored.
July saw a strong reversal (+9.5%) as bond markets responded to the
theme that rising interest rates were having the required
deflationary effect. However, the summer break was followed by
hawkish statements from the US Federal Reserve at Jackson Hole and
our benchmark fell -30% between mid-August and mid--October as
investors began to believe the 'higher for longer' mantra. This
severe bout of pessimism was then followed by a +25% rally in
pan-European property stocks between mid-October and the end of
January. The tail end of the financial year saw this recovery then
ebb away with the sector falling 13% in the last two months of the
financial year.
For a 'value' sector where returns are driven - year in, year
out - by income, these levels of volatility and multiple
directional shifts are almost unparalleled. What is happening?
Essentially, the whole period has been dominated by the ebbs and
flows around interest rate expectations and bond market behaviour.
Real estate fundamentals have taken the proverbial back seat. A
longstanding real estate equity market observer with over 30 years'
experience recently wrote to clients 'I can't recall a period of
time when capital values have fallen so sharply and yet occupier
demand in most sectors has remained pretty robust'. I have
reproduced the statement verbatim as it neatly encapsulates the
environment we find ourselves in. In other words, yields are rising
but so are rents, this is atypical. It is now clear, that through
2022, I placed too much emphasis on this quality of earnings (and
indeed earnings growth) in many of our companies. The market paid
little heed, choosing to focus on the impact of rising
yields/capitalisation rates on asset values.
The speed at which central banks responded, as inflation
gathered pace, took many participants by surprise. The rising cost
of debt affected all property stocks, but it had the greatest
impact on two particular cohorts of companies. Those companies
which had successfully utilised unsecured bond market financing now
discovered that this source of (re)financing was effectively shut.
German residential businesses, particularly the larger ones,
Vonovia, LEG and the more diversified Aroundtown (part owner of
Grand City Properties), are all seeing their cost of debt rise
dramatically as the expiry of existing bonds require refinancing.
The other heavily impacted group were those with higher loan to
value compounded by high levels of floating rate debt. The impact
on earnings for this group has been dramatic and the majority of
Swedish companies fall into this category. Both these cohorts share
a couple of similar outcomes; firstly, those companies which have
reduced or suspended dividends are disproportionately represented
and secondly, these two groups have experienced the greatest
volatility within our universe. To illustrate the point, Swedish
property companies collectively fell 40.5% in the year to 31 March
2023 however, within that period there were three sharp bear market
rallies of +17% (May), +39% (July to mid-August) and +53%
(mid-October to the end of January). These groups were highly
susceptible to changes in sentiment towards the outlook for rates
and margin on new (or refinanced) debt instruments.
Previously, I have written about the merits of the market
fundamentals of German residential. The vast supply/demand
imbalance and the persistent widening of the gap between regulated
rents and open market values remains in place. What has been most
frustrating is that our largest relative position in that area is
Phoenix Spree Deutschland, which has no refinancing requirements
until 2026 and is a market minnow (portfolio value less than
EUR750m) where all sales, however few, will make a difference
performed in line with its larger cousins.
Collectively the market capitalisation of the German residential
businesses reduced by 57%. Meanwhile, the underlying asset values
have corrected less than 10% in the year and top line earnings have
grown with vacancy levels stable and the 'mietspegiel' (the rent
table) continuing to increase rents, albeit at a sub-inflationary
rate. The asset class offers consistently low vacancy, steady
rental growth and the opportunity to move to market rents through
refurbishment or sales to owner-occupiers. As a result, yields
steadily tightened as the cost of finance fell. By the beginning of
2022, capitalisation rates were below 3%, fully reflecting the
stability and low risk profile of the income. At such low
capitalisation rates, a modest reversal upwards of 100bps has a
very dramatic effect on valuation.
Much the same effect was felt in the valuation of the other low
yielding sector - industrial/logistics. This sector had enjoyed a
surge in investor demand as strong rental growth fuelled the
attractiveness of the asset class and we saw capitalisation rates
tighten dramatically over the last three years. Again, the impact
of the abrupt rise in the cost of debt led to a quick reversal in
yields. However, unlike regulated residential rents in Germany,
which deliver sub-inflationary growth, we are confident that strong
rental growth will persist in industrial/ logistics property given
market fundamentals.
Offices
Offices continue to be the sector most under scrutiny and
rightly so. The repercussions and evolution of the working from
home ('WFH') regime are still being worked through by tenants and
landlords. Much has already been written on the topic and firm
conclusions are hard to pin down given the speed of change.
However, we are confident that since the half year we have seen
more data to support our current thesis. Offices remain crucial
infrastructure for knowledge-based businesses - physical
interaction is a vital part of business life. However, the amount
of space required has reduced whilst crucially the demand for
better quality space has risen. This demand for better quality
working environment is augmented by the requirement for better
energy efficiency and green credentials. The result is a
historically wide market bifurcation between best in class, well
located, energy efficient buildings and the rest. Offices account
for approximately 15% of our benchmark and well over 50% of that
exposure is to London and Paris, hence our focus on those markets
in this commentary.
Gecina, our largest European office exposure in their Q1 2023
results highlighted that their prime inner Paris assets recorded an
eye-catching 30% reversion, whilst their outer ring assets saw
negative reversion. Overall rental growth was positive at 7% but
that statistic highlights the gulf between the growth achieved in
central assets and the rest. Covivio, which owns offices in Paris,
Milan and several German cities reported the same phenomenon, with
central Milan recording solid demand and rental growth. Central
London office vacancy is elevated at 8%, however the divide between
West End (3.7%) and the City (11.9%) is almost as stark as it has
ever been. The situation in Docklands is even more dire with a
number of major financial institutions who have announced either a
reduction in their space requirements (including HSBC, Citi and
JPMorgan) or wholesale relocation (e.g. Clifford Chance). In the
case of the latter, the firm is also cutting its space requirements
by 40%. One should be careful not to read single statistic across
to the wider market as that particular firm has had excess space in
Canary Wharf for several years. This increasing vacancy in
financial services-focused districts such as Canary Wharf, La
Defense and further afield Lower Manhattan is a reflection of both
WFH but also the lack of headcount growth. This is a particular
problem in London where post Brexit, global financial services
businesses continue to increase their footprint in Paris, Frankfurt
and Dublin at the expense of London.
This bifurcation of 'best and the rest' can be clearly seen in
recent valuation in the specialist London office landlords. Great
Portland reported in their H1 2023 results a divergence in
performance based on their buildings' EPC (energy efficiency)
ratings. Those at the highest levels (A&B) saw value declines
of 2.5% whilst C&D rated were -4.2%. Derwent London produced
data based on values per foot. The most valuable (>GBP1,500 per
ft) saw capital drift of -3.5% and rental growth of +2%, whilst the
least (<GBP1,000 per ft) saw value falls of -11.8% and rental
growth of just 0.3%.
Even though the best in class continues to enjoy steady rental
growth, this is partly due to its scarcity. The bulk of all office
markets are made up of much more average product and take up levels
in the post pandemic world have been weak. Paris Centre West (the
core) saw available supply fall year on year (-19%) whilst it rose
in all other markets. The further out, the greater the supply, with
La Defense just +4% whilst the Inner Rim (+35%).
All of this has fed through into negative sentiment towards all
offices except the best quality in the best locations. MSCI/IPD's
office sector capital decline in H2 2022 was -15.7%,
underperforming retail which fell 14.5%. Central London initial
yield has moved 80bps from 4.8% (December 2021) to 5.6% (January
2023). As discussed many times, the UK's independent valuer
community have always attempted to mark-to-market rather than the
Continental approach which is more 'mark-to-model'. The latter
approach results in a smoother correction of values but can equally
lead to the criticism that valuations are woefully historic when
markets are correcting fast. As a result, we feel that highlighting
the modest moves in Continental European valuations in H2 2022
would be misleading. They will catch up over the course of 2023 and
beyond.
Retail
It feels as though this much maligned asset class has finally
passed through the worst of the impact of the shift to online
retailing, the way we search for products (and pricing) as well as
the increasing demand for entertainment/leisure ahead of more
'stuff'. The huge reduction in values has been felt more acutely in
the UK. Alongside the differences between the UK and Continental
European shopping malls, it is also crucial to highlight the
sub-sectors within retail as they have, largely, performed very
differently over the last few years.
The worst performing group remains the larger malls which are,
quite simply, too big with an excess of floor space, often a
shuttered department store (or two) and a service charge with a
chunky non-recoverable element (due to voids). None of this is new
information I hear you say. Agreed. However, the update is that we
have now seen capitulation by landlords (and lenders), rents have
re-rated (often halving) and vacant space beginning to be
repurposed for other uses. Malls must become community hubs with a
range of (lower value) uses such as fitness, medical uses,
nurseries, day care etc. Landsec successfully acquired the 50% of
the St David's Centre in Cardiff which they did not own. The seller
was the administrator of Intu and Landsec acquired the outstanding
loans on the asset. The price equated to a yield of over 9% on a
rent roll which has dropped materially over the last decade. We are
confident that at the right rents (and yields) those centres which
can reinvent themselves such as this dominant city centre asset
will deliver acceptable returns.
The strongest sub-sector remains retail warehousing and outlet
malls. For different reasons both offer retailers sales channels
which complement online. In the case of the former, it is the
convenience and pricing of edge of and out of town retail parks.
Free home delivery will become unsustainable from both a profit and
an ESG perspective. Click and collect and free returns to store
will drive demand for these super convenient locations. The Company
is a large holder of Ediston Property which has announced a
strategic review given the subscale size of the business. We are
hopeful that this will provide further evidence of supportive
valuations in the sector. Outlets help retailers offload lines
without damaging full price/premium offerings. The success of the
likes of Bicester Village (where Hammerson have a non-controlling
stake) and Gunwharf Quay in Portsmouth (owned by Landsec) are proof
of the concept and we remain confident about their prospects.
The combining of retail, leisure and food continues,
particularly in tourist destinations. BNP have highlighted the
pick-up in post Covid footfall in the most upmarket locations such
as Regent St, Champs Elysees, Portal de Angel (Barcelona), Via del
Corso (Rome) and Kaufingerstrasse (Munich) with footfall increasing
on average by 1/3 and, in some cases, more than 65% (Paris and
Munich).
Retail investment has been resilient, particularly in
Continental Europe where investors see affordable rents and higher
yields than other sectors. Whilst investment levels are
unsurprisingly below the 2012 to 2022 decade average, they did
increase year on year to EUR40.1bn (+2.6%) according to BNP. In the
UK, retail warehousing continued to dominate volumes (+60%) over
2021 and 2022. This figure was lower across Europe and highlights
the continued lack of large shopping centre transactions in the
UK.
Industrial and Logistics
UK logistics take-up in Q1 2023 was 8.6m sq ft, a slowing when
compared to a quarterly average of 12.0m sq ft in 2022 and 13.8m sq
ft in 2021 but still ahead of the quarterly average of 8.3m sq ft
in the pre-Covid decade. Vacancy remains at 3% and rents continue
to rise. Against this comfortable backdrop we saw yields rise by
175bps for prime distribution units between June 2022 and March
2023. Such was the impact of the cost of money, whilst market
fundamentals are deemed less relevant. Even an asset with strong
rental growth prospects cannot have a capitalisation rate 200bps
below the risk-free rate. However, that pricing adjustment has
largely been completed in our view. We are beginning to see
stability in asset prices.
In Continental Europe the picture was very similar. Savills
report 32m sq metres taken up in 2022 across the 13 largest
markets, just 6% below the record year of 2021 and ahead of the
5-year average in virtually all markets. Higher construction and
finance costs led to reduced speculative construction maintaining
the intense supply-demand imbalance in so many markets. Over
EUR50bn was invested in 2022, again below the record of 2021 but
well ahead of the 5-year average. Yield expansion (c 100bps) was
much less than in the UK but again we expect upward pressure to
ease as fundamentals drive capital back into the sector.
We have long been cheerleaders for multi-let industrials (MLI),
generally terraces of smaller units, management intensive, but
often located in dense urban locations. Very little new stock has
been built over the last few decades with alternative
(multi-storey) uses being far more valuable. Rents remain low in
many parts of the country making new development unviable. The
tenant rosters have evolved hugely in the last 20 years, undergoing
'gentrification' from being the domain of light industrial 'metal
bashers' to a much broader swathe of uses, many born out of
internet connectivity and the ability to access customers directly.
Our largest exposure was through Industrials REIT, where we owned
11% of the company. Just after the year end (3 April) Blackstone
announced an agreed cash bid at a 40% premium to the undisturbed
share price. The private equity behemoth already has substantial
exposure to this sub-sector but it is a timely reminder that if
quality assets are left undervalued then private capital will
acquire them. Our other MLI exposure is through Sirius (65%
Germany, 35% UK) and diversified names such as Picton and London
Metric (which acquired Mucklow in 2021 where we owned 5%). The
healthy supply-demand imbalance makes it a sub-sector we are keen
to maintain exposure to.
Residential
The shortage of private sector rental accommodation remains
acute, yet the listed companies focused on this sector were amongst
the poorest performers in the financial year. This group of
companies (mostly in Germany and Sweden) highlighted how management
teams were lured into increased leverage given the stability of the
underlying income streams and occupancy levels. However, very low
yielding assets struggle to provide positive cashflows when
interest rates rise.
At the asset level, rental growth has remained well below
current inflation rates given the backward-looking nature of
regulated rents. We fully expect to see these rents rise at
historically fast rates as they factor in some of the dramatic
inflation datapoints. The serious shortage of housing underpins
long-term values. The fly in the ointment is the cost of improving
the energy efficiency of this housing stock through both insulation
and the type of heating. In open market regimes such as the UK and
Finland, the cost of these improvements will be passed through to
rent prices. In regulated markets where only a proportion of the
capital expenditure can currently be rentalised, this remains an
impediment to rental growth.
Within open market regimes such as the UK we have seen strong
rental growth through the combination of a shortage of rental stock
(amateur landlords leaving the market due to higher regulation and
lower tax efficiency), high levels of employment/wage inflation and
market timing (where buyers decide to continue to temporarily rent
awaiting price corrections).
Alternatives
Purpose built student accommodation continues to fare well, with
rising numbers of students across the UK and Europe. The
traditional accommodation alternative of private rented houses
(HMOs - Houses in Multiple Occupation) are reducing as regulation
pushes up licensing costs and (correctly) impedes overcrowding and
sub-standard accommodation. Unite, our largest student
accommodation stock was one of the few companies to see positive
capital value appreciation in 2022 with 4% annualised growth. It
has recently increased its rental growth outlook for academic year
2023/24 from 5% to 6--7%. Self-storage continues to confound the
sceptics. Rate growth and occupancy have begun to normalise post
the 'Covid boom' but remain encouragingly positive. Safestore, our
largest holding in the sector, enjoyed like-for-like rental growth
of 10.7% in the year to October 2022.
Hotels particularly leisure and tourist focused have also
enjoyed strong growth as consumers continue to make up for lost
opportunities to travel in 2020 and 2021. Recent STR data
highlights London hotels across the quality spectrum showing RevPAR
growth of +22% year on year. UK hotels ex London was also strong at
+11% year on year and 25% versus 2019.
Healthcare was the poorest performer of the alternatives group.
Profitability of private care providers is being constantly
squeezed through wage and cost inflation. Continental European
healthcare operators have been rocked by the scandal at Orpea. The
level of state support, both direct and indirect, are the crucial
figures required by investors. Even then, the rate of rental growth
can be quite pedestrian as seen at Primary Health Properties and
Assura.
Debt and Equity Markets
Both debt and equity markets were very subdued during the year.
The total capital raised in 2022 was EUR14bn compared to EUR32bn in
2021 and EUR21bn in 2020. Over EUR9bn of the total raised in 2022
was debt in the first quarter. To illustrate the change in pricing
over the last year, we need only review the most prolific issuer,
Vonovia, Europe's largest property company. In March 2022, it
issued 4, 6 and 8 year maturities totalling EUR2.5bn priced at
1.375%, 1.875% and 2.375% respectively. By November, new 2027 and
2030 maturities were costing 4.75% and 5.0%.
Short-dated leverage risked the vicious cycle of increased
interest costs resulting in lower earnings, so risking credit
downgrades leading to even higher cost of debt. Leverage needed to
be reduced to defend earnings; if asset sales weren't possible then
equity (even when trading at deep discounts to asset values) needed
to be raised through rights issues.
At the half year, I detailed the capital raising by TAG
Immobilien, who had over stretched themselves with the acquisition
of a Polish housebuilder. They raised EUR200m at a 27% discount to
the theoretical ex-rights price to help pay off the bridging loan
from the acquisition. In November, VGP, a Belgium logistics
developer raised EUR302m. This was more front--footed with the
raise diluting NTA by 10% in a one for four share issuance. The
business is overly dependent on selling assets into Allianz private
funds and this capital makes them less dependent on one customer.
The CEO and CFO own 49% of the equity and 'stood their corner'
which reassured investors. In Sweden, Catena, another logistics
developer raised SEK 1.4bn (GBP135m) as its share price hovered
close to NTA and, whilst small, it was unusual as it was an
accelerated bookbuild and not a rights issue. Balder raised SEK
1.8bn which it used to repay a hybrid bond and strengthen its
overall balance sheet.
The only merger and acquisition activity in the 12 months to 31
March (the privatisation of Industrials REIT was announced on 3
April) were two mergers, both widely expected but the timing less
sure. The joining of Shaftesbury and Capco finally happened after a
tortuously long period of negotiation, capped off by a CMA review
on whether the combined entity could be a price setter. The most
disappointing aspect for shareholders (we do not own either
company) was that the deal results in the repayment of much of
Shaftesbury's cheap debt due to a change of control provision. When
coupled with further increases in debt costs next year and some
extraordinarily high advisor fees (given it was an agreed
transaction) there will be precious little earnings benefit from
the anticipated synergies. The other merger was between LXI and
Secure Income REIT on a NAV for NAV basis. It was a much more
straightforward affair. We were a large shareholder in SIR and
benefited immediately as the 12% discount closed to NAV. The
managers of SIR were also large shareholders in the company and
their excellent timing in previous property cycles was once again
on display. They even sold the management company which had a
contract to run SIR for the next three years.
Investment Activity - property shares
Portfolio turnover (purchases and sales divided by two) totalled
GBP477m in the year, considerably less than the GBP549m in the
previous year. With average net assets over the year of GBP1.18bn,
turnover was 40% of net assets, which was higher than the previous
year's figure of 36% and reflects the volatility in the year.
In the half year report, I recorded that each rally then trended
down to a new low and therefore virtually all buys looked poor and
all sells looked clever. The second half of the year saw the
largest and longest recovery from October to the end of January,
followed by the most dramatic correction back to the October lows,
this new low point virtually coinciding with the year end.
Throughout the year, the renewed bouts of negative sentiment
towards the sector were based on either a change in the outlook for
interest rates (and the concern that central banks' behaviour would
become more hawkish) or renewed speculation of a failure in the
credit transmission mechanism. Essentially, investor sentiment was
driven by the expectation of the change in the price and
availability of debt.
In hindsight, maintaining our long-standing discipline of buying
(or adding) to companies where we felt confident in the resilience
of earnings driven by market fundamentals just wasn't enough.
As would be expected, we have carefully analysed all of our
companies' balance sheet capacity (in terms of the quantum of
leverage, cost and duration of debt). In many cases, the market had
quickly adjusted the earnings expectations but what became apparent
as the year progressed was that we were being overly rational about
these revised earnings forecasts. The market was not interested in
supply and demand at the property/occupational market level or
whether there were still profits to be achieved from the
development pipeline.
The ability of the market pendulum to (over) swing between
exuberance (greed) and melancholy (fear) was very much in evidence
and we battled to react accordingly.
A good example of this was our collective underweight to Swedish
property companies. Whilst this call was our largest contributor to
positive relative performance over the year, the volatility in the
group resulted in multiple phases of repositioning. Whilst the
broad statement that Swedish property companies are amongst the
most leveraged in our investment universe is true, some are
obviously more exposed than others. It was therefore crucial to
understand which company would suffer the fastest earnings
degradation from rising interest rates but also to assess when the
market had over reacted. Those most at risk were those exposed to
bond markets rather than bank lending or had complex hybrid
instruments dreamt up by bankers when money was cheap. The scale of
share price volatility is best explained in a handful of figures.
EPRA Sweden fell -42% in the first quarter only to recover +33% in
the next six weeks followed by another 40% drop to mid-October and
then the long recovery (+36%) to the end of January, followed by a
renewed bout of nerves sending the sector down almost to the
October lows. These figures are the collective impact of 18
companies. For the most leveraged (SBB, Castellum, Corem and
Balder) the volatility was far greater. Underlying property market
fundamentals do not drive this level of price action, this was
caused by changes in the market outlook for the cost/availability
of debt impacting on a tiny market segment (free float
capitalisation of just GBP20bn).
Our exposure to German residential was the poorest asset
allocation decision of the year. I remained convinced, for too
long, that the market fundamentals of virtually full occupancy and
(sub-market) regulated rents would underpin investor sentiment. The
fact that even at prices a year ago all of these names were trading
below the reinstatement cost of the underlying assets mattered not
a jot. The market focused exclusively on the impact of the cost of
debt. During the year we reduced exposure in the larger names
(Vonovia, LEG) but maintained the holding in Phoenix Spree, the
small Berlin focused vehicle. It is an externally managed fund
which has an annually renewed contract with QSix, the manager. Its
assets are all prime Berlin, where open-market rents continue to
grow. The share price total return in the year was -50%. I remain
convinced that once prices stabilise the smaller companies will
benefit disproportionately from the impact of portfolio sales. With
a market cap of just GBP190m and the share price at half the asset
value, it is an excellent example of a portfolio of assets which
are no longer benefiting from being held in a listed company.
With the price of money rising so rapidly in the year, it was
the lowest yielding assets which saw the most aggressive repricing
and so it was with German (and Swedish) residential. The
compression in yields in the previous five years was a rational
response to the combination of strong market conditions, (high
occupancy and rental growth) combined with very low cost of
borrowing. This strong yield compression (and capital value growth)
was even greater in the industrial/ logistics sector. The
structural tailwinds have been discussed, ad nauseum, in previous
reports. For many markets these persist but capitalisation rates
had simply been driven too low with insatiable investor appetite
for assets with income growth. The reversal (yield expansion)
described earlier was dramatic and the sector was hit very hard.
Again, our smaller companies suffered disproportionately as they
fell alongside larger names on the way down but often failed to
catch the bounce in any recovery. We are confident that these
conservatively managed businesses with the right amount of leverage
and quality portfolios will perform well. However, if the stock
market continues to undervalue them, then no one should be
surprised when more privatisations occur. In the industrial group
in the UK, I would include Industrials REIT, Picton Property and CT
Property Trust. Whilst in Europe the list would include Argan,
Sirius and Catena.
With the lowest yielding (highest growth) names suffering from
capitalisation rates rising above the new cost of debt, it was the
highest yielding sectors which suffered the least from this
devaluation. Retail property has clearly been out of favour for
many years as the weakening in tenant demand for physical retail
space continued. In Continental Europe, we focused on
Eurocommercial and Klepierre given their high earnings yield but
crucially their secure balance sheets. We avoided Unibail-Rodamco
and Wereldhave. Here you have two companies at either ends of the
asset quality spectrum but both suffered from weak balance sheets
and the need to de-leverage. Unibail announced 2 years ago its
intention to sell its US portfolio whilst Wereldhave has continued
to sell assets whenever it can. European retail as a subset
outperformed the full benchmark and our stock selection also added
to performance with Unibail -27.5% and Klepierre -2.5% over the
year.
UK retail is now a small part of the listed universe. For most
investors the only way to gain exposure is through the diversified
portfolios of Landsec and British Land. The bulk of our exposure is
through Ediston Property which owns only retail warehouses.
However, its market cap at GBP140m is too small for the listed
market and we applaud the announcement from the board that they are
carrying out a strategic review for the future of the company. We
remain hopeful that a merger with another listed company is a
viable option which will ensure the assets remain in the listed
space. The company was a relative outperformer in the year (-18%)
as were virtually all the high yielding retail names. Hammerson
remains a play on corporate reconstruction rather than a bellwether
for retail property. We believe they are on the right path and we
opened a holding in the year. The crown jewels are the minority
ownerships in the premium outlet malls controlled by Value Retail.
Investors will need to remain patient as the breakup will take
time, but value is reappearing.
Investors' attitudes towards office property has been
highlighted earlier. We fully subscribe to the bifurcation of
returns between the best and the rest. Smaller European cities have
also performed better with lower WFH and higher occupancy levels.
We have sought greater exposure to those cities through Arima
(Madrid), Wihlborgs (Malmo, Lund) and Fabege (Stockholm). Core CBD
exposure in the largest cities has been through Gecina (Paris),
Great Portland and Landsec (London). We have also added to the
short lease, flexible offering business model through Workspace
(London) and Sirius (primarily German flexspace). Both of these
names had a poor year with total returns of -35% and -32%
respectively but we found recently published operational data
reassuring. Landsec (-16%) was a top performer as it continued to
reduce leverage through sales of newly completed prime offices in
Central London. We are strong advocates of capital recycling and
expect to see more sales from non-core assets such as hotels and
leisure.
In the alternatives space, our overweight to self-storage was
entirely through Safestore (-27%) rather than Big Yellow (--21%).
Safestore has outperformed on a three-year and five-year view but
clearly not in this last period. In fact, we find it hard to choose
between these two very well managed companies. Both own
irreplaceable estates with core holdings in densely populated
areas. Demand for space has been remarkably stable given the
economic backdrop. Unite (-16%), the student accommodation
provider, was another relative winner in the year. The combination
of increased earnings guidance and solid market evidence on modest
yield movement continues to support the asset class. Both these
asset types have intensive operational requirements and we are
confident that the market undervalues the platform through the
traditional asset value model. This was certainly the case with
Industrials REIT where Blackstone paid a premium for the operating
business alongside the assets.
Revenue and Revenue Outlook
As noted in the Chairman's Statement, the current year's income
benefited from a number of non-recurring items. Eurocommercial and
Swiss Prime both changed their pattern of distributions during the
year effectively resulting in an additional half year payment from
each of these companies. The Argan annual dividend which generally
goes ex-dividend on or around the last business day in March
therefore moves between March and April. In the year to 31 March
2023, we received dividends in April 2022 and March 2023, resulting
in two full year payments. If the dividend due around 31 March 2024
falls back into next April, there will be no income recorded from
this company in the year to March 2024. We have no control over
these timings and there are several companies where dividends go ex
-- div around the year end. Each of three holdings noted above are
approximately 2.5% of the portfolio so this has had a significant
impact. Without these (and the small enhancement due to foreign
exchange movements), we estimate the earnings would have been
around 1.13p lower than reported. The dividend for the year to
March 2023 is therefore covered.
The dividend for the previous two years was partly paid out of
revenue reserves as the effects of COVID forced revenue down. In
2022/23, the earnings, adjusted for the one -- offs set out above,
are just over 10% higher than the last reported period before
COVID-19 (being the year to 31 March 2019). The full year dividend
to 31 March 2023 is almost 15% ahead of the pre-COVID dividend as
the Board recognises the importance of a growing dividend to our
shareholders.
Looking ahead to the 2023-24 financial year, at this stage, we
expect to report a fall in earnings. This is partly explained by
the one-off adjustments highlighted above. However, the additional
impact is from the number of the German residential and Swedish
companies that have announced dividend suspensions and/or cuts as
they work to reduce their gearing levels in the face of rising debt
costs. The residential names in particular are making progress with
their disposal programmes so we expect to see their dividends
resuming, although possibly at a lower level, in the not too
distant future.
The impact of higher interest rates will feed through to
earnings as fixed or capped debt structures come up for
refinancing. The impact of this of course depends on the duration
of such debt packages and this varies hugely across our companies.
It is encouraging to note that for most of them, the majority of
their debt is fixed (or capped) until 2026 and beyond.
On a more encouraging note, top line revenue is benefiting from
inflation. All of our European companies and a significant number
of our UK names benefit from rents linked to some form of
indexation. It varies widely across countries and sectors but is
clearly an important part of our revenue growth trajectory.
Although the revenue for the forthcoming year is likely to be
under some pressure given all these competing factors, we are
optimistic that growth will return over the medium term. Market
fundamentals continue to drive organic rental growth in so many of
our sectors. In the meantime, the Company still has plentiful
revenue reserves to maintain dividend levels over short term income
falls, as was seen through the COVID-19 pandemic.
Gearing and Debt
Gearing began the year at 10.2%, increased to 12.0% by the half
year and finished the year at 12.2%. This does not represent the
changes in gearing seen throughout the period as gearing has been
actively changed in response to the very variable market conditions
throughout the year and has ranged between 10% and 16%.
The cost of our debt has increased through the year as our
revolving credit facilities and CFD financing are linked to SONIA
(or other currency equivalents). However, an important part of our
debt book are the EUR 50m and GBP 15m loan notes both at fixed
rates of interest. The combination of the fixed and floating rate
debt gives us a high degree of flexibility with some price
stability at lower levels of gearing. Generally, where higher
levels of gearing are appropriate (so drawing on the floating rate
financing) the market conditions are such that returns are not too
sensitive to the pricing.
Physical Portfolio
In the year to the end of March the physical property portfolio
produced a total return of -13.7%, made up of a capital return of
-17.5% and an income return of 3.8%. The MSCI Monthly UK Property
Index returned -14.7% over the same period, made up of an income
return of 5.0% and a capital fall of 18.8%.
During the year we sold the residential element of the
Colonnades development for GBP5m on a new 999 year lease at a
peppercorn rent. The value of this element is determined by the
outstanding lease extensions remaining on the individual flats.
During the Company's ownership we completed lease extensions over
75% of the flats and received more than GBP12.5m in premiums. In
addition, the sale facilitated the simplification of the leasehold
structure of the asset. The Company has retained the freehold of
the island site as well as all the commercial elements. The
locality continues to improve with the redevelopment of the old
Whiteleys shopping centre nearing completion. This is an important
next phase in the further gentrification of Bayswater.
It was a busy 12 months for asset management at Ferrier Street,
Wandsworth. The strategy remains to let the estate on a short-term
basis, retaining the flexibility for either a refurbishment of the
existing or a more comprehensive redevelopment under the planning
permission secured in June 2022. During the year the Company
concluded 10 new leases (five renewals and five new lettings)
covering over 60% of the estate. This secured over GBP500,000 of
rent with the average rent on new lettings exceeding GBP30 per sq.
ft. The attractiveness of the estate continues to benefit from the
further reduction in supply of London industrial space, whilst the
depth of demand from occupiers has increased. The diversity of our
occupiers reflect this broad based demand and range from
photographic studios to food production and even a plant
nursery.
Outlook
Inflationary pressures persist. Central banks appear resolutely
determined to remain hawkish with another round of base rate
increases in May. Whilst a relatively blunt instrument, there are
signs that the medicine of increased interest rates is having the
required effect with reduced retail sales growth. Energy has been a
major driver of cost inflation and the spot price of gas has fallen
back to pre-invasion prices. This will soon begin to feed into
lower headline inflation figures and also reduce the likelihood of
a recession. We expect wage inflation, driven by high employment
levels, to persist, resulting in inflation remaining ahead of
central banks' target rates.
Against this backdrop real estate fundamentals, in our preferred
sectors, remain solid with little signs of over-supply and stable
demand. Economic growth is likely to be at best anaemic, for a
while, and speculative development will remain subdued. Income,
often index-linked, will remain the key valuation underpin. We will
maintain our focus on the most judiciously leveraged, avoiding
those with large near-term refinancing requirements. With such a
large number of well financed listed companies, we also expect
opportunities to gather assets from those struggling to refinance
in a world where debt availability is getting more restricted.
The sector has a long tail of micro-cap companies and we
continue to encourage boards to explore the 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. Whilst the Company
has often benefited from these premium bids (and continues to hold
a wide range of small caps) we also believe that growing the number
of larger companies is in the best interests of the sector and
investors.
As we go to print at the beginning of June, we are pleased to
report an all-paper bid by London Metric (market cap. GBP1,700m)
for CT Property Trust (GBP180m). The Company owns 10% of CT
Property Trust and the price rose 25% on the announcement.
Marcus Phayre-Mudge
Fund Manager
1 June 2023
Principal and emerging risks
In delivering long-term returns to shareholders, the Board must
also identify and monitor the risks that have been taken in order
to achieve those returns. It has included below details of the
principal and emerging risks facing the Company and the appropriate
measures taken in order to mitigate those risks as far as
practicable.
The ongoing conflict in Ukraine has impacted energy and
commodity supplies creating inflationary pressures and prompting
central banks to raise interest rates in response. Interest rates
have risen more quickly and to higher levels than was initially
anticipated. This has brought challenges not seen for many years
and particularly impacted the property sector.
The legacy of COVID-19 has seen ongoing changes and challenges
in the workplace in terms of resourcing and changes in working
practices.
Risk identified Board monitoring and mitigation
---------------------------------------------------------------- ----------------------------------------------------
Share price performs poorly in comparison
to the underlying NAV
The shares of the Company are listed
on the London Stock Exchange and the The Board monitors the level of discount
share price is determined by supply or premium at which the shares are
and demand. The shares may trade at trading over the short and longer term.
a discount or premium to the Company's
underlying NAV and this discount or The Board encourages engagement with
premium may fluctuate over time. the shareholders. The Board receives
reports at each meeting on the activity
of the Company's brokers, PR agent
and meetings and events attended by
the Fund Manager.
The Company's shares are available
through the Columbia Threadneedle savings
schemes and the Company participates
in the active marketing of those schemes.
The shares are also widely available
on open architecture platforms and
can be held directly through the Company's
registrar.
The Board takes the powers to issue
and to buy back shares at each AGM.
---------------------------------------------------------------- ----------------------------------------------------
Poor investment performance of the
portfolio relative to the benchmark
The Company's portfolio is actively
managed. In addition to investment The Manager's objective is to outperform
securities, the Company also invests the benchmark. The Board regularly
in commercial property and accordingly, reviews the Company's long-term strategy
the portfolio may not follow or outperform and investment guidelines and the Manager's
the return of the benchmark. relative positions against those.
The Management Engagement Committee
reviews the Manager's performance annually.
The Board has the powers to change
the Manager if deemed appropriate.
---------------------------------------------------------------- ----------------------------------------------------
Market risk
Both share prices and exchange rates
may move rapidly and can adversely The Board receives and considers a
impact the value of the Company's portfolio. regular report from the Manager detailing
Although the portfolio is diversified asset allocation, investment decisions,
across a number of geographical regions, currency exposures, gearing levels
the investment mandate is focused on and rationale in relation to the prevailing
a single sector and therefore the portfolio market conditions.
will be sensitive towards the property
sector, as well as global equity markets The report considers the impact of
more generally. a range of current issues and sets
out the Manager's response in positioning
Property companies are subject to many the portfolio and the ongoing implications
factors which can adversely affect for the property market, valuations
their investment performance. They overall and by each sector.
include the general economic and financial
environment in which their tenants
operate, interest rates, availability
of investment and development finance
and regulations issued by governments
and authorities.
Rising interest rates have an impact
on both capital values and distributions
of property companies. Higher interest
rates depress capital values as investors
demand a margin over an increased risk-free
rate of return.
Although the UK has now exited the
European Union, the structure of its
relationship with Continental Europe
continues to evolve and there could
be an impact on occupation across each
sector.
The COVID-19 global pandemic has changed
the way we live and work and uncertainty
remains regarding the impact on economies
and property markets around the world
both in the short and longer term.
The invasion of Ukraine by Russia in
February 2022 created further market
volatility and uncertainty which remains.
Inflation and interest rates are at
elevated levels not seen in over 10
years.
Any strengthening or weakening of sterling
will have a direct impact as a proportion
of our balance sheet is held in non--GBP
denominated currencies. The currency
exposure is maintained in line with
the benchmark and will change over
time. As at 31 March 2023, 66.4% of
the Company's exposure was to currencies
other than sterling.
---------------------------------------------------------------- ----------------------------------------------------
The Company is unable to maintain
dividend growth
Lower earnings in the underlying portfolio The Board receives and considers regular
putting pressure on the Company's ability income forecasts.
to grow the dividend could result from
a number of factors: Income forecast sensitivity to changes
* Although most companies negatively impacted by in FX rates is also monitored.
COVID-19 returned to paying dividends during the year,
with many at pre-covid levels, rising interest rates The Company has substantial revenue
have posed a new threat. The effect on dividends has reserves which are drawn upon when
(in general) not been felt through the financial year required.
that we are reporting on but the increased debt costs
will have an impact on earnings and hence The Board continues to monitor the
distributions in future; impact of interest rates, Brexit and
COVID-19 and the long-term implications
for income generation.
* prolonged vacancies in the direct property portfolio
and lease or rental renegotiations as a result of
longer-term changes following COVID-19;
* strengthening of sterling reducing the value of
overseas dividend receipts in sterling terms. The
Company saw a material increase in the level of
earnings in the years leading up to the COVID-19
pandemic. A significant factor in this was the
weakening of sterling following the UK's decision to
leave the EU ('Brexit'). Although this has now passed,
the value of sterling may continue to fluctuate in
the near or medium term as the longer-term
implications of Brexit and COVID-19 and the impact on
the UK and European economies become clearer. The
invasion of Ukraine by Russia has also increased
market uncertainty. The longer-term implications will
differ across the European economies. This could lead
to currency volatility. Strengthening of sterling
would lead to a fall in earnings;
* adverse changes in the tax treatment of dividends or
other income received by the Company;
* changes in the timing of dividend receipts from
investee companies;
* legacy impact of COVID-19 on working practices and
resulting changes in workspace demand; and
* negative outlook leading to a reduction in gearing
levels in order to protect capital has an adverse
effect on earnings.
---------------------------------------------------------------- ----------------------------------------------------
Accounting and operational risks
Disruption or failure of systems and Third-party service providers produce
processes underpinning the services periodic reports to the Board on their
provided by third parties and the risk control environments and business continuation
that those suppliers provide a sub- provisions on a regular basis.
standard service.
The Management Engagement Committee
considers the performance of each of
the service providers on a regular
basis and considers their ongoing appointment
and terms and conditions.
The Custodian and Depositary are responsible
for the safeguarding of assets. In
the event of a loss of assets the Depositary
must return assets of an identical
type or corresponding value unless
it is able to demonstrate that the
loss was the result of an event beyond
its reasonable control.
---------------------------------------------------------------- ----------------------------------------------------
Loss of Investment Trust Status
The Company has been accepted by HM The Investment Manager monitors the
Revenue & Customs as an investment investment portfolio, income and proposed
trust company, subject to continuing dividend levels to ensure that the
to meet the relevant eligibility conditions. provisions of CTA 2010 are not breached.
As such the Company is exempt from The results are reported to the Board
capital gains tax on the profits realised at each meeting.
from the sale of investments.
Income forecasts are reviewed by the
Any breach of the relevant eligibility Company's tax advisor through the year
conditions could lead to the Company who also reports to the Board on the
losing investment trust status and year-end tax position and on CTA 2010
being subject to corporation tax on compliance.
capital gains realised within the Company's
portfolio.
---------------------------------------------------------------- ----------------------------------------------------
Legal, regulatory and reporting risks
Failure to comply with the London Stock The Board receives regular regulatory
Exchange Listing Rules and Disclosure updates from the Manager, Company Secretary,
Guidance and Transparency Rules; failure legal advisers and the Auditor. The
to meet the requirements of the Alternative Board considers those reports and recommendations
Investment Fund Managers Regulations, and takes action accordingly.
the provisions of the Companies Act
2006 and other UK, European and overseas The Board receives an annual report
legislation affecting UK companies. and update from the Depositary.
Internal checklists and review procedures
Failure to meet the required accounting are in place at service providers.
standards or make appropriate disclosures
in the Half Year and Annual Reports.
---------------------------------------------------------------- ----------------------------------------------------
Inappropriate use of gearing
Gearing, either through the use of The Board receives regular reports
bank debt or derivatives, from the Manager on
may be utilised from time to time. the levels of gearing in the portfolio.
Whilst the use of These are considered
gearing is intended to enhance the against the gearing limits set out
NAV total return, it will in the Board's Investment
have the opposite effect when the return Guidelines and also in the context
of the Company's of current market
investment portfolio is negative or conditions and sentiment. The cost
where the cost of debt of debt is monitored
is higher than the return from the and a balance sought between term,
portfolio. cost and flexibility.
---------------------------------------------------------------- ----------------------------------------------------
O ther Financial risks
The Company's investment activities
expose it to a variety of financial Details of these risks together with
risks which include counterparty credit the policies for managing them are
risk, liquidity risk and the valuation found in the Notes to the Financial
of financial instruments. Statements.
---------------------------------------------------------------- ----------------------------------------------------
Personnel changes at Investment Manager
Loss of portfolio manager or other The Chairman conducts regular meetings
key staff. with the Fund Management team.
The fee basis protects the core infrastructure
and depth and quality of resources.
The fee structure incentivises outperformance
and is fundamental in the ability to
retain key staff.
---------------------------------------------------------------- ----------------------------------------------------
Statement of Directors' responsibilities in relation to the
Group financial statements
The Directors are responsible for preparing the Annual Report
and the Group and Parent Company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent
Company financial statements for each financial year. Directors are
required to prepare the Group financial statements in accordance
with UK-adopted international accounting standards and applicable
law and have elected to prepare the Parent Company financial
statements on the same basis.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Parent Company and of
the Group's profit or loss for that period. In preparing each of
the Group and Parent Company financial statements, the Directors
are required to:
-- select suitable accounting policies and apply them consistently;
-- make judgements and estimates that are reasonable, relevant and reliable;
-- state whether they have been prepared in accordance with
international accounting standards in conformity with the
requirements of UK-adopted international accounting standards.
-- assess the Group and Parent Company's ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern; and
-- use the going concern basis of accounting unless they either
intend to liquidate the Group or the Parent Company or to cease
operations or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Parent
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Parent Company and enable them
to ensure that its financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance
Statement.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
In accordance with Disclosure Guidance and Transparency Rule
4.1.14R, the financial statements will form part of the annual
financial report prepared using the single electronic reporting
format under the TD ESEF Regulation. The Auditor's report on these
financial statements provides no assurance over the ESEF
format.
Responsibility statement of the Directors in respect of the
annual financial report
Each of the Directors confirms that to the best of their
knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Group and Parent Company and the undertakings included in
the consolidation taken as a whole; and
-- the strategic report includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
The Directors consider that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group's
position and performance, business model and strategy.
By order of the Board
David Watson
Chairman
1 June 2023
Group statement of comprehensive income
for the year ended 31 March 2023
Year ended 31 March 2023 Year ended 31 March 2022
Revenue Capital Revenue Capital
Return Return Total Return Return Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----- ------- --------- --------- -------- -------- --------
Income
Investment income 2 52,077 - 52,077 44,170 - 44,170
Other operating income 255 12 267 5 - 5
Gross rental income 3,513 - 3,513 2,773 - 2,773
Service charge income 946 - 946 1,103 - 1,103
(Losses)/gains on investments
held at fair value - (549,430) (549,430) - 249,038 249,038
Net movement on foreign
exchange; investments
and loan notes - (2,780) (2,780) - 1,136 1,136
Net movement on foreign
exchange; cash and cash
equivalents - 2,016 2,016 - 637 637
Net returns on contracts
for difference 9,462 (45,556) (36,094) 5,701 16,361 22,062
------------------------------ ----- ------- --------- --------- -------- -------- --------
Total Income 66,253 (595,738) (529,485) 53,752 267,172 320,924
------------------------------ ----- ------- --------- --------- -------- -------- --------
Expenses
Management and performance
fees (1,560) (4,680) (6,240) (1,663) (29,477) (31,140)
Direct property expenses,
rent payable and service
charge costs (1,660) - (1,660) (1,435) - (1,435)
Other administrative
expenses (1,163) (542) (1,705) (1,621) (608) (2,229)
------------------------------ ----- ------- --------- --------- -------- -------- --------
Total operating expenses (4,383) (5,222) (9,605) (4,719) (30,085) (34,804)
------------------------------ ----- ------- --------- --------- -------- -------- --------
Operating profit/(loss) 61,870 (600,960) (539,090) 49,033 237,087 286,120
Finance costs (1,146) (3,438) (4,584) (629) (1,886) (2,515)
------------------------------ ----- ------- --------- --------- -------- -------- --------
Profit/(loss) from
operations before tax 60,724 (604,398) (543,674) 48,404 235,201 283,605
Taxation (6,087) 2,495 (3,592) (4,967) 3,049 (1,918)
------------------------------ ----- ------- --------- --------- -------- -------- --------
Total comprehensive
income 54,637 (601,903) (547,266) 43,437 238,250 281,687
------------------------------ ----- ------- --------- --------- -------- -------- --------
Earnings/(loss) per
Ordinary share 3 17.22p (189.67)p (172.45)p 13.69p 75.07p 88.76p
------------------------------ ----- ------- --------- --------- -------- -------- --------
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 and loss for the year.
All income is attributable to the shareholders of the parent
company.
Group and Company statement of changes in equity
Group
Share Capital
Share Premium Redemption Retained
Capital Account Reserve Earnings Total
For the year ended 31
March 2023 Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ----- ------- ------- ---------- --------- ---------
At 31 March 2022 79,338 43,162 43,971 1,396,268 1,562,739
Total comprehensive income - - - (547,266) (547,266)
Dividends paid 5 - - - (47,127) (47,127)
--------------------------- ----- ------- ------- ---------- --------- ---------
At 31 March 2023 79,338 43,162 43,971 801,875 968,346
--------------------------- ----- ------- ------- ---------- --------- ---------
Company
Share Capital
Share Premium Redemption Retained
Capital Account Reserve Earnings Total
For the year ended 31
March 2023 Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ----- ------- ------- ---------- --------- ---------
At 31 March 2022 79,338 43,162 43,971 1,396,268 1,562,739
Total comprehensive income - - - (547,266) (547,266)
Dividends paid 5 - - - (47,127) (47,127)
--------------------------- ----- ------- ------- ---------- --------- ---------
At 31 March 2023 79,338 43,162 43,971 801,875 968,346
--------------------------- ----- ------- ------- ---------- --------- ---------
Group
Share Capital
Share Premium Redemption Retained
Capital Account Reserve Earnings Total
For the year ended 31 March
2022 Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------ ------- ------- ---------- --------- ---------
At 31 March 2021 79,338 43,162 43,971 1,159,962 1,326,433
Total comprehensive income - - - 281,687 281,687
Dividends paid - - - (45,381) (45,381)
------------------------------------ ------- ------- ---------- --------- ---------
At 31 March 2022 79,338 43,162 43,971 1,396,268 1,562,739
------------------------------------ ------- ------- ---------- --------- ---------
Company
Share Capital
Share Premium Redemption Retained
Capital Account Reserve Earnings Total
For the year ended 31 March
2022 Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------ ------- ------- ---------- --------- ---------
At 31 March 2021 79,338 43,162 43,971 1,159,962 1,326,433
Total comprehensive income - - - 281,687 281,687
Dividends paid - - - (45,381) (45,381)
------------------------------------ ------- ------- ---------- --------- ---------
At 31 March 2022 79,338 43,162 43,971 1,396,268 1,562,739
------------------------------------ ------- ------- ---------- --------- ---------
Group and company balance sheets
as at 31 March 2023
Group Company Group Company
2023 2023 2022 2022
Notes GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----- --------- --------- --------- ---------
Non-current assets
Investments held at fair
value 948,672 948,672 1,506,436 1,506,436
Investments in subsidiaries - 36,292 - 36,297
Investments held for sale - - 48,980 48,980
------------------------------ ----- --------- --------- --------- ---------
948,672 984,964 1,555,416 1,591,713
Deferred taxation asset 903 903 903 903
------------------------------ ----- --------- --------- --------- ---------
949,575 985,867 1,556,319 1,592,616
Current assets
Debtors 65,287 65,293 97,673 97,208
Cash and cash equivalents 36,071 36,069 32,109 32,107
------------------------------ ----- --------- --------- --------- ---------
101,358 101,362 129,782 129,315
Current liabilities (23,654) (59,950) (66,109) (101,939)
------------------------------ ----- --------- --------- --------- ---------
Net current assets 77,704 41,412 63,673 27,376
Total assets plus net current
assets/(liabilities) 1,027,279 1,027,279 1,619,992 1,619,992
Non-current liabilities (58,933) (58,933) (57,253) (57,253)
------------------------------ ----- --------- --------- --------- ---------
Net assets 968,346 968,346 1,562,739 1,562,739
------------------------------ ----- --------- --------- --------- ---------
Capital and reserves
Called up share capital 79,338 79,338 79,338 79,338
Share premium account 43,162 43,162 43,162 43,162
Capital redemption reserve 43,971 43,971 43,971 43,971
Retained earnings 801,875 801,875 1,396,268 1,396,268
------------------------------ ----- --------- --------- --------- ---------
Equity shareholders' funds 968,346 968,346 1,562,739 1,562,739
------------------------------ ----- --------- --------- --------- ---------
Net Asset Value per:
Ordinary share 4 305.13p 305.13p 492.43p 492.43p
------------------------------ ----- --------- --------- --------- ---------
Notes to the financial statements
1 Accounting policies
The financial statements for the year ended 31 March 2023 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 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.
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 disruption due to inflationary
pressures, the war in Ukraine and the after-effects of the COVID-19
pandemic.
In light of the testing carried out, the liquidity of the level
1 assets held by the Company and the significant net asset value,
and the net current asset position of the Group and Parent Company,
the Directors are satisfied that the Company and Group have
adequate financial resources to continue in operation for at least
the next 12 months following the signing of the financial
statements and therefore it is appropriate to adopt the going
concern basis of accounting.
The Group and Company financial statements are expressed in
sterling, which is their functional and presentational currency.
Sterling is the functional currency because it is the currency of
the primary economic environment in which the Group operates .
Values are rounded to the nearest thousand pounds (GBP'000) except
where otherwise indicated.
2 Investment income
2023 2022
GBP'000 GBP'000
------------------------------------------- ------- -------
Dividends from UK listed investments 3,084 3,101
Dividends from overseas listed investments 30,891 21,349
Scrip dividends from listed investments 6,325 10,693
Property income distributions 11,777 9,027
------------------------------------------- ------- -------
52,077 44,170
------------------------------------------- ------- -------
3 Earnings/(loss) per Ordinary share
The earnings per Ordinary share can be analysed between revenue
and capital, as below.
Year ended Year ended
31 March 2023 31 March 2022
GBP'000 GBP'000
------------------------------------------- ------------- -------------
Net revenue profit 54,637 43,437
Net capital profit (601,903) 238,250
------------------------------------------- ------------- -------------
Net total profit (547,266) 281,687
------------------------------------------- ------------- -------------
Weighted average number of shares in issue
during the year 317,350,980 317,350,980
------------------------------------------- ------------- -------------
pence pence
------------------------------------------- ------------- -------------
Revenue earnings per share 17.22 13.69
Capital earnings per share (189.67) 75.07
------------------------------------------- ------------- -------------
Earnings per share (172.45) 88.76
------------------------------------------- ------------- -------------
The Group has no securities in issue that could dilute the
return per share. Therefore the basic and diluted return per share
are the same.
4 Net Asset Value Per Ordinary Share
Net asset value per Ordinary share is based on the net assets
attributable to Ordinary shares of GBP968,346,000 (2022:
GBP1,562,739,000) and on 317,350,980 (2022: 317,350,980) Ordinary
shares in issue at the year end.
5. Dividends
An interim dividend of 5.65p was paid on 12 January 2023. A nal
dividend of 9.85p (2022: 9.20p) will be paid on 1 August 2023 to
shareholders on the register on 30 June 2023. The shares will be
quoted ex-dividend on 29 June 2023.
6. Annual Report and Accounts
This statement was approved by the Board on 1 June 2023. The
financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 March 2023 or
2022. The statutory accounts for the financial year ended 31 March
2023 have been approved and audited and received an audit report
which was unqualified and did not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying the report. The statutory accounts for the
financial year ended 31 March 2022 received an audit report which
was unqualified and did not include a reference to any matters to
which the auditors drew attention by way of emphasis without
qualifying the report.
The Annual Report and Accounts will be posted to shareholders on
or around 12 June 2023.
Columbia Threadneedle Investment Business Limited
Company Secretary,
1 June 2023
For further information, please contact:
Jonathan Latter
For and on behalf of
Columbia Threadneedle Investment Business Limited
020 3530 6283
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.
ENDS
A copy of the Annual Report and Accounts will be submitted to
the National Storage Mechanism and will shortly be available for
inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism
The Annual Report and Accounts will also be available shortly on
the Company's website at 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR FBMFTMTTMBTJ
(END) Dow Jones Newswires
June 02, 2023 02:00 ET (06:00 GMT)
Tr Property Investment (LSE:TRY)
Gráfica de Acción Histórica
De Abr 2024 a May 2024
Tr Property Investment (LSE:TRY)
Gráfica de Acción Histórica
De May 2023 a May 2024