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The TR Property Investment Trust has a history dating all the way back to 1905, although it became a real estate specialist vehicle in 1982.
It invests in the shares of property companies of all sizes, typically within Europe and the UK. It will also have a small amount invested in physical property in the UK. Its managers look for well-run businesses in sectors including retail, office, residential, industrial property, and alternatives (which includes student accommodation, self-storage, and healthcare).
In this update, manager Marcus Phayre-Mudge discusses why property has become unpopular with investors and why it may now be time to focus on real estate securities rather than the buildings themselves.
Several structural real estate trends are at play – some pose a challenge whilst others offer opportunity. The pandemic, for example, has accelerated key themes – the transition to online retail and a re-examination of the sort of office space that makes sense for the ‘hybrid’ working model. On the other hand, many ‘traditional’ property funds find themselves on the wrong side of these trends.
Liquidity has compounded the challenge for many property portfolios that invest in bricks and mortar – the buildings themselves. It takes a long time to buy and sell a building and there are few investors who can part with millions of pounds in one go.
The Financial Conduct Authority’s review also creates uncertainty around advance notice for redemptions and new fund structures. Combine this with structural shifts in the opportunity set and it’s easy to see why some feel that property has lost its lustre.
Avoiding the high street and old office space sounds simple, but legacy real assets can be a challenge to exit. Liquidity, however, becomes a minor issue when investing in property via listed real estate – in other words, investing in the shares of companies linked to this sector. Here it is possible to tap into a fast-evolving and geographically diverse opportunity set rich in ‘alternative’ sub-sectors.
UK high streets are under pressure but there’s growth in well-located retail parks and premium discount outlets. Convenience and ‘click & collect’ shopping are in vogue and, as we buy more online, there’s a boom for last mile delivery and urban warehousing property assets.
Logistics has been an obvious beneficiary and although we’ve seen yield compression there remain opportunities in land rich quality businesses both in the UK and Europe.
It’s also important to consider how opportunities vary by location. The UK is further along the online retail road than continental Europe so you may want to avoid UK shopping centres, but affordable rents and higher footfall mean their European counterparts remain selectively attractive.
Elsewhere, sectors like healthcare, social housing, self-storage, and student accommodation look interesting. The former is a diverse sector, so it pays to be selective. Just now, we place an emphasis on premises utilised by primary healthcare providers like the NHS but are cautious on nursing homes where margins look relatively thin. Of course, we’re not the only ones with a positive take on these areas so we use market volatility to build positions when the price is right.
We are long-term proponents of the merits of accessing property via listed real estate, either solely or in combination with select physical assets as we do with TR Property Investment Trust. Our direct exposure is orientated around relatively small lot sizes with an emphasis on industrials and logistics.
Within the real estate securities allocation, we invest in a diversified range of high quality property businesses across Europe. It’s an approach that allows us to sidestep the challenges facing more traditionally structured portfolios and harness opportunities that lie beyond their reach.
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Past performance is not a guide to future performance. The value of an investment is dependent on the supply and demand for the shares of the Investment Trust rather than its underlying assets. The value of an investment will not be the same as the value of the Investment Trust’s underlying assets. The value of directly held property reflects the opinion of valuers and is reviewed periodically. These assets can also be illiquid and significant or persistent redemptions may require the manager to sell properties at a lower market value adversely affecting the value of your investment. Views and opinions have been arrived at by Columbia Threadneedle Investments and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.
Photo by Tierra Mallorca on Unsplash