TR PROPERTY INVESTMENT TRUST PLC ANNUAL REPORT 31-03-2024
Annual Report
31-03-2024
That there will be limitations on what can be achieved but wanting to see a positive direction of travel.
Overview
1 Company Summary
2 Financial Highlights and Performance
3 Historical Performance
Strategic Report
4 Chairman’s Statement
7 Manager’s Report
16 Responsible Investment
23 Portfolio
24 Investment Portfolio by Country
25 Twelve Largest Equity Investments
29 Investment Properties
30 Investment Objective and Benchmark
30 Business Model
31 Strategy and Investment Policies
32 Key Performance Indicators
34 Principal and Emerging Risks
38 Long-term Viability
Governance
41 Directors
43 Managers
44 Report of the Directors
47 Corporate Governance Report
53 Report of the Nomination &
Remuneration Committee
54 Report of the Management
Engagement Committee
56 Report of the Audit Committee
59 Directors’ Remuneration Report
62 Statement of Directors’
Responsibilities in Relation to the
Group Financial Statements
63 Independent Auditor’s Report to
the Members of TR Property
Investment Trust plc
Financial Statements
72 Group Statement of Comprehensive
Income
73 Group and Company Statement of
Changes in Equity
74 Group and Company Balance Sheets
75 Group and Company Cash Flow
Statements
76 Notes to the Financial Statements
Glossary and AIFMD Disclosure
102 Glossary and AIFM Disclosure
Notice of AGM
106 Notice of Annual General Meeting
111 Explanation of Notice of Annual
General Meeting
Shareholder information
114 Directors and Other Information
115 General Shareholder Information
117 Investing in TR Property Investment
Trust plc
The photograph on the front cover is of Isbjerget, known as
“The Iceberg”, a residential building in the Aarhus Docklands
neighbourhood, Denmark.
Annual Report & Accounts 2024 1
Introduction
TR Property Investment Trust plc (the ‘Company’) was
formed in 1905 and has been a dedicated property
investor since 1982. The Company is an Investment
Stock Exchange.
Benchmark
The benchmark is the FTSE EPRA/NAREIT Developed
Europe Capped Net Total Return Index in sterling.
Investment policy
The Company seeks to achieve its objective by
investing in shares and securities of property
companies and property related businesses on an
international basis, although, with a pan-European
benchmark, the majority of the investments will be
located in that geographical area. The Company also
invests in investment property located in the UK only.
Further details of the Investment Policies, the Asset
Allocation Guidelines and policies regarding the use of
gearing are set out in the Strategic Report on page 31
and the entire portfolio is shown on page 24.
Investment manager
Columbia Threadneedle Investment Business Limited
acts as the Company’s alternative investment fund
manager (‘AIFM’) with portfolio management delegated
to Thames River Capital LLP (the ‘Portfolio Manager’ or
the ‘Manager’). Marcus Phayre-Mudge has managed
the portfolio since 1 April 2011 and been part of the
Fund Management team since 1997.
Independent board
The Directors are all independent of the Manager
and meet regularly to consider investment strategy,
to monitor adherence to the stated objective and
investment policies and to review investment
performance. Details of how the Board operates and
fulfils its responsibilities are set out in the Report of the
Directors on page 44.
Performance
The Financial Highlights for the current year are set out
on page 2 and Historical Performance can be found on
page 3. Key Performance Indicators are set out in the
Strategic Report on pages 32 and 33.
Retail investors advised by IFAs
The Company currently conducts its affairs so that
its shares can be recommended by Independent
Financial Advisers (‘IFAs’) in the UK to retail investors
in accordance with the Financial Conduct Authority
(‘FCA’) rules in relation to non-mainstream investment
products and intends to continue to do so. The shares
are excluded from the FCA’s restrictions, which apply
to non-mainstream investment products, because they
are shares in an authorised investment trust company.
Further information
General shareholder information and details of
how to invest in the Company, including investment
through an ISA or savings scheme, can be found on
pages 114 onwards. This information can also be
found on the Company’s website www.trproperty.com
TR Property Investment Trust plc
Overview Strategic report Governance Financial statements Glossary and AIFMD disclosure Notice of AGM Shareholder information
2 TR Property Investment Trust plc
Year ended
31 March
2024
Year ended
31 March
2023 Change
Balance Sheet
Net asset value per share 351.50p 305.13p +15.2%
Shareholders’ funds (£’000) 1,115,503 968,346 +15.2%
Shares in issue at the end of the year (m) 317.4 317.4 0.0%
Net debt
1,6
10.8% 12.3%
Share Price
Share price 325.00p 279.00p +16.5%
Market capitalisation £1,031m £885m +16.5%
Year ended
31 March
2024
Year ended
31 March
2023 Change
Revenue
Revenue earnings per share 12.04p 17.22p -30.1%
Dividends²
Interim dividend per share 5.65p 5.65p 0.0%
Final dividend per share 10.05p 9.85p 2.0%
Total dividend per share 15.70p 15.50p 1.3%
Performance: Assets and Benchmark
Net Asset Value total return
3,6
+21.1% -35.5%
Benchmark total return
6
+15.4% -34.0%
Share price total return
4,6
+22.9% -36.2%
Ongoing Charges
5,6
Including performance fee 1.81% 0.73%
Excluding performance fee 0.82% 0.73%
Excluding performance fee and direct property costs 0.78% 0.67%
1. Net debt is the total value of loan notes, loans (including notional exposure to contracts for difference ('CFDs')) 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 2024. An interim dividend of 5.65p was paid on 11 January 2024 (2023: 5.65p).
Afinal dividend of 10.05p (2023: 9.85p) will be paid on 1 August 2024 to shareholders on the register on 28 June 2024. The shares will be quoted ex-dividend on
27June2024.
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 methodology.
6. Considered to be an Alternative Performance Measure as defined on page 102.
Financial highlights and performance
Annual Report & Accounts 2024 3
Historical performance
for the year ended 31 March 2024
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Performance for the year:
Total Return (%)
NAV
(A)
22.4 28.3 8.2 8.0 15.5 9.1 -11.5 20.7 21.4 -35.5 21.1
Benchmark
(B)
14.9 23.3 5.4 6.5 10.2 5.6 -14.0 15.9 12.2 -34.0 15.4
Share Price
(C)
37.7 29.5 -1.6 9.1 25.5 6.2 -16.8 28.3 19.9 -36.2 22.9
Shareholdersʼ funds (£ʼm)
Ordinary shares 809 1,010 1,065 1,118 1,256 1,328 1,136 1,326 1,563 968 1,116
Ordinary shares
Net revenue (pence per
share)
Earnings 8.09 8.89 8.36 11.38 13.22 14.58 14.62 12.25 13.69 17.22 12.04
Dividends
(D)
7.45 7.70 8.35 10.50 12.20 13.50 14.00 14.20 14.50 15.50 15.70
NAV per share (pence) 254.94 318.12 335.96 352.42 395.64 418.54 358.11 417.97 492.43 305.13 351.50
Share price (pence) 247.50 310.50 297.50 314.50 382.50 394.00 317.50 392.50 456.50 279.00 325.00
Indices of growth
(rebased at 31 March 2014)
Share price
(E)
100 125 120 127 155 159 128 159 184 113 131
Net Asset Value
(F)
100 125 132 138 155 164 140 164 193 120 138
Benchmark
(G)
100 120 123 128 137 140 117 132 145 93 104
Net dividend
(D)
100 103 112 141 164 181 188 191 195 208 211
RPI
100 101 102 106 109 112 115 117 127 144 150
Figures have been prepared in accordance with UK-adopted international accounting standards.
(A) The NAV Total Return for each 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 at the ex-dividend date as this is the standard methodology used by the Company’s benchmark and other indices. This is considered to be
an Alternative Performance Measure as defined on page 102.
(B) Benchmark Index: the FTSE EPRA/NAREIT Developed Europe Capped Index. Source: Thames River Capital.
(C) The Share Price Total Return is calculated by reinvesting the dividends in the shares of the Company from the relevant ex-dividend date. This is considered to be an
Alternative Performance Measure as defined on page 102.
(D) Dividends per share in the year to which their declaration relates and not the year they were paid.
(E) Share prices only. These do not reflect dividends paid.
(F) Capital only values. These do not reflect dividends paid.
(G) Price only value of the index set out in (B) above.
Overview Strategic report Governance Financial statements Glossary and AIFMD disclosure Notice of AGM Shareholder information
4 TR Property Investment Trust plc
Chairman’s statement
Market backdrop
Investor behaviour continues to be governed by the
trajectory of bond yields and inflation. This is particularly
acute in leveraged asset classes such as real estate.
Compared to the two previous years, when we witnessed
seemingly relentless incremental increases in base
rates, this period was marked by a more positive shift
in sentiment, as investors began to sense a peak in the
interest rate cycle. Nevertheless, our manager had to
navigate a series of false dawns as markets rallied on
expectations of more dovish central bank behaviour
– before this more buoyant mood was proved to be
premature. Whilst the second half of the year under
review saw much greater volatility in share prices, we
also sense increasing engagement from investors in
our corner of the equity market, as the weakening of
inflationary pressures becomes increasingly evident –
particularly across Europe.
Given all that has happened in the last year, I am pleased
to report the Company’s net asset value (‘NAV’) total
return was +21.1%, ahead of the benchmark total return
of +15.4%. Of greater importance to shareholders is the
share price total return. This, at +22.9%, exceeded the
NAV total return given that the discount at which the
shares traded was tighter at the end of the year than
at the beginning. These encouraging results reflect a
strong second half of the financial year, with the first
half recording an NAV total return of just +3.3%. In the
half year report I highlighted that the vast majority of
our companies had made great strides to improve
their balance sheets and debt books over the last
two years. This was always going to be a key building
block in the sector’s recovery. We have subsequently
seen a strong reporting season (February and March
2024) as improving market fundamentals overlaid on
strengthened balance sheets resulted in healthy earnings
growth. Those companies which suspended dividends
to protect their cashflows have nearly all returned (or
announced the return) to paying dividends. There remain
a handful of businesses in financial intensive care, but
our manager continues to avoid these, even where
sentiment and rumour can lead to dramatic (but often
temporary) share price performance.
Our sector continues to see heightened levels of merger
and acquisition ('M&A') activity. Our involvement in three
successful transactions (two privatisations and one
merger) took place in the first half and were reviewed
in the half year report. They were important valuation
underpins. The second half of the year saw a lot of
activity around more potential mergers. In the case of
the all paper offer by Tritax Big Box for UK Commercial
Property REIT ('UKCM'), our manager voted against the
transaction on governance issues.
We are pleased to announce a
modest increase in our dividend.
There is no denying that
commercial real estate became
unfashionable when interest rates
began to rise. But as TR Property’s
renewed outperformance
shows, investors are beginning
to differentiate between the
less desirable elements of the
sector and the companies that
our Manager seeks out — that is,
companies that own quality assets
and have strong balance sheets.
Kate Bolsover
CHAIRMAN
Annual Report & Accounts 2024 5
Mar-23Mar-22Mar-21Mar-20Mar-19Mar-18Mar-17Mar-16Mar-15Mar-14
Benchmark Total Return
TR Property Share Price Total Return TR Property Net Asset Value Total Return
Mar-24
0
50
100
150
200
250
300
350
400
Ordinary Share Class Performance: Total Return over 10 years (rebased)
Revenue Results Outlook and Dividend
For the full year, earnings at 12.04p were just over
30% lower than the earnings recorded for the previous
financial year. A fall in earnings for the year to March
2024 was flagged in the 2023 Annual Report. Interim
earnings were 39% behind the prior year and whilst our
expectations for the second half were slightly exceeded,
the pattern did not change.
Whilst the prior year had been inflated by a number of
one-off items (all highlighted in the previous annual
report), the mix of dividend suspensions and reductions
across our German residential, and to a lesser extent,
Scandinavian holdings, has hit the income account
hard. In addition, rising interest rates increased our
own debt costs, despite the reduction in the absolute
amount of debt. Added to these income headwinds, we
also experienced an increase in the headline rate of UK
corporation tax.
Over the year, significant progress has been made by
those companies which had suspended or reduced
dividends. Their balance sheets have strengthened
through cash retention, asset sales and debt
restructuring, with many announcing that they will
resume distributions at some stage in the forthcoming
year. Although their actions have been detrimental to
our revenue account in the short term, their decisive
and conservative action has been reflected positively in
capital returns. Some will be a little slower than others
to resume distributions, a handful still have to announce
when their distributions will recommence.
We anticipate that underlying income will take some
time to recover but with strong revenue reserves built
up, the Board is able to support the Company’s dividend.
In determining our dividend, we always aim to balance
investor appetite for income against the Company’s
cashflow in a given period. This approach entails the
building up of reserves during fruitful years, allowing us
to cover the dividend during dips in income. Against this
background, we are pleased to announce a very modest
increase in the final dividend to 10.05p, bringing the full
year dividend to 15.70p, an increase of 1.3%.
Net Debt and Currencies
Gearing reduced in the second half and ended the year at
10.8%. The cost of our debt remains higher than for some
time and the reduction seen at the year-end is more a
reflection of this, than on the manager’s outlook.
Sterling staged a couple of rallies through the year, over
the summer period and then again in the first quarter
of 2024. This had a small negative impact on our non-
sterling earnings.
Discount and Share Repurchases
The discount improved by more than 1% over the year,
closing at 7.5% (opening at 8.6%) enhancing the share
price return over the NAV return for the year. The average
discount for the year was 7.7%. A discount of over 10%
was seen very briefly in July and again in October, when
market sentiment was at its worst. It narrowed to 2.6% in
late February as investors began to feel optimistic about
an early interest rate cut. However, this proved premature
and the Company’s discount widened again into the year
Overview Strategic report Governance Financial statements Glossary and AIFMD disclosure Notice of AGM Shareholder information
6 TR Property Investment Trust plc
Chairman’s statement
continued
end. The average discount for the year remained wider
than the five year average (5.8%) which is not particularly
surprising as for the most part, the sector remained
unloved.
Environmental, Social and Governance
Our Responsible Investment Report is set out on
pages16 to 22. With the impending changes in
disclosure regarding sustainability (SDR), we have
worked with our manager to consider how best to set out
our credentials and priorities in this area.
The Company has not set out to be an investment fund
with any ESG or sustainability characteristics, however,
as a long-term investor, governance and sustainability
considerations are embedded in our Manager’s
investment process. Accordingly, we will continue to put
strong corporate governance at the heart of our decision-
making process. Many of the environmental targets
which our investee companies follow are being driven by
their regulatory framework and we expect our companies
wholeheartedly to embrace these improvements through
refurbishment and development. We also endeavour to
"practice what we preach" in our direct property holdings,
where we exercise direct control over these issues.
Property is of course a socially important investment
area. People live, work, and play in the properties which
we or our investee companies manage and own. This
means that we are adding value and engaging with all of
society in all that we do.
Our Managers actively engage with management and
regulators on matters of corporate governance and
there is one recent situation highlighted below which
demonstrates this. We consider this one of our key
responsibilities in managing the assets which you have
invested with us.
Our manager closely followed the all paper takeover of
UKCM by Tritax Big Box. The Company owns shares in
both companies. Throughout the process, he remained
concerned about poor governance and the lack of
transparency on certain commercial aspects of the
transaction. He was not alone. The chairman of UKCM
also dissented from recommending the transaction.
A most unusual and noteworthy situation. Whilst the
dominance of one shareholder (Phoenix Life owned 43%
Kate Bolsover
Chairman
7 June 2024
of UKCM) ultimately drove the transaction, we engaged
extensively with all parties including the Takeover Panel
before voting against. The Company has large positions
in many smaller property companies and our manager
engages extensively with boards. Holding boards to
account, as guardians of the interests of all shareholders,
is an important part of our governance regime.
Outlook
Our manager’s central case is that we are now closer
(than in previous reports) to the peak of this interest rate
cycle in Europe. The multiple ‘false dawns’ (where shares
prices rallied in anticipation of interest rate cuts, only to
fall back) have weighed on sentiment and many investors
remain on the sidelines awaiting hard evidence of base
rates falling. Also importantly, the manager’s positive
viewpoint is not predicated on substantial reductions
in interest rates. What is being looked for is stability in
the monetary environment with lenders returning and
margins normalising.
You will read in the manager’s report of sound
fundamentals in many real estate sub sectors particularly
for high quality assets. I reiterate, the companies we
are invested in have those two key ingredients – quality
of assets and depth of balance sheet. The sector
continues to trade at attractive discounts to asset value
and the year in question brought more examples of
good portfolios being taken private as public markets
continued to undervalue them – again, covered in more
detail in the following pages.
We expect the reduction in our physical property
exposure to be temporary. The timing of the rotation of
the capital released by the March sale of the Colonnades
into equities has proved beneficial. Equity markets are a
forward looking discounting mechanism and property
share prices have responded to the expectation of a
lowering in the cost of capital.
The team continues to hunt for the next property
purchase. In the meantime, the outlook for well financed
property equities remains encouraging.
Annual Report & Accounts 2024 7
Manager’s report
Performance
The Company’s net asset value (‘NAV’) total return for
the 12 months to 31 March 2024 was +21.1%, whilst the
benchmark, the FTSE EPRA/NAREIT Developed Europe
TR (in GBP) returned +15.4%. These are pleasing results
– both in absolute terms and relative to the benchmark.
The chart overleaf illustrates three clear phases of
market performance over the year under review. The
first phase (April to October) saw pan European real
estate equities travelling in a tight (12%) trading range;
the market behaviour analogy is that of a ping pong ball
in a horizontal tube. Equity pricing remains dominated
by macroeconomic considerations and more expressly,
the outlook for base rates, the shape of the interest rate
curve and bond market yields. Over this first phase, we
saw bulls and bears evenly matched. In late October, the
outlook changed in response to central bankers’ more
positive comments about the success of monetary policy
tightening and the deceleration of inflation. Markets
began to price in an expectation of a large number
of base rate cuts and this supercharged our sector.
Between 27 October and the end of the calendar year,
our benchmark gained 31%. This illustrated not only how
far investors view our sector as a play on interest rates
but also how ‘under-owned’ the sector was. As investors
returned from the Christmas break, expectations about
the speed of base rate cuts began to weaken. The
number of anticipated cuts reduced and the expected
commencement date drifted out of the short term. This
led to a correction of over 12% between the beginning of
January and the end of February. As we headed into the
last month of the financial year, the dovish commentary
from the central banks was reiterated. We saw the first
interest rate cut from the Swiss National Bank whilst
the Bank of England laid the groundwork for potential
cuts, given the inflation data. Meanwhile, the ECB also
highlighted the month-on-month slowing of inflation,
helped by lower energy costs.
Though the financial year ended positively, it is
abundantly clear that the performance of real estate
equities remains – at least in the short term – heavily
dependent on interest rate expectations. The renewed
bout of nervousness (around the path of interest rate
reductions) in January and February reminds us of the
sector’s sensitivity. However, and quite crucially, the
underlying market fundamentals in so many of our sub-
sectors are positive and the rest of this report will focus
on why we look to the future with confidence.
Our central case is that more
benign European inflation is
drawing closer. But crucially, our
optimism is not dependent on
near-term cuts to interest rates.
The companies we own are
positioned to prosper even if rates
remain at current levels and the
spike in M&A activity this past year
is recognition of this. Acquirers
have rushed in to take advantage
where public markets have left
quality assets languishing at
significant discounts.
Marcus Phayre-Mudge
FUND MANAGER
Overview Strategic report Governance Financial statements Glossary and AIFMD disclosure Notice of AGM Shareholder information
8 TR Property Investment Trust plc
If investors focus solely on the macro then they will
undoubtably miss out on the micro. Where market
fundamentals are sound (i.e. rental growth is in evidence)
we have seen value appearing in a large number of well-
financed companies, particularly where share prices
trade at deep discounts to asset values. We were not
alone in seeing such opportunities and the year under
review saw a large amount of M&A activity, particularly
in the UK. The new financial year was only just underway
when on 3 April 2023, Industrials REIT announced that
it had received a cash offer from Blackstone at a 40%
premium to the previous closing price. Importantly, this
was also a 17% premium to the last published NAV. The
Company was the largest shareholder (11.2% of the
issued capital) and we had been long term supporters of
the management team and their strategy. They had been
at the forefront of bringing property management into the
digital era. It is a textbook example of where the value-
adding skills are not priced correctly by public markets.
The sale was bittersweet: whilst the positive impact on
the Company’s valuation was welcome, it meant the
loss of a well-run business, exposed to one of our most
favoured sub-sectors -multi let industrial.
Alongside the sale of Industrials REIT to Blackstone, we
saw another US behemoth, this time a $36bn market
cap REIT, Realty Income, acquire all of Ediston Property’s
assets for cash. Ediston had switched from being a
diversified investor to one focused entirely on retail
warehousing. Alongside multi-let industrial and wider
logistics property we are positive about value growth in
this sector, hence our exposure. We had steadily built
the position and owned over 16% of the company at
the date of the announcement. This is another example
of undervaluation by European public markets, with
a more highly rated US REIT able to take advantage.
Realty Income is valued on an earnings basis rather
than a discount/premium to asset value – and it has
successfully raised equity on multiple occasions to take
advantage of depressed asset prices.
The next deal of note was a little different, with
LondonMetric Property (market cap £4bn) using its
more highly rated paper to acquire CT Property Trust
('CTPT'). We owned 10% of CTPT and have been a
longstanding investor in LondonMetric so we were happy
to support the deal which also saw a 25% gain in the
CTPT share price on the announcement. Given this was
an all-paper acquisition, this gain reflected the difference
in the valuation of the respective companies. As we
have seen on so many occasions, small companies
continue to suffer wider discounting. I have written many
times on the need for amalgamation and it remains a
pressing requirement amongst our smaller companies.
Ironically the latest tie-up to complete was not between
two small caps but between two of the larger names,
LondonMetric and LXI REIT. LXI was an externally
managed REIT specialising in long income assets and
itself was the product of the merger with Secure Income
REIT in 2022. Like LondonMetric’s deal for CTPT, this
was also an all paper ‘NAV for NAV’ deal but with some
adjustments to reflect the cancellation of an egregiously
long management contract term for LXI (five years
which resulted in a break payment of £30m to AlTi, the
departing manager). LondonMetric, our 5th largest
holding, has performed well through both these mergers
and with a market cap close to £4bn is now larger than
British Land (where the former’s CEO cut his teeth
20years earlier).
Manager’s report
continued
Dec-23 Jan-24 Feb-24 Mar-24Nov-23Oct-23Sep-23Aug-23Jul-23Jun-23May-23Apr-23Mar-23
-10%
-5%
0%
5%
10%
15%
20%
25%
FTSE EPRA/NAREIT Developed Europe Capped Total Return Net GBP
Benchmark Performance
Annual Report & Accounts 2024 9
Not all the year’s corporate activity followed the expected
path. An agreed merger between two small companies
we did not own, Custodian REIT (market cap £330m)
and Aberdeen Property Income (£185m), failed to get
the necessary shareholder support. We think this is a
shame as the alternative – a managed sale of the assets
– rarely produces a satisfactory outcome, due to the time
taken and the price achieved for a given portfolio’s ‘tail’ of
weakest assets.
Meanwhile, the recently completed takeover of UKCM
by Tritax Big Box has been flagged in the Chairman’s
Statement and is further reviewed under the Responsible
Investment section of this report. The all-paper offer
valued UKCM at a 12% discount to its last published
NAV based on the respective share prices at the
date of conversion. Given the quality of the assets
and the very attractive debt book (LTV of 25%, 3.2%
fixed price debt) we remain disappointed that a more
comprehensive strategic review and marketing exercise
was not undertaken, given the last published NAV of
78.7p. However, our average UKCM entry price of 57.5p
(purchases between August 2023 and January 2024) and
the share price of 72.0p on 2 May (the EGM date) offers
some comfort, in that it shows our prediction of M&A
activity involving this company was correct.
Performance Attribution
Reviewing our performance attribution, it is no surprise
that our exposure to much of this M&A activity was a
key contributor to performance. Whilst the Industrials
REIT transaction was the largest driver of relative
performance, our general overweight to this sector was
also key. Our exposure to a number of logistics focused
names, particularly the more fleet of foot smaller
Continental European names such as Argan (total return
+26.4%) and Catena (total return +39.2%) which have
significant, value-adding development pipelines relative
to their size. Our overweight's towards European retail,
such as Klepierre, were also important contributors. We
remain positive about businesses with high earnings if
we feel confident about the sustainability of that revenue.
In the UK the performance of the diversified group (which
includes LondonMetric and LXI) saw returns driven by
these two names (now amalgamated). This group also
included Regional REIT, not a stock which the Company
has ever held, which was the poorest performer (total
return -54.5%) across our universe. A poster child for
too much leverage in a sector facing huge challenges
(regional offices) and an imminent debt maturity which
will result in some form of comprehensive refinancing.
Given the general negativity towards offices, it may come
as a surprise that amongst our top 10 performers was
Sirius (total return 35.3%) which owns business space in
Germany and the UK. It is a good example of investors
staying loyal to a stock if management can show robust
earnings and a path to growth. In this case strong
capital recycling and generative acquisitions continue
to drive returns. Similar to Industrials REIT, we think
this is another case of asset management skills being
undervalued by the market.
In the residential space, it was very much a case of one
step forward and one step back from a relative valuation
perspective. This highly interest rate sensitive sector
had a terrible 2022 and first half of 2023 but enjoyed
periods of strong returns thereafter, particularly the
last quarter of the calendar year. In Scandinavia, our
positioning was correct, owning Balder in Sweden (total
return +85.1%) and not owning Kojamo in Finland (total
return +1.2%). The bulk of the listed residential focused
companies are still German. Whilst our largest absolute
position, Vonovia, produced a total return of +65.7% we
were generally at benchmark weight or slightly under.
Large caps, such as Vonovia, are very much viewed as
bund proxies and the much anticipated, potential rate
cuts drove share prices upwards, particularly in the
last quarter of the calendar year. However, our largest
relative position was Phoenix Spree Deutschland, a
micro-cap (market cap £133m) which produced a very
disappointing -18.6% total return and entirely missed
the rate driven rally. Berlin apartments are an attractive
long-term store of value given the supply/demand
disequilibrium. Ironically where these apartments have
the right to be sold on a long leasehold basis (as opposed
to short letting on a regulated rent basis) they are more
valuable empty than let; 75% of Phoenix’s portfolio has
this valuable permit. This offers a crucial long-term
valuation underpin. Phoenix’s board have highlighted a
reinvigorated sales process and we expect the company
to continue to reduce its leverage through sales. It is
externally managed and the contract has a continuation
vote in July 2025. Management is therefore fully
incentivised todeliver.
Healthcare was the largest sector underweight, both in
Europe and the UK. The former is dominated by elderly
care where a number of operators have experienced
financial difficulties. In the UK, the largest names are in
the primary care sector and here the issue is not one of
covenant risk (the tenant is directly or indirectly the NHS)
but the lack of rental growth. Assura delivered a total
return of -6.8% and PHP slightly better at -0.5%.
Offices remain the most challenging sector and there is
more detail later in the report. We had no exposure to the
London developers (Derwent London, GPE and Helical)
which all produced negative returns in the year. We
preferred Workspace (total return 23.7%) which provides
serviced offices and workspace across the capital and,
following the 2021 acquisition of McKay Securities,
further into the South East. The majority of our office
Overview Strategic report Governance Financial statements Glossary and AIFMD disclosure Notice of AGM Shareholder information
10 TR Property Investment Trust plc
Manager’s report
continued
exposure is to European cities particularly Paris (through
Gecina), Madrid (through Arima) and Malmo/Gothenburg
(through Wihlborgs). Paris CBD continues to benefit from
a shortage of prime office space with lower levels of
remote working than London. As I have commented on
previously, smaller cities with shorter average commute
times, have experienced much higher levels of office
occupancy and this is reflected in rent stability. Arima
(market cap €176m) develops and refurbishes prime
offices in the Madrid CBD and has had a successful
year in both selling (8% of the portfolio) and leasing (the
largest refurbishment). However, the size of the company
means that it is too small for institutional ownership. The
total return of -21.4% made it our worst performer over
the period. Arima has a modest buyback programme
which it will need to accelerate or face shareholder
activism. The shares trade at a 40% discount to the last
published NAV.
Offices
Sentiment towards the office sector remains extremely
negative. The subsector is caught in a perfect storm
of weakening occupancy fundamentals (with the true
impact of ‘working from home’ still filtering through many
markets) and growing capital expenditure requirements
(to meet the needs of an increasingly demanding
occupier base and green agenda). Low transaction
volumes had hampered pricing visibility which
compounds the issue, as investors struggled to envisage
the valuation inflection point.
Dramatically increased construction costs alongside an
unstable rate outlook have resulted in both development
and standing assets in the sector being viewed as simply
uninvestable by large parts of the international investor
base. The largest cohort of global real estate investors
originate in the US and their home market has been
particularly badly hit. Cushman & Wakefield reported that
the vacancy rate in Manhattan hit an extraordinarily high
23% in March 2024.
Our view on European offices is more sanguine, though
a level of pessimism is certainly warranted. Savills
estimates that average vacancy across Europe is
c.8.4% (+60bp year-on-year). Whilst all London office
markets collectively report c.9% vacancy, averages are
a dangerous metric, with large variations across the
capital. The listed players are much more exposed to
the West End where vacancies are c.4% than the City at
c.12% and have little or no exposure to Docklands where
vacancy has hit 17%.
Rental growth, which might be assumed to be weakening
dramatically given softening occupier demand, has also
in fact remained remarkably robust, as demonstrated
by Great Portland Estate’s (GPE’s) upgrade of its prime
office ERV guidance at its September 2023 interim
results from a range of +3-6% to an increased top end
of +3-8%. We put this unusual phenomenon down to
the ongoing bifurcation in the sector – the growing
separation between “the best and the rest”. We are
therefore selectively overweight certain office names,
such as Gecina, where we believe the company has best
in class assets and is exposed to strong submarkets.
Given the wider risks to the sector this is not, however,
enough to make a compelling equity case on its own;
Gecina’s balance sheet is also solid, while the outlook
for its earnings is strong given indexation and reversion
capture to come. Without these elements, and absent
other catalysts, we struggle to see how some office
players will close their discounts, which explains
our underweights in Stockholm offices (at its fourth
quarter 2023 results Fabege demonstrated negative
lease renegotiations of -3%) and London offices. GPE’s
earnings are set to drop dramatically in the coming years
as debt refinanced at market rates wipes out underlying
rental growth.
In certain places we believe overly-bearish views of
offices has led to mis-pricing and created opportunities,
however these are rare. In each instance they require the
wider equity case to have other attractive features. Once
such stock is Picton where we believe the market’s focus
on its offices (29% of the portfolio) has led to the shares
being materially oversold (c.30% discount to net tangible
assets). Given our comfort with the very high quality of
the remainder of the portfolio (59% industrial), the strong
balance sheet (28% LTV with no near term refinancing
needs) and management actions to extract maximum
value from its offices (such as the sale of Angel Gate for
£30m after securing residential planning consents on
the asset) we believe it is only a matter of time before the
market realises the attractions of the stock.
Retail
The difference in investor sentiment between offices and
retail continues to feed through the IPD/MSCI data. For
the 12 months to March 2024, London offices fell 13.5%
and Inner South East fell 20.7%. UK wide retail was down
just 6.8% with shopping centres just 4.7% similar to retail
warehousing at 4.9%. Essentially, rental values in retail
property have broadly completed their rebasing. Tenants
have right-sized their portfolios for an omni-channel
engagement with customers; and fewer (generally
larger) stores but also an understanding that the physical
presence is very much part of the customer experience.
Convenience remains critical for the consumer (‘time
is money’) and the easy-to-access edge of town retail
parks and shopping centres are seeing improving footfall
data. They are beginning to show rental resilience and
yield stabilisation. UK shopping centres collectively saw
Annual Report & Accounts 2024 11
a positive total return of +4.2%. The last time we saw a
positive capital return from this sub-sector was 2015.
Whilst we have modest exposure to retail in the UK
(following the sale of Ediston to Realty Income), we do
have considerable exposure in Europe through Klepierre
and Eurocommercial. These businesses offer not only
high levels of occupancy but crucially stable occupancy
cost ratios which combines all the tenant’s overheads
(rent, rates and service charge). Controlling an inflating
service charge has been particularly difficult in the last
year or so and these companies have done a good job at
maintaining affordability for their tenants.
In the half year report I referenced outlet malls as a
sub-sector seeing strong recovery and this has been
illustrated by Hammerson’s receipts from Bicester Village
and its European malls where it owns minority positions
in a complex ownership structure. The company has
identified these assets as non-core but with only
partial ownership its hard to see who the buyer will be.
Elsewhere, owners such as Landsec at Gunwharf Quays
(Portsmouth) have enjoyed robust sales growth. Despite
the recent increases in the cost of living, UK retail sales
(year on year to February 2024) have shown modest
growth with grocery the top performer (4.4% annualised).
Wage inflation has helped underpin consumer
confidence, alongside job growth and stubbornly high
numbers of job vacancies providing security to workers.
Industrial/Logistics
UK take up in 2023 was 21m sq ft, 36% lower than the
record year of 2022. Whilst this looks worrying, it is still
above the pre-pandemic trendline (2013-2019). Grade
A availability in big box logistics is 30% higher than a
year ago at 36m sq ft, pushing vacancy up to 7.1%.
Encouragingly the fourth quarter of 2023 was the busiest
quarter of the year. As always, the devil is in the detail
with some markets in a better position than others: East
Midlands, for example, has only 12 months’ supply. This
increase in vacancy has slowed rental growth. It remains
healthy at 7.8% but is less than half the pandemic (2021)
spike of 17.8%. Large regional variations persist with
London recorded just 3% rental growth as the very high
absolute rents point to an affordability ceiling.
According to JLL, Continental European take-up in 2023
was 24.5m sq metres, 26% down on the previous year
and below the records of 2021/2. However, it is still
the fourth highest volume on record and greater than
the average across 2016-2019. The conclusion we
have drawn is that the structural tailwinds (highlighted
in many previous reports) are still supportive, but the
supercharged pandemic induced period has reverted
to more normal growth. Manufacturing driven take-up
remains very robust as businesses continue to de-risk
their global supply chains through diversification of
sources and near-shoring. Vacancy has crept up to 4%
from the 2.9% record low recorded in Q2 2022 but this
figure remains a healthy one ensuring rental growth
continues. Weighted European average prime rental
softened to 7.8% in 2023, well below the record in 2022
but still above the 5.9% average (2018-2022). In addition,
70% of the existing stock is more than 10 years old and
unlikely to comply with energy performance and ESG
standards. This offers more opportunity for developers.
The sector continues to be the top of investors’ buy lists
but given the rental growth outlook, yields remain below
the cost of borrowing. The rapid rise in interest rates
has cooled demand and whilst turnover was a healthy
€26.3bn it was down 40% on the previous year. The
Nordics and Spain saw volumes decline significantly
whilst Germany, somewhat surprisingly was a bright spot
equalling the 2018-2022 average.
We remain confident that the adjustment to sellers’
expectation is well underway as transaction volumes fall.
Given the positive underlying market outlook we expect
buyers to view those price adjustments as entry points
rather than expecting the knife to drop further. At 4.9%
the average European prime logistics yield has returned
to late 2017 yield, an attractive entry point in our view.
Residential
Unlike the rest of Europe, the UK (ex Scotland) and
Finland have no residential rent controls. This has led to
dramatic rental increases particularly in locations with
acute supply shortages. Both the ‘build to rent’ UK listed
companies, Grainger (multi family housing) and PRS
REIT (single family housing) have seen like-for-like rental
growth of 8% and 11% respectively. Private landlords
are discouraged through the loss of tax breaks, high
regulation and stiffer eviction criteria. In addition, tenants
prefer the certainty of an institutional/corporate landlord.
Interesting analysis from Savills and Experian highlights
that tenants will relocate further from their previous
accommodation if moving into new ‘build-to-rent’ ('BTR')
as opposed to another privately owned home.
Between 2011 and 2019, BTR investment averaged
£2.5bn per annum. Since 2019 this has steadily
increased and reached £4.5bn in 2022 and 2023. The
total UK BTR stock is now over 100,000 units built with
another 165,000 in construction or planning. This total of
265,000 has been growing at 4% per quarter for several
years. However, that rate of growth is rapidly diminishing
with a dramatic reduction (31%) in the detailed planning
application stage versus a year ago.
Overview Strategic report Governance Financial statements Glossary and AIFMD disclosure Notice of AGM Shareholder information
12 TR Property Investment Trust plc
Manager’s report
continued
Helsinki has been a textbook case of over development
in one market. Lessons for investors can be observed,
particularly for smaller regional cities (on a par with
Helsinki) where BTR is focused on flats rather than
suburban family housing. Temporary market saturation
will occur.
In the remainder of Europe, we continue to see various
forms of rent restrictions (Germany being the most
draconian) which leads to disequilibrium driven by
under development. With build costs mounting and
rental increases based on historic inflation, returns
from development remain less than appetising. Whilst
regulated rents are an intended social good, they
inexorably lead to their own inequality with long waiting
lists and inefficient use of accommodation, with many
under occupied units. Our own assessment of the value
of Phoenix Spree’s portfolio highlights the value-add
opportunity of selling vacant apartments. Our investment
thesis is also supported by the 6% increase in regulated
rents.
Alternatives
The largest constituents of this group in our listed
universe are purpose built student accommodation
('PBSA'), self storage and healthcare (generally split
into primary and elderly/nursing). Over the last year,
the clear winner was PBSA, followed by self storage
and then healthcare. PBSA continues to benefit from
growth, both domestic and foreign. The demographic dip
(fewer students turning 18 years old) has now passed.
Unite (the largest listed provider in Europe) reaffirmed
their guidance of 7% rental growth for this year. We
participated in their offensive capital raise in July. A large
amount of PBSA is owned by private equity firms such as
Blackstone and Brookfield. We would expect these types
of investors to consider public markets as a potential exit
route for their PBSA portfolios.
Self storage has had a poorer period of performance.
Essentially the post pandemic slowdown on both
occupancy and rate growth has materialised. Whilst
this was foreseen (the pandemic rates of growth were
unsustainable) and we reduced exposure (we owned
Safestore but not Big Yellow or Shurgard in the year) the
negative share price response has been greater than
expected as the cost of living and inflationary pressures
added to reduction in (discretionary) spend in this sector.
The more positive point was that we were underweight
the group relative to the benchmark. Last month, the
UK’s Self Storage Association (together with Cushman &
Wakefield) reported a sector revenue milestone of +£1bn,
however occupancy was at 77%, the lowest since 2019.
The poorest performer was healthcare. I have
commented on this area earlier in the report, but the
figures are quite stark particularly for the Continental
European companies which have suffered from concerns
around operator affordability and oversupply of beds in
some submarkets. Ironically, whilst the listed companies
have suffered poor returns given these operational
headwinds coupled with balance sheet issues, the
asset class has enjoyed high levels of investor interest
as prices have corrected. Investors with longer time
horizons see the demographic opportunity (e.g. the
Netherlands will see the retired population increase by
25% by 2032). It is an important sector. The European
care home market was worth €115bn in 2022 with
40% in the private sector. Highly fragmented, it offers
higher yields than traditional residential or PBSA due to
regulation and operator risk through thinner margins.
Private equity backed operators dominate (half of the ten
largest providers are private equity owned) and this has
led to affordability issues where operators have taken on
more debt whilst margins have been squeezed through
higher wage bills.
Debt and Equity Markets
Unsurprisingly, debt and equity markets remained
subdued throughout the year as margins continued to
widen. EPRA analysis highlights the dramatic change
in volume and pricing. In 2021, total debt issuance by
pan European listed property companies was €20.9bn
at a weighted coupon of 1.1%. In 2023, the volume had
dropped to €6.7bn and the average rate was 5.1%. The
better news is that across all real estate listed bonds only
10% require renewing in the next 12 months.
It is important to note that these figures relate to new
debt issuance. There has of course been a large amount
of restructuring, extending and renegotiation, often
leading to borrower protection through caps and swaps.
Equity raisings have also been few and far between: just
€3.3bn in the first nine months of the financial year. This
was followed by an encouraging acceleration in Q1 2024
with €1.4bn. All the accelerated book builds ('ABB') were
in businesses trading close (or at a premium) to NAV
and were focused on just three sectors. In the logistics/
industrial space it was Catena and Sagax in Sweden,
Montea and WDP in Belgium, and Segro in the UK. At
£900m (upscaled from the original £800m) the Segro
raise was the largest ABB in listed property company
history and the market took the raise very positively.
Self storage, with raises from Shurgard and Big Yellow,
totalled £400m and post the year end brought news
that Shurgard had made an unexpected cash bid for Lok
n’Store (market cap £370m). The final sector trading
at a premium is PBSA and Unite raised £300m at a 2%
discount to build out its development pipeline.
In addition, there were a number of discounted rights
issues which were in most cases driven by a need to
restructure the balance sheet. Much of this work took
Annual Report & Accounts 2024 13
place in 2022 and the first quarter of 2023, so in the
prior financial year. Sweden, as previously reported, has
suffered greatly from too much leverage, particularly
short duration debt. Most of these companies have had
to suspend dividends and in some instances also raise
capital to shore up their balance sheets. Castellum is
one such culprit and had to carry out a SEK10 bn, deeply
discounted, raise. I have already mentioned the problems
that European healthcare is facing and it was the largest
player Aedifica – whose share price had fallen from
€100per share in August 2022 to €60 per share by June
2023 – that also carried out a deeply discounted capital
raise at an ex-rights price of €52 per share.
Investment Activity – property shares
Portfolio turnover (purchases and sales divided by two)
totalled £460m in the year, in line with the previous year
in absolute terms (£477m). With average net assets over
the year of £1.0bn, turnover was 45% of net assets, higher
than the previous year’s figure of 40%. This was a function
volatility in the year, the high level of M&A activity (where
whole positions were liquidated) and the significant
amount of capital raised by companies weown.
I commented at the half year that when comparing
our 10 largest overweight and underweight positions
(versus their respective positions in the benchmark)
15 out of 20 stocks were the same at the end of each
reporting period. In addition, two of the others were
Industrials REIT and Ediston which were taken private
for cash. Given that our sector traded in a tight (12%
peak to trough and back again) range between April and
October it is little surprise that I did not reposition the
portfolio aggressively. Stocks were not being rewarded
for their fundamental positioning for rental growth or
development opportunities. Instead, it was all about the
direction of macro economics and more particularly
interest rates. The one area, in the first half of the year,
where we did make significant changes was Sweden.
With stressed balance sheets this group of stocks had
suffered badly in both the first and second quarter 2023
correction. From the February peak to June low point,
the Swedish component of the benchmark had fallen
33%. We participated in the Castellum deeply discounted
capital raise as well as adding to Sagax (diversified but
with a focus on industrial), Pandox (hotels) and Catena
(logistics). In the last quarter of 2023, as the market got
behind the expectation of more interest rate cuts than
previously forecast, we doubled our holding to the most
interest sensitive name, Balder. We continue to avoid
others that have impaired financial structures, such as
SBB andCorem.
Alongside buying back into the more interest rate
sensitive names in Sweden, we also added to some of
our German residential names. Again, this sub group
has a very high correlation to bond yields. Whilst we
have a large position in Phoenix Spree Deutschland,
this tiny company (market cap £134m) is too small to
attract investors who are playing the change in the shape
of the bund curve. As a result, we need to own larger
names such as Vonovia to capture that sensitivity, hence
maintaining the name as our largest absolute position.
I also highlighted in the half year report our continued
increase in exposure to European shopping centres
where our longstanding positions in Klepierre and
Eurocommercial were augmented by buying Unibail.
This subsector offers high earnings yields and diversified
income streams operating in multiple European markets
and in dominant locations.
Whilst our industrial exposure dropped with the sale
of Industrials REIT, I continued to add to Argan, our
preferred French logistics names. It is an illiquid name
given that the founding family owns half the equity.
Back in March 2023 the stock entered the FTSE EPRA
Nareit Europe Index and we sold 50% of our position
into that liquidity event. In the first half of the year, we
slowly reacquired the stock at 10-15% lower prices.
This process continued in the second half and the
position has doubled over the year. Elsewhere we added
substantially to three other small industrial / logistics
names: Catena in Sweden (tripled exposure), Montea
(75% increase) and Tritax Eurobox (doubled exposure).
In the latter case, the investment thesis is different to
the others. Eurobox is an externally managed portfolio
of disparate logistics assets across Europe. The balance
sheet is stretched but there are buyers for the individual
assets. This should be a portfolio break up and is a very
different proposition to our other positions which are
much stronger entities with articulated growth paths.
We aim to support the growth of all our companies but
occasionally there are sound reasons to drive share price
returns through M&A activity.
Within the office sector, as highlighted earlier we remain
very nervous, particularly with the London developer
names. We sold down most of the GPE position in the
first half and in the fourth quarter rally, we completed the
sale of the remainder alongside our holdings in Derwent
London and Helical. Workspace remains the only pure
office play and other prime London office exposure is
through Landsec. The evolution of serviced and managed
office space, where tenants outsource all (or most) of
their occupational requirements, is certainly the market
direction. Workspace is essentially a service provider and
we are pleased with the announcement of a new CEO.
In Europe, we have focused on the best quality assets
through Gecina (Paris) and Arima (Madrid) alongside
smaller cities such as Wihlborgs (Malmo). Alongside
Workspace, the flexible office provider we maintained our
holding in is Sirius, which owns regional business space
in Germany and the UK.
Overview Strategic report Governance Financial statements Glossary and AIFMD disclosure Notice of AGM Shareholder information
14 TR Property Investment Trust plc
Manager’s report
continued
The reduction in self storage exposure has already been
covered. The reduction in European healthcare exposure
was driven by perceived operator risk. In the UK, our
concerns were not covenant focused as Assura and PHP
are directly or indirectly funded by the NHS. The concern
was the low level of topline growth with the Valuation
Office (essentially the Government’s rent negotiator)
digging in its heels and holding rental growth below
inflation, hence the reduction in our Assura position.
Physical Property Portfolio
The physical property portfolio produced a total return
of -0.7% made up of an income return of +4.9% and a
capital return of -5.6%. This compares to the total return
from the MSCI Monthly physical property index of +0.8%
and a capital return of -5.5%.
It was a busy year in the physical property portfolio
with the sale of the commercial part of the Colonnades
for £33.5m, reflecting a net initial yield of 6.6% and a
capital value of £550psf. Shareholders will remember
the residential element was sold in 2022 for £5m.
The Company owned the Colonnades for 25 years,
transforming it from an unloved, poorly configured
parade of shops into an important local centre with a
44,000 sq ft Waitrose and 16,000 sq ft of ancillary retail
including a restaurant, gym and soft furnishings store.
The proceeds will be reinvested into direct property and
we are actively sourcing new opportunities.
At our industrial estate in Wandsworth, southwest
London, we have commenced a comprehensive
refurbishment of the units on a phased basis. The aim is
to produce best in class, light industrial units which will
be net zero carbon ‘in-use’. The units will be completely
flexible and will provide a wide range of users with high
quality, functional space with excellent sustainability
credentials. The proximity to central London, alongside
excellent road and rail communications, will hopefully
enable us to achieve new market rental levels for this
type of space in the capital London.
In Gloucester we have let two more units to Infusion
who occupy the other three units on the estate. The
tenant, a successful tea packaging business, won a new
contract which required an extra 25,000 sq ft. Through
good tenant communications we were able to surrender
surplus space on the estate, relet to Infusion and secure
a 15% increase in the rents, setting a new record level for
the estate.
Revenue and Revenue Outlook
The fall in revenue for the year was anticipated when we
reported last year and flagged in last years’ annual report
and commented upon further at the interim stage.
Progress has been made by companies reducing their
debt and strengthening their balance sheets, as a result
we are seeing the German and Scandinavian companies,
which suspended their dividends, return to making
distributions. Some of these are not commencing
immediately and quantum’s are still not certain. In many
cases, initially at least, they will be at a lower level than
pre-suspension.
The tax rate for our revenue account increased for a
number of reasons. First and foremost, the headline
rate of corporation tax increased from 19% to 25%.
Secondly, our income mix changed, weighting more to
income which is taxable in our revenue account. Finally,
our average withholding tax rate also increased as some
of the jurisdictions where we saw reduced income were
ones where historically we had incurred lower rates of
withholding tax.
It is prudent to assume this higher tax charge going
forward and together with lower distribution rates from
some of our companies, we expect it to take time for
earnings to return to previous levels. We expect the
recovery in earnings to accelerate when interest rates
are lowered but obviously the timing of this is difficult to
predict.
The Company has recorded excellent long-term growth
in distributions to shareholders of almost 8% per annum
over 10 years. The Company has significant revenue
reserves. The Board is happy to supplement the dividend
from revenue reserves although growth will be at a more
subdued rate for a while.
Annual Report & Accounts 2024 15
Marcus Phayre-Mudge
Fund Manager
7 June 2024
Gearing and Debt
The gearing over the year reduced, although due to
interest rate increases the overall cost of debt increased.
We are seeing increased margins being quoted on
some credit facility renewals and this has resulted in us
reducing the number of debt providers for the moment.
However, we have a number of ways to access gearing
in addition to the traditional revolving credit facilities.
Fixed rate loan notes were taken out in 2016, Eur 50m (at
1.92%) maturing in 2026 and £15m (at 3.59%) maturing
in 2031 and the use of Contracts for Difference also
introduces gearing. We are confident that we have access
to adequate levels of gearing to service any portfolio
management requirements whilst maintaining a high
degree of flexibility.
Outlook
In the Half Year Report in November, I highlighted both
the closure of many of the remaining open-ended, daily
dealing, direct property PAIFs (property authorised
investment funds) and the ongoing attraction of liquid
exposure to real estate through equities. In January,
the manager of the largest remaining PAIF announced
conversion to a hybrid model, a mix of physical property
and property equities. Further vindication that real estate
equities are the solution to those seeking liquid exposure
to the sector. However, liquidity comes with market size
and we welcome further consolidation in the sector,
creating fewer but larger companies which will hopefully
lead to more investor appetite. This has begun to happen
but there remains more opportunity in the sector.
The ebb and flow of investor sentiment towards our
corner of the equity market remains a frustrating feature.
The focus must now turn to the underlying demand and
supply of good quality real estate which remains, in most
sectors, in a state of positive disequilibrium. Our portfolio
positioning reflects our strong belief in this rental growth.
The number of sub-markets and geographies where we
see this organic growth is broadening. Those businesses
with the right capital structure are in a good place to take
advantage of these opportunities.
Post the year end, there has been yet another piece of M&A
activity. Arima (market cap €236m) is a specialist Madrid
office investor /developer who has bucked the trend with
a string of letting transactions on new and refurbished
CBD buildings. The share price had failed to respond
given the small market cap and its focus on an unloved
sub-sector, regardless of how well the management
team had performed. On May 16th the board announced
a cash bid (from a local property fund backed by a large
Brazilian bank) at a 39% premium to the previous closing
price. We were the second largest shareholder (8.1% of
issued equity). Yet another example of the equity market
undervaluing a well managed, listed property company – a
topic we have written about many times. We will continue
try and identify these opportunities given the Company’s
ability to hold illiquid positions.
Overview Strategic report Governance Financial statements Glossary and AIFMD disclosure Notice of AGM Shareholder information
16 TR Property Investment Trust plc
Responsible investment
Introduction
The Board recognises the importance of considering
Environmental, Social and Governance ('ESG') factors
when making investments and in acting as a responsible
steward of capital. This covers the Company's own
responsibilities on governance and reporting and through
responsible ownership of the investments that are made
on its behalf by its Portfolio Manager (the 'Manager').
1. The Company's own approach to Corporate
Governance and Reporting
Maintaining a high level of governance and disclosure
in the Company’s own operations and reporting is
extremely important. Our Manager is encouraging and
supporting this from the companies in which we invest
and we cannot fall short of these standards ourselves.
The Company’s compliance with the AIC Code of
Corporate Governance is detailed in the Corporate
Governance Report on page 47.
Under Section 414 of the Companies Act 2006 there is
a requirement to detail information about employee and
human rights, including information about any policies
in relation to these matters and the effectiveness of
these policies. As the Company has no employees,
this requirement does not apply. The Company is not
within the scope of the UK Modern Slavery Act 2015
because it has not exceeded the turnover threshold and
is therefore not obliged to make a slavery and human
trafficking statement. The Directors are satisfied that,
to the best of their knowledge, the Company’s principal
suppliers, which are listed on page 114, comply with the
provisions of the UK Modern Slavery Act 2015. These are
principally professional advisers and service providers in
the financial services industry, consequently the Board
considers the Company to be low risk in relation to
thismatter.
The Board meets the FCA Listing Rules targets on diversity
and inclusion. The Board’s diversity policy is outlined in
more detail in the Corporate Governance Report.
The activities of the Nomination & Remuneration
Committee in relation to Board changes are referred to
in the Nomination & Remuneration Committee Report on
page 53.
The Company has no greenhouse gas emissions to
report from its operations, nor does it have responsibility
for any other emissions producing sources under the
Companies Act 2006 (Strategic Report and Directors’
Reports Regulations 2013). Investment trust companies
are currently exempt from reporting against the Task
Force on Climate-Related Financial Disclosures ('TCFD'),
however, the Financial Conduct Authority ('FCA') has
published regulations that require the Company’s
Manager, as its Alternative Investment Fund Manager
(‘AIFM’), to report against TCFD at both the AIFM and
product level by June 2024. Therefore there will be a
TCFD disclosure specific to the Company’s portfolio
available after 30 June 2024, which will be published
on either the Company's or the Manager’s website. The
Manager has produced a report on its overall climate
change approach, which is structured using the TCFD
categories and is available on its website.
2. Our Portfolio Manager’s Approach to ESG
Our Portfolio Manager’s primary duty is to pursue the
objective set out at the beginning of this annual report,
which is to invest in property and property related
companies with the objective of exceeding the returns of
our benchmark.
The Company has not set out to be an investment
fund with any ESG or sustainability characteristics,
however, as a long-term investor, governance and
sustainability considerations are embedded in our
Manager’s investment process. ESG risk assessments
and considerations are factors which can feed into the
investment decisions taken by the Manager. This reflects
the belief of our Manager that investee companies that
have strong governance combined with a responsible
approach to social obligations and the commitment to
protect the environment can help enhance shareholder
returns in the long term.
In the part of the portfolio that is invested directly into
commercial real estate we endeavour to "practice what
we preach".
LISTED EQUITY PORTFOLIO
As a dedicated investor in the property sector our Manager
does not have to consider some of the more controversial
areas of what is ethical investment. However we are
investing in buildings where construction and ongoing
management have a direct impact on the environment.
All property is in some way delivering a social purpose.
Modern building practices are very much more focused
on reducing energy consumption and efficiency than in
the past. Properties have varying lifespans but are built
for the long term. Older buildings which are less energy
efficient than their modern counterparts are a fact of
life, their replacement has wider environmental and
social repercussions as well as huge cost implications.
They are going to form part of the investible universe for
the foreseeable future and their efficient improvement
and management is just as important as ensuring new
developments follow the highest possible environmental
standards. Although older buildings will most likely show
Annual Report & Accounts 2024 17
inferior "scores" to their more modern counterparts on
a number of environmental measures, we are looking
for demonstration of best efforts by issuers to improve
these measures, recognising that there will be limitations
on what can be achieved but wanting to see a positive
direction of travel.
There are two fundamental considerations to investment
in property companies: the assets themselves and their
management. The Manager seeks to invest in long-term
assets which are managed by quality teams in a well
governed corporate structure. As a result, there has been
a long-standing and strong culture of stewardship in the
Manager’s investment approach. The Manager believes
that engaging with companies is best in the first instance,
rather than simply divesting or excluding investment
opportunities. However, there are instances where
governance matters have driven a decision not to invest in
a company. As one of the largest teams investing in pan-
European real estate equities, our Manager meets with
a significant number of management teams of investee
and potential investee companies each year and has a
robust record of engagement, with an agenda of reducing
risk, improving performance and encouraging best
practice. This is augmented by the strength of Columbia
Threadneedle's Responsible Investment team and its
broader engagement. Over the course of the year, our
management team participated in 250 individual or group
meetings with companies and their management teams.
The Manager continues to incorporate new procedures and
ways in which information is gathered and used to support
their engagement with companies on ESG matters.
Corporate Governance disclosure requirements have
increased transparency enormously in recent years and
enabled closer scrutiny and engagement on Governance
issues for some years. Environmental measures are
widely reported, with formal disclosure requirements being
placed upon our investee companies, the Manager is more
readily able to scrutinise other measures such as climate
change and sustainability policies and outcomes.
However, the Board and Manager are still of the view that
the ESG rating industry and its approach and processes
has significant limitations, making it difficult to draw
true comparisons and make fully informed decisions.
The assessments from the various data providers reach
different conclusions as they do not all score in a consistent
way. Some of the assessments are subjective and different
data providers have different definitions and criteria.
This may eventually converge into some form of
consensus or standardisation but it still has a way to
go. Conceptually, making ESG comparisons between
companies and portfolios appears simple, but it is actually
rather complex and it is important to ensure that valid
comparisons are being made. As the shortcomings are
being uncovered and the different approaches highlighted
we hope that this will put pressure on the data providers to
improve the quality and clarify the basis of their analysis.
The data services are subscribed to so have to be fit for
purpose.
Our manager's own company database covers financial
and operational information together with extensive
modelling. ESG data is being collated alongside this,
having noted the shortfalls above allowing comparisons
to be made between the various data sources for a single
company and interrogated rather than relying on high level
“scores”. Interactions with companies on ESG matters are
noted and progress, or otherwise, can be tracked more
efficiently.
The Manager is dedicating direct resource to the analysis
of the information available and also has the benefit of
input from its Responsible Investment Team. This aims
to improve the Manager’s ability to engage with investee
companies on environmental matters and assist in the
consideration of ESG factors as part of overall investment
analysis.
Governance
Governance covers matters such as board structure;
effectiveness, diversity and independence, executive
pay and criteria, shareholder rights and financial and
governance reporting and standards.
Exercise of Voting Power and engagement
The Manager has a corporate governance voting policy
which, in its opinion, accords with current best practice
whilst maintaining a primary focus on financial returns.
The exercise of voting rights attached to the portfolio
has been delegated to the Manager. Where practicable,
all shareholdings were voted at all company meetings
in the financial year in accordance with Columbia
Threadneedle’s own corporate governance policies. This
ensures that a strong, consistent approach is taken to
proxy voting which backs up and reinforces engagement,
takes a robust line on key governance issues such
as executive pay and integrates consideration of
environmental, social & diversity issues and sustainability
practices into the voting process.
Overview Strategic report Governance Financial statements Glossary and AIFMD disclosure Notice of AGM Shareholder information
18 TR Property Investment Trust plc
Columbia Threadneedle’s Stewardship Report 2023
provides more information on its firm-level stewardship
policies, as well as how these comply with the
expectations of the UK Stewardship Code 2020 to which
the Manager is a signatory. Its statement of compliance
can be found on the website at
https://www.columbiathreadneedle.com/en/.
During the financial year, the Manager voted against at
least one management proposal at 55% of shareholder
meetings. This represents 12% of total items voted. Of
the items voted against, the proposals can be broadly
categorised as follows:
53%
23%
8%
Compensation
Capitalization
Director Election
Other
Audit Related
15%
1%
For the year, the Manager engaged with 10 companies
directly on a range of ESG related matters. These
engagements were conducted at both the board and
senior executive level as well as directly with investor
relations. Topics of engagement were split as follows:
Corporate Governance
Climate Change
Labour Standard
s
Environmental Standards
26%
44%
26%
4%
As highlighted in the Manager’s Report we actively engaged
not only with the boards of both Tritax Big Box and UK
Commercial over their corporate transaction but also with
the Takeover Panel. We explained in detail, our governance
concerns centred on the commercial arrangement between
the third party manager of both these vehicles and the
largest shareholder of UK Commercial. We felt strongly
that the board of UK Commercial had failed to complete
a comprehensive strategic review. The Chairman of UK
Commercial clearly also had reservations about the process
and abstained from voting in favour of the transaction.
Social
All buildings have a social function, providing places
to live, work, eat, shop, store etc. Management of
buildings needs to ensure any social obligations to
the occupants are met in terms of health & safety,
employee management and wellbeing and commitment
to communities. Most of these obligations are the
responsibility of the tenant but our investee companies
are obliged to report on matters affecting their own
employees and such statements are considered.
Environmental
Environmental policies in the property sector focus
largely on sustainability and climate change. Climate
change is one of the defining challenges of modern
times.
The management team have sourced data and
research from several providers, including the Columbia
Threadneedle Responsible Investment team, MSCI and
Global ESG Benchmark for Real Assets ('GRESB').
The quantity and depth of data available in our sector
varies greatly; the larger companies now have teams
dedicated to providing environmental impact data and
reporting. However many of our companies are small
and do not currently have the resources to contribute
data to the organisations providing analysis to the
investor community. As a consequence, we see strong
correlations between company size, maturity and overall
scores. Since our investment strategy leads us to own
focused mid-sized companies in preference to some of
the larger diversified companies, the portfolio's overall
ESG score might tend to be lower compared to the wider
benchmark. We look at data from both GRESB and MSCI
and provide data to GRESB on our own direct property
portfolio. The rigour of our process ensures that these
companies receive scrutiny by the team.
Responsible investment
continued
Annual Report & Accounts 2024 19
DIRECT PROPERTY PORTFOLIO
In the last Annual Report we set out our approach to ESG
and our priority to improve our net zero carbon pathway,
bringing it forward from 2050. Consequently, Net Zero
Carbon has been fundamental to our ESG activity over
the last year.
The key challenge has been ensuring that all net zero
led initiatives strike a balance between being genuinely
deliverable and also commercially viable. A lot of work
has gone into identifying and exploring how this can be
achieved and this report sets out the progress made.
Previous reports to date have been structured around
three key pillars, namely Asset Energy Performance
(Environment), Occupier Engagement (Social) and
Operational Performance (Governance). These pillars
are embedded into our Asset Management strategy and
form our Core ESG Priorities. These core priorities are
standard practice within both the asset and property
management of the direct portfolio and will continue to
evolve as we strengthen the ESG credentials of the direct
property portfolio.
These priorities are captured through the integration of
our assets into the wider community within which they
are located and the maintenance of strong relationships
with our local community stakeholders. We recognise
that the built environment can only succeed with the
support of a vibrant local community. By engaging
with the local community both through our existing
relationships, such as the Wandsworth Foodbank at
Ferrier Street, and through new relationships we can
continue to make a positive impact.
Governance continues to be structured through the
Company's direct property portfolio's Sustainability
and Social Responsibility Committee. By working
in partnership with our property manager, energy
consultant and other key partners we can define our
overarching strategy and map out our approach to
delivery. Quarterly meetings allow us to monitor our
progress closely and identify any gaps whilst also
ensuring full transparency on our proactive hands-on
approach.
The progress over the last year has enabled us to declare
with confidence that we can bring forward the current
direct portfolio’s Net Zero Carbon priority from 2050
to2040.
Core ESG Priorities
Core ESG Priorities have been fully embedded into the
day-to-day management of the direct property portfolio.
These feed into the business plans for each asset,
shaping its strategy.
These core ESG Priorities detailed below will continue to
evolve as progress is made.
Consumption Data Management
Having the ability to measure and monitor the utility
consumption of each asset accurately is fundamental to
gaining an understanding of the carbon intensity of the
direct portfolio. It also means that we can work with our
occupiers to set out how both Scope 1 and 2 emissions
can be reduced.
Automatic meter readers ('AMRs') were installed on
the landlord utility supplies at the Colonnades in June
2023. This means that 100% AMR coverage has been
achieved on all landlord procured meters within the
portfolio to monitor and mitigate excess energy usage.
This has given visibility into consumption patterns
and enabled informed adjustments to be made to cut
carbon emissions and save on cost. Following the AMR
installation at the Colonnades we were able to analyse
the electricity usage. The installation of LED lights
and timers within the common areas generated a 33%
reduction in consumption over the year. This in turn has
meant that prior to the sale, the asset was on track to
be net zero and below the science-based priority (SBTI)
by2050.
At the IO Centre, Gloucester, analysis of the data
collected from the AMRs flagged that there was
unusual daytime electricity consumption. The energy
management system on site flagged that the cause
of this irregular consumption was the car park lighting
which was on during the day. As a result of this timer
sensors were adjusted, resulting in energy savings being
achieved.
Whilst these interventions are small in scale they all
make a positive impact on our carbon reduction priority
and the cumulative effect of these interventions will
strengthen our journey to net zero.
In addition to electricity data, over the last year the
Company has started to collect water consumption
data and now has coverage of 60% across the portfolio
through water meters. This will help us get clarity
on scope 3 emissions and, as a result of this data,
opportunities to reduce water consumption and waste
water have already been identified and implemented. At
Gloucester water butts have been installed to harvest
rainwater for the landscapers to utilise on the estate.
Overview Strategic report Governance Financial statements Glossary and AIFMD disclosure Notice of AGM Shareholder information
20 TR Property Investment Trust plc
Site waste audits have also been completed across each
asset enabling us to measure the amount of general
waste and recycling being generated by each site across
the portfolio. We are now working with our property
management team to work in partnership with our
occupiers to minimise waste generated from each asset,
increase recycling and in turn reduce associated costs.
By evolving and improving the data across the portfolio
we are strengthening the Company's ability to monitor
andidentify carbon saving opportunities and we will
continue share the detail of our progress over the
forthcoming year.
GRESB
At the time of writing the last report we were in the
process of submitting the Company's inaugural GRESB
submission. The results of this submission were
published in October 2023 and we are pleased to share
that the Company achieved a 1 Star rating. This was
a strong start to our GRESB journey given the direct
portfolio is predominantly characterised by industrial
properties.
Since then, an extensive gap analysis has been
undertaken to identify exactly how this rating can be
improved. Consumption data management through the
AMR’s is critical to this submission and given we have
a far wider dataset for the next submission we should
be in a better position to improve our score. To further
enhance data collection, our property management team
have collaborated with EVORA and adopted the PERSE
System which facilitates the consolidation of energy,
carbon, and cost-related information for assets linked
to the grid. This has streamlined the process by working
closely with our occupiers to obtain energy consumption
data directly from the grid through a simplified, one-time
authorisation procedure and we look forward to reporting
on the second submission in the forthcoming year.
Renewable Energy Sources
It is very much standard practice that all energy across
landlord areas for the whole portfolio is only procured
from renewable sources. We are pleased to confirm
that 100% of landlord electricity and gas supplies are
contracted on certified green tariffs, backed by the
Ofgem regulated Renewable Energy Guarantees of Origin
(REGO) scheme.
Energy Performance Certificate ('EPC') and Minimum
Energy Efficient Standards ('MEES')
The EPC profile for the direct property portfolio as at
31st March 2024 is detailed below. It continues to meet
the current MEES and the drive now is to improve these
ratings so that the majority fall above a B rating. This
priority is reinforced by the fact that any refurbishment
undertaken by the Company has to achieve a minimum
of a B rating.
EPC Ratings 2024 (ERV)
B: 13%
(2023: 58%)
C: 6%
(2023: 6%)
D: 63%
(2023: 28%)
E: 18%
(2023: 8%)
Overall, the EPC profile has not improved over the last
year with EPC B ratings within the direct portfolio falling
from 58% to 13%. This is primarily due to the sale of the
Colonnades where over 90% of the property was rated
EPC B. Projects are underway on the current standing
portfolio to improve this EPC profile significantly over the
next 12 months.
The majority of the E and D ratings in the portfolio
are at Wandsworth where a phased sustainability-led
refurbishment of the estate is current underway. The
refurbishment will include:
• PV solar panels installed on new insulated roofs
• high-efficiency lighting, heating and cooling
• EV charging points
We are committed to transforming the estate to deliver
high quality, best in class, net zero in-use units with a
minimum EPC A rating. In order to achieve this, we have
been working closely with Carbon Plan Engineering who
have carefully modelled and analysed every detail and
specification within the project to ensure we can meet
our objectives.
Responsible investment
continued
Annual Report & Accounts 2024 21
“The Ferrier Street refurbishment is the first project of its
scale where we have been asked to pursue the UKGBC Net
Zero process. TR Property Investment Trust were focused
on minimising embodied carbon impacts and challenged
Carbon Plan Engineering to achieve net zero operational
emissions for the project. This project proves that Low
Impact/Net Zero refurbishments can be delivered on
this type of building and that these ESG credentials are
becoming ever more critical to occupiers.”
Alan Calcott, Director, Carbon Plan Engineering
Once this project is complete the EPC profile for the
Company will improve significantly, with over 70% of the
portfolio achieving an EPC A rating, further strengthening
our ability to meet the forthcoming MEES requirements.
Looking to the rest of the portfolio, work is also underway
to improve the EPC profile at Gloucester. Following
the success of our collaboration with Infusion GB to
install PV on two of their units we are now exploring
this opportunity led approach and planning to install PV
on the remaining 3 units on the estate. This will raise
the EPC profile for the estate up to at least a B rating,
meaning any ratings below a C will be eliminated from
the portfolio, further strengthening and future-proofing
the portfolio against forthcoming statutory requirements.
Green Lease Clauses
The inclusion of these clauses in all new leases
continues to be standard practice. 40% of the leases at
Gloucester include green lease clauses and following
the refurbishment all new leases at Wandsworth will
also include this mutual agreement between landlord
and occupier to collaborate on reducing the carbon
emissions generated through their occupation.
Green lease clauses also assist the Company in streamlining
the management of Scope 1 and 2 emissions by
strengthening our ability to ensure the utility consumption of
our occupiers meets our carbon intensity priorities.
Community and Social Engagement
Occupier engagement is fundamental, their inclusion
and participation is pivotal to ensuring a shared journey
and priorities. The close partnership of both our asset
and property management teams aims to form strong
relationships with our occupiers. Various communication
channels have been utilised to maximise engagement,
including a quarterly ESG newsletter, occupier events,
ESG focused in-person meetings and an annual occupier
satisfaction questionnaire.
The outcome of this collaborative approach must be
mutually beneficial so all parties can meet their ESG
priorities. For example, by working in partnership with
our occupiers on data management, through the AMR
infrastructure we have installed we can provide insight
into how they can reduce their consumption and in turn
their carbon emissions and energy bills.
We also know that the community and social impact
of our direct property extends far beyond the physical
boundaries of our ownership. Therefore, our approach to
social responsibility and the impact of our assets on their
surrounding communities is always carefully considered.
At Wandsworth we continue to support the Foodbank
and were pleased to extend their occupation on the
estate by relocating them to another unit when the
refurbishment works commenced. From this unit they
have continued to provide over 11,000 emergency food
supplies to local people and families.
In addition to this we have established a relationship with
the Wandsworth Town Business Improvement District
to further enhance our stakeholder engagement with the
local community in Wandsworth. By doing this we hope
to further expand the community
At the Colonnades we worked with Clean Air Bayswater,
a local community group, and London Hearts, the leading
heart defibrillator charity in the UK, to supply and install
a defibrillator. The provision of this life saving equipment
was strongly supported by the local ward councillor Max
Sullivan and means that more lives can be saved.
Governance
The Company's direct property portfolio's Sustainability
and Social Responsibility Committee continues to meet
on a quarterly basis to set our priorities, map out how and
when they will be achieved and ensure we are on track.
The Committee comprises of senior decision makers
within the Company, the asset managers and the property
management team. This ensures we maintain a robust
and hand-on approach to tackling the environmental
challenges faced by the portfolio.
Overview Strategic report Governance Financial statements Glossary and AIFMD disclosure Notice of AGM Shareholder information
22 TR Property Investment Trust plc
Net Zero Carbon Pathway
Various workstreams have been undertaken over the last
12 months to help drive the priority of significantly and
ambitiously improving our net zero pathway from 2050.
The first key step in achieving this priority was to carry out
Net Zero Audits across the direct portfolio. These were
commissioned for Gloucester and the Colonnades. Given
the planned refurbishment for Wandsworth an audit was
not commissioned for this site as the analysis carried out
by Carbon Plan outlines exactly what is needed to meet
net zero targets.
The objective of the Net Zero Audits commissioned were
to identify how each asset can minimise energy demand
and increase energy efficiency through low carbon
technology. The key recommendations for Gloucester
were to remove the dependency of natural gas as a
primary heat source, upgrade the lighting to LED and
expand the installation of solar PV across the estate.
Following the successful solar PV install by Infusion GB on
two of their units, a feasibility study was commissioned
to undertake a solar PV installation across the final
three units. This project is happening in collaboration
with Infusion GB who have expanded their production in
Gloucester and are fully engaged in optimising their utility
consumption from solar PV across the estate.
For the Colonnades, the key recommendations were to
remove the gas boilers, upgrade the heating to a VRF
system and install solar PV. This report was shared with
the buyer of the Colonnades so they can continue the
asset’s net zero journey.
The extensive refurbishment of Wandsworth will mean
that the Company will have its first net zero in use asset.
This will be a huge achievement and we are looking
forward to showcasing this project over the next year.
The strong upside in adopting strong ESG practices is
apparent. The environmental and social impact of the
direct property portfolio is visible and everything we do
influences this. The significant progress over the last
12 months has enabled us to bring forward our net zero
carbon pathway to 2040 and we believe we are in a much
stronger position to improve on our GRESB score. This
gives a tangible gauge on how significantly our ESG
priority is progressing.
At the time of writing the proportion of direct property in
the portfolio is at a long term low following the sale of the
Colonnades. New assets will be brought into the portfolio,
these may be assets with significant work to do from an
ESG perspective and this may reduce our GRESB score, at
least in the short term. We are happy to face the challenge
of improving ESG credentials in older assets and believe
that it is just as important to improve the credentials of the
existing built environment as to create new buildings with
leading environmental credentials.
Responsible investment
continued