TR Property Investment Trust (LSE:TRY) — Investor update

0:01 Good morning, and welcome to the TR PROPERTY INVESTMENT TRUST PLC Investor Update. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press set. Company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll, and

0:31 I would now like to hand you over to Marcus Fairmudge, fund manager. Good morning. Good morning, Alex, and thank you very much. Good morning, ladies and gentlemen. Thank you for your time this morning. Conscious that it's... It is it is Monday, so you're all very busy. So the format very much as we usually do. So a canter through some of the backdrop of the TRUST, what we're trying to achieve, how we've done, a bit about performance, excuse me, year to date, and then very much get into how how we've been doing more recently and what we think is gonna happen in the next six months. And, obviously, we have, you know, a very large event coming up in less than two weeks now in the form of the budget.

1:20 So apologies to those of you who heard me mention quite all these slides before, but just bear bear with me because, obviously, we've got a mixture of existing investors, potential investors, and people who've having an introduction to the trust here today. So in terms of what do we do at Thames River Capital, the trust is the mothership, but we actually run about 2,200,000,000 in total. The majority is still pan Europe, but increasingly a number of global mandates and in some cases, some US only as well. We just won... Last week, we just won a a $300,000,000 mandate, which we're we're pleased about.

2:06 Okay. In terms of the team, reminder, we're a big team, team of 12, and that includes plat... Or plus... Rather, team of 12 in London, plus an analyst we can tap into in The US, Brent Dilts. But as you will notice, to remind those of you who are new to this presentation, a lot of the team have worked with me and with each other for a very long time. Who's the deputy fund manager, been with me for seventeen years. George Gay, who looks after our physical real estate, twenty years. Geraldine, our finance director, twenty years, etcetera, etcetera. So a long... Long standing team. And Paul Garry, our UK Norris analyst, he's been with us for for for seven. In terms of just pulling together some basic facts about the trust, We can own physical property up to 15%.

2:58 We're currently at 5.5. That is almost an all time low, and it reflects two things. One, the transition out of a large asset, which we'd finished all the asset management on, which is the colonies in Bayswater. But more importantly, rather than recycling that capital into... Back into the physical physical commercial assets in The UK, we we we felt there was better value in the equity market over the last six months, and that is... Or twelve months that has that has come to pass. I mean, gearing, whilst our legal maximum is 25%, we generally won't go over 20. We're currently at 17 or in fact, that this is live live. We're at nearly at nearly at 18. Bear in mind that in q two two thousand and eight... Sorry. Q three two thousand and eight, we were a quarter before Lehman's went down.

3:52 We were 20% cash. So, essentially, 20% cash most bearish, 20% geared most bullish. Therefore, we are clearly extremely bullish, and that's what we wanna talk to you about today. Results for the previous financial year to the end of March on the left hand side and then for the first seven months, excuse me, of the new financial year on the right hand side. So... And we will be publishing our half year results to the end of September, which essentially you knock off 1% of all these numbers. That will be... You know, gives you, you know, where we were at the at the half year, and results will be out back end of of next week. Okay. Performance. So you've seen the slide before. I'll go past it. It's basically just our relative performance versus the benchmark, which we're clearly proud of, but the the past is no promise or guarantee to us to the future.

4:54 Income, crucially important. TR obviously originally stands for Tuche Remnant going way back in the day when it was... We were a part of the Henderson stable. We then moved to Thames River Capital, and we told everybody that it then stood for Thames River. And, of course, we're now part of Columbia Threadneedle, albeit Thames River is still a... An entity of which we are principles in, and it is essentially a joint venture between us and Columbia. So we now say that TR stands for total return, and that's, you know, absolutely genuine because income... A mix of both income and capital growth is what we're trying to achieve here. As you can see, the dividend has grown every year since 1996 bar one year, and that was $9.10.

5:40 And you will also... Sharp eyed will notice that we have been drawing on reserves for the last couple of years. Reserves now equal about 50% of our full year... One year one year's payout. We may need to draw on them a little bit more, but it helps essentially smooth the dividend payment. You know? So in the good years, we we we put some of reserves away in store, and then we need them when when we when when we need them, etcetera. But more of that a bit later. I think real estate at the moment very much seen as... Which is what it is, which is at the, you know, the value end of the of the equity trade.

6:25 We are... You know, the world is having its head turned by by growth and particularly by the mag seven, etcetera. But a real reminder that there are so many parts of our world that are enjoying structural growth. Residential, I think everybody knows how undersupplied we are here in in Europe. Data centers, crucial growing part of our environment. Industrial, ecommerce, logistics, absolutely booming. A lot of... I would say booming. Rates have slowed, but still still very positive. And then health care, be it primary health care or elderly health care or social social care, social housing, all of which is is proving to be growth parts of the market for obvious reasons.

7:21 And then I think this is quite a useful slide because it sort of breaks down global real estate equities into their constituent subsectors. And I think many... You know, the area that we are most concerned about is the office market across... You know, with with some exceptions, which we'll talk about a bit later on. But, you know, when you look at equities... Real estate equities globally, offices are, as as you can see here, 5% of market share. In Europe, on a Europe only basis, slightly more, probably closer to to 77%. But, really, it's still... You know, compared to the headlines it gets because all journalists like to ambulance chase, you know, it's almost... It... It's... It does...

8:11 You you you can avoid these markets if you if you so wish. Okay. So just a a couple of background slides here just to remind you about, you know, how... On the left hand side, this is unlevered income returns from unlevered income... Estate in The UK. So income and capital return, you've seen this many many times before. And what it's really showing is is, you know, is how the capital account swings from positive to negative. And those two very deep drawdowns of the early nineties and then of of the GFC, first one being caused by the overdevelopment of the late eighties. The GFC was all about not only the very dramatic change in the cost of debt, but but crucially, the lack of availability of debt. And then more recently, we've had a a drastic change in the cost of debt, but plenty of availability.

9:13 Now we find ourselves in an environment where that cost of debt is falling. The availability is is high. We're seeing competition amongst lenders. We're seeing margins coming down as as you can see from from these said spreads on on this slide and the the Eurobond the the the yield to maturities. So that's all very encouraging going back one slide then to see how this is reflected in the equity market. This is crucially important. So what I'm showing you here is, you know, some some of our key metrics that we're that we're using. And for us, the NAV itself is less important because NAVs are backward looking. They're also a valuer's interpretation of market data. There's nothing... It's not like equities where they're, you know, wide record market where they're pricing every minute of every hour of every day.

10:10 So you gotta be careful with those. Take those with a with a pinch of salt. But what you can't, what what is factual, of course, is your earnings yield and your cash income that you're receiving, your average cost of debt, and your average LTV. What you will see here relative to private property companies, public property companies are very, very conservative about their levels of leverage. And then when you look on the right hand side where we're trading compared to history on a discount to asset value, It's not a question whether you believe the asset value or not. It's just the fact that when you look at it on a relative to previous cycles, you'll see that we're looking... You know, this is reflecting the lack of popularity of the sector. So what we're seeing is a a real market opportunity.

10:58 And then the last leg of the stool, we've talked about this before. This is... You know, we are seeing increasing levels of consolidation. So these are small property companies merging. We've been very, very active in this space. And then sometimes, we we... Unfortunately, private equity comes steaming in. And in the case of PHP Assurer, we were able to see off KKR and to merge PHP and Assurer into a proper decent 4,500,000,000 market cap property company. But sometimes, you know, all all the listed market just doesn't want the assets in the case of in the case of Warehouse REIT that was acquired by Blackstone. We were happy to wave goodbye to that. We didn't like the assets. We didn't like the management. And, you know, happy to expand on any of that if you if you if you...

11:48 Anybody wants to in particular. And then we... You know, the Unite acquiring Empiric, we were we were not pro that transaction. We sold a lot of shares when that was announced, and the share price has declined on the back of that plus its its its results. Okay. Diversification, fairly obvious. And then, you know, the history of performance of real estate equities. Clearly, '22, our annus horribilis, and then you had these sort of various full storms of recovery. But we really feel that this time we are moving up to... You know, the market is understanding the opportunity, which is, you know, businesses that have low leverage, have access to debt, cost of debt falling, where you own the right real estate, there is rental growth, there is a shortage of supply, you know, and there are some really interesting market opportunities.

12:45 Okay. And then to remind ourselves that, you know, this is just an illustration of how real estate's performed versus wider equities following the peak in interest rate cycle in the previous four cycles, All happened for different reasons, etcetera. But just as you would suspect, real estate does well when the cost of money is coming down. Same way in 2022, we did so badly because we... You know, the cost of money rose so dramatically.

13:16 Right. Getting into a bit more about what we've been busy getting up to. There are three slides here covering q one, two, and '3. So we'll just touch on a a few things on the left hand side. If the arrow is go green and heading up, it means we acquired more of it. If the arrow is going down, then we sold more of it. And where it's going both ways is because within that period, we had a a rotation in and out and back in potentially. You'll notice data centers, we took profits in Merlin, and then we subsequently bought back into it at a lower price. Higher beta names at the bottom. This was when we were taking risk off the table. There are two ways for us to take risk off the table. One is just to reduce leverage overall and move into, you know, reduce gearing, potentially all the way into cash. The other is to sell businesses that we think are are going to have a higher propensity to react poorly to to to wider global global issues.

14:17 And that's... And you will notice that in there, quite a lot of names like Katena and Sargax. These are Swedish property companies that tend to be more more highly leveraged. And then you will notice m and a activism, urban logistics REITs, warehouse REITs, Asura. Having been less than complimentary about warehouse REIT, that didn't stop me from realizing that this business was likely to be taken private, and therefore, there's nothing wrong with us buying the shares, as a short term, tactical trade, to to pick up, basis points of performance. And then in q two, you... Things to call out here, again, adding to industrials on weakness, management change, social housing REIT, which was known as TriplePoint, and Hammerson both saw management change that we were acquiring ahead of that. UK majors switching out of lands into British.

15:20 And then you'll see at the bottom that sale of Unite that we... That that I talked about and others that we are happy to to to mention. And then coming out of some of those Swedish diversified names as as the... Those those higher beta higher beta plays. European shopping centers have been a massively strong performer for us. It's been a great run, and we just took a little bit of profit out of both Euro commercial and and Klepierre.

15:49 And then in q three, here we're buying back into data centers through both Merlin and TRITAX BIGBOX. TRYTAX BIGBOX has a very large scheme close to to Slough, so almost adjacent to Seagro's assets, and that's with the secretary of state for the environment for for determination at the moment. So we hope they get that. That would be great.

16:16 And then we bought more of Switzerland, which is a generally a safe haven, but interest rates essentially going back to zero there. And then you will see in the m and a activism part where we sold out of PRS REIT once the bid had been announced. We acquired shares in Big Yellow both before they... Well, we have been we have been acquiring... Buying back into self storage, and then we found that we benefited from acquiring some more shares because this company looks like it's in play.

16:52 And Blackstone have been granted a... An extension to their put up or or shut up into December. So going past the budget date, and then again, warehouse, we we took we took our profits there. We have bought more residential exposure, and that's quite important tag. In Germany, which has 25% of its assets in Poland, we're very optimistic about what's going on in Poland. And then IRES, where there's been a change in legislation to take the cap, hopefully, to remove the cap on rental growth, which is basically styming development. As you all know, if you if you overregulate residential markets, that's all very beneficial for those lucky people who own a flat and where rents are then sub, sub open market. They're below market value.

17:44 But for everyone else, they're busily waiting in a queue, because no developer is gonna build more flats, if those rents are are going to be capped. It just becomes uneconomic. And the Irish government have realized that they, you know, they're getting no development in Dublin. As a consequence, they need to change the

18:03 rules. Seagro, we've been taking chips off the table here. We we we can talk about that a bit later. There might be some questions on it. And we've been adding to WDP and CTP actually in Continental Europe. This is where we're seeing the benefits of

18:23 Asian businesses shortening their supply chains, bringing more last mile closer to the final customer and for completion, you know, the final sticking together of bits and pieces and lots and lots of of of of of storing parts here in Europe for final final assembly. And then finally, profits in in Shaftesbury Capital, owners of Covent Garden and and and so... And parts of Chinatown, etcetera. So it's, you know, it's a... It's good business, but we think that values have moved too far. Okay. Reminder, we are more Continental Europe than we are The UK. Don't worry too much about our geographical positioning.

19:13 It's all very much a question of bottom up. Here on the left hand side, we split our world into these 26 buckets. And I've talked about these in the past. It's where companies sit, you know, whether we can put them into the same group. Not all of them sit comfortably in each one because some... Quite all of them are, you know, diversified names. But where we think that the the same sort of macro drivers around deglobalization, etcetera, all logistics, industrial names go into the same pot. But where we see it's very local, so you'll see the separation between London retail, which is all about tourism,

19:50 versus UK national, which is about The UK more regionally, versus Europe where European shopping centers, which are very different because we have lower levels of online, purchasing, and also supermarkets anchored by hypermarkets... Sorry. Shopping centers anchored by hypermarkets, not anchored by by department stores. And on the right hand side, this is our relative positioning. So you need to be in a subsector that we think has got growth prospects, but more importantly, how is that reflected in the price of the underlying company? So in some cases, we are very positive about the underlying market, but it's just the fact that it's all reflected in

20:36 in share prices. Okay. And then largest positions versus the benchmark, both overweight and underweight. That's just some statements of fact. And then the final ones that we talked about many times in the past, we talked... Discussed this at the AGM, You know, shrink or merge standing still no longer an option. This is all about the fact that so many of these names, particularly in The UK, are owned by wealth managers that themselves have consolidated,

21:07 and they, you know, have no interest in businesses with market caps of $23.04, even 500,000,000. And they absolutely want them to merge into, you know, into billion plus players. In some cases, we're gonna see these end up ending up being privatized, with the likes of PRS REIT,

21:27 and then, yeah, both Life Science REIT, and Aberdeen European Logistics Income both announced wind ups over... You know, spread over time. But it's... You know, which is which is, I think, you know, it's always a disappointing route to go, but it reflects the fact that in... Certainly in the case of life science REIT, you know, a very disparate group of assets, very sort of uncoordinated

21:56 purchasing profile. They just got too much money was raised too quickly. They got into development, standing investments, all all sorts of things, which which haven't proved to be very successful. And then looking at our physical portfolio, a reminder, Bayswater was the big asset that we sold, sort of £33,000,000.

22:18 And then when we look at what else we own, as you can see, it's unobtainably in that logistics and industrial space. In the case of Wandsworth, this is fantastic scheme for the... Just... That's Wandsworth Town Railway Station, top right hand corner, River Thames, you know, above the picture. And here we are on a rolling refurbishment phase one. We've let two two units to a high end female athleisurewear business. Rent's over £50 per foot. We're now doing phase two, which is three units. We've let one. Again, rents over $50.55 pounds per foot, and we've got two more that have... Are on the market when we will then roll out the rest of it.

23:05 In the meantime, vast majority of the scheme is let. It's just let on short term leases while we roll through to the refurbishment.

23:11 You may be amazed by the level of those rents. You didn't get it... You didn't mishear it when I said £55 per foot. But remember, these are relatively small units, you know, 3,000 square feet. And actually... But they are... You know, there's so little what we call ultra urban industrial space that if you want to be this close... And here, we are very unusual to have an industrial estate that's so connected with a with a mainline railway station literally next door, and then plenty of amenity. We've

23:43 got a Joe and the Juice. We've got restaurants. We've got cafes because just south of the... This picture is the Tonsley is a well heeled, wealthy wealthy Wandsworth neighborhood... Residential neighborhood. And then responsible investing, this is really just to remind you, we do absolutely everything we can on our buildings. Everything's green leases. We're putting solar panels where we can. And in the case of Wandsworth Food Bank, we rotate them through. If we have a vacant unit, they are welcome to use it, which they are at the moment. And then sort of to pull it all together before we get into some q and a, and I'm gonna actually be on the button for my twenty five minutes of of sort of formal speaking.

24:30 Just to pull everything together, we have this positive interest rate trajectory for us. The short end of the curve is clearly coming down. There are, you know, more more cuts coming. The long end, obviously, is is... Particularly in The UK is much more subject to our government's behavior, but we are seeing stability and dropping rates across Europe. Equity prices remain heavily discounted. The analogy I've been using is that in your portfolio, your little bit that you hold in in real estate equities is very much the designated driver at the party. We've the the steady Eddie delivering you as we have in the first seven months of our financial year, 13%.

25:16 But it's the tech bros at the bar who are buying everyone drinks and and and probably getting into a situation of excess. And at some point, everyone's gonna go, please, can we go home? Where's the designated driver? Let's have a bit more of that because sec bros have been

25:32 sick in the loo or whatever. More potential m and a, I think this is really another key driver. You know, if you listed real estate globally is only about 6% of all institutional grade real estate. So we're very much price takers, not price makers. And that figure is one big... You know, one percentage point lower in Europe,

25:59 and, I e, the The US REIT market is bigger than the European. We got relative to their to their market. And, you know, if if we continue to undervalue our listed companies, then private equity will come along and take it private. And that's, you know, more fool us in many respects, but it's been an opportunity for TR PROPERTY to make money by picking those companies that we think might get taken out. Opportunistic capital raises on the increase. This is encouraging, healthy sign. This is listed companies taking advantage of changes in structural shifting away from defined benefit pension schemes, for example, that aren't owning real estate or you get the border to coast amalgamation that's producing more real estate onto the market in The UK.

26:50 And then the volatility that we're seeing, be it based on tariffs or geopolitical risk or what's going on. And in terms of the, you know, the sell offs we've had last week in in The US, just a sort of inkling of what the future might hold. And then as I said, you know, real estate equity is offering that stability and resilience, which to us is crucial. And then on the appendix, just a a couple of slides about... Which you're gonna see on the on the pack where we bought and sold Urban Logistics REIT. This is on the left hand side. We started to think that there was... There might be an opportunity here, then we realized that it was probably management we're gonna dig their heels in. So we sold out, wandered along, and then came back into it when we realized that there was genuine desire from other companies to to to come and take this take this business either private or amalgamate with it, and London Metric acquired that business. And then, you know, not a similar situation with with warehouse REIT.

27:56 Okay. Right. I think that is the end of the formal part of the presentation. Do hope we've got some questions. So back to you. Thank you. Yes. Thanks, Marcus. It's Peter Brown here from the team. We have quite a few single stock questions. I'll try and merge a couple together if possible. London Metric recently disclosed a large position in SREI, which is shredder real estate. I believe you are also a large shareholder. What is your latest on this position? And another question on that is

28:31 shrink or merge any views on SREI and the stake London Metric has bought. Yes. Great great question. I think our our view remains that we, you know, we wanna keep these assets in the in the public domain.

28:49 And whether SREI... Mean, SREI on its own is too small. So whether it becomes part of London Metric or whether it became part of another listed company, I'm potentially relatively agnostic about. We will sort of see how things turn out. There are... You you know, London Metric is a very big business now, and sort of swallowing SRAI, if that was to if that was to come to pass, would have a a... An impact on on the metric, but, you know, potentially not not that great an impact.

29:41 However, I think it is encouraging to see on the metric, you know, step up and make make their intentions known and give themselves... Yeah. Give give the market that visibility. So, yeah, that's... That is, you know, our view. Having said

30:00 that, if we were to cast our minds back a a few months, if you'd asked me the question before London Metric declared their interest, I would have said, I would like to see mergers of some of the smaller diversified names, you know, you know, really coming together.

30:21 And and, of course, everyone's gonna say, oh, but my portfolio is so different from somebody else's. But, you know, they're they're different to an extent, but the the the the fact the fact of the matter is you can really pull economies of scale by merging, you know, a couple of 500,000,000 or of gross assets or, you know, a couple of 300,000,000 of market cap, 250,000,000 market cap businesses, you get some tremendous economies of scale through that. And whilst we didn't own Custodian or Aberdeen property income, I I did feel for Custodian because I felt that they were... Yeah. They are a good business, and they would have benefited from from taking on those API assets, but it it wasn't to be. And then, of course, the API assets were were snapped up by a Goldman Sachs backed vehicle, GoldenTree.

31:16 So, you know, that was just... That that was sort of a shame, and I think that I'm not quite sure what why API shareholders. I think it sounds like there were only a couple who were who were motivated for the... For that rapid sale rather than the merger with with custodian. So like the idea of some of these smaller names being put together. We're big holders of Picton. We'd like to see Picton bigger as well. And on that point, we've got a question coming. Is the trust able to be more actively encouraged in mergers and tie ups to drive shareholder return? What what can you do for for that? Yeah. I I... This is a... It's a it's a very nice question because it allows me to give a a sort of wholesome answer. I've been actually for many years as we should go back to... I'm just gonna kick back to the m and a slide.

32:09 I... I've been talking to to management teams and to boards, and and and we are... You know, we we have been instrumental behind the scenes. So for somebody who is, you know, in in our little world, people will consider to me to be highly vocal.

32:28 It may come as some surprise that, you know, it wasn't until we got to urban logistics REIT and the complete nonsense of the proposed internalization, which would have cost shareholders £18,000,000, which they didn't need to pay.

32:45 And that led to us joining with Harwood and Waverton and putting out a... Putting forward a resolution for the EGM for the removal of the chairman and some senior independent directors. And then and then that... We were able to withdraw that resolution because London Metric galloped over the horizon and slightly saved the board's blushes by by bidding for the company. But prior to that, all my discussions have... With boards have

33:17 been behind the scenes, and there have been many. And we've made our views absolutely known to lots of management and... I'm sorry, and to boards. Sometimes it's very difficult, particularly on consolidation. You start with two chairman and two chief execs, and then you end up with one chairman or one chair and one chief exec. And that's not always, you know, a comfortable position for everybody. Sometimes it's a, a natural evolution, and, there are people stepping down.

33:48 I mean, in the case of, of SREI, excuse me, the manager, the de facto CEO, Nick Montgomery, has been promoted to global head of real estate in TRUST. So that sort of chief exec seat is currently vacant. I know the deputy fund manager has stepped in on a on a temporary basis, so that's a... It's a sort of easier situation when there is a a natural spot. But, you know, I'm very happy to talk, you know, off the record about where we've where we've actually made what we consider to be to be serious inroads. And that's because TR PROPS is a fantastic vehicle. I mean, as a permanent capital vehicle, it does allow me to take quite large positions in small companies and therefore to be a voice of at least influence, but also to be able to reflect to to boards, you know, the views of... It might be my personal views, but it's generally the views of institutional holders. And then I encourage chairs to go and speak to other shareholders who may or may not have the time because it's maybe a a relatively small part of their portfolio. But... Yeah. And that has certainly been helpful. And the chairman of one business that was taken over was nice... Very nice enough to come and see me the other day to say, Marcus, you were you you were important in helping me form some ideas about what we should be doing and talking to other shareholders. So, yep, we are very, very much active.

35:20 The only thing to close on is there are now fewer candidates for that activity. We've... We have only a handful now of what I consider these subscale businesses, And the rest, we just want to make... You know, help them grow as as quickly as possible.

35:40 Thanks. Moving on, what do you think of the recent developments at supermarket income REIT, the expansion into France and UK convenience grocery retail, and the recent joint venture with Blue Owl, which is known for its triple net strategy, whatever that is. Yeah. So the Blue Owl deal, I think, is a very good one. Essentially, it's by by selling assets into the joint venture, particularly mature, long income assets at a at a very good price that has given management some more firepower and allowed them to go and buy, you know, slightly higher yielding assets. I think the French strategy is fine to an extent. I think it should be, you know, a a part of the portfolio, almost like a satellite to the core, but but should not become anything more than that. It is my view.

36:39 I can understand why they've done it. These... It is high yielding. They can borrow much more cheaply in euros, so it is earnings accretive. But they also appreciate that there are, you know, risks come with that. They are using low... You know, good quality local knowledge. They've assured me for that. For The UK convenience, I think it's a great a great part of the market. I think it's... It is... You know, we just have to accept that no one's going to build another 80 or 90,000 foot food store or a 120,000 foot. It's not it's not gonna be necessary. You've gotta be on the survivor sites. You've gotta be on the sites which can form part of the click and collect and and and click and deliver format as well as as providing the full offer.

37:33 So that that all makes total sense. And I would rather they went into convenience than possibly, you know, bought some of potentially the the weaker operators. So we're we're happy with with with the strategy, and I think, you know, the new management team are doing a very good job. And and Rob Abraham is to be applauded for what he's done. He's relatively young, but he's been in the business for a long time. And I think he's doing a a cracking job. Moving thick and fast. In the latest fact sheet, you mentioned that you have been adding to TRYTECH big box. Where do you think... What do you think of the recent developments there, diversifying away from big boxes into smaller logistic assets and their plans in the data center world? Is it healthy development or star drift?

38:25 Great question. I think the answer is I'm very happy for them to be engaged in in more than just big boxes. I think that, you know, the ability to play the valuation cycle is is useful one for for for a multilet industrial. It does add a skill set. It does add to cost. I'm less comfortable with the way they've, you know, gone about it in terms of, you know, the UKCM transaction because there was a lot of non box assets, be it, you know, big or small boxes. And they have had to exit out of a lot of assets that were... That were not core or even satellite, and that comes with some risk. They have managed to do a lot of it, but not but not all of it.

39:24 The Blackstone acquisition, I think, is smart from both sides, particularly for... You know, Big Box remains an externally managed vehicle at the moment, and it is by far and away the only externally managed vehicle globally that that... Of of that size. I can understand why REITs are... When they start, they often are externally managed because they don't... You know, they're almost unable to support themselves, and that's why, you know, management teams are doing other things as well alongside growing the REITs that make total sense for TRYTAX to be externally managed for a long time. But I think we must... When we look at the new chairman coming in next year or year after, you know, that must be at the top of his list of or her list of things to to look at because I think the Blackstone deal does look like a sort of carbohydrate. There's a bulking up on on assets, and that, of course, helps the fees for for for for TRITAC slash...

40:30 It's Aberdeen and Aberdeen who own 60%, nearly 80% of of of TRITACs. The bit that we think is really, really

40:39 smart is this data data center development program, and we think they've they've got... And this is, to an extent, a skill that sits outside of TRITACS big box, but sits within TRITACS Management Limited. So here, I'm arguing against myself in terms of, you know, is that a skill that would normally be inside if this if this was an internally managed REIT?

41:01 And one might argue that something... That that is a justification for being externally managed at this point in the development of this company. But I think if they can... You know, we're watching very closely, as I said, to to whether we get the consent, whether they get the consent for for Manor Farm, which is the Slough site, and that will be, you know, hugely beneficial. And then, you know, there there... We we hope that because they have built such knowledge about data centers that there should be other things, you know, coming down the pipe. We don't know about them yet, but it's something that we... It's been one of the drivers for us is hoping that that is the case and where we see potentially a point of difference, between TRY tax and and.

41:52 Moving away from single stocks for the minute, this is about the trust in general. Asked at the last AGM about the TR PROPERTY dividend, has the born give more thought to moving towards a stable quarterly dividend? Now we did ask about this, didn't we? And I think it was to do with costs associated with paying roughly 4 p per quarter rather than 8 p semiannually. Is that right, Marcus? Can remember? That... Yes. That is that is correct. And the... Of course, the other issue we have is our income is lumpy. It doesn't fall naturally into the four quarters. It's not like a you know, a supermarket income REIT or where where you you you absolutely know because you've got these very long leases, and you know exactly what your income's gonna be looking out.

42:44 We, of course, don't know. And in fact, we've been... We have been surprised to the upside when... As in companies have been increasing their dividends higher than our expectation in quite a number of instances, but that doesn't mean that it's entirely predictable. And, you know, we we therefore think that having a a half year and a full year remains, you know, the the right approach.

43:14 SIGGR used to be a stable position in the top 10 of your portfolio. What is your current view? Why are you not a larger holder anymore? Has... Have the business fundamentals changed in your opinion? Yeah. Lovely question. I mean, essentially, it's twofold. One, you've heard me talk about how we think the the opportunity set in TRITAC's big box is probably greater than Seagro at the moment in The UK context. In a European context, we have plenty of other players who we can invest in, large ones like WDP and CTP, and then smaller businesses like like Argon in France and Monterrey in in in Belgium. And, really, this is about the fact that we want... You know, we prefer

44:02 to be invested with those deep... Deepest invested in the local market. So these tends to be local players. Seagro as a pan European player does have some market exposure, which we consider to be suboptimal. So they're too small in one or two of these regional markets. And as a result, it does make it... It's very expensive to run Seagro. It's it's never ceases to amaze me how much it it costs to run that business. And as a result, the earnings yield for for... From us... From from Seagro, in my view, is is suboptimal. And then the last sort of... Not so much criticism, but observation is that the rents have been... You know, they've done such a tremendous job, in their London markets. So this is particularly, you know, Park Royal and the Slough Trading Estate as well as some of their East London assets. There's just been a slowdown in rental growth and a bit of an increase in in vacancy.

45:10 And stock markets just... They just don't like growth... Slowing growth rates. Rates are not negative. Excuse me. They're not negative, but they are... They have been slowing quite significantly, and you've seen that share price come off from the peak of, you know, £14 down to down to 7. So, but then, you know, everything else has been impacted as well. So for us, it's... We're still confident about the absolute growth in industrial and logistics in The UK and Europe. We just think the rate of growth is slowing in certain subsectors, submarkets. We can get cheaper, high yielding, in our view, better exposure in some European markets through European locals.

45:58 And then in The UK, it's been sort of playing that big box, about TRY tax and potential data center theme... Thematic, which which we think is... You know, offers a greater opportunity than than than at the moment.

46:18 You made a quick reference to your position in The US, which the the the questioner says, did not understand. It does not appear in the position changes slides. Can you make a few comments on your US aims? It would be appreciated. Yeah. No. Sorry if I wasn't clear. It was merely to point out going all the way back to... You know, I think it's sort of helpful for investors to understand, you know, what we do at Thames River Capital beyond TR PROPERTY. And and the reason that is because I have all these people who are supporting me and supporting the trust. For example, you'll see on the far right hand side property growth and income. So we have two full time surveyors, George Gay and Hannah Corney, and they're they're looking after assets, at physical assets, not only in TR PROPS, but also in property growth and income, which is our open ended daily dealing hybrid vehicles. It's about 70% equities, 30% physical. I launched this in 2005 with the strapline open ended daily dealing and physical property are six words that shouldn't be in the same sentence.

47:30 And we've seen over the last twenty years you know, the the the disaster of the of the PAFE and the ridiculous idea that you can have a portfolio that's a 100% physical property and also offer daily liquidity. I mean, it's a nonsense. And and the sadness is that everyone knew it was a nonsense, but they carried on. And then, of course, from the moment everybody wanted their money back, the exit turned into a cat flap, and things got shuttered and and gated. We haven't. PGI has remained open, has never closed for liquidity reasons. But my point here is is the symbiotic relationship across owning both physical property and TR and profit growth and income. As far as our our international, so ex Europe, so our our our Asia

48:19 or our US strategies, we we are running those for... With other funds, but all the time, it's building our knowledge. We've now been running global real estate equities in this team now for thirteen years. And there may, at some point, come a point where the board of TR PROPERTY say, well, they have already said, Marcus, if you want to have some exposure to The US,

48:45 you can, relatively modest. But we, you know, we we... We've chosen not to to date, but there may come a point in the future where... You know, and that will be a a conversation over a long time with shareholders. But and there's no desire to do that at the moment. But I'm just making sure that everybody understands what we do in the in the team, and that's... Sorry if there was any confusion around that. So just to be clear, TR PROPERTY remains pan European only. Thank you. When you talk about UK diversified, what specifically do you hold in this sector? Ah, yes. That's a a good question.

49:31 And, of course, I think it... It's it's a reminder that we we really... That, you know, in The UK, lots of companies are themselves

49:42 diversified, and therefore, you know, we have to almost create a bucket for for for them on on their own. So we separate... Now, obviously, diversified names, land securities, and British land. We separate those, and they they are in our UK majors because, actually, they are generally driven by very large macro calls when when when we find that when investors wanna get into the sector or wanna get out of the sector, there's generalist investors

50:13 in a hurry, then they're obviously going for the larger names. That, of course, is Seagro, Lands, British. So into the diversified bucket will be all those businesses like like Picton, SREI. We've we've we've talked about. We can choose whether London Metrics sits in that diversified bucket or should be in the industrial given that it's 60% industrial. We've chosen to put it in the... Into the diversified bucket. And so so that... Those are the the the major names that we own in that in that group. But you would find, you know, the the little tiddlers like AEW, custodian, they will be in there as well.

51:07 Next is... Requires your crystal ball a little bit. Any subsectors you feel are more exposed to potential budget risk next week? And I'll merge it with what is your view on long term UK inflation? Do you see it fall into the Bank of England's 2% target? What does this mean for UK interest rates over the next five years?

51:27 Good questions. Let's deal with the inflation one first. I think that unless this government is extremely careful, we do see unemployment creeping up. I think that this... They, you know, they have woefully either underestimated and are therefore, if they don't do anything about it, choosing to ignore the massive impact

52:01 of the combination of increasing employers' NI, but crucially, dropping the threshold at which it is paid down to £5,000 and the impact that has had on many small businesses or even medium sized businesses. And for a government that's about working people, and let's not get into a debate about defining that,

52:30 it's just astonishing that you you would, you know, destroy businesses that would, you know... Or destroy opportunities for businesses to expand because they just can't afford it any... Anymore. So that's your your your first point. The second is, you know, the impact of Brexit on economic growth productivity, exporting is is still being felt. And, you know, I think that it's very hard to see engines of growth unless this government pulls some rabbits out of hats in in a in a couple of weeks' time. And therefore, I do see growth slowing and inflation coming coming down. Now that will obviously be a function of sterling and the cost of imports. That's very important.

53:26 But, yeah, I think we are we are going to find

53:31 the short end of the curve coming down. And then the question is, you know, does the long end follow? And that's going to be much more about the price at which the world is prepared to lend

53:45 the little old UK money. As far as the budget is concerned, we've already got things in train that we are... Some of our sectors are gonna benefit from, which is obviously the change in rates and the rating the rating liabilities, which obviously gonna go up for for those who've experienced lots of rental growth through industrial and logistics. And then the rates bill is gonna come... Continue to come down for for retail, particularly for for high street retail. I think the impact of the budget on commercial property is... Won't necessarily that great compared to the impact on residential.

54:32 I think that is where she is going to to target. You've all read endless reams about it, and I think that taxation of the top five or 6% of residential dwellings, so that will be bans, f g and h of council taxes is highly likely. I think it would be a great thing to lift many more properties out of these very high levels of stamp duty

55:09 to try and put some momentum back into the market. But structurally, over, you know, long periods of time, we we... We've got to stop selling social housing to incumbent tenants on the right to buy because... Unless the local authority is gonna build more of it. So it's a... And that that is a, you know, is a problem. And the renters' rights bill will drive

55:42 small time landlords to sell because there's too much risk, and that will then, yeah, potentially create the opportunity for more institutionalization of of PRS, but seems seems unlikely. So, yeah, it... For us, it's... Yeah. The impact would only be felt on the listed space around the likes of of Granger. PRS REITs is being taken private. So we... For us, it's much more about what happens to consumer behavior and impact on spending inside our... You know, inside commercial property, particularly retail, leisure, hotels, restaurants, etcetera.

56:29 Great. And we're coming up to the hour, so I'll make this the last question. If we haven't got your questions, we will answer them after the event in writing. You can see the answers on the INVESTMENT company website. But we'll finish with three combined. What's the outlook for Phoenix SPRE and potential timescale? Does Marcus still see Phoenix SPRE as a value realization opportunity, and is he comfortable with the progress being made on deleveraging and returning capital to shareholders?

56:56 And, Marcus, are you becoming more bullish or bearish on German residential? Okay. Nice ones to finish on. So Phoenix SPRE,

57:07 we... The last call we have with management, they were uncharacteristically bullish. And what I mean by that is it's been a long hard road for those investors who are familiar with this business. They essentially have moved to a wind down process, but they have... They own some very unusual, assets in as much as these are prime Berlin apartments, which can be split into condos, I e, you take a block of 20 flats, then as the tenants move out and they decide to upsize, downsize, move to the country, or whatever, and their flats become empty, if you have the the ability to do this, which Phoenix Free do in 80% of their portfolio, eight zero, rather than be forced to let to another tenant on a regulated rent, you can top the flat up and and sell it in the open market. And there is a huge shortage of flats for sale, and that is what the business is now doing.

58:18 The game changer for us was the sale of a large portfolio to Super Bowl Partners Group, which allowed them to pay down enough of the debt to get into a situation where when they refi the debt, which is due to be... The refinancing is due to be announced anytime between now and Christmas,

58:38 that that will enable them to accelerate the return of capital to investors. So it does take time to sell these apartments, because you have got to wait. You know, the the churn rate is only about 7%. So you gotta wait for the tenant to leave, then you could do them up. But I'm confident that once this new debt is in place towards the end of this year and they can begin at least to give us a pathway to return of capital,

59:08 then not only will that be a fillip to the share price because it's trading at, you know, a a very healthy 45 plus percent discount to its asset value, that the... That you you have a... An opportunity potentially for private capital to come in and say, look. This is... There's there's money on the table here. The equity market is undervaluing the business as it always does and was an opportunity to take it private. So I think that's the most likely outcome over a two year horizon. But in the short run, I'm hopeful that we'll get some positive news this side of Christmas. In terms of the wider German residential, yes, it is certainly...

59:56 It's been a long road where there's been very little trading of large portfolios. The asset class is very secure and essentially for the regulated rents broadly index linked. So you've got a... Essentially an index linked long duration long duration asset, and therefore, as long term rates in Continental Europe continue to come down, the sector will return to being popular. How... The... However, is the current nature of some of the listed companies, particularly the very large ones like Venovia, is that they have a lot of debt that needs refinancing and restructuring.

1:00:45 And Venovia will be welcoming a new chief executive in... Literally, I think he starts at the end of this month. And we'll see what, you know, what he decides to do, whether it's a shrink to grow strategy or how how he's gonna deal with it. So in summary, I'm attracted to the asset class now following a restructuring or resetting of pricing. But if I'm totally honest, I'm interested most in Phoenix Free and TAG, TAG because of its opportunity in Poland. And in terms of deployment of capital on a relative basis, I think there are better opportunities for TR property elsewhere in the pan European real estate equity sector.

1:01:36 If from an absolute point of view, I'm... You know, if you're owning these businesses, I'm fairly confident that you will... You know, you're not going to see lot of negative price movement from here.

1:01:49 Thank you, Marcus, and thank you everyone for tuning in today. We hope you found that very helpful. Marcus, if I can give you thirty seconds to summarize, then we'll hand back once finished. Yeah. I think just to remind investors that we're clearly optimistic, this is about the lack of supply of best in class space. We're seeing rents rising in so many of our sectors. It's to remind investors about how we are accessing lots of different subsectors. There's no need to own secondary shopping centers or secondary offices, etcetera.

1:02:21 We are seeing some great pockets of of value. M and A is there, both consolidation, but also private equity, lots of capital hiding in the wings. And if if, you know, you got one... There's one layer of market performance, which is the underlying commercial assets, then the other layer is how is that reflected in share prices? And that's where we see that particular opportunity. TR PROPS is trading at a nine discount to its NAV, which I think is, you know, wider than one might expect if you are feeling as ebullient as we are. And then, you know, what really will help us all will be a bit more of a wobble in the valuations of these technology businesses.

1:03:13 I still think these AI... These data centers are gonna be built. The issue is what's the return on capital for those who've provided the capital to build them? Remember, we are owning companies that own the land, and therefore, we're... Those businesses are only gonna get built. Those units... Those those centers are only gonna get built if someone is is already paid up for them or taken a lease from a from a high quality hyperscaler or whatever. So, you know, we are not at the risky end of this particular trade, and I think that's quite an interesting take on on what is clearly a a a a... You know, the the the next revolution, and we wanna be part of it. We wanna be part of it on a stable cash generating end of the game.

1:04:07 On that note, thank you very much for listening. Always available to take questions. We... There is the question box on the TR PROPERTY website so you can... That comes straight to us if you have anything burning or, of course, speak to the much nicer Pete Brown. Thank you very much. That's great, Marcus. Thank you very much indeed for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the world can better understand your views and expectations. This will only take a few moments to complete, and I'm sure we're greatly valued by the company. On behalf of the management team of TR PROPERTY INVESTMENT TRUST PLC, we'd like to thank you for attending today's presentation, and good morning to you all.