Marcus Phayre-Mudge, fund manager, TR Property Investment Trust:

Tax changes, more demanding energy efficiency standards, and higher mortgage rates are piling the pressure on the UK’s landlords, with the buy-to-let market losing its lustre as an attractive wealth-building strategy. For aspirant real estate investors, listed property companies offer a strong alternative. These companies provide access to the leveraged returns and regular income that many individual landlords seek, but with the added advantages of liquidity and a lower barrier to entry. At TR Property Investment Trust, we aim to make it easy for investors to own the best of Europe’s listed landlords and developers via a single investment. Private investors are recognising this and now make up more than a fifth of our share register. Our investment universe spans over £167 billion in market capitalisation, covering a wide range of sectors like industrial, office, residential, retail, self-storage, healthcare, data centres and student accommodation. But not all property companies are created equal, so careful selection is essential.

Why now

Many listed property companies are effectively large-scale landlords. They own, develop, and manage portfolios of commercial and residential properties, offering exposure to the underlying real estate markets. As with all leveraged asset classes, the property sector faced challenges during the rise in interest rates. However, market cycles over the past 30 years have shown that property equities typically rebound strongly once rates peak. We are already witnessing this trend, with the total return from TR Property’s share price, including dividends, reaching 32.9 per cent in the year to 30 September. While a more benign rate environment is welcome, TR Property’s strategy does not solely depend on it. The companies we invest in have moderate debt levels, but even more crucially, they operate in sectors where tenant demand remains robust and supply is constrained—factors that create favourable conditions for rental growth and position companies to prosper even if rates remain elevated. The uptick in merger and acquisition (M&A) activity within the listed property sector highlights the inherent value in many property companies. Large private equity firms are acquiring listed property companies at premiums, recognising that public markets are undervaluing their assets, with M&A being a key contributor to TR Property’s outperformance for shareholders this past year.

Why investment trusts

While open-ended property funds (PAIFs) are restructuring or winding down, closed-ended investment trusts remain well-suited for long-term property investments. Shares in TR Property trade on the London Stock Exchange, and unlike open-ended funds, we do not create new shares to meet investor demand. This structure allows us to hold long-term positions without being forced to sell assets to return cash to investors. This long-term focus is crucial, as real estate is a cyclical asset class. By managing our portfolio through market fluctuations, we capture value over time.

Owning the listed landlords

Listed property companies continue to trade at significant discounts to their asset value, making it a good time to buy quality real estate companies at bargain prices. But sorting through what ‘quality’ looks like is time and expertise intensive – especially in an environment where so much attention must be paid to debt levels. TR Property Investment Trust offers a simple way to access a diversified portfolio of UK and European property companies, providing broad, balanced exposure to the sector. With TR Property itself trading at a modest discount, new investors can benefit from a “double discount” that has the potential to unwind as interest rates ease. For those looking for a liquid, income-generating investment backed by tangible assets, investing in listed landlords through TR Property is an appealing option.

Risk disclaimer

Your capital is at risk. TR Property Investment Trust PLC is an investment trust and its Ordinary Shares are traded on the main market of the London Stock Exchange. English language copies of the key information document (KID) can be obtained from Columbia Threadneedle Investments, Cannon Place, 78 Cannon Street, London EC4N 6A. Email: [email protected] or electronically at www.columbiathreadneedle.com. Please read before taking any investment decision. The information provided in the marketing material does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in the Funds. The manager has the right to terminate the arrangements made for marketing. Financial promotions are issued for marketing and information purposes; in the United Kingdom by Columbia Threadneedle Management Limited, which is authorised and regulated by the Financial Conduct Authority, approved as at 09/10/2024.