TR Property Investment Trust plc (TRY) Earnings Call Transcript & Summary

Good morning, and welcome to the TR Property Investment Trust plc Interim Update Investor Presentation. Throughout to this recorded presentation, investors will be in listen only mode. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to Fund Manager, Marcus Phayre-Mudge. Good morning to you.

Good morning, everyone, and thank you very much for taking the time on this rainy morning to listen to the TR Property Interim Results for the half year to the end of September 2024. And it will be the usual format. We'll whistle through some slides. Some of those will be historic, but I think there's a bit more sort of the background that we need to rehearse as to why we are optimistic about the future. And then we'll take some Q&A as well. So thank you very much. Okay, right. We are just going to cover a little bit of background on the product range and the track record and then the why now and the usual way. So we're still running about GBP 2.1 billion. The trust remains the mother ship just over 1 point -- just under GBP 1.1 billion of assets. The purpose of putting up the slide with all these funds on it is to help you understand why the trust is able to benefit this huge support network, large number of analysts. Just to remind you that for the investment trust, we do our own bottom-up analysis of all the companies that we invest in. We do buy research from the sell-side but that is to help us see where -- what the market's broader perspective and what the sell-side is telling our competitors and other investors. And the other point I always like to make particularly to people on this call who may not have heard me speak before, is how long so many members of the team have been working with me, Deputy Fund Manager, Alban Lhonneur, 16 years. George Gay, who runs the direct property on both this fund and our other fund that runs -- owns physical property, 19 years and Joanne Elliott my finance director 20 years. So it's important that the core team is very much been together for a long time. Okay. Quick snapshot overview. Market cap, we talked about trading at a discount of I mean the live discount is about 6.5% today. That is a little bit wider than our long-term average going back sort of 20-odd years, is around the sort of 4% to 5% mark. So we're a little bit surprised by that. But it does move around, as you can imagine. We do have the ability to own physical property up to 15%. That dropped to an all-time low in April this year on the sale of the Colonnades. We'll talk about that a bit later as well. And then we've bought some more real estate in the last month or so. So that's currently 5.5% of assets and will be expected to rise if we can find the right deals. Potential to gear. We are currently at just under 13%. That's up in the last couple of days where we're back closer to 14%. That is heading towards our most optimistic range. I know it says maximum 25% here, but we wouldn't really be pushing it above the high teens, really, but that's still pretty optimistic. I often say to investors our most pessimistic was in Q2 2008. So the quarter before Lehman's went down when we were 20% cash in this product and the other product that we ran at the time, property growth and income. So the way to look at this is our most bearish is 20% cash and probably our most bullish would be 20% geared. So we're pretty well heading up there, and I'll explain more why. Now for the half year to the end of September. On the left-hand side of these bubbles, the circles, you can see that we were pleased with the share price total return, the NAV, and we were a bit ahead of the benchmark. And then we've then gone into an October and November, which has proved to be extremely tricky, and given back quite a lot of that return in quite a short order and the most recent sort of nadir in the market was the 21st of November, and we've had a sort of 3%, 4% rally since then. But I mean, clearly, there's a lot of a lot of geopolitical issues across Europe with everything that's going on in France, the election in New Year in Germany, a new government making a bit of a hole in the U.K. And then the central bank is really trying to manage their way through that, and we've obviously had some more dovish commentary from the Bank of England yesterday, and we'll wait with bated breath for the ECB next week. And then performance. Again, backward looking, but worth just reviewing why it's good to be in TR Property rather than going and buying the benchmark via an ETF. We have managed to beat them a bit. And then most importantly, dividend, which is crucial to the trust and the Board did announce that the interim would be the same as the previous half year -- a year ago, the first quarter last year, keeping that and aiming for that steady growth. The sharp bite amongst you will notice that we were uncovered last year. We have had reserves that have equaled up until the previous year had equaled about 1 year of full payout. So obviously, we've dipped into those reserves, and we've dipped into them in order to be able to maintain that growth. And that's because our outlook, the recovery in earnings from our companies post the very dramatic change in the cost of money, which resulted in a number of our companies suspending dividends and us avoiding some of those businesses that had suspended dividends. Those are returning and certainly for most of return to paying dividends and the laggards have announced that they will be coming back and paying dividends in 2025. So that's encouraging. And then a slide that many of you have seen many times before, but just to reiterate, for us, the yield comparison, that margin over fixed income, something that disappeared with interest rates moved very dramatically and the cost of money rose very dramatically. But what we're really hanging our hat on again today is rental growth and making sure we target those markets where there is rental growth. And you will hear me unfortunately say it time and again, but there is a serious bifurcation in the market between -- in pretty well every single sector between the best-in-class assets those which tenants wanting to upgrade to, and it really doesn't matter which sector you're talking about. And then there's the rest, which is brown buildings that require huge amount of CapEx to improve energy efficiency, improve their ESG ratings, et cetera. And that is where the money needs to be spent and we'll come back to why our companies are in a good place to do that. And then finally, the last couple of years, indexation has been very, very helpful. It's been a strong driver of rental growth, less so going forward, but we think that as inflation subsides or continues to subside, then the central banks will feel able to reduce short-term rates and bring the shape of the curve down. But please bear in mind that we don't price real estate off the short end of the curve, it's much more what that mid shape of the curve looks like. But what's much more encouraging for us is the way that many more debt providers have returned to the market and we find that margins and competition to lend money, particularly for the best assets, has very much returned. We've also seen -- you've seen that in the public debt markets, in the bond markets, where that the spreads have continued to come down. And then just again, remind you, this is unlevered real estate returns in the U.K., you can see those 3 clear periods of negative performance since the '80s that early '90s was all about over construction in the late '80s, the GFC you were all familiar with. And then more recently, the explosion in the cost of money, but not a reduction in the availability of money. That was very much something we saw that double whammy back in the GFC, both cost of money accelerated shooting upwards, but also the lack of availability, whereas this time around that very much a very much managed lending environment, money got expensive, but it was still very much available. We only have a couple of banks, small banks in the U.S. go bust, but really no broader systemic risk. And then another way of looking at it, and I think this is quite useful. We look at the price of all Eurobond -- REIT Eurobonds and how they move from those really, really low post-COVID yields up at peaking at 5.75% and they have that steady path down. And then on the right-hand side, how that's been reflected in capital returns. And the great hiking cycle, as we referred to it, was in many respects, worse than the GFC in terms of valuation for REIT. So we have seen very dramatic corrections in value. So there's been debt availability in refinancing, but we've actually had valuation corrections which had to happen given where yields have moved to. But now we're very much feeling that yield trajectory coming down. So again, we're very much feel that the worst is behind us. And we're starting to see, as you can see in that black line on the right-hand side, stabilization, and that's crucial. And then we look at how it's been reflected in share prices again, very dramatic to that low point in October '22. We then had the sort of full storm and a rally on the back of expecting inflation to have been slain at that point. It turned out not to be the case. We've bumped along through most of '23. And then again, sort of October '23, we saw that surge and give up and then recovery. And then most recently, this correction that we've seen in the last couple of months, been very much more about, I think, about geopolitical risk and rather than necessarily, there's been a deferral possibly in the amount of -- the number of rate cuts that was anticipated. But now I think that is -- everyone knows what's coming or hopefully what's coming. But this economic slowdown that likely, particularly if we -- if Trump brings in tariffs, et cetera, we will, of course, will see the cost of money continue to come down. Then it's all about do you own the right real estate with the right covenant risk, credit risk and tenants who need to continue to operate even if they're making a little less money from their businesses. And then again, this chart, I think, is quite useful. Our proprietary forecasting and looking at these key metrics, very happy to talk about any of these if anybody is particularly interested in them. But then on the right-hand side, you can see is where we were out banging the drum a year ago saying, look, discounts have reached a historically wide figures out beyond 40%. We're going to see a very sharp correction as NAV stabilized. Obviously, while NAVs are falling, market feels very unsecured about -- insecure about it, about where prices are going to get to, so they require this very large discount to those numbers. And then the moment you start to see some stability in those NAVs, then everyone goes hold on 40% discounts way too wide. And we've seen that the first leg of that come through with the discounts having closer to 20%. And then again, looking at pricing of real estate versus global equities, essentially, to remind everyone, we got -- if you're getting it kicked in the head, metaphorically from interest rates rising, so dramatically, then surely, you're going to benefit as they come down, and this is just looking at how markets have performed 3, 6 or 12 months after previous peaks in cycles. And as you would expect, real estate has done reasonably well. So turning quickly to the portfolio itself. As you know, we are very much a pan-European animal. The geographical focus on the right-hand side isn't really the way we look at it. We look at it very much on a sector basis, but it's quite useful for everyone to see the level of diversification. And then again, sector positioning, the way we divide our world up is into these, what we call buckets because not all companies sit naturally in each. But generally, we're trying to put companies together that are likely to experience a similar response to a particular set of top-down macro drivers. And then on the right-hand side, how we build the portfolio, you've got to feel that you've got the right companies with the right opportunities, but they are also functioning in an environment which is beneficial. You may be surprised to see French offices up there at the top of the page, but that's because Paris CBD is operating very much as a sort of microcosm, not so much of the broader French economy, but to do with the fact that it's there's a real shortage of best-in-class refurbished market buildings in that particular market, and Gecina our preferred stock, which has a very, very strong debt book as well is able to deliver those returns. That's quite an interesting one and I can talk about any of these in due course on the Q&A. And then turning to our most active positions. As you know, we -- TR Property specialized in having some big positions in small companies relative to our benchmark. Here, you can see our top 2 names are currently actually U.K. diversified names, Picton and LondonMetric, and we're actually very -- we've moved into some months ago now. A very underweight position in SEGRO. SEGRO is a great company. It's just that there is now a marked slowdown in the rate of growth of industrial and logistics rents. They're still growing they're just not growing at the rate that they were, and they couldn't possibly sustain the rates have been growing for the last 3 or 4 years. But these are -- there has been a bit more of a supply response, particularly in the Big Box state. And then some of the greater London markets that SEGRO specialized in Park Royal, et cetera, the Slough Trading Estate, you're seeing, particularly in the ultra-urban market, there is some sort of cap almost on what tenants are prepared to pay. So we're seeing some rental slowdown there. And then looking at how we've performed -- sorry, how we've changed positions. Adding [ Beta ], what this means is we've been buying into businesses that are going to be very -- going to benefit the most from changes in reductions in the cost of capital, and that's the most higher leverage names that we had steered away from when interest rates were rising very rapidly. Balder and Castellum Sweden is always -- that those are 2 Swedish companies -- these are businesses that Sweden as a whole is that the nation that brought you the safest car brings you the scariest property companies in terms of they tend to be -- have the most short-term leverage. Participating in offensive raises, this is offensive versus defensive rather than something being kind of real horrible, just to be clear. And again, those -- we did participate in SEGRO at GBP 8.20, the stock reached GBP 9.45, we're able to sell those. Argan forward footed -- front-footed, again with Sirius, using the money to buy into new assets. M&A potential, we obviously know about these. I can talk about those if you wish. In due course, we get on the call. Selling that weaker income growth where we felt that the -- there have been structural headwinds in the case of Assura and PHP, the valuation office being very tight about increasing rents available to those. And then the sale of the Colonnades, which again has a slide on a little bit later. And then more recently, looking at what we've done in Q3 and into Q4, again, you'll see those Swedish names up there, reducing industrial. I've already mentioned about SEGRO, but now we have Sagax, which actually is a Swedish-based business that owns assets all across all over Europe. And then again, more participation in raises, this time, Cibus, which is a supermarket operator in Scandinavia, British Land buying into more retail warehousing and Pandox, which is Scandinavian hotel group. And then buying more beds. Again, this is, as I say, ones will be familiar to you, be something like Unite student accommodation. I-RES is flat in many in Dublin. Kojamo is Helsinki. And Aedifica is health care across Europe, particularly in the Benelux and the Netherlands. And what we're doing here is accepting that there is likely to be a slowdown in economic growth. So again, it's buying into where we see that there's necessity and where, ultimately, people will still -- if they've got jobs, they will continue to pay their rent. More teenagers will go into education or stay in further education if the jobs market becomes weaker, et cetera. And then small cap, here, we've added built a position in something called Schroder's SREIT, where we see quite an interesting situation. The fund manager there has been promoted to run the whole Schroder's real estate business or we suspect we expect and are quite sure that they will be replacing him or there'll be a new manager in that fund. We'll be looking for that. And then Picton, again, just we love this business, we think it's very cheap. It's got fixed price debt. The management team there have done a very good job selling out of a number of their office assets through change of use and therefore, not selling them at a discount, but converting to residential in the case of Angel, Islington or West London and then actually in Cardiff where they've converted to student accommodation. And then we bought a couple of buildings, a couple of -- 1 is industrial state in Bicester, and the other is a little property in Northampton. Again, nice healthy yields and lots of asset management opportunities there. And then the other leg to our underpinned for real estate looking forward from here is that at the end of the day, this has happened time and again, if you look at the right-hand side of the page is that if real estate -- if equity investors leave these REITs too cheap, then private equity will say, thank you very much and come in and gobble them up. And you will see anything in bold we've been involved in. On the right-hand side, you'll see that we didn't own Balanced Commercial Property Trust, which is acquired by Starwood at a 9% discount. That's because BCPT was actually a product that was a fund that was managed by Columbia Threadneedle, so a sister product to us even though we have no involvement with it. So we weren't allowed to buy shares in that. And then you'll see Tritax Eurobox, we can discuss. And Arima was our little exposure to the Madrid office market tidy portfolio and acquired by another private Spanish REIT called JSS at about a 20% premium to the undisturbed share price. And then on the left-hand side, something that we much wish to encourage much more is the merger of these businesses. And good to see New River raising capital and acquiring Capital & Reg for a mixture of cash and shares. And we will -- we suspect there will be more because ultimately, the equity market really needs bigger, more liquid companies. And I'm afraid GBP 250 million, GBP 300 million, GBP 350 million, GBP 400 million market cap businesses are just too small. And then turning to a sort of more recent sort of issue in the market, and this is to do with the -- obviously, we have a whole part of our sector, which is externally managed, particularly primarily -- almost exclusively actually in the U.K. So these are vehicles that have external management structures where we've always been complaining for many years that there's been a misalignment often, because the management company charges a fee based on the asset value, which can be a very, very long way from the share price. And that is, therefore, the management are focused on making sure the independent valuers when valuations are not a science, are managing the NAV when, in fact, they should be focused on the share price. And we wish to see these management fees convert from being based on NAV to being based on market cap. We also think same as we have with TR Property, there should be a 1-year notice period so that if Boards do need to step in and remove management, they can. And then also to help alignment, and we do already see this in businesses like Tritax Big Box and Supermarket Income REIT that there is a meaningful percentage of fees are actually paid in shares or reinvested in shares. And where it works very well is if the shares are -- if you're trading at a big discount, and you're paid in shares, you go into the market and buy those shares. And if you're trading at a premium, of course, you issue the paper and that's accretive for everyone else. So really exciting to see a real step change in this area, 3 recent announcements that the manager of Supermarket Income REIT, Atrato is proposing a market cap-based fee that will be voted on next month, and that will come into force next year. And then PRS REIT, we've seen a lot of the concerns by investors around the relationship between the Board and the manager, the extension of the contract, we think unnecessarily, which ended up seeing the Chairman being ousted and the notice period reduced to 1 year. And then most recently, in their interim results, the Board Warehouse REIT announced a review to try and manage their very wide discount. And of course, which ultimately will result hopefully in hopefully 1, 2 or all 3 of these new pillars. And then turning to our physical property. As you can see here, we have continued to acquire our preferred subsector, even though we talked about the rate of rental growth slowing, particularly for Big Box industrial -- Big Box logistics rather. This is much more about asset management. This is a particular market you're in that right in the heart of that Oxford -- this is Bicester, that Oxford Cambridge Arc. And Bicester has got a thriving, particularly automotive sector, and we've got lots to do on this estate and rents can be moved -- can well be moved up. And again, similar to Northampton, a particular market that we know well. We already own other sheds in this area in our other fund, we can see rental growth prospects. And we're going to be moving those initial yields up quite quickly. And then at Wandsworth, we are really pleased with our refurbishment, which we'll come on to in a second. Just a quick look backwards, probably the last time I'll be showing this slide because it's rapidly becoming history because we did sell it in the half year, but this was our long-term success story. You can see on the left that we -- we bought this or I bought this, the long leasehold in '98, having started work with Chris Turner, the previous fund manager in 1997. So I've done more than 25 years with TR Props, taking over from Chris in March 2011. And then looking at the sales side, we had a lot of success creating a new store for Waitrose at first floor level, which then enabled us to put in all the new tenants at ground floor. So again, reminding investors that we know what we're doing when it comes to the actual real estate. We don't do big development, but we do relatively small base refurbishment here, CapEx of GBP 8 million. And also, we know what we're looking for in good managers. And there are some good managers out there. There are also some less good. And then here, our ultra-urban logistics and industrial at Wandsworth. For those of you familiar to the north, where it says -- you can see that's Wandsworth, railway station. And then for some of you, the Alma pub is quite well known just to the southeast of the site. And here, we've done Phase 1 and been delighted with the success of the letting. We've let those -- both those units to a high-end female athleisure wear fashion business at a record rent. And then -- sorry, just to finish, our ESG credentials, for us, it's not about -- we're not an Article 9 fund. What we -- our view is that rather than be ticking boxes, we need to get out and do what we can, where we can, where we have direct control. So it's everything you would expect from moving -- degasing our buildings, moving to green electricity, solar panels, helping biodiversity wherever we can, et cetera. And then the right-hand side, while we go through this rotation of improvement at Wandsworth, moving the Wandsworth Foodbank around to keep ensuring that they have use of a free building in these unfortunate times of need. And then to conclude, bringing it all together, the cycle has peaked. We know that. There is this severe undersupply of prime space in so many of our markets. Independent value is still behind live market pricing, but catching up very quickly. Valuation declines slowing and in some cases, actually improving. You'll have seen, I think, a little REIT that we don't own shares in called custodian, a little bit -- it's actually published a positive valuation movement in the half year. So that's encouraging. But the point is that where these valuation declines are still declining, but they're slowing or even where they're completely stabilized, all of this is fully discounted in the share price. And that's what's so interesting for us. And we're seeing earnings coming through because our businesses -- the key with the listed space is that it has a collective loan-to-value in the low 30s. Obviously, there are some, particularly in Sweden, they are a bit higher, but we also have a lot in their 20s. And this offers a real opportunity for these businesses to come in and snap up assets. We've seen these front-footed offensive capital raises as opposed to the sort of defensive ones that we saw in the GFC. It's all very -- really, really quite encouraging. And then more M&A activity is, I'm afraid, likely because these companies are still trading too cheaply. So I'm just going to spin through to this. I do actually have to go past the disclaimer slide, believe it or not. Compliance requires that. And then otherwise, yes, I think happy to move to Q&A.

Lovely, Marcus, thank you for that. Very insightful and another great update on Trust. We do have some questions. I will try and answer or ask as many as possible and answers many as we can. So please submit them when ready. The first question is presubmitted, and it's one we get asked a lot. Most property companies are currently on substantial discounts to NAV, plus TR Property is also on a discount, making a double discount. What is the look-through discount at the moment? And how does this impact on for dividends?

So it's a great question. So as you can see from this chart, the average discount across our group, as I said, is about in the mid-20s plus the trust has got a discount of today, 6.5%, 7% so you can all do that math yourself. The question, I think, is much more nuanced about how -- do we own a lot of the most discounted companies? Or do we actually have do we actually own, because we tend to have a quality bias. So we tend to own more of the companies that have the tighter discount because they've just got better earnings opportunities in the market sees that and they trade at a tighter discount. So now we don't run the calculation day in, day out because it's moving around so much. So we tend to look at it range bound on a broader basis. But if you -- if the benchmark is trading, we tend to trade -- our see-through is probably roughly a 5% tighter than the average as it were because we're not owning some of those superly discounted names. Having said that, the counter is businesses such as Picton, small cap relatively unloved trading at a wider discount would be a classic case where actually the reverse is correct. So in the round, we're generally a little bit tighter than the market but compensated by the fact that you are able to buy the trust at a discount. In terms of how does that affect earnings, not at all. That's not -- that is literally looking at the balance sheet. As far as earnings are concerned, we are very much focused on businesses that are going to continue to deliver earnings growth, partly because they -- either they've got natural top line growth because they're in sectors that have rental growth or they're still attracting historically high levels of indexation that's coming through even as it slows or they've had a lot of debt which is -- which, ultimately, they're refinancing and they're able to refinance it much cheaper than they were expecting a year ago, and that's going to have a tailwind for their earnings expectations, which, i.e. the expectations that we're looking -- forward-looking a year ago has improved. All depends on the timing of that debt. So all the time, we are looking for those businesses that have that earnings growth. Now of course, there are companies that we think on occasion are incredibly cheap. The market has forgotten about them. They're unloved and they're trading at large discounts. They may not have earnings growth. And there are occasions where we'll pick up those value trades, knowing that we're not necessarily going to benefit that much from short-term earnings growth. But we are a total return animal, and we should respect that.

And by obviously earnings, you'll see the follow-through is the dividend payments of these companies?

Absolutely, yes, sorry. And then for -- what we're, of course, looking for those that those earnings are then pushed through to dividends rather than what we've seen particularly 18 months ago as business is still needing to retain those earnings to rebuild their balance sheets.

Yes. Understood. Okay. Well, you mentioned a bit about the direct property investments. Certainly, you've done a couple very recently. The question is following the GBP 33 million investment in direct property, which I certainly know about the GBP 20 million recently. Is there an opportunity to develop or add further value as the Trust has done in the past. Certainly the one in Vista, I think is quite key for you, isn't it?

Yes, absolutely. So the Bayswater sale was GBP 33 million. And actually, that coincided with the very large raise by SEGRO. So we actually rotated the funds into the SEGRO raise at GBP 8.20 and then took a lot of profit out of SEGRO at GBP 9, which was great. And I mean it was one opportunity that arose. But the reinvestment, I mean I think the Board and us want to see our physical portfolio back up to closer to 10% as it has been over the long term. In the short run and the immediacy, we have got CapEx at Wandsworth. We are refurbishing, I think we will be spending GBP 3 million to 4 million, about GBP 3 million actually at Wandsworth. And again, at Vista, there is a whole program. Once we can get 1 or 2 of these units back, that will require tenants to move around or decide they should go somewhere else because we are going to be pushing rents upwards in Vista. And then there's always the occasional tenant who says, actually, I liked my super rundown unit. I'm going to go and find another sort of rundown building at cheap rent. If you want to improve this asset, charge more rent, then it's not for me. So there will be a bit of that. And then at the same time, we continue to be on the hunt for more assets. I mean Vista was acquired by a defined -- from a defined benefit pension scheme, which was selling its book to an insurer and the insurer said, we don't want real estate as part of that. It's illiquid, difficult to price, et cetera. So that's a good example of a defined benefit pension scheme that was selling all of its real estate, most of which was super prime, and they just had this one estate, which we felt was offered management opportunities, and that's why we bought it. So we're always on the hunt for other deals.

Okay. Lovely. Right. loads of questions coming in. I'm going to try and merge 2 or 3. First -- I suppose, first of all, we'll try and get a couple of minutes your views on regional REIT, do you have exposure to and what your views on regional REITs? And also another question about London Metric, if you can answer both in one.

Right. Regional REIT, no, we've never owned it. We were very concerned for a good number of years that the portfolio being entirely regional offices were likely to suffer collapse in asset values and rents. because of the nature of the assets. The other issue you've got with a lot of small office buildings, of course, as they require particularly in regions where rents are relatively low compared to, say, the Southeast. When you come and replace a gas-fired heating system or you put in double glazing or you do everything you need to do to bring the particular office up from an EPC rating of F&G up towards B, which is where it or certainly C now, but where it needs to be by 2028 and then 2030, it costs the same whether your capital value. So you got -- if you're dealing with an asset where the rent is GBP 15 a foot and the capital value of the building is GBP 90 a foot, it's the same cost where you've got a rent of GBP 30 or GBP 40 a foot and a capital value of GBP 250 a foot. So you are -- that is the problem as we see it. Plus then compounded in the case of regional REIT by the constant demands by the Board or desire by the Board to pay an uncovered dividend even though the balance sheet was thoroughly impaired, which then resulted ultimately in a need to do a deeply discounted capital raise and a refinancing at 10p. So we were -- that was something that we avoid those. And in fact, it's a poster child of what to avoid, to be honest. In terms of LondonMetric, we are massive fans of this company. As you're aware, you've seen we're being -- we're a very large holder. We like the fact that Andrew Jones is a consolidator. He obviously acquired CTPT, which we own 10% of for paper. And then LXi, where we had become LXi holders because we were very large holders of Secure Income REIT, which had the Nick Leslau, Mike Brown's vehicle managed by Prestbury, which had merged with LXi. And we still -- we actually think that it's -- Andrew, you listen to his webinars, they're very interesting. I mean he's very, very close to tenants, and that's what it's all about. What's driving any business is not about just buying a market and hoping for a particular sector and hoping for yield compression. You've got to know your tenants, know what they want. And a lot of these tenants will -- they will pay up. If you've got real estate that they want to operate from, then they will pay up because actually, there has been very little rental growth or inflation relative to every other cost that these companies are experiencing. So it's no surprise that here in the West End of London, we're now seeing record rents. I mean records being broken all the time as tenants scramble for what is a very, very small supply of best-in-class office space.

Thank you. Right. We have a very long-term shareholder here. Chris has been in the Trust for 20 years since Chris Turner's days, which you mentioned earlier. His question is about self-storage. A few years back, self-storage was a promising subsector. Since then, it remains a fragmented market. Do you have any thoughts as to the future of self-storage market and whether there could be some consolidation either within self-storage players or through combinations with big diversified property companies?

Yes, it's a very good question. So I think to answer the last bit first, we don't see diversified propcos picking up self-storage portfolios. It's a very specialist operationally focused industry. And if you listen to the management teams of Big Yellow or Safestore, they really emphasize that. And it's not -- the asset value, what the valuers apply to the valuation is not really what we should focus on. It's all about earnings and earnings growth. So no, I don't think these are about to become sort of parts of big diversified names. The second point about consolidation, you're absolutely right. It is a highly fragmented industry. And slowly, there have been the odd acquisition, obviously, with Big Yellow buying Armadillo. Safestore continues to pick up small units, particularly in Paris, where they've been expanding and now in Spain. But we've got a long way to go, but the honest answer is a very long tail of that often in -- if you think about wherever you are, you will know your local operator out of an old converted building of some description. It won't be unlikely to be a purpose-built unit. And there are a lot of self-storage operators who own 2, 3, 4, 5, 6, 7 units, so very, very small. So I think that the listed players will continue to acquire and grow over time. In the very short term, they are all suffering from a slowdown in commercial demand. Remember, your two types of tenants. You've got your private occupier is moving house, she's downsizing, she's upsizing. They just need that excess space for whatever reason. And then that seems to be relatively consistent. And what we saw was a lot of small companies taking particularly pre and post around COVID inventory they needed to store, and we found a bit of a slowdown in that. So -- and that share prices, stock market does tend to react quite dramatically if it sees the rate of growth slowing, and we saw it in the likes of SEGRO going 9.40p, 7.20p and now 7.50p, but it's -- also you've seen it very much in the share price of the self-storage name. So we are great advocates of these management teams. We think they do a very, very good job. And they -- in a way, they have what we call an eyeball oligopoly, i.e., if you're going to look for self-storage space in your local area, it's almost impossible to avoid not getting -- not seeing an advert or a pitch from one of these big listed names. So they are very much great customer awareness. Just right now, there is this slowdown they are trying to manage rate versus occupancy. So it's -- but as a long-term trade, very happy with it.

Lovely. Moving to Europe. We've got a few questions on Europe. Bizarrely, someone has asked -- 2 people have asked about Italy, but let's merge into one and ask you don't have any exposure to real estate markets of Italy and Eastern Europe. Why would that be, do you think?

Yes. There are no listed companies that are -- that have a listing in Italy, but we do have significant exposure to Italy through two shopping center -- pan-European shopping center owners, and that's Eurocommercial, which has about 1/3 of its portfolio in Northern Italian shopping centers and Klépierre that has about 15%, maybe closer to 20% of its assets in Northern Italian shopping centers. And for us, Italy is very much a country of 2 worlds. Lombardy is the richest region of the whole of Europe. It's very difficult to get planning permission. Retail sales ex food and fuel here in the U.K. were up to 33%, 34%, depending on which metric you use. Italy, they've only just broken into double digits. i.e., there's the whole infrastructure for home delivery is much more difficult and much less sophisticated. People still -- the majority of people will be buying all their Christmas presents through a shopping center in Northern Italy. As far as office markets are concerned, Milan and Rome are really very small, and we have virtually no exposure to those. And then if you're thinking further south, very difficult to get any sort of exposure in the southern part of Italy. And to be quite frank, at the moment, not where we want to be. These regions are very much struggling on the periphery of Europe. In terms of Eastern Europe, yes, absolutely through a business called CTP, which is a huge logistics manufacturer, manufacturer of logistics buildings. The stock -- the size of the listing is quite small because the vast majority of that company is owned by the Netherlands third richest man, and he has -- he continues to dominate by owning over 75% of the equity of the company. But that has really been a massive beneficiary of a lot of the nearshoring and onshoring, the desire to shorten supply chains and to stick the bits together nearer to home rather than try and bring the finished product all the way across the high seas.

Germany. German residential, especially Berlin seems to be a long-term opportunity. Has your view changed given the political stroke economic challenges?

Yes, great question. I think, yes, the German economy is in a very, very difficult place. We all know the reasons why I'm not going to rehearse it and Trump and tariffs and electric cars are just obviously 2 of the low lights as it were. But at the end of the day, it's a very rich country. There is a lot of savings and everybody has got to live somewhere, and the vast majority of the population are able to live in rents in flats that are -- have regulated rents that are below market. The key is that the last effort to essentially fix rents and essentially nationalize property was rebutted, and that will never appear again. So for us, we're trying to buy it in two markets. One, Berlin, in particular, where we're invested through Phoenix Spree Deutschland, which has a very unique position in the fact that it has the right, which is no longer possible to get, but it's a historical -- essentially historical ruling, they can actually condominiumize that. So you take a block of flats, that's where somebody leaves who's been paying a regulated rent, you can refurbish the building and then sell a 999-year leasehold on that flat and you then do that to all those flats. And that's where those -- where they're able to do that, they're receiving about a 30% premium to the previous value. The other owner will continue to own that company, and you can please follow Phoenix Spree closely because it's busy doing that with some success. And then at the other end of the scale, the companies, the likes of Vonovia, the very largest listed property company in Europe and TAG and LEG, which got -- their yields got too low because when interest rates were down at below 1 and you could -- this stuff was trading at a yield of 3 with which was guaranteed indexed rents, it looked incredibly cheap. Suddenly, money cost 5 and 3 suddenly looked far too expensive. And we've seen a restructuring of NAVs or resetting rather of NAVs. But now we're at a point where, particularly in the case of TAG with its Polish operation and LEG, which has been more fleet of foot than the very large Vonovia, we actually think these names are quite attractive given how defensive the income stream is. And I think that's the point to reinforce. No one's going to stop paying their rent. And to be quite honest, if you're laid off from your job in Germany, working at Volkswagen or whatever, the state will step in and pay your rent. So you're not going to get chucked out of your flat, your apartment and the landlord, whichever one of those ones I've listed or many others that are private, will continue to receive that income. So it all comes back to this beds idea where we're looking for safe havens, but where we can still get rental growth through -- and the Mietspiegel does is a backward-looking rent index. So it is continuing to push on through at somewhere between 3% and 4% for the next couple of years at least. Berlin, separate case. We've talked about that. But really, I mean, if you can -- if you've got a flat that you can refurbish and let at open market value, you're getting double the average regulated rent in a particular market. There's such a waiting list for what is a great city, which is attracting a lot of immigration -- educated immigration.

Sticking on Europe because it obviously is a big exposure in the fund. I'm going to merge two questions, if we could just talk briefly to both. Please, could you elaborate on the comment you made about the potential impact of tariffs on real estate in Europe? And the other part of the question is from someone else. With political unrest in France and Germany and the corporation tax increases, here. What are the impacts of those likely to have on the fund's investments?

Right. So the point about tariffs was merely that these companies, Germany is a massive -- I mean, Germany has been a powerhouse for a couple of decades, driven by its backbone of medium-sized companies that have been a massive exporter of finished products to the rest of the world, particularly to China and particularly to the U.S. and helped by certainly in the last decade, cheap energy for the likes of its chemicals business industries from cheap energy from Russia. That, of course, is no longer the case. It's backed by very much buying on the world stage, world markets. So it's got cost inflation there. But tariffs will be a problem because it will just -- its goods will become more expensive. So it was -- it wasn't related to a particular real estate company. But ultimately, where are -- for real estate landlords, this is going to sound rather odd, but a mild recession is rarely bad news. Companies make less money, but they don't necessarily shut their facilities or they may grow more slowly, but generally, they still continue to exist. And then central banks reduce rates because it's -- we're in a recessionary environment and real estate picks up the benefit from the lower cost of debt. What hurts us severely, the sector is obviously a hard recession where companies where there's many more liquidations, companies go to the wall, particularly in the industrial space, you turn off these facilities, and it's just incredibly hard to restart them or to have that when you come out of that particular recession to rebuild the same is very difficult. So that's what I mean by kind of we have a gentle recession, then that will be good. But I don't think the issue for us is we just don't know what Trump's -- whether his behavior will match how he behaved in his first presidency or whether he's going to be very different. I mean this is for far clever people than me. But the fact is, yes, he is a businessman, and I think there is a lot of negotiation here, drawing lines in the sand and then coming to a middle ground. So I remain hopeful. But a lot of this has been reflected in share prices. And particularly where you've got company. The problem for real estate is it is domestic. And if you're a big hedge fund and you want to just have a negative bet towards a particular economy. There's no point just attacking BASF because, of course, it's got sales all over the world, whereas if you've got an actual owner of real estate, that is a pure domestic play. So I hope that answers that question. Sorry, Pete, you may just need to remind me of the other.

Corporation tax in France.

Yes, yes, sorry, corporation tax. Yes, this is very poor for growing their domestic economy. And again, this is our support in France is through in listed terms, Gecina, which is I talked about Paris CBD. Klépierre is listed in France, but actually only has 30% of its assets are in shopping centers in France, the rest are elsewhere. Same applies to Unibail-Rodamco, that has a bunch of shopping centers in the U.S. So the -- just because these companies are listed in a particular market, it doesn't mean that's where they're exposed. And then our big play is Argan. So Argan is a logistics developer. It has a portfolio that's 100% let. It's just announced another pre-let. It's 50% owned by the Le Lan family. It's very well -- very conservatively run. And I have absolute confidence that they will continue to actually buy cheap sites. There may be some distress in the market. But these economies are not about to stop. They may grow more slowly and you certainly don't -- you wouldn't want to be owning, I think, 3-star hotels, for example, which are very dependent on local leisure users who may well find that they've lost their jobs or pay has been restricted, et cetera. So you've got to pick your battles, but just because the French economy is slowing, it doesn't mean you should avoid the market in its totality.

And I think we're getting towards the hour now. So we'll just finish on one final question. There are a lot more that I haven't got to. We will answer them and we'll post them on the Investor Meet Company platform. But final question here is the total -- sorry, TR Properties total return performance has been more or less in lockstep with the EPRA Dev Europe since TR Properties last peak in January '22. What conditions or catalysts do you think are necessary to break away from the benchmark?

I think that I need to double check on a source of that data because we are -- if you look at the 1 year, and this is November to November, but we obviously run March to March is our actual formal measurement program. And obviously, we're substantially ahead of the benchmark for the 12 months to March. And then since then, we are -- it's been a tricky period in terms of we're currently live year-to-date, so March '24 to now, we're about 110 basis points ahead of the benchmark after costs. So I think I don't feel like we're in lockstep. I suppose it's been -- there have been ebbs and flows. What you're really asking is what bets have won and what bets have lost as it were. I think we feel strongly that the outlook is positive for all the reasons I've explained and more importantly, positive for our exposures where we are positioned. So this is not just blanket everywhere, but it's about best-in-class companies that are exposed to the right sectors and more importantly, have the balance sheet capacity and muscle to buy more of this, particularly from those slightly -- there are some over-levered players out there whose 5-year money deals are coming to an end or 6- or 7-year money deals. So they need to refi or get out. And we see some opportunities for some of these companies, plus the M&A underpin all the reasons that we've talked about. But of course, the last couple of months we've seen a very marked pullback, which we think presents an opportunity. So no, I don't -- happy to have an off-line conversation about that. But it's -- we have probably run -- we don't tend to buy deep value rather preferring high-quality growth. So when you've had those periods, as we've come out of the downturn, let's just go here as we've come out of this -- back in '22, we probably were underweight those. Some of those names that bounced very, very aggressively. But as you can see from the middle -- the latter half of '23, we were beating the benchmark reasonably handsomely. And then that pullback recently, it's been tougher as we've talked about. But yes, I would just -- I think picking out snapshots in time, we tend to look at it on the year-on-year.

Lovely. Thanks. Okay. We'll close there. If I could just ask you for your final closing comments, Marcus, 30 seconds or so, then we'll pass back to the team.

Okay. Well, really, just to highlight everything that I've just said, what are our underpins? Our underpins are we see earnings stability because of the quality of the real estate that our businesses own and the quality of their balance sheets. We are fully cognizant of the slowdown across Europe, the headwinds that are presented either by change of administration in the U.S. geopolitical risk within France, Germany, the issues, the almost stagflationary budget that we experienced in the U.K. and that this will have an impact on some of our markets and therefore, where we are hiding, but hiding in places where we can still see rental growth. And then at the end of the day, looking more on a more positive basis, these businesses, the LTVs are low, and they can raise money, they can make accretive acquisitions. And there has -- we had just -- the disease that affects real estate the most is over development. And we do have too many secondary offices. We do have too many subscale shopping centers. We do have other markets that we just don't wish to be exposed to. And we can avoid those. We don't need to be exposed to those ones. So that's the absolute crucial point. And then the last leg of this is M&A will continue to drive activity and it will -- as I said, we've seen deals done recently, Starwood buying BCPT, Brookfield buying Tritax, BigBox API, which decided to go down the wind up rather than merging with Custodian REIT, which I think is a very shortsighted view by shareholders, but that's -- those shareholders has ended up being acquired in its totality by a brand-new private REIT. So there's lots and lots going on, and we think this market at 20% discount still looks very attractive.

Fantastic, Marcus, Peter, thank you very much indeed for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the Board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be 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.