This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
In May, we looked at some of the uncertainties around property and property trusts and asked how uncertain some of those things really were. In summary, our argument was that some uncertainties, such as the difficulties that the office sector was facing, or the shift from traditional retail assets to hybrid logistics and retail were well-established trends and that most property trusts had anticipated these changes, and thus perhaps they were not really all that uncertain. We also concluded that discounts were, in fact, if not in scale, quite a rational response by the stock market to rising interest rates, and that property trusts would have to face higher debt costs, with implications for dividend cover. We also concluded that although discounts to net assets were very wide, dividend yields, and by extension the underlying property yields, when compared to interest rates, looked OK but didn’t jump out as being especially cheap. In other words, there’s more to a discount to net asset value than might at first meet the eye. Although May isn’t really all that long ago, there’s a good amount of data since then that might help us evolve that thought process. At the time of writing, a day or two after the UK reported very encouraging inflation figures, property trusts have seen quite significant share price rises in response, which if nothing else, serves to highlight that they are indeed rate sensitive and that share prices can respond positively in the right circumstances.
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