DIGIT Digest Podcast

Listen to the latest episode of our podcast series, DIGIT Digest. In this episode, Ben Ritchie, Co-manager of Dunedin Income Growth Investment Trust, is joined by Romney Fox, one of our Senior Investment Directors for UK Equities and a long-standing expert in the area of real estate. Ben and Romney discuss the evolution of UK Real Estate Investment Trusts (REITs), highlighting their specialisation in sectors such as logistics, healthcare, and student housing. They also look at the current and future outlook for the UK real estate market.

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Transcript

00:00:00:00 - 00:00:09:11

Podcast from abrin Investment Trusts.

00:00:09:13 - 00:00:30:16

Hello and welcome to the Dunedin Income Growth Podcast. My name is Ben Ritchie, one of the co-managers of the Investment Trust, and I'm actually delighted to be joined today by Romney Fox, one of our senior investment directors and a long standing expert in the area of real estate. Someone who has been involved in investing in REIT since before rates were a thing.

00:00:30:18 - 00:00:49:21

And I'm absolutely delighted that he's able to join us today. Welcome, Romney. Hello. Thank you very much. It's a it's exciting, but there's a little bit of a reunion for Ben and I because Ben, also led on our listed real estate fund back when I joined, when I was just starting out a mere 19 and a bit years ago.

00:00:49:23 - 00:01:15:12

And of course, we also talk about digital today, and I've been a digit shareholder for, gosh, most of those 19 or 16 years at least. So it's a good the perfect mash up of, digit unlisted real estate. Excellent. Well, thank you very much, Romney. It would be wonderful, perhaps, if you could just give us a sort of brief overview of your of your career, your sort of involvement, on the investment side and also on the on the real estate side.

00:01:15:14 - 00:01:40:15

Yeah. So I joined in 2005 looking at this area of the market. I was a primarily a sort of financials analyst and real estate, for want of no better place to put it was allocated with the financial sector. So sort of banks, insurance and real estate. And so that was a a little bit of a baptism of fire because of course, we went into the financial crisis, a few years after I joined.

00:01:40:17 - 00:02:00:00

But I've been doing real estate now. Yeah. Pretty much. Well, continuously now, actually, over the last 19 years, partly because we have, we have a fund that I manage the the Aberdeen, UK real estate share fund. Which way, which, which we look after. So yeah, that's my my main focus. And could you give us a bit of background and history about REITs?

00:02:00:00 - 00:02:18:15

We use that phrase all the time. But what does that what does that mean. What does that mean within the context of the of the UK equity market. Yeah. So rates are really describe the the tax wrapper, the tax status that you can apply for as a listed real estate company. That means you basically don't pay tax so you don't pay corporation tax, on your income.

00:02:18:15 - 00:02:41:19

And very usefully you don't pay sort of capital gains tax as well. If you sell a building for a profit, then under most circumstances you act in a very tax efficient manner. And it was brought into the UK here at the very start of 2007, and pretty much all the stocks now in the sector have adopted that because of that tax, the tax efficiency, and it's become a very popular mechanism really all over, around the world.

00:02:41:19 - 00:03:01:16

It's been in the United States for quite a few decades, but it's now in most developed markets, have some sort of read status for their their listed property stocks. Is this an example of where a low tax regime can actually generate more tax for a government? Well, that was the idea. What people had realized was that otherwise real estate had become very, very sticky.

00:03:01:17 - 00:03:20:03

People didn't want to sell buildings because they were sitting on big latent gains. And so they said, well, actually, it's good to get more investment into real estate and to make it more of a fungible asset. And so REITs was trying to sort of give you a safe space at the corporate level where you could buy and sell those, assets and collect the rent.

00:03:20:05 - 00:03:40:22

The quid pro quo, though, is that as REITs you're expected to pay out, 90% of your income is, required to be paid out as a paid a property income distribution, effectively a dividend. But the government still gets its tax. It just comes after the, rather than being collected at the corporate level. The idea is it's collected at the in the hands of the individual investor.

00:03:40:24 - 00:04:04:07

Pays a little bit more tax and they would do otherwise. So it's meant to be tax neutral for the government, while creating a more vibrant property sector, which, which broadly it has done. And what have been the big changes in the real estate market over that time? If you take yourself back to 2005 and fast forward to today, in 2024, how is the industry in the market evolved in the UK?

00:04:04:09 - 00:04:22:23

I was looking at a sort of a, benchmark back when I joined compared to today. And actually it's got roughly the same. It's got about 40 stocks, in the UK real estate benchmark, and the market cap has, has grown from about 40 billion to, to 61. So we are a little bit bigger, which but you'd hope so over that, that time period.

00:04:23:00 - 00:04:49:05

But by far the biggest changes with and but it's partly been driven by this REIT tax status is we have much more specialists by which I mean property companies really do one thing, either by geography or more typically by sector. So when I started out, we had the very beginnings of a few specialists, primary health doing, healthcare, investing, you know, group was a specialist in student accommodation, but most of the property stocks were generalist.

00:04:49:05 - 00:05:15:22

They were diversified landlords doing often just a mixed bag of development and asset owning. Whereas now, if I look at the 40 or so stocks today, 30 of those, when I look at that list, I would call a specialist in one area of the market. And the flip side of that is when we started, we had a lot more developers, people who tried to make a living from building and selling, buildings, whereas now that pretty much disappeared.

00:05:15:24 - 00:05:35:04

We've gone from at least a dozen when I started to now, probably only three names left, in our market, where I'd say they're primarily developer business models. And that's partly a function of the fact that REIT status actually works much better if you're an asset owner, who collects, rents, pays dividends. That fits the new specialist model.

00:05:35:06 - 00:06:01:00

Much better in the in the very early days to get that tax efficiency. A lot of a lot of property stocks grabbed REIT status, as a way of not paying tax, but they hadn't really evolved their business models to fit. And so it's taken a good sort of 15 plus years now to get to the, more what we're expecting, which was people who just own buildings, maybe do a little bit of development, but collect the rent, pay consistent growing dividends, of those.

00:06:01:02 - 00:06:32:11

So we're pretty much there now. But it's taken, it's taken a good while for the sector to transition. When you, look across the industry and when you look at the performance of the real estate fund over, over many years, it's been it's been very good on a, on a relative, on a relative basis. And one of the things that always struck me was that you were very early in terms of identifying the big themes in the marketplace, the companies that faced big structural challenges, and the companies that had more tailwinds behind them and then lining that up with the right capital structure and the right management to execute would be

00:06:32:11 - 00:06:54:11

interesting to kind of get your your take on some of those sort of stock journeys that you've been on over the last sort of ten, 15 years, maybe giving a one that worked out quite well, perhaps, and maybe one that was a little bit more difficult. But yeah, it's been quite an evolution. So when I started out, by far the biggest stock in the sector was then Land Securities, it's still going, it's now called Land Sack.

00:06:54:13 - 00:07:12:03

And it was over 20% of our benchmark. It was the, you know, very much the, the leader in the sector. And had been it's been listed for many, many decades. And you had see grow, but they were about, 7% of the benchmark. Now, I mentioned this because just if you fast forward to today, it's completely flipped around almost precisely.

00:07:12:03 - 00:07:36:16

See grow is now over 20% of our benchmark. So you grow, by the way, as a logistics, owner and developer, and land sack, Land Securities. And so it's about 8% so that, that flipped and that's been largely driven by these very powerful sort of technological driven sector shifts that we've seen in real estate over the last 20 years, which has been largely enabled by, e-commerce, in particular.

00:07:36:18 - 00:07:56:03

That has really hurt the retail space. People like Land Sack, British Land, Hammerson and so on used to have a lot of retail exposure, and they still do to varying degrees. So that's been that's been very painful. But the flip side of that, the death of the high street has been this growth in e-commerce, demand for logistics capacity, more generally.

00:07:56:03 - 00:08:21:10

And Sega really grab that, grab that opportunity. And so you've seen a complete flip. But it will be interesting, I suspect if we come back in another ten years, it will be something else will probably have migrated. You know, real estate, I don't often think of it as sort of water flowing from one bucket to another. I say, you know, the demand is still there in aggregate, but but will it be because we're shopping in, in on the high street or in line, or is it because we're working in an office or you're not working in the office?

00:08:21:10 - 00:08:45:17

It's probably cuz you're working in your home. The demand is still there. We're just shifting, the uses of demand around. And the sectors had to evolve. But, it's interesting by by far the biggest impact on our performance over the last 20 years has been getting those big sectoral calls correct. So in particular, being very cautious on retail, generally, one mistake is I thought the really big prime shopping center owners would be okay.

00:08:45:17 - 00:09:11:10

And unfortunately the tide was so strong, they even they were sort of undermined in the end. People like Amazon, had to do a very painful rights issue a few years ago. So being very cautious on that and we were early, thank goodness, being on that sort of the opportunity with the more logistics, industrials names, such as Seagram, we've sort of held on to those positions because I think that's a key lesson if you're in real estate investing, is these tides go for an awfully long way and for a long time.

00:09:11:10 - 00:09:26:09

It takes a lot of years, really, of a sector doing well or indeed doing badly before the tide turns again. So you have to be very aware of the fact that the tide will turn. But, but, but it could take 5 or 10 years before it does. And if you've got a stock, you can have the best management team in the sector.

00:09:26:11 - 00:09:50:22

But if they're in the wrong part of the market, as it's really very tough for them to to overcome those sort of tidal pressures. Now that that's that's super interesting. And on the topic of management, I mean, how important are they? I mean, certainly if I cast my mind back to the sort of early to mid 2000 s one of the interesting things about real estate companies was, perhaps surprisingly, that they always seem to have quite a lot of characters, that were involved in running them.

00:09:50:22 - 00:10:12:17

And that always seemed to be part of the fun was not only a physical asset, concept to get your head around, but then also some quite remarkable individuals who also ran some of these companies would be sort of interesting to get your view on. So how much difference that makes, you know, is it still as relevant today in a world where we don't have the sort of, you know, kind of trader type companies that you were you were talking about earlier and that's a that's the big shift, isn't it?

00:10:12:17 - 00:10:31:05

It's that move away from what we used to call the trader developers, who did particularly well. And I so probably what was a higher nominal GDP environment. So more GDP growth, more, more inflation that we had through the 80s and 90s, together with interest rates coming down. There was there was a lot of money to be made.

00:10:31:07 - 00:10:49:19

Whereas now the last ten years has been tough. As you know, GDP growth hasn't been as strong. But debt has typically and obviously been much cheaper. So again, that's favored this evolution towards sort of asset owning reeds. You know management. Absolutely. It's still really important. And when I cast my mind back to so many of the businesses that have been really successful for us.

00:10:49:19 - 00:11:10:20

So I just made a bit of a list, today, some of the businesses we've sort of done really well out of things like Hans Stein was in the industrial space, similarly. Mucklow, maybe, maybe deja, an, industrials REIT and lock and store all of these, if you like, said, what are the characteristics of these really successful, businesses for shareholders?

00:11:10:22 - 00:11:30:03

Actually, almost all of them had a founder, certainly either a founder, CEO or indeed a founder mentality or a big family stake. So they were sort of good custodians of capital in the long run. While also absolutely crucially, none of them were in they were in the sort of structurally challenged sectors. As I mentioned, you really need to avoid that.

00:11:30:05 - 00:11:45:12

You know, those any areas where you think they're going to be structurally under threat? So management's still really important. Yeah. Is it fading a little bit compared to what it used to be? I suppose the analysis now is a lot more, sort of is your read in the right part of the markets? It's probably more asset led than in the old days.

00:11:45:12 - 00:12:04:04

It used to be more about, yeah, the personalities and individual deals that they could do that big. I'd say, well here we're doing a really cracking redevelopment of an asset, often on quite a large scale, potentially. Whereas now, yes, it's much more, you know, what are the characteristics of being in the student sector health care, logistics, self storage and so on.

00:12:04:04 - 00:12:20:00

But now we've still got a few people that, you know, it's it's definitely a sector that's yeah, still has got its characters. We've still got some long serving CEOs. We still got Toby at Great Portland. That's great. Portland Estates has been there for over 20 years. Is yeah, probably one of our best, CEOs in the sector.

00:12:20:02 - 00:12:41:14

You've got, big yellow Nick veg founder that in the in the 90s is still has been done a fantastic job for for, for shareholders there. So there's still, you know, there's, there's still a few but it's true the, the model has evolved away from being sort of developer stocks to being much more asset owners, asset aggregators, often with an operational sort of capability to deal with it.

00:12:41:16 - 00:13:05:10

You're one of the, the few people, still in the organization who went through the financial crisis. REITs, I certainly seem to remember, found life quite difficult, at that time. Could you give, some sense of some of the learnings, some of the experiences of going through that particular period? I mean, we haven't really had a time since then that's had that sort of sheer sort of violence of market activity.

00:13:05:10 - 00:13:24:21

I mean, we've had some mega structural headwinds to certain segments as you've, as you've talked about, but we haven't had that sort of financial precipice type moment. It would be interesting to get were there any learnings that that came out of that Romney for you? Well, it's interesting. I just sort of I can remember those where they used to be in northern Rock on, on Moorgate near our old office.

00:13:24:21 - 00:13:40:07

And I can remember the queues of people trying to get their money out of the cashpoint or something. And it was there really was that point, wasn't there, where we thought, are we going to be able to get our money back? You know, are these banks just falling over left, right and center? It was it was a very difficult time, for people.

00:13:40:07 - 00:13:59:00

And that had the property sector as well. The key learning was beware leverage. And actually leverage can come in two forms. One, financial leverage, which is how much debt have you got? You know, you really don't want to have too much leverage, especially if you're going into a downturn. But there's another form of leverage, which is development risk.

00:13:59:02 - 00:14:22:18

You can leave your balance, you, your risk profile, by basically taking on more development schemes, having more vacancy risk. And those are the two big levers you can pull as a management team, to take more risk. And if you get it right, you can do fantastically well. I'm sure Ben's going to mention, possibly one of our long forgotten or not forgotten, stories of Minerva was an office developer here in London that we had the misfortune of owning.

00:14:22:20 - 00:14:47:21

But the founder of that business, Andrew Rosenfeld, he actually, he walked away of over 100 million. He cleared out in the good years. But the key there was he got out, in 2006, sadly, and is not with us anymore. But so watch out for leverage and development risk. You need to keep keep a good eye on both those two risk factors, because when the cycle goes against you, if you've got those wrong, it can really hurt.

00:14:47:23 - 00:15:07:02

And thankfully, thank goodness the sector is in much better shape in aggregate. Leverage loan to values. Net debt EBITDA is lower now than it was going into that to so 2007 to 9 downturn. And also just development risk people. You just don't have these sort of businesses where they have 2,030% of the business under development at any one time.

00:15:07:02 - 00:15:23:15

It's much more having a good portfolio of operational assets, producing income, where you add a little bit of development spice, typically actually where you want to own the building at the end of it. Like you note, they raised equity this summer to build some new schemes, but the expectation is that they will own those assets at the end.

00:15:23:17 - 00:15:42:12

That's a very different business model to what, you know, I was going into financial crisis where they were much more developer orientated, and it was all about selling the developments onto other third party investors. So when the liquidity dried up in the financial crisis, they suddenly discovered that a lot of schemes they needed to finish, where they're going to finish them, would they rent them up and who was going to buy them?

00:15:42:12 - 00:16:01:17

And that would that was a real crunch point. So yeah, we've learned the sector, and I definitely learned a lot lessons in that since then. Sandy Minerva something I try not to remember. Yeah. That was, I don't know, very good lessons there that, that I learned from from these things. Perhaps another interesting area to explore.

00:16:01:17 - 00:16:22:06

What are your, your non-negotiables when you're looking at a new investment, or perhaps what are the key criteria that you're looking to identify? The I mean, some things haven't ever change. I, we've always focused a lot on balance sheets and leverage. That's I think that sort of Aberdeen. We're known I hope we're known because we are a quality led, investment process for equities.

00:16:22:06 - 00:16:54:04

That's always been very important. As you mentioned, management also very important. But I'd say what's changed in this sector is we're much more focused now than when I started on the that the sector analysis of, as public as the businesses have evolved in that way before, if they were diversified, you couldn't be so focused on just what the outlook for one sector in the real estate market, whereas now a lot more the analysis goes on, is, what do you want exposure to healthcare or student or self storage and so on, or indeed the classic offices, shops and industrial.

00:16:54:06 - 00:17:11:01

So that's I think that when we're underwriting any new investment, I'd say the key test we always ask is, would you be happy owning these assets, the underlying assets of the read for the next 5 to 10 years because of the answer to that question is no, then you almost certainly don't want to own the read today.

00:17:11:03 - 00:17:30:00

I even it yeah, you might be seduced by the dividend yield or the price to book. No, no, no, that's the valuation is secondary to getting a really good feel for the assets. It is these relevant assets you to people want to occupy them. Do they want to pay the rent. Yeah. Ideally is the rent per square foot per square meter growing.

00:17:30:02 - 00:17:52:14

You need to get that that sort of building block first and then you add on the other what we used to call the the sort of the trilogy of things we look for. It was the right assets with the right management team and the right balance sheet. And if you could get the stars to align, then you could generally do extremely well as a shareholder to that would add a probably a fourth sort of, desirable, which is probably operating capability.

00:17:52:16 - 00:18:10:18

Again, when I started out, you didn't really have these businesses where not only do they own the assets, but they operated them, whereas now you'll have somebody like, you know, group, the UK's biggest student landlord, but they also operate the assets and it's it's own United students as a, as a consumer facing brand. And you can get really good sort of scale efficiencies doing that.

00:18:10:20 - 00:18:34:21

And again, I think it just makes it easier to be a developer and owner of the real estate if you're also operating at or at least have the ability to operate. It took a lot more players. You do that. So if you can get those four things assets you want to own for the long term, with a sensible management team, a balance sheet where you can take the hits when the cycle turns, and ideally, but not necessarily a good operating capability.

00:18:34:23 - 00:19:01:04

Then you can do really well, maybe if we sort of bring it a little bit more into today, a different market backdrop, new government interest rates that have started to go down, but a pretty subdued economy. I mean, what do you see as the sort of prospects today for for UK real estate stocks? Oh, it's hard to know the future, but it looks like maybe we're going back to what we used to call the the new normal.

00:19:01:06 - 00:19:24:17

Which by which I mean that post GFC period when, you know, we didn't have the most outrageously good GDP growth. But there was some, but nonetheless, you know, with, with very low interest rates and it looks like we may be going back there. That's, that's not just my view, which it is. It's also our sort of house view, as we call it, is that we'll continue to have you know, reasonable, you know, plus 1% GDP growth.

00:19:24:18 - 00:19:46:08

UK actually is leading interesting just for the time being, in the sort of G7 context. And so, on growth, which is great with lower rates. So interest rates at in the UK we're at five now. Expectations are we think there'll be another cut this year. I say it's market expectation. We see that coming all the way down to sort of sub three over the next two years.

00:19:46:10 - 00:20:03:14

And that should be a much more benign backdrop for real estate. For anyone listening, just, it might be useful to know we've seen a big drop in property values over the last two years due to much higher inflation interest rates. So values here in the UK have dropped. Gosh, almost 25% peaked trough, since summer 2022.

00:20:03:16 - 00:20:21:00

So in a historic context, that's a that's a big drop. You know, we're coming out of the early 90s, recession values fell a little bit more, maybe so 27%, give or take. And in the financial crisis, they fell even more. So it's in big drop in values, but with a much more benign outlook hopefully coming through.

00:20:21:00 - 00:20:36:12

So, yeah, a bit of growth. Getting those interest rates down is absolutely crucial, I think, to help get a bit of life back into the into the sector. And and lastly, though many of you might be thinking, yeah, but what about valuations. You know, is this already priced in. Well at the moment the sector is still trading on a discount.

00:20:36:12 - 00:20:59:21

So we we measure share prices quite commonly by saying share price compared to the the reported book value of the company, the value of its assets of shareholders. And at the moment the sectors tilt a discount. So does look like maybe we've got one of these sort of really good sort of cyclical playbooks of being able to get involved in the sector with, yeah, into an easing rate environment, where values are values are just starting to turn again.

00:20:59:21 - 00:21:19:18

We're seeing that in the, in the monthly data coming through. So, you know, fingers crossed we may may have another bull market in us for the next few years, which should be good. And in terms of the sort of segments of the market sectors that are interesting to you. Yeah. Well we were, we were early. Thank you for your comments earlier about into what we call the alternative space.

00:21:19:20 - 00:21:41:13

Now they're just mainstream areas such as student such as self storage, healthcare. And actually that's still our positioning today. And we're we're still pretty conservative very very cautious I'd say on the outlook for most of the office space. You know, we don't think it's going to go through the same structural challenges that retail do. But nonetheless, the outlook there is just a little bit tougher.

00:21:41:15 - 00:22:03:21

For most office landlords. And we're still pretty cautious, actually, on retail retail being for a huge reset in values over the last, five plus years. But again, we're we're just a little bit more cautious about the outlook there. I think going to really be able to deliver strong rental growth over the next 2 to 5 plus years, which actually if you look at our we've got some really good rates and student residential self storage.

00:22:03:21 - 00:22:23:13

Some of the stocks I can I can mention big positions in logistics such as secret I touched on earlier London metric really good long income base. Yeah nice dividend yields. Steady growth. Exactly what a REITs meant to be. You know, with, a very good management team in place there. You know, group I've mentioned for student self-storage is our biggest overweight.

00:22:23:13 - 00:22:40:00

We've taken a really big position there. We've had that for a few years. That's, big yellow save store. We used to own lock and store. I was a great founder led business. I got taken out this summer at a nice premium. So actually, we've bought. Sure guard, which is by by the, as it happens, a business that took it out.

00:22:40:02 - 00:23:03:08

So we've got three really good self-storage REITs, in the portfolio. So we're still a long alternatives where we think the five year plus outlook is very good. And, with a big we're roughly equal weight on logistics. That's a really big part of the market there, a lot of exposure there. But we are still still fairly cautious, I'd say, on what we call the old the old tech sectors of your offices and retail.

00:23:03:10 - 00:23:35:11

How do you think, rates in the UK stack up against other sectors? You know, you also manage some mainstream portfolios. When you were thinking about the return potential from those segments, how do you think that stacks up? Look, it's it's one of the yeah, right now it's good. But one of the handicaps of the REIT sector possibly is that real estate, but from a high level view should probably give you a return that's better than owning bonds or gilts, but not as good as equities, and that it should be less because it should be less risky.

00:23:35:13 - 00:23:52:23

Unfortunately, when you tend to put it into a Re wrapper and list it, then the stock market tends to demand more of an equity return, an equity risk premium for taking on that volatility. Which makes sense. We're all generalists here. We're we're looking just to make as much money as we can within a, you know, a risk aware framework.

00:23:53:00 - 00:24:08:20

So when we're all looking in, I don't need an income growth owns a couple of rates. We're looking for them to be good investments. So they do need to stack up against other generalist equities. But I think at the moment they do it partly because of the the downturn we've been through over the last two years.

00:24:08:22 - 00:24:28:02

You know, share prices for the sector are still where they were eight plus years ago. In aggregate, this has been a long downturn for UK listed and direct real estate. So yeah, would when we're looking at the stocks and we're sort of thinking what can the assets do and what is that flow through to shareholders in terms of growth in book value growth and dividend?

00:24:28:04 - 00:24:47:18

You know we have a lot of rates now are talking about being able to generate 10% plus returns Nav and dividend return a year. That's a really high level, both an absolute, relative to history. And it's also, a level that, I think makes them stack up very competitively against wider generalist equities. Bear in mind there's almost no rates in the UK today.

00:24:47:18 - 00:25:07:06

The trade at a premium, I think probably a London metric where we have a big position there on a modest premium, maybe a 5% premium to book value. So on board, I'm trying to lay out as a scenario or, a landscape where we've actually got a lot of rates producing really quite good returns. But I'm going to suggest that's not as yet hasn't been priced in, by the stock market.

00:25:07:08 - 00:25:23:20

And that's probably just because people are way too I'm still probably quite nervous about, you know, we've been through such an inflation interest rate shock over the last two years. I think people are still waiting for maybe a little bit more confidence. The rates are coming down and are going to start. That ten year gilt of 4% almost today is still quite high.

00:25:23:22 - 00:25:39:01

So, you know, we need those interest rates to come down, but from there we should be, you know, I think rates are very, very, very exciting. I've got a lot of column I in money, not only in the need in income group, but also in, in our real estate fund because I think it should generate, generate quite good returns for the next few years from now.

00:25:39:03 - 00:25:57:15

And when we think about the difficulties that the sector has had, you mentioned over the past eight years, going back to 2016, is that a sort of trifecta of Brexit, Covid and then inflation and interest rates in 22 sort of washing through over that period? That's right. Yes. Some of the structural headwinds that we've seen in the market I mean, I was far too bearish.

00:25:57:15 - 00:26:21:17

I mean, I remember when that Brexit result came out, I was you know, fairly doom and gloom for a little while, I was saying and actually it didn't hit. It didn't hit the economy or the real estate market really that badly. Values fell a day one, but then very quickly were marked back up again when people realized that life carried on, such as, which is good, but yeah, so we've had, you know, we've had Brexit and then we had Covid and then we had, you know, the war in Ukraine.

00:26:21:19 - 00:26:37:05

And the inflationary issues that came with both the reopening from Covid in that, that conflict. So it has been a very tough backdrop for the last ten years. Normally the property cycle has tended to be more pronounced. You had really good years and then you have maybe a maybe a crash and then you come back again.

00:26:37:05 - 00:26:54:10

It's more up and down actually in the UK it's been more of a a ten year sort of going sideways story. Until the last two years when values have, as I mentioned, been marked down due to high interest rates. So it looks so, so I think a lot of the management teams are really, really keen to be getting back to business.

00:26:54:12 - 00:27:10:21

Be able to buy, buy assets where they think that they should be able to give good unlevered returns. And then you had a bit of add a bit of finance or add a bit of development risk to it, and you can make a, a really good return. And we're just, we're just getting back there. But a bit of pump priming has been going on this year with some equity rises.

00:27:10:23 - 00:27:27:08

We saw a big one last night by British Land. We don't own it, but that looked very sensible. It's supported a few more by, unite serious real estate. We might come on to because it's a holding in the fund. So it's seen a few names out raising private equity on very sensible terms to allow them to get back to buying and developing assets.

00:27:27:10 - 00:27:48:03

Which is really good. You talked earlier about the, creation of rates and the capacity to pay out dividends. I mean, how do you sort of assess the attractiveness of reads from an income perspective? Clearly, that's an important part of the need and mandate. How do you sort of see that income element in the investment case in real estate, like in very much in common equities?

00:27:48:03 - 00:28:07:09

Actually it's all about income. It's all about the rent you can collect and the ability to grow that rent over time. And that's exactly the same for equities at that long run analysis we've done. We probably you probably talked about on your podcast previously equity turns can really be distilled down to dividends and dividend growth over very long time periods.

00:28:07:09 - 00:28:31:18

So so they have that in common. And right now there are a lot of reads that pay the REIT sector as a whole yield more than the OSHA. So that's good. But also a lot of reads are paying five, six, 7% dividend yields with growth. That I think screened very attractively for, for people who are maybe looking for maybe slightly more defensive, mostly more repeatable, dividend streams that you can get.

00:28:31:20 - 00:28:51:20

And many of those actually, as, as the sector recovers from here, I think there's a very, very credible prospect that some of those dividend yields will be will be priced in, which means your share price goes up. I do hope that and anticipate that the value this trust owns shares in a. Sure. They've got almost an 8% dividend yield that a few years ago you just said that was your entire required return was the eight.

00:28:51:20 - 00:29:13:18

Now I'd say today we're probably a bit greedier. The relative opportunity is probably looking for names. I can give you a 10% plus or saying, but nonetheless come back in a few years. And I suspect that dividend yield will be a lot lower. And that will be because the share price has grown, to reset that. So there's some yeah, there's some juicy opportunities in for dividends or quality dividend investors out there in this sector.

00:29:13:20 - 00:29:28:05

You've mentioned a couple of the stocks which we hold in digit Sirius and a share already. You were telling me off the other day for not owning enough real estate and went to great lengths. Not too late. Yeah, it's a great next to to reiterate your your bullishness on on the sector. I think I think that's come across today.

00:29:28:11 - 00:29:47:01

I mean what are the other things which we should be looking at. And I guess also we do have the capacity to invest overseas as well. Yeah. We've had we've had a few wins. You know, you've got, you've got your series which is a business park landlord. More operational leverage that really good management team.

00:29:47:03 - 00:30:04:20

There. And you've got a assurer which is very much at the other end of the risk spectrum and GP surgeries. So it's, long dated effectively NHS back. So very low operational risk, but where they, they then add perhaps a little bit more financial leverage to the mix to help. So they're very different propositions but both very attractive in their own ways.

00:30:04:20 - 00:30:19:08

But we've had a few wins otherwise the series has done very well for us, for the trust. You had some Hans Dean that was very keen on a few years ago, you had a bit of big yellow, maybe an opportunity to hand signs gone. Sadly, Blackrock took that out, at a good price. The big yellow is still out there.

00:30:19:10 - 00:30:36:13

No I think there's a got a great. Yeah. You can, you can see sort of at the top ten for the fund I look after for the real estate fund and you can see names, like a London metric for diversified long income or unite, which is student, which is, you know, you take a bit more, operating risk because, of course, students rebook every year.

00:30:36:15 - 00:30:58:04

But where the, the long term supply demand fundamentals look very well set. And then, yeah, if you want to take on a bit more spice those self storage names, a big yellow save store sugar that I mentioned, which is actually listed in in, in Belgium. But, we have the flexibility to own it, I think have some really good sort of if you're thinking about the next 5 to 10 years, how these businesses should do.

00:30:58:04 - 00:31:14:20

And that's really driven from the asset level, as I say, to people want to occupy the space, can afford to pay more rent. Can we maybe add a little bit of space for adding some development, adding some extra buildings to to the report folio, and what's priced in in the share prices as well ultimately as well I think.

00:31:14:22 - 00:31:30:23

But it's it's a tough landscape. Yeah. It's tougher by which I mean there are a lot of opportunities right now, in the equity market. So people have got to fight for their, their space in the portfolio. If you don't, it's I appreciate you saying that you can't maybe tend to need an income in purely into a refund yesterday.

00:31:31:00 - 00:31:49:05

Sorry. Because we have that we have that opportunity for the market for those who want to invest with me if they so choose. Absolutely. Well, Romney, that's been a fascinating conversation. Thank you very much for your time today. I really, really appreciate that. If you would like to find out more about the need an income growth, then you can go to the need an income growth.

00:31:49:07 - 00:32:03:05

Tokyo, UK or Aberdeen forward slash dig.com. Thank you very much. Thank you.

00:32:03:07 - 00:32:30:08

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00:32:30:10 - 00:32:57:02

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