The Property & Infrastructure Fund returned -2.1% in August, 1.1% ahead of the benchmark index, which returned -3.1%.   

Targa Resources (+9%) signed 20-year, fee-based midstream agreements with ExxonMobil across the Permian Basin, materially extending its growth runway. The agreement supports investment in three new processing plants and a new pipeline, extending Targa’s growth well into the next decade and underpinning double-digit medium-term earnings growth. The deal came alongside second-quarter earnings which beat market expectations, with adjusted EBITDA (cash earnings) roughly 9% ahead. The ExxonMobil deal is a strong endorsement of our investment thesis, pairing the best assets with the best customers to deliver sector-leading return on capital.  

We exited our position in Arena REIT (-30%) during August, having reduced the position by over 50% over the past 12 months. The childcare industry in Australia has been suffering from heightened safety concerns, which, together with a softer economy, have led to declining enrolment and increasing staff costs. This makes it harder for Arena’s tenants to afford rent. Despite this, Arena continued to report robust metrics regarding the state of its tenants’ businesses and the health of its own portfolio, such as 100% occupancy. Ultimately, the inability to reconcile wider industry issues with Arena’s apparent health was the key driver of position reduction. 

In August, tenant Edge Early Learning, which accounts for 14% of Arena’s rental income, asked for rent relief, indicating financial pressure on one of Arena's largest tenants. This led to the decision to exit the position, as it became clear the data we relied on from Arena did not fully reflect the true risk to the business. By month end the tenant was in administration. Whilst a frustrating outcome, and a sad reflection on the state of childcare in Australia, risk managing to a small position recently meant August’s developments didn’t have an outsized impact on our portfolio.