D
ear Fellow Shareholders,
We are pleased to provide you with the Third Avenue Real Estate Value Fund's report for the quarter ended September 30, 2024. For the first nine months of the calendar year, the Fund generated a return of +13.83% (after fees) versus +12.64% (before fees) for its most relevant benchmark, the FTSE EPRA NAREIT Developed Index.
The primary contributors to performance during the period included positions in residential-related enterprises, real estate services providers, and real estate operating companies. However, these gains were modestly offset by detractors, including investments in preferred equity of Fannie Mae and Freddie Mac. Further insights into these holdings, portfolio positioning, and the Fund's most recent addition (Accor SA) are included herein.
The U.S. housing market has undergone significant changes since the last Zelman Housing Summit in 2019. Persistent supply challenges, more resilient demand, and affordability pressure have led to a mismatch between supply and demand. As a result, estimates of net household formation for the 2020 decade have increased to 15 million in total.
The Fund's holdings are well-positioned to benefit from these trends, with approximately 37.3% of its capital invested in residential real estate companies with strong ties to the U.S. and U.K. residential markets. The Fund also has significant exposure to commercial real estate enterprises involved with select segments of the property markets.
During the quarter, the Fund increased its position in Wesco International, a leading provider of commercial distribution, logistics services, and supply chain solutions. The company is well-positioned with secular drivers behind its key segments, maintains a strong financial position, and has market-leading positions within specific product categories.
The Fund also modestly reduced certain residential-related investments by trimming back D.R. Horton and Weyerhaeuser, exited Lowe's, and extended out various foreign currency hedges for portfolio management purposes. The Fund expects core holding Lennar Corp. to finalize its plans to "spin-off" a land development company in the upcoming quarter.
The Fund's allocations across various business types are outlined below, along with exposure by geography (North America, Europe, and Asia-Pacific). At quarter end, these residential-related holdings comprised a diversified set of businesses involved with niche rental strategies, entry-level homebuilding, planned development, and timberland ownership and management.
As of September 30, 2024
| Business Type | Exposure |
| --- | --- |
| Residential Real Estate | 37.3% |
| Commercial Real Estate | 34.3% |
| Real Estate Services | 25.3% |
| Cash, Debt & Options | 3.1% |
The Fund's holdings remain very well-capitalized with an average loan-to-value ratio of 14%. The discount to NAV for the Fund's holdings narrowed to near 10.0% at the end of the quarter.
In conclusion, the Fund will continue to focus its primary investments within the residential sector on well-capitalized entities involved with building entry-level homes, providing affordable rental options, entitling and improving land in supply-constrained markets, and facilitating the purchase of homes through mortgage and title insurance. We thank you for your continued support and look forward to writing to you again at the end of the next quarter.
Sincerely,
The Third Avenue Real Estate Value Team
