TR Property offers good performance at a discount

Investor sentiment towards property-related companies has weakened this year, in particular towards some of the real-estate investment trusts (Reits), partly due to fears over the prospects for commercial property if the UK votes to leave the European Union (EU) next month.

However, TR Property's long-term performance remains intact: it has outperformed its benchmark, FTSE EPRA/NAREIT Developed Europe, over one, three and five years. It also beats broader indices such as the FTSE All-Share and FTSE All World in terms of its NAV return over those periods, and its share price return over three and five years.

In 2014 and the first half of last year TR Property mostly traded at a much tighter discount, and at times was around par. If the trust continues to do well and investors start to appreciate this, the discount could tighten again.

"TR Property benefits from an experienced and well-resourced specialist management team with a proven record of adding value, and the trust has a very strong and consistent long-term performance record," say analysts at Winterflood.

This trust is also not purely exposed to the UK: two-thirds of its assets are in continental European property shares, so even if the UK votes to leave the EU and as predicted sterling weakens, the returns on this part of the portfolio would benefit from currency translation.

Conversely, if the UK votes to stay in the EU and there is a market rally then it should benefit from its 37 per cent allocation to UK shares.

Because the portfolio is largely comprised of property shares, its managers can more quickly and easily reallocate to where there are better opportunities than if a higher proportion was in illiquid direct property, which accounts for less than 10 per cent of its assets.

"The benefits of owning property equities include the ability to achieve diversification through fractional ownership of underlying property, as well as access to the best assets and management teams," say analysts at Winterflood. "Their liquid nature allows the managers to reallocate the portfolio towards areas of the market that they believe offer greater value."

Although TR Property does not have the highest yield among property investment trusts, it has increased its dividend in 22 out of the past 23 years, and over its half-year to 30 September 2015 paid out 3.15p - a 6.8 per cent increase on the interim dividend of 2.95p paid in the previous year. It has also recently refinanced its debt at a cheaper borrowing rate, cutting its costs.

TR Property has an ongoing charge plus performance fee of 1.57 per cent, which while relatively high compared with mainstream equity trusts is much more reasonable than the charges on some other property investment trusts, including sector peer Schroder Global Real Estate Securities (SGRE).

TR Property does not have a formal discount control mechanism, which means the discount could widen further, and there is no guarantee that it will continue to perform well.

However, its managers have proved adept at finding good opportunities and its relatively wide investment remit means they have a wide range of options. So if you want some exposure to property and the potential for strong total returns, now might be a good time to get into TR Property - before its discount tightens. Buy. 

Source: Winterflood, *AIC

Performance

Source: Winterflood, as at 24 May 2016

Top 10 holdings, as at 29 April 2016 (%)

Sector allocation (%)