If you are looking for some income and diversification from your mainstream equity portfolio an obvious area is property. However, many of the investment trusts focused on this area trade at substantial premiums to net asset value (NAV). But IC Top 100 Fund TR Property Investment Trust (TRY) is not on such a high rating and at time of writing was trading around par. The trust has outperformed its benchmark, FTSE EPRA/NAREIT Developed Europe Capped TR Index over one, three and five years with double-digit returns, which also puts it ahead of mainstream equity indices such as the FTSE All-Share and FTSE World ex UK indices.
- Strong performance
- Geographic diversification
- Lower rating than some property trusts
- Focus on rental growth
- High ongoing charge
TR Property also offers a reasonable yield of 2.7 per cent and a progressively growing dividend - a reason why analysts at Oriel Securities rate TR Property a 'Buy.'
The investment trust is different to some of its peers in that it invests largely in property securities, but still has 7.4 per cent of its assets in direct UK property. It has 45.2 per cent of its assets in UK property equities with 47.4 in continental European property equities, so offers wider geographic diversification than UK focused property funds.
Its managers seek well managed companies of all sizes, and generally regard future growth and capital appreciation potential more highly than immediate yield or discount to asset value.
If interest rates rise next year as a result of an improving economic environment and or higher inflation, as is anticipated, then property funds could do well because in a more buoyant climate landlords can raise rents.
And TR Property focuses on markets which are likely to experience rental growth in the near term.
The trust's board anticipates earnings for the full year ahead of the level in 2013/14, but also warns that development activity at one of its direct holdings, the Colonnades in London, will create some drag on the income generated for the next 12 months, though this should increase the capital value of this asset. "The expectation of lower levels of indexation across the Continent will also impact dividend growth rates," adds Caroline Burton, chairman of TR Property.
Property securities, which account for the majority of the trust's holdings, don't offer as much diversification as direct property so this trust is likely to move more in line with equity markets. Its yield is also not as high as some trusts which focus on direct property.
TR Property has a high ongoing charge of 2.06 per cent, though this is similar to Property Securities sector peer Schroder Global Real Estate Securities' (SGRE) 2.12 per cent.
TR Property's ongoing charge is largely driven by the performance fee, as without this the ongoing charge is only 0.76 per cent. The performance fee is payable if the total return is greater than the benchmark plus a hurdle of 1 per cent over the accounting period. The fee is calculated at 15 per cent of any such differences in total return figures, but is capped at 2 per cent of adjusted net assets.
TR Property's discount to NAV of 0.17 per cent is tighter than its 12 month average of 2.56 per cent, and one of the tightest levels it has traded at in years. But for long-term investors, which you should be with an equity focused fund like this, discount or premium issues are less relevant and it is still on a much lower rating than some other successful property and equity trusts.
So with good growth prospects, a differentiated investment focus and a reasonable yield, this still looks like a good option. Buy.
TR PROPERTY INVESTMENT TRUST (TRY) | |||
| PRICE | 278.49p | GEARING | 15% |
| AIC SECTOR | Property Securities | NAV | 283p |
| FUND TYPE | Investment trust | PRICE DISCOUNT TO NAV | 0.17% |
| MARKET CAP | £890.91m | ONGOING CHARGE PLUS PERFORMANCE FEE | 2.06% |
| YIELD | 2.69% | MORE DETAILS | www.trproperty.com |
| SET UP DATE | 1905 | ||
Source: Morningstar as at 9 December 2014
Performance
| 1-year share price return (%) | 3-year cumulative share price return (%) | 5-year cumulative share price return (%) | |
| TR Property Ord | 30.3 | 108.0 | 115.0 |
| Schroder Global Real Estate Securities | -2.6 | 38.6 | 84.3 |
| FTSE EPRA/NAREIT Developed Europe Capped TR EUR | 19.0 | 68.8 | 70.8 |
| FTSE All-Share TR GBP | 5.5 | 40.8 | 58.9 |
| FTSE World TR GBP | 13.9 | 54.9 | 72.3 |
Source: Morningstar as at 8 December 2014
TOP 10 HOLDINGS as at 30 November 2014
| Holding | % |
| Land Securities Group | 10.6 |
| Unibail-Rodamco | 10.4 |
| Hammerson | 5.9 |
| Great Portland Estates | 4.9 |
| British Land | 4.5 |
| Derwent London | 3.9 |
| Deutsche Wohnen | 3.2 |
| St Modwen Properties | 3.1 |
| Leg Immobilien | 3.1 |
| Gagfah | 3.1 |
Sector allocation
| Sector | % |
| Retail | 34.2 |
| Offices | 30.1 |
| Residential | 21.2 |
| Industrial | 7.8 |
| Other | 6.8 |
