TR Property Investment Trust (TRY) has made good long-term returns and often trades close to its net asset value (NAV) or even at a slight premium. But currently it is on a discount of about 4 per cent.
Good long-term returns
Steadily rising income
Good yield
Rent growth
Performance fee
Volatility
“A steadily rising NAV since the beginning of the year has seen TR Property's discount widen, having traded around par as recently as mid January 2019,” say analysts at broker Cantor.
Investor sentiment on property has been impacted for reasons including the possibility of interest rate rises and the UK's departure from the European Union. However, this trust is not solely focused on the UK, where it has less than half of its assets invested. Although it is overweight the UK relative to its benchmark, FTSE EPRA/NAREIT Developed Europe Capped index, this is mainly in areas that seem to have better prospects, such as logistics, student accommodation and healthcare, with a particular focus on long-term inflation-linked income. And some of its UK listed holdings invest in other countries so are not necessarily exposed to the domestic economy.
Analysts at broker Numis say: “The lead manager, Marcus Phayre-Mudge, is an experienced stockpicker who we rate highly. He employs a bottom-up approach, targeting well-financed companies with experienced management teams, focusing on total return potential. Country weightings reflect the macroeconomic outlook, with an emphasis on regions expected to see rising rental values.”
Mr Phayre-Mudge is finding strong rental growth in sectors such as UK student housing, German residential properties, offices in central Paris, Stockholm and Madrid, and pan-Europe industrial assets.
Most of the trust’s investments are shares in property companies rather than buildings, so it is more diversified than property funds that mainly hold buildings. It is also typically easier to dispose of shares than buildings and to move out of problem areas into more promising ones.
"This flexibility is particularly important in the current environment of diverging performance between sectors, such as retail versus industrial, and geographic locations, namely continental Europe versus the UK,” comment analysts at Winterflood.
The trust has an allocation of about 8 per cent to direct commercial property in the UK, but this has helped its returns over the long term.
Although its yield of 3.2 per cent is lower than that of a number of direct property funds, it has steadily increased its dividend over the past few years and made a payout of 12.2p in respect of its last financial year – up 16.2 per cent on the year before. It has delivered “compound annual dividend growth of 12 per cent over the past five years”, add analysts at Winterflood. “The dividend has been fully covered by revenue earnings for the past five years and, at the end of the latest financial year, revenue reserves were equivalent to 1.6 times the full-year dividend.”
In 2018 TR Property's NAV return was a fall of over 5 per cent. And the trust has traded at wider discounts to NAV, at times double-digit levels, which it could swing out to again. It does not have a formal discount control policy and has not bought back shares since October 2016.
The trust has a performance fee of 15 per cent of outperformance of FTSE EPRA/NAREIT Developed Europe Capped index, plus 1 per cent, which in its last financial year took its ongoing charge up to 1.57 per cent. And it has reasonably high gearing (debt) of 15 per cent, which can exacerbate losses in falling markets.
However, over the long term the trust has made strong long term total returns, and over the first three months of this year its NAV was up more than 11 per cent. Although it is likely to experience bouts of discount and share price volatility over short periods, if you hold its shares over the long term and ride these out you could still make a good total return.
Funds with specialist mandates, in particular those that invest in physical assets, are more expensive to run, so typically have higher charges. And TR Property’s strong long-term returns more than compensate for its charges. Taking out debt to invest more than the trust’s assets, meanwhile, has boosted its long-term returns.
So if you are looking for a good total return and steadily rising income, and exposure to alternative assets, TR Property Investment Trust looks like a good option. Buy.
TR Property Investment Trust (TRY)
PRICE | 389p | GEARING | 15% |
AIC SECTOR | Property Securities** | NAV | 405.4p |
FUND TYPE | Investment trust | PRICE DISCOUNT TO NAV | 4% |
MARKET CAP | £1.2bn | YIELD | 3.20% |
No OF HOLDINGS | 66* | ONGOING CHARGE | 1.57%** |
SET UP DATE | 05/05/1905** | MORE DETAILS | www.trproperty.com |
Source: Winterflood, *TR Property, **AIC. |
Source: Winterflood *BMO **AIC
Performance
Fund/benchmark | 1 year total return (%) | 3 year cumulative total return (%) | 5 year cumulative total return (%) |
TR Property NAV | 8 | 32 | 86 |
TR Property share price | 4 | 39 | 82 |
FTSE Real Estate Investment & Services index | -5 | 0 | 1 |
FTSE Europe index | 5 | 38 | 41 |
Source: Winterflood as at 10 April 2019
Top 10 holdings (%)
Vonovia | 11.6 |
Unibail-Rodamco-Westfield | 7.7 |
Deutsche Wohnen | 5.7 |
LEG Immobilien | 5.6 |
Land Securities | 5.5 |
SEGRO | 4 |
Gecina | 3.9 |
Unite | 3.9 |
Fabege | 3.2 |
McKay Securities | 2.8 |
Source: BMO as at 28.02.19
Geographic breakdown (%)
Austria | 0.7 |
Belgium | 1.5 |
Central Europe | 1.4 |
Denmark | 0.2 |
Finland | 0.1 |
France | 15.1 |
Germany | 30.3 |
Ireland | 2.4 |
Italy | 2.1 |
Netherlands | 1.1 |
Norway | 1.9 |
Spain | 2.7 |
Sweden | 9.9 |
Switzerland | 0.1 |
UK | 43 |
Source: BMO as at 28.02.19