Top 100 Funds 2019: Property

TR Property Investment Trust (TRY)

TR Property Investment Trust has an excellent record of beating its benchmark, FTSE EPRA/NAREIT Developed Europe index. It also beats broad European equity indices such as FTSE Europe over longer periods by quite a margin.

The trust had two-thirds of its assets in continental European property securities at the end of July and 39.5 per cent in UK property securities. It also maintains a small allocation to physical commercial property investments in the UK, in which it had 7.7 per cent of its assets at the end of July.

The trust has a yield of about 3.2 per cent, which is less than those of investment trusts that invest all their assets in physical UK commercial property. But its long-term total returns are generally better than those trusts and it has steadily increased its dividend over the past few years. It made a payout of 13.5p in respect of its last financial year, up 10.7 per cent on the 12.2p it paid the year before.

Its investment team is led by Marcus Phayre-Mudge, and they look to invest in real estate businesses in areas and sectors which offer the likelihood of rental growth.

“Marcus Phayre-Mudge is an experienced stockpicker and his pragmatic approach, which focuses on a company's total return potential, has significantly outperformed the benchmark,” say analysts at Numis Securities. “The trust provides a fully covered dividend yield backed by revenue reserves, with scope to grow. The trust is an attractive long-term holding, supported by an attractive yield and strong track record.”

BMO Commercial Property Trust (BCPT)

Over the past 18 months, BMO Commercial Property Trust has swung from trading around net asset value (NAV) to a discount of around 20 per cent. There has been a huge divergence between its share price and NAV returns because investor sentiment has turned down due to concerns about retail property, and concerns about areas including city of London offices because of the UK’s departure from the European Union.

The trust, which changed its name from F&C Commercial Property Trust in June, suffered some setbacks relating to its retail property in 2018. Tenants in its retail parks at Newbury and Solihull – New Look, Mothercare and Homebase – have entered company voluntary agreements. And Poundworld has gone into administration. This has resulted in the downward pressure on rents and, in some cases, the likely vacation of the properties. The valuation of these retail parks has also fallen. However, these are only two of the trust’s 37 properties, and the trust’s managers are working to remedy these problems and have re-let the unit that Poundworld occupied to another tenant.

Retail overall accounted for 22.4 per cent of the trust’s assets at the end of June, but most of this is in the west end of London, which is considered to be more resilient. The trust does not invest in shopping centres and has limited exposure to the high street. Mr Liddell feels that the risks the trust faces are reflected in its share price.

“The trust offers a spread of exposures by region and asset class, but is naturally skewed towards its largest asset in the West End,” adds Mr Morgan. “I like the experienced and settled management team and, following changes to the cost structure from the start of 2017, it is now one of the most competitively priced [UK direct commercial property trusts]. The yield isn’t typically the highest among its peers due to the manager’s preference for quality assets.”

BMO Commercial Property Trust’s lead manager is Richard Kirby who has run it since launch, over which time the trust has made an annualised NAV total return of 8.1 per cent, according to Emma Bird, research analyst at Winterflood. The trust’s managers tend to invest in good quality properties and undertake improvements on some of them to increase their potential returns. They mainly invest in freehold and long leasehold commercial properties with over 60 years remaining at the time of acquisition. 

The trust has paid a dividend of 6p a year every year since launch and expects to pay that this year, via monthly instalments. It has a yield of 5.5 per cent. In June the trust converted to real estate investment trust (Reit) status which could reduce the level of tax it pays.

Standard Life Investments Property Income Trust (SLI)

Standard Life Investments Property Income Trust makes some of the best NAV total returns among UK direct property investment trusts. It has a high yield of 5.4 per cent and paid a dividend of 4.76p in its last financial year – the same level as the year before.

At the end of June the trust’s largest sector allocation was industrial properties, which accounted for 53 per cent of its assets, and it only had 9 per cent of its assets in retail related properties.

“Standard Life Investments Property Income benefits from manager Jason Baggaley’s active management of the portfolio and he has demonstrated his ability to add value through asset management initiatives,” say analysts at Winterflood. “This ability is particularly important in the current environment where future capital value growth from yield compression is likely to be scarce in the coming years. The trust has an impressive long-term performance record, having outperformed the vast majority of its peers over the past five years, and its underlying portfolio has performed solidly compared with the MSCI/IPD benchmark since launch.”

Tritax Big Box REIT (BBOX)

Tritax Big Box REIT doesn’t invest in offices and shops like many commercial property funds, but rather logistics warehouses in the UK. It lets or pre-lets these to major companies such as M&S (MKS), Amazon (US:AMZN) and Unilever (ULVR).

It also acquires land for logistics use on which it undertakes pre-let forward-funded and speculative development. Tritax Big Box REIT received shareholder approval in November 2018 to increase its maximum exposure to land and options over land from 10 per cent of its NAV to 15 per cent of its gross asset value, of which 5 per cent can be invested in developments where no tenant is in place. As of 30 June its exposure to land and speculative developments was 11 per cent of its assets. Having exposure to development increases the risk profile of the trust.

“Investors should be aware that the trust’s increased engagement in more speculative development will increase the risk profile of the strategy, and that this heightened risk may need to be reflected in position sizing within [investor’s] portfolios,” say analysts at Killik & Co. “However, the forecast of higher returns from development projects are expected to compensate shareholders.”

The trust aims for a net total return of 9 per cent a year over the medium term. It paid a dividend in respect of its last financial year of 6.7p, in line with its target, and is aiming to pay one of 6.85p this year. It has increased its dividend every year since launch in 2013 and has a yield of 4.8 per cent.