TR Property 10 August 2023

TR Property Investment Trust (LON:TRY) is a unique investment trust, giving investors exposure to pan-European property markets, via a portfolio of predominantly listed property securities and REITs, together with a limited exposure to direct UK property (c. 8% of net assets). The trust is managed by an experienced team led by Marcus Phayre-Mudge, who has been part of the TRY management team since 1997.

As we discuss in the Performance section, over the long term, pan-European property shares as a sector have outperformed equities generally, and TRY has a good track record of outperforming this sector. More recently, in 2022, TRY and its portfolio saw a decline in value of over 30%, in line with its benchmark, with rising interest rates being the predominant factor in this decline.

TRY’s current dividend yield is c. 5.1% and there is a long history of maintaining or increasing the dividend, as we discuss in the Dividend section. The yield is typically lower than direct property trusts, whose primary objective is normally income, whereas TRY is focussed on both income and growth, and dividend growth of 8% annualised over the last ten years is well ahead of inflation over that period.

TRY’s long-term average gearing is c. 15%, and after a period of lower gearing in response to market conditions, its current gearing is in line with this. TRY uses a mixture of short- and long-term debt drawn in both sterling and euros.

TRY’s discount is currently c. 9%, wider than its five-year average, but narrower than the c. 30% discount which direct property trusts currently average. In the Discount section we argue that TRY’s relatively narrow discount is a reflection of its shareholders’ understanding that the underlying assets are trading at significant discounts.

In the Performance section we provide a brief reminder that pan-European property shares have outperformed general equities over the long term; important to remember given more recent events which have left property shares trading at very low valuations. M&A provides the empirical evidence that if stock market investors don’t care, others do, and are buying up assets. In the Portfolio section we discuss some of the M&A in TRY’s portfolio, which is an increasingly long list.

The TRY team have a bird’s eye view of the asset class and thus are able to navigate strategic changes such as we are seeing now, as well as more tactical opportunities. A portfolio of equities in property companies is potentially subject to bigger swings in its own net asset value than those of its underlying holdings, and this was certainly true for TRY in 2022. On top of the enduring case in favour of TRY, which gives investors access to an expert manager in a specialist field, this large swing represents the more tactical opportunity that TRY’s portfolio is trading at much lower valuations than just two years ago, but in contrast, underlying companies are performing well. Given the stage in the cycle, with TRY’s own 9% discount on top of the very low valuations of the underlying, TRY should be of interest not only to generalist investors seeking a specialist manager in property but also to property specialists seeking a unique recovery play.