Fund Profile

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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by TR Property . The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

TR Property Investment Trust (TRY) owns a large and liquid, £1.2bn portfolio made up mainly of the shares of property companies based around Europe, including the UK. It also holds up to 15% in UK physical property (currently 7% of NAV).

TRY has consistently outperformed its FTSE EPRA/NAREIT Developed Europe benchmark in recent years, as discussed in the Performance section. It has also outperformed the direct property trusts in the AIC UK Commercial Property sector, which are arguably the first port of call for UK investors seeking property exposure.

TRY is managed by Marcus Phayre-Mudge, who took over the portfolio in 2011 but has been involved in the management of it since 1997. Marcus manages a team of ten, overseeing £2.3bn of primarily pan-European real estate equities – of which TRY is the largest fund. He uses both top-down analysis of countries and sectors, and bottom-up analysis of valuations to guide his decisions. This approach has led to a portfolio biased towards industrial, logistics and residential and away from retail. TRY seems to be overweight in the UK, but the exposure to the UK economy is low (see Portfolio section).

TRY pays dividends semi-annually and has not cut its payout following the impact of the pandemic, unlike many property trusts and funds. It has cash in reserve equal to last year’s full dividend, and yields 3.8% on a historic basis.

Following the impact of the pandemic the discount has widened out to 10%, having traded on a slight premium at the turn of the year. We note, however, that the companies TRY buys are also trading on discounts to NAV.

Analyst's View

TRY offers a way to get diversified property exposure, while sidestepping some of the major issues in the UK property market. TRY exploits the advantages of the investment trust structure by using gearing to enhance returns, investing in less liquid investments when appropriate and has established healthy revenue reserves. Meanwhile the more diversified exposure across Europe minimizes Brexit risk and the importance of any one economy to returns. Additionally investing in shares means much greater liquidity and the ability to react faster to events, such as the development of the current pandemic.

Perhaps crucially for many investors, the healthy dividend does not seem under threat either. The historic yield is 3.8%, compared to 4.6% for the median generalist UK commercial property trust. Historically this gap has been wider, but the key point is the relative security of the payout. As we discuss in the Dividend section, the low exposure to troubled sectors and the portfolio’s diversity means that income collection this year seems to be proceeding well. With more than 100% of last year’s dividend in revenue reserves, the board will be able to maintain the payout at last year’s level or even raise it if it wishes.

We also think it notable that, although the discount is only 10%, the shares of the underlying investments are trading on a discount to NAV too. Marcus estimates the look through double discount is as high as 13%.

bull bear
A strong track record of outperformance Invests mainly in shares not physical property, so tends to be correlated to equity markets
A double discount, thanks to discounts on the underlying companies Relatively high look through gearing, which can exacerbate losses on the downside
A yield close to that of direct UK property trusts but with reserves over 100% of last year's payout Uncertainty around the continuing pandemic could keep pressure on areas of the property market
Continue to Portfolio

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