Fund spotlight: TR Property Investment Trust

interactive investor's analysts give an update and view on the TR Property Investment Trust.

As one of the best-performing asset classes in 2019, many investors who had exposure to the property theme were enjoying both the benefits of diversification and high returns. In addition, real estate companies have, historically, provided stable income for their investors, further contributing to their absolute performance. 

The debate around the closed-ended (investment trusts) versus open-ended (funds) structure and liquidity mismatches in the property sector has never been as heated as it currently is, considering fund closures both after the EU referendum and more recently. However, it does seem like investment trusts are winning the argument when it comes to convenience, as instant access to money is guaranteed should any unexpected circumstances arise. If the worst happens, money could be tied up in funds for weeks or even months.

The fund

Launched in 1905, TR Property Investment Trust (LSE:TRY) is one of the oldest investment trusts and the largest pan-European property equity trust. It has been managed by the highly regarded Marcus Phayre-Mudge since 2011. He has a wealth of knowledge and experience in both physical and listed real estate and is supported by six other investment professionals including three qualified property surveyors.

The TR Property team could also seek further expertise from BMO Global Asset Management, the corporate umbrella for the trust, if and when needed. The board, which is independent and composed of professionals with extensive experience in the property and financial sectors, meets on a regular basis and have close contact with the manager, adding further value to the strategy.

The team has a well-established investment discipline based on fundamental analysis and rigorous operational due diligence combined with an understanding of events and possible impact at a macro level.

They believe that listed property markets are inefficient, and this is the area where the trust could add value for its clients. In addition, investing in property is usually focused on income generation. In this regard, it should not be surprising that the trust’s dividend has increased roughly 2.5 times over the last decade.

The portfolio is built around the idea of remaining fairly neutral at a regional and sector level, and the team can take positions in the range of +/-3% relative to the FTSE EPRA/NAREIT Developed Europe Index. In line with its mandate, the trust could potentially employ up to 25% gearing (borrowing). It currently sits at 12%.

What’s in it?

Although primarily focused on investing in property shares, the manager also recognises the potential opportunities for physical property, so has the ability to own physical property up to 15% of the overall portfolio (currently around 6%).

At the end of January 2020, the trust had a concentrated portfolio of around 40 stocks, with the top three largest geographical exposures being the UK (c.40%), Germany (c.33%) and France (c.15%). 

In terms of sector allocation, the trust is well spread across Industrial, Offices, Residential and Retail real estate. Despite the ongoing uncertainty following Brexit, the team still believes that central London offices remain an attractive asset, especially for overseas buyers, due to limited supply. As a result, the UK is also the largest overweight relative to the benchmark. 

The top three holdings, which represent almost a quarter of the overall portfolio, include Germany's largest residential property company Vonovia with c.11%, the commercial real estate company Unibail-Rodamco-Westfield, and the German Leg Immobilien with c. 6% weight each.  

Currently, the portfolio is tilted towards the mid-cap spectrum, but the team could take positions in smaller companies, due to its closed-ended nature, as a source for profit generation. 

How does it perform?

Source: Morningstar Direct as at 31st January 2020. Total Returns in GBP.

The trust has delivered exceptional above-benchmark returns over the long and short-term. Over five- and three-year cumulative periods, the trust outperformed its FTSE EPRA/NAREIT Developed Europe Index benchmark by 27% and 18% respectively. In addition, its historic yield stands at around 3%. The strategy has also demonstrated better risk-adjusted returns against the peer group and the benchmark over multiple periods.

As at end of January 2020, the trust was trading on a modest discount to its Net Asset Value (NAV), which is typical. The board does not have a formal discount control policy but could step in when needed. Such an example was after the Brexit referendum, when the board bought back 150,000 shares at an average discount of 16%. 

The ii view

TR Property Investment Trust features on interactive investor’s Super 60 preferred range of active and passive investments as an Adventurous choice in the property sector.

It offers a sound, high-conviction portfolio of listed and some physical properties and may be a good fit for investors with growth and income objectives, who are seeking to diversify away some risk. The trust could be used as a core property holding in a global well-diversified portfolio.

TR’s pricing structure may look a bit complicated as it includes a performance fee, but the board reviews the costs annually. This results in a lower ongoing charge thanks to the fixed-fee feature and the growth in size the trust has demonstrated. The latest ongoing charges figure (OCF) is 0.76%, including the performance fee. 

• Find out why this fund is on the ii Super 60 investments list
• Click here for more information on this fund, including price, yield and charges

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