By TR Property
Key Points:
- Sentiment has shifted with the realisation quality assets look undervalued
- Investors continue to benefit from M&A as a value underpin
- TR Property is fortified to ride out a prolonged period of higher rates
- Doors to access real estate close elsewhere, boosting investment trust appeal
TR Property Investment Trust (‘the trust’ / ‘TR Property’) – the only FTSE fund specialising in listed real estate across the UK and Europe – has released positive results covering the year to 31 March 2024.
TR Property’s share price return for the year was 22.9 per cent, alongside a net asset value (NAV) total return of 21.0 per cent, ahead of the trust’s benchmark1, which was up 15.4 per cent.
Kate Bolsover, chairman of TR Property, comments: “There is no denying that commercial real estate became unfashionable when interest rates began to rise. But as TR Property’s renewed outperformance shows, investors are beginning to differentiate between the less desirable elements of the sector and the companies that our manager seeks out—that is, companies that own quality assets and have strong balance sheets.”
The board of TR Property announces a final dividend of 10.05 pence per share (PPS), taking the full year dividend to 15.70 PPS. This is a 1.3 per cent increase on the prior year and represents a dividend yield of 4.8 per cent.
Interest rates continue to dominate, fuelling M&A
Share price action is still being driven by base interest rate expectations. TR Property’s share price rallied and receded several times over the course of the year, moving in tandem with expectations around the proximity of European rate cuts.
Marcus Phayre-Mudge, fund manager of TR Property, comments: “These false dawns have led to many investors remaining on the sidelines, awaiting harder evidence of base rates falling. Our central case is that this point is drawing ever closer but crucially, our positioning and optimism is not dependent on major reductions in interest rates. The companies we own have balance sheets which can withstand rates remaining at current levels.
“The spike in takeover activity this past year shows acquirers are rushing in to take advantage, where public markets have left quality assets languishing at significant discounts.”
The trust’s exposure to this heightened merger and acquisition (M&A) activity was among the key contributors to 2023/24’s strong performance, with four transactions involving investee companies during the year, and fifth proposed post-year end.
Earnings and long-term performance
The trust’s earnings, at 12.04 PPS, were just over 30 per cent lower than the previous financial year, an expected dip which was flagged in the last interim and annual reports.
The income reduction came as some of the trust’s investee companies paused or reduced dividends, as they strengthened their balance sheets. Earnings in the prior reporting year (2022/23) were flattered by several one-off items, whilst April 2023 brought with it a rise in UK corporation tax.
Ms Bolsover comments: “We aim to balance investor appetite for income against the trust’s cashflow in a given year. This approach means we build up strong revenue reserves during fruitful years, allowing us to pay a covered dividend when earnings temporarily recede.”
TR Property has beaten its benchmark by 53.5 percentage points over the decade to 31 March 2024; and the trust’s NAV total return has outperformed the benchmark in 12 of the last 13 years.
Outlook: Broader appeal for a streamlined sector
The trust’s central case is an optimistic one. This positive viewpoint is not predicated on substantial reductions in interest rates; but rather, the likelihood of more stability in the monetary environment.
There are several structural factors which TR Property predicts will buoy interest in the listed property sector. Open-ended property authorised investment funds (PAIFs) are restructuring to hold more equities; and it is becoming harder to be a viable private landlord in the UK. Retail investors are therefore searching for new ways to access the reliable income and leveraged returns that property investments can provide.
Mr Phayre-Mudge comments: “Real estate equities are the solution for those seeking liquid exposure to the sector. Liquidity comes with market size, and the creation of fewer, larger companies should lead to more investor appetite. This consolidation is underway, but there is scope for much more.
“Whipsawing investor sentiment towards our corner of the equity market remains frustrating – but it provides opportunity for investors to enter the fray, before a wider realisation that demand for good quality real estate is very still strong. Our portfolio positioning reflects our strong belief in this rental growth.”
TR Property’s full annual report for the year to 31 March 2024 can be viewed here.
Issued by Columbia Threadneedle Management Limited, No. 517895, registered in England and Wales and authorised and regulated in the UK by the Financial Conduct Authority.
