Marcus Phayre-Mudge, manager of the trusts, says the company is merging both the Thames River Property Investment Trust and the small cap-focused Thames River Investment Trust Sigma.
"There’s already a significant overlap in names, though not in focus," Phayre-Mudge commented.
He adds that the merger will allow for greater diversification in the single portfolio.
"There’ll be more stocks in the portfolio, though the top 10 will still account for roughly half," he said.
The combined portfolio, which had been split in 2007 to allow for more flexibility in the smaller companies space, will have roughly £650m in assets under management (AUM) and will trade at a discount.
Currently, the TR Property Investment Trust is trading on a discount of 16 per cent, while its smaller companies focused counterpart, the TR Property Investment Trust Sigma, is trading on a discount of 19 per cent.
Phayre-Mudge says that when the team initially announced to shareholders its intention of merging the two portfolios, the Sigma trust was trading on a discount of nearly 30 per cent, which significantly narrowed in response to the change.
Both trusts have significantly outperformed the IMA Property sector over five years, although the Sigma portfolio suffered a heavy loss in 2008.
However, over five years, the TR Property Trust has returned 14.8 per cent, while the Sigma Trust has made 18.31 per cent.
As a point of comparison, the IMA Property sector is down 6.7 per cent over the period.
Performance of trusts vs sector over 5-yrs
Source: FE Analytics
The all company portfolio is currently yielding 4.03 per cent, while the Sigma portfolio has a yield of 3.25 per cent. The trusts are also cheaper than many open-ended funds, with a total expense ratio (TER) of less than 1 per cent.
Phayre-Mudge says the closed-ended structure of the new trust makes it much more stable than an open-ended property fund, particularly in volatile market conditions.
He adds that the house-price slump that started in 2007 was particularly damaging for funds, causing a run on assets in the sector, but it did not affect trusts to the same extent.
The closed-ended nature of trusts, which means investors need to sell shares in the investment company to exit, allowed the team to hold assets and reinvest, gaining more traction when the market rose.
Both trusts focus on small to mid cap European equities, although the Property Trust has the ability to invest across the entire market spectrum and holds roughly 60 per cent of the portfolio in large caps.
Phayre-Mudge says he is currently avoiding peripheral Europe and is instead focusing on Germany and Scandinavia, which have healthier rental growth.
The manager also holds 10 per cent of the trusts in physical property, which he says gives the vehicle an added boost to income and a better knowledge of the marketplace.
"We invest in physical property for three reasons," he said. "One, I can afford to have a full-time surveyor. Secondly, we get a lot of income from physical property. And most importantly, because we’re buying and selling, we’re in touch with the market."
"We feel we’re hopefully a step ahead of competitors because we have a close relationship with the market and the brokers."
Charles Cade, investment trust analyst at Numis Securities, says it makes sense the company is planning to combine the trusts.
"They were demerged a few years ago and the thought process was that it was getting too big and they wanted exposure to the smaller companies property space."
"But then the financial crisis happened and that changed everything and the Sigma class ended up being very small."
Cade says the trust has a good management team and is trading on a wide discount, making it an attractive proposition for investors.
"Its NAV is up 28 per cent this year so it has performed very well. The Sigma class is up even higher so it has also performed very well this year," he adds.
However, Cade says investors are still wary of European property due to issues in the region.