Investors looking for access to the income-paying property sector have few options unless they are happy to pay a premium, but TR Property offers a 3 per cent yield for less than the price of its underlying assets. The managers have also produced better NAV returns than almost all the open-ended vehicles in the property securities sector, Tepes (pictured) says.
"Performance over the past year stands out due to its lack of exposure to Asia Pacific markets, which have been impacted by recent concerns over the Federal Reserve’s likely tapering of its quantitative easing programme in the near future," she said.
"However, the trust has consistently registered strong performance even prior to the recent run of form."
"Furthermore, TRY’s [TR Property] dividend yield is more generous than the vast majority of its open-ended peers."
According to data from FE Analytics, only Aberdeen Property Share has produced better returns than the NAV gains of TR Property over the past year.
The £742m trust has made 26.2 per cent compared with 31.5 per cent from the Aberdeen fund; the next-best open-ended fund – Premier Pan European Property – has made 24.2 per cent. SWIP European Real Estate has made 19.4 per cent.
NAV performance of trust vs funds over 1 and 3yrs
| 1yr NAV returns (%) | 3yr NAV returns (%) | |
|---|---|---|
| TR Property | 26.2 | 36.8 |
| Aberdeen Property Share |
31.5 | 54.9 |
| Premier Pan European Property | 24.2 | 34.2 |
| SWIP European Real Estate | 19.4 | 22.7 |
| Henderson Horizon Asia Pacific Property Equities | 18.9 | 17.4 |
Source: FE Analytics
Over three years Aberdeen Property Share has returned 54.9 per cent and TR Property 36.8 per cent in NAV terms.
The discount has narrowed in recent months, helping push the share price gains even higher.
Over three years, shareholders have made 60.94 per cent. This is superior to the 57.88 per cent made by investors in the Global Real Estate trust, which was severely hit by the flight from emerging markets this summer.
Performance of trusts and fund over 3yrs
Source: FE Analytics
Since 1997 the trust has been run by Marcus Phayre-Mudge, who has a strong long-term record.
Despite this, the trust has not followed its rivals onto a premium, although the discount has been narrowing recently.
FCPT has gone on to a premium of 17.2 per cent and Standard Life Property Income is on 13.9 per cent.
UK Commercial Property is trading on a 10.7 per cent premium and Schroder Real Estate 6.3 per cent.
In contrast, the property securities trusts have been less popular among investors. Global Real Estate Investors is on a 1.1 per cent discount, and TR Property 4.1 per cent.
Tepes says that closed-ended funds have an advantage when it comes to investing in property: open-ended funds are forced to hold assets in cash to hand back to investors when they want to exit.
"In response to the events of 2008/2009, open-ended funds today maintain a significant proportion (typically 20 per cent or more) of their portfolios in cash or liquidity instruments (such as UK gilts)."
"This allocation results in a significant cash drag, since the money generates a substantially lower yield and does not benefit from capital appreciation or inflation protection, all of which negatively impact returns over the longer run."
TR Property actually benefits from being in the property securities sector rather than investing directly in bricks and mortar, she adds.
"Although listed property funds are, in our opinion, superior to their open-ended counterparts, the data suggests that their NAV returns are nonetheless far inferior to those that invest in listed property securities."
"We believe this is because fund managers who invest in listed property securities have the flexibility to allocate between different geographies and sectors."
"This gives them the ability to take advantage of opportunities quickly and provides a greater degree of diversification, both of which help contribute to longer-term outperformance."
It has to be said that investors would have to give up a certain amount of yield to go down the securities route.
F&C Commercial Property is yielding 5.1 per cent and Standard Life Investments Property Income 6.6 per cent. Investors can get 7 per cent from UK Commercial Property and 5.1 per cent from Schroder Real Estate.
The 3 per cent of TR Property is modest by comparison, although the trust has managed to increase its dividend by 4 per cent a year over the past five years, while all the direct trusts with a track record that long have seen negative growth.
The trust has beaten its FTSE EPRA NAREIT Developed Europe index benchmark over one, three, five and 10 years, and Tepes points out it has beaten it in 100 per cent of rolling five-year periods.
Over five years it has made 152.09 per cent while the benchmark has returned 86.13 per cent.
Performance of trust vs benchmark over 5yrs
Source: FE Analytics
The trust has 48 per cent in the UK, 19 per cent in France and 11 per cent in Germany. Retail property makes up 36 per cent of its assets, office property 35 per cent and residential property 16 per cent.
Tepes says that the outlook for the property sector is supported by the macroeconomic situation.
"In our view, while the global recovery is hampered by unresolved imbalances in the eurozone and political uncertainty in the US, the flipside is that central banks are likely to keep interest rates low and tolerate any resultant inflation for longer than usual."
"We believe this combination of low rates, rising inflation and continued uncertainty should buoy demand for the high-quality property assets held by TR Property."
Ongoing charges before the management fee are 0.99 per cent and in the last year totalled 1.58 per cent with the addition of the fee.