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There is no denying that commercial real estate became unfashionable when interest rates started to rise, but with the gradual easing in base rates things are improving. As TR Property’s renewed outperformance shows, investors are beginning to differentiate between the less desirable elements of the sector and the companies that the manager seeks out that own quality assets with strong balance sheets.

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Whilst cuts to interest rates may be modest from herein, the manager feels that the companies they own will prosper even at current levels, as real estate pricing will benefit from the stability in the cost of medium-term debt (five-year swaps).

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As a closed-ended property fund, investors benefit from liquidity as underlying assets do not need to be sold to meet redemptions. TR Property’s ability to buy and trade alternative asset types beyond the traditionally dominant office and retail sectors and into self-storage, residential, fixed income and logistics, is a driver of value and differentiation and provides resilience during times of market stress.

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TR Property has benefited from the increase in Mergers and Acquisitions (M&A) activity within the Real Estate Investment Trust (REIT) sector. Last year, Industrials REIT received a cash offer from Blackstone at a 40% premium to share price and TR Property Trust was the largest shareholder. Then the US based Reality Income bought Ediston Property’s assets for cash. Ediston had switched their focus to retail warehousing and the buyout was another example of a highly rated US company taking advantage of the undervaluation of European public markets. TR Property Trust owned 16% in Ediston.

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In addition to M&A activity, the trust has an overweight position in warehousing logistics which has added significant value to the portfolio. Dividends in several of their holdings suffered as rates rose, but the ability of investment trusts to smooth out their dividends meant that there was no loss of income to investors.

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The current dividend stands at 4.46% and is covered 1.24 times. It is classified as one of the next generation of “Dividend Heroes” by the Association of Investment Companies with 14 years of unbroken dividend growth. In addition to the dividend the shares have risen 14.10% over the last 6 months and 22.22% over a year*, an indication of the improved outlook for property.

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*FE Analytics to 20/09/2024 Net of manager’s fees

The views are those of the author only. The above does not constitute a recommendation to buy the fund and advice should be sought from your financial advisor as to the appropriateness of this fund in your portfolio. The value of investments can fall as well as rise. Past performance is no guarantee of future returns.

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