TR Property has announced results for the year ended 31 March 2016. The NAV rose 8.2% which was well ahead of the benchmark rise of 5.4%. However the share price total return was -1.6%. The Directors have announced a final dividend of 5.20p per share, a 9.5% increase over the prior year final dividend. This brings the full year dividend to 8.35p, a 8.4% increase on the 2015 total of 7.70p.
The physical property portfolio was the strongest performing component of the portfolio, well ahead of equities with a total return of 19.7%. This was primarily capital growth (16.5%) and a modest income return of 3.2% reflecting the leasing phase of their largest asset. The IPD Monthly Index total return for the 12 months was 11.7%. During the year the Trust purchased one industrial property in Gloucester at a total acquisition cost of GBP6.6m. On a like for like basis the property portfolio’s total return was higher at 21.3% as it excludes the negative effect of the purchase costs (GBP0.4m) at Gloucester.
The manager says continental European companies outperformed the UK names in the second half of the year, a reverse of the pattern seen in the first half. This gulf in relative performance has been particularly acute in the last few months. The Europe ex UK (in EUR) component of TRY’s benchmark returned +3.6% in Q1 2016 whilst the UK names (in GBP) fell -7.1%. Not only have the continental property companies benefited from this ECB driven tailwind, the UK has suffered its own headwind in the form of the upcoming referendum.
The impact of the uncertainty surrounding the June vote has fallen most heavily on the largest UK companies, (in part as a consequence of their greater liquidity) and the most London-centric. Whilst the fund does hold a large position in Land Securities, this was offset by a large underweight position in British Land. Performance suffered in the last quarter of the financial year from large positions in high-quality London-centric businesses such as Derwent London, Great Portland Estates and CLS Holdings. The collective overweight to the UK (versus Continental Europe) was reduced to a five year low in the second half on anticipation of weakness in the high-end London residential market as supply increased and stamp duty changes significantly damaged transaction volumes.
The largest contributors to the relative outperformance were the large positions in German residential businesses and our physical property portfolio which saw strong returns from asset management initiatives in the London assets. The German residential markets continue to offer strong fundamentals with continuing demand (household growth and immigration), affordability (due to wage inflation) and lack of new supply (inner city planning and zoning constraints) all contributing factors. The listed German companies are now 18.5% of their benchmark, consolidation as well as the listing of new residential entities have been regular corporate actions over the last few years. This year saw the successful acquisition of Gagfah by Vovonia funded by a EUR2.2bn rights issue. However this was followed by a hiatus of corporate activity as the three largest companies then attempted (quite unnecessarily in their view) to take each other over. The end result was that the status quo of three separate businesses was maintained with shareholders correctly identifying that over payment for modest synergies and cost savings was bad business. The only consequence appears to have been large fees to advisers coupled with silence from the respective supervisory boards over the behaviour of some management teams.
TRY : TR Property outperforms as direct portfolio returns almost 20%