Post the referendum, the asset value of TR Property was a significant beneficiary given the appreciation of our European assets when measured in Sterling. The Trust’s asset value rose 10.7%, ahead of the benchmark which recorded 9.7%. Whilst UK property shares fell -3.8% over the period, their UK physical portfolio held up relatively well with a modest valuation movement of -1.5% reflecting the fact that one third of the physical portfolio’s income is the new 20 year lease to Waitrose subject to 3% per annum rent uplifts at their Bayswater property.
Income remains the dominant requirement from investors seeking exposure to this asset class. In fact over the last six months and in response to the heightened political and economic risks, it is clear that the quality and depth of this income is also critical. In essence, those businesses combining higher income of longer duration with lower leverage, have been in greatest demand whilst those more focused on the development cycle or reliant on capturing rental growth have fared poorly.
The Manager had been reducing exposure to Central London since late 2015 and this was accelerated ahead of the UK Referendum. As discussed in the Annual Report, they have virtually no exposure to high end London residential, and negative sentiment towards that sub-market has swamped some stocks disproportionately. The asset rotation has been towards the more secure income streams both in the UK and Europe. They say the fact that gearing has remained constant over the period points to their confidence that the sector continues to offer an attractive investment proposition.
The share price total return (assuming dividend reinvestment) was 7.0%. Earnings per share at 7.14p are almost 30% ahead of the prior year at this interim stage (5.51p). The impact of the UK referendum vote and the subsequent weakness in Sterling has been a significant factor. Over half of annual income is derived from investments outside the UK . This has enabled the Board to announce an interim dividend on 4.10p, an increase of 30.2% over the prior year interim dividend of 3.15p.
TRY : TR Property benefits from its European exposure