TR Property extends its run of good performance – TR Property delivered a net asset value total return of 15.5% for the year ended 31 March 2018, well ahead of the benchmark at 10.2%. Coupled to this revenue has increased by 16.2% for the year and the total dividend for the year was 12.20p, 16.2% ahead of the 2017 full year dividend of 10.50p . The share price total return was higher at 25.5% as the discount between the share price and the asset value narrowed materially from 10.7% to 3.2% over the year.
The manager’s report says that the growth in net assets was primarily driven in the first half by the fund’s Continental European stocks. Regional returns in the second half of the year were much closer with the UK component of the benchmark slightly outperforming, 4.1% in GBP versus Europe (ex UK) returning just 2% in EUR. However the fund’s relative outperformance of the benchmark was not primarily driven by geographical focus but by subsector exposure and stock selection particularly amongst small caps.
The fund is underweight retail property while industrial and logistics is still its largest collective overweight. This was a key performance driver. Politics continued to have an impact. The result of the UK election last June led to relative underperformance of the UK property stocks versus their Continental cousins in the first half of the year. London centric businesses (both large caps such as Landsec as well as the specialist developers such as Great Portland Estates) suffered from the ongoing concern that rental growth would reverse as London employment levels (particularly in financial service related businesses) dropped.
Retail property remains deeply unpopular whilst the other side of the online, omni-channel retailing phenomenon, namely warehousing, continues to experience stellar returns. In the UK TRY’s principal retail exposure was through Capital & Regional, whose centres focus on a local catchment and where rents remain affordable. While the stock underperformed the broader index it was the best performing UK retail stock. The manager believes that reduced transaction volumes, particularly in retail, are holding back the downward adjustment to prices which the independent valuers need to make. They continue to cite lack of evidence when producing independent valuations, whereas the equity market already knows the direction of travel and has the shopping centre owners standing at discounts of between 15% (Unibail) and 45% (Intu) to their last reported asset values.
Exposure to alternative sectors such as student accommodation, self-storage, healthcare, budget hotels, index-linked and secure income increased materially alongside an increased exposure to South East (ex-London) office markets. Virtually all of these investments exceeded the benchmark return with the strongest performances from McKay Securities (36.2%), CLS Holdings (36.8%) and Safestore (33.4%).
[QD comment: TR Property’s results statement is detailed and extensive, the performance section that we have based this extract on is just a small subset of the whole. It is worth reading the full report which should be available soon under the documents tab on TR Property’s company page]
TRY : TR Property extends its run of good performance