TR Property (TRY), the £1bn pan-European real estate fund, is on track to restoring dividend cover after seeing revenue rise 23% in the first half of its financial year.
The 5%-yielder, which pays two dividends a year, lifted the interim payout to 5.75p per share up 1.8% from 5.65p a year ago.
Revenue per share jumped 1.91p from 8.16p to 10.07p in the six months to 30 September as the company continued to see a recovery in earnings and dividend increases from most of the real estate investment trusts in which it mostly invests.
After a previous two years in which earnings had fallen but the company had modestly increased payouts, chair Kate Bolsover was pleased to see there would be a smaller contribution from revenue reserves this year.
“With the current trajectory of increasing earnings, the board is confident that the annual dividend will return to being fully covered. However, it is anticipated that a modest contribution from revenue reserves for the current financial years will be required,” she said.
The improvement on dividends was matched by capital gains with net asset value (NAV) per share advancing 7.4% to 351.36p helped in part by an overweight position in Picton Property Income (PCTN), which returned 12.3% in the period.
With the dividend included, the underlying total return from the portfolio managed by Marcus Phayre-Mudge at Columbia Threadneedle was 10.6%. This beat the 9.6% return from its benchmark, the FTSE EPRA/NAREIT Developed Europe Capped Net Total Return index.
A narrowing in the discount, or gap, between the share price and NAV from 10.1% to 8.9% ensured shareholders received a higher total return of 12.4%. That’s an improvement on the 4.9% loss they incurred at the same point last year. However, shareholders will be looking for more after a five-year total return of just 2% that reflects the downturn in real estate as inflation and interest rates rose from 2021.
“This period has been a classic tug of war: political uncertainty and higher-for-longer rates on one side, solid real estate fundamentals and a flurry of corporate activity on the other side,” said Phayre-Mudge.
He added: “Over the half year, the positives have quietly pulled ahead, with the portfolio delivering a double-digit NAV return. Financing costs are easing, corporate activity is back on the front foot and high-quality assets remain in short supply. It is not a fairytale recovery, but the building blocks for further progress are firmly in place.”
On UK corporate activity, the manager was pleased at the completion of Urban Logistics’ sale to LondonMetric Property (LMP). Another deal he supported was Primary Health Properties (PHP) beating private equity giant KKR to buy Assura.
He said the sales process of Warehouse REIT, a sub-scale portfolio that couldn’t cope with the higher interest rate environment, had been “tortuous”. Blackstone won the day, having first reduced its offer and then raised it again in response to a counter bid from Tritax Big Box (BBOX). The ultimate price was 12% below NAV which Phayre-Mudge said was a “reminder that third party independent valuations need to be treated with caution.”
