TR Property (TRY) has reported full-year results to 31 March 2025, during which it delivered a NAV total return of -2.5%, outperforming its benchmark’s -3.8% decline. While the first half of the year was supported by narrowing credit spreads and improving sentiment, the second half was challenged by rising bond yields, geopolitical turbulence, and renewed inflation concerns – headwinds for leveraged real asset strategies. However, revenues were resilient in the face of the deteriorating macro conditions, although the dividend remains uncovered. Gearing has been increased reflecting the manager’s view on European real estate.

Over the period, TRY’s NAV per share fell 6.9% to 327.16p, while the share price declined by 9.5% to 294.00p, producing a share price total return of -4.9%. The underperformance relative to NAV reflected a widening of the discount to 10.1% (versus a five-year average of 6.9%). Although no buybacks were undertaken, the trust says it remains active in investor engagement efforts to help narrow the discount.

Income growth and dividend coverage

Despite a challenging year for capital values, revenue earnings per share rose 7.8% to 12.98p (2024: 12.04p), supported by resumed dividends from previously suspended portfolio holdings and disciplined cost control. The Board declared a final dividend of 10.25p, bringing the full-year dividend to 15.90p (up 1.3%), though the dividend was uncovered, with an 18.4% draw from revenue reserves. While not ideal, the Board remains confident in the underlying income trajectory, expecting future distributions to be increasingly underpinned by organic rental growth and asset management upside.

Gearing strategy and debt structure

Net gearing increased materially from 10.8% to 18.5%, reflecting high conviction in the opportunity set across listed European real estate. The trust actively deployed gearing through a mix of term loan facilities and contracts for difference (CFDs), including a new £30m multicurrency facility from RBSI, supplementing the existing £60m line.

TRY’s Euro-denominated loan note (1.49% coupon) matures in early 2026 and the board believe it will likely reprice higher in the current rate environment. However, it says that refinancing discussions are underway, and the trust’s diversified capital sources and rolling maturities provide both flexibility and resilience.

Capital allocation and portfolio turnover

Portfolio turnover remained high at 45% of net assets, reflecting high levels of M&A, capital raising, and volatility-driven repositioning. Key portfolio changes included an increased weighting to Continental European retail (e.g. Unibail-Rodamco-Westfield), reduced exposure to higher-leveraged Swedish names (e.g. Catena), and targeted exits from underperformers such as Hammerson and Shaftesbury Capital.

The manager also participated in 14 equity raises during the year, including sizeable allocations to Unite (PBSA), Swiss Prime Site, and Covivio. These deployments reflected a tilt toward companies with clear earnings visibility, operational scale, and value-creating development pipelines.

Physical property contributions and asset management

TRY’s direct property exposure remained minimal. Two acquisitions – Launton Business Centre (Bicester) and a light industrial asset in Northampton – were completed at decent yields (5.4% and 7.5% respectively) and the manager says they offer material rental uplift potential. Meanwhile, the trust’s Wandsworth estate underwent a major refurbishment programme, delivering net-zero EPC A-rated units. Overall, the direct property portfolio generated a 7.7% total return (5.3% capital, 2.4% income).

Sub-sector attribution and strategic positioning

TRY’s portfolio remained overweight to sectors with structural or cyclical tailwinds. Key positions included:

• Retail: Positive exposure to European shopping centres and retail warehousing, benefiting from resilient consumer demand, rebasing of rents, and declining vacancy.
• Residential: High-conviction exposure to Phoenix Spree Deutschland (German condos), PRS REIT (UK build-to-rent), and Irish Residential Properties REIT, all well positioned to benefit from structural undersupply and tenant affordability constraints.
• Offices: A tightly curated overweight to core Paris CBD (via Gecina and Covivio) and selective exposure in London (Workspace), avoiding legacy assets in structurally challenged sub-markets.
• Alternatives: Capital deployed into Unite (PBSA), Primary Health Properties and Target Healthcare (care homes), all viewed as beneficiaries of long-term demand and stable cash flows.

The manager actively avoided weaker balance sheets and governance issues. It says this was evident in the activist-led stance on Urban Logistics REIT, where an internally proposed buyout of the management contract was opposed, favouring instead LondonMetric’s takeover bid.

M&A and corporate action

Corporate activity remained a key performance driver. Private equity interest in UK and European REITs accelerated, with notable bids for Assura (KKR), Balanced Commercial Property Trust (Starwood), and Warehouse REIT (Blackstone). While not all transactions completed (e.g. Blackstone’s revaluation of Warehouse REIT’s offer), TRY’s manager says that the activity underscores the latent value embedded in the listed real estate universe.

TRY was an active participant and, in several cases, a vocal shareholder, engaging with boards on governance and transaction terms. The manager continues to view consolidation – especially where it drives operating scale and lowers the cost of capital – as a long-term catalyst for rerating.

Macroeconomic headwinds and market volatility

TRY’s manager comments that the second-half underperformance was largely macro-driven. The surprise uptick in swap rates, adverse UK budget policy, and European political instability (France, Germany) weighed on longer-duration, leveraged assets. German Bund yields rose to 2.9% in the first quarter of 2025, triggering marked corrections in residential names and compressing NAVs across the sector.

However, the manager says that market fundamentals continue to improve: rental growth across industrial, retail, and prime office markets remains positive, vacancy is falling, and lending markets are reopening with tighter spreads. The collective LTV ratio across TRY’s investable universe is in the mid-30s – historically conservative – providing further support for long-term earnings resilience.

Outlook – Gearing into value and recovery

TRY enters FY2026 with a high level of gearing and a portfolio tilted towards undervalued quality assets. The manager expects further M&A, ongoing recovery in dividend payments, and rental growth to underpin returns, even as interest costs and tax drag on earnings persist in the short term.

While volatility remains elevated, the trust’s long-term approach—focusing on asset quality, balance sheet strength, and governance alignment—positions it well to outperform across the cycle. The Board remains confident in the Manager’s strategy and, while maintaining a cautious dividend growth stance, is optimistic about a return to fully covered payouts in the medium term.

[QD comment MR: TR Property’s results for the year to 31 March 2025 reflect the broader pressures on listed property, but also the trust’s ability to hold its ground in a volatile market. A modest outperformance of the benchmark in NAV terms is notable given the scale of macro uncertainty and the pronounced sell-off in the second half. The widening discount and share price underperformance are disappointing but not surprising in the context of investor skittishness around real assets. Encouragingly, the manager’s increased gearing signals strong conviction, with selective exposure to M&A activity and a focus on fundamentally sound, cash-generative businesses offering a potential catalyst for recovery.]