A guide to the TR Property Investment Trust

Please note – This interview took place on April 7, 2025, during the height of market uncertainty following the announcement of US tariffs on April 2nd. Please be aware that events have changed quickly and some of the views and holdings may have changed since the interview took place.

TR Property Trust (TRY) invests in the shares of property companies of all sizes, typically within Europe and the UK. It will also have a small amount invested in physical property in the UK. Its managers look for well-run businesses in sectors including retail, office, residential, industrial property and alternatives (which includes student accommodation, self-storage and healthcare). The trust has a history dating all the way back to 1905, although it became a real estate specialist vehicle in 1982.

Marcus Phayre-Mudge has managed the portfolio since 2004. Performance has been incredibly strong under his tenure, outperforming its benchmark index the FTSE EPRA Nareit Developed Europe in 13 of the past 14 financial years (TRY’s annual year runs to 31 March)*. Over the past decade TRY has returned 27.8% to investors (share price total return), compared to 1.2% loss for the index**. TRY also pays a dividend yield, which currently stands at 5.51%***.

Investment process

Speed and diversity key to performance

Marcus has a structured but pragmatic process. He analyses how economic policies will affect property as an asset and individual property companies. He makes full use of all the members of his team to ensure every investment opportunity receives in-depth attention. The investment selection process seeks to identify well managed companies of all sizes. Marcus generally regards future growth and capital appreciation potential more highly than immediate yield or discount to asset value. Technically, the trust can invest anywhere in the world but, in practice, the focus—and the trust’s benchmark—is a pan-European index.

Although the trust primarily buys property shares, the team can also have up to 15% of the portfolio in physical property. This is so that they will always have first-hand information about the state of the market, without any third-party influence. The final portfolio typically holds around 75 names.

Why now for this portfolio

• TRY gives exposure to a mix of pan European property shares and direct exposure to physical property in the UK. TRY has the ability to quickly move between these assets in uncertain times.
• As a geared asset class – rising rates have resulted in challenges for the property sector (falling values and rising discounts). Falling rates could provide tailwinds for REITs to post stronger returns from here.
• M&A activity has been beneficial to TRY performance.
• Solid income of 5.5% – this may well increase if uncertainty persists in markets.
• TRY has outperformed in 13 out of the past 14 calendar years.
• Discount of 8.2% remains attractive.
• European listed real estate is now trading at a huge discount to wider European equities

Manager’s view

“I think Trump is going to remain such an unknown and the macro risk is so great that we are going to see a lot of volatility in the coming days, weeks and months. To remain as leveraged as we are does not seem the most sensible thing to do.”

Beyond the shock of its sheer scale, the Trump administration’s extraordinary new tariff regime, announced on April 2, 2025, is a single event driven transition which Marcus believes will cause a recession globally unless the US president backs down and there are negotiations on a global scale. “What is scary is no one really has a clear view as to whether these people are willing to drive global markets into a state of the unknown,” he adds.

However, Marcus does point to real estate historically doing well on both a relative and absolute basis in shallow recessions. The reason for this is the price of money typically comes down because central banks see economies slowing down and inflation coming under control – real estate benefits from that as a leveraged asset. In addition to this, in shallow recessions you do not get huge job losses and companies quickly trying to reduce the three factors of production (land, labour and capital). Essentially, companies don’t reduce the facilities they operate from; retailers don’t scale back the number of shops they sell from; and offices don’t reduce headcount.

“If Trump does nothing in the coming month or so the Q1 earnings forecasts will basically be withdrawn by many corporates, as they have no idea if they are going to make the money they said they would. For real estate, these businesses have leases and obligations. We are a debtor on the balance sheet of these businesses – so rents are still going to be paid. The school of thought is that real estate will be alright as long as you are best in class and as long as your balance sheets are able to withstand a likely widening in spreads,” Marcus says.

Dialling down leverage from an all-time high

At the time of the announcement (April 2nd), gearing on TRY was at a record high of 17%. This was because Marcus felt there were a number of metrics in the portfolio’s favour prior to Trump’s announcement. He pointed to a lot of pullback on TRY in March and says supply & demand metrics were now quite attractive for the sector given no one had built anything of major scale in any of their markets for some time. Marcus also points to rents rising at top end of the industrial, retail warehousing and office markets. There were also attractive M&A activities within the market.

“We were beginning to feel there were a number of positive tailwinds and the sector was unloved with the combination of sound fundamentals and attractive valuations relative to both history and other markets.”

Following the announcement, Marcus and the team at TRY have taken the decision to reduce leverage – and target safe haven assets given that Trump’s actions are likely to lead to further volatility in markets. The team are now taking down selectively riskier positions within the portfolio, with a focus on areas most exposed to discretionary spend (hotels, leisure, restaurants and other specific retail areas) where a recession is most likely to hit jobs first.

Marcus also expects credit to be impacted, with spreads widening. This will lead to a more risk-off environment, which means reducing exposure to their most leveraged markets and moving into safe havens providing steady income.

He says the portfolio could look very different in the next couple of weeks. Crucially, the team can move quickly within assets given the majority of the portfolio is held in property shares.

He says: “There are oversold companies where the shares are down 10% or more, but you know the earnings are not at risk. Multiples have changed due to sentiment, but the changes have been too aggressive for businesses without a lot of debt.

“There is no reason for the valuation of a company to be hurt when it is based on its future income stream. If that income stream is not at risk, for example the likes of Tesco and Sainsburys are still going to pay the rent, then it makes no sense. These are companies where there is no debt refinancing for a couple of years, and the LTV is around 30-35%. Even if we have a recession on our hands, people will still need food and go to the supermarket.”

Another example is healthcare REITs like Assura and PHP, where the rent is being paid for by the NHS, which is government backed.

Portfolio construction

As mentioned, up to 10% of the portfolio can be held in physical UK property (this is currently 6%, following the acquisition of two assets worth around £20m in late 2024). This allows the team at TRY an insight into the direct property market to understand the challenges and opportunities.

However, Marcus believes the majority of the opportunities are in property shares. While investing on a pan European basis, dividing up the asset class is more nuanced from both a sectoral and regional perspective. For example, while areas like industrials and self-storage are sectors that can be evaluated across the entire region, other assets like shopping centres and offices need to be divided up by country.

European shopping centres are a good example with Marcus pointing to them being much more resilient than those in the UK. Examples of holdings here include French REIT Klépierre.

He says: “The companies we hold in the European shopping centre market have secure debt books, own the right assets and are well managed businesses. To get an overweight on an absolute and relative basis, we need to be optimistic on the sub-sector and get exposure to the sub-sector at the right price and through the right company.”

German residential remains the largest position on an absolute basis, this is a large part of this investment universe which has attractions like many people choosing to rent for life. However, European shopping centres are second only to UK diversifiers on a relative basis to the benchmark. This bucket (UK diversifiers) includes the likes of Picton (which invests across the industrial, office, retail and leisure sectors); London Metric (a London-based property company which sits in the FTSE 100) and the Schroder REIT.

“Picton has a share price of 65p and have been buying shares back all throughout March at up to 72p. The net asset value (NAV) is 98p and the LTV is 25%, so they are very well run and internally managed. The issue is they are still too small and I’ve been encouraging the board to just keep selling real estate and buy shares – because shareholders don’t deserve to be sitting on these large discounts,” Marcus adds.`

Recent activity

The final quarter of 2024 saw Marcus selling down industrials like Segro and Sagax, this is because the team believed the speed of rental growth was slowing, a move the market took as a negative. Other changes included the sale of Spanish REIT Merlin Properties, as they felt the data centre market was heating up and getting ahead of itself; while self-storage company Safestore was also sold due to slowing growth rates in the sector.

Purchases came from three specific areas. The first of these was retail, where the team added Supermarket Income REIT, this was designed as a move back into a high quality, safe income haven, which they felt was becoming undervalued.

TRY has also been targeting residential markets with the purchase of Tag, a real estate company with currently around 84,000 properties in the portfolio in Germany and around 3,200 completed rental apartments of newly built units in Poland. Other purchases in this space included Swedish firm Balder and Irish Residential Properties REIT. The latter is based on the expectation the Irish government would lift restriction on rent caps of 4% in high pressure markets like Dublin. M&A activity saw the cash sale of Spanish business Arima, acquired by a Brazilian-backed REIT.

The first quarter of 2025 has been headlined by more M&A activism. TRY joined with activist investor Achilles in proposing to oust Urban Logistics chairman Nigel Rich and the trust’s manager Richard Moffitt from the board, a move it hopes will facilitate a strategic review to maximise shareholder value.

“We are also positive on smaller property companies needing to merge as there are huge synergies to be gained. Losing a chairman and chief executive with a merger is not pleasant but needs to be done. This volatility is going to force more boards to be aggressive about this – because shareholders are going to want to see solutions not more problems. Many of these businesses are simply too small.”

TRY has also begun taking beta off the table, a reversal of a move made in the third quarter of last year. This is because the team believe inflation in Europe no longer appears to be under as much control as was previously thought, with shares in places like Sweden already benefitting from the view that rates would go down.

Performance 

Over the past decade TRY has returned 24.3% to investors (share price total return), compared to a 1.2% loss for the index**. More recently the market has faced headwinds, notably from rising interest rates, which can be challenging for a geared asset class.

Over three years TRY is down 31.2% from a share price and 27.2% from an NAV perspective***. The FTSE EPRA Nareit Developed Europe is down 28.2% over the same period****.

What else do investors need to know?

As of writing, TRY has 17% gearing, however Marcus and the team are currently in the midst of bringing this exposure down. TRY is geared through a combination of long and short-term facilities as well as contracts for difference. TRY has two loan facilities, €50m 1.92% unsecured loan note due in 2026 and a €15m 3.59% unsecured note due in 2031.

TRY currently has a discount of 8.22%. Marcus is keen to point out that if you look at the whole portfolio the collective discount on all the companies is 25%. However, some of those NAVs from companies are still artificially high (for example it takes Europe longer to value than the UK).

“Only rarely does TRY trade at a premium to asset value. The discount is not a reflection on long-term performance. I’ve beaten the benchmark 12 out of 13 years. It is not measuring on performance – discounts are a function of the buyers and sellers of the underlying equity. 

“In the last quarter our discount widened, this is because real estate is seen as a leveraged asset class and there was hope inflation was coming under control in the second half of 2024. Unfortunately, the first quarter of 2025 indicated that was not the case and maybe the long end of the curve is not going to come down as quickly as we’d hope.”

Despite TRY being positioned as a total return offering it currently yield 5.5%. The board have also raised dividends for 14 years (dividend has actually grown every year bar one since 1996)*. The latest half year dividend stood at 15.7p per share*.

Ongoing charges stand at 0.82%, however TRY has a performance fee which will be charged at 15% of the outperformance of the benchmark plus 1% hurdle.

Outlook

There were plenty of reasons for optimism for property shares following the rate hiking cycle. Rates have now peaked, rental growth was appearing, equity prices remained discounted and M&A activity was growing.

All of these individual elements still hold true, however, Trump’s tariff announcements have thrown a major spanner into the works – creating significant uncertainty in markets. Despite this, Marcus is confident TRY can still meet the goals of investors in this environment.

He says: “Income could be the big driver of returns going forward. The way we describe real estate is you look at it as the value end of the equity trade or the growth-end of the bond trade. It is an income stream, but with the prospect for growth.

He believes recession is now a strong possibility, which means central banks may look to engineer growth by bringing rates down.

“If that scenario comes to pass and we see a global slowdown, with government stimulus coming through, the question will be what does this mean for bond yields? Maybe they do not come down as much?

“I think the vast majority of returns may well come through the income element of our portfolio. I’d estimate around 80% in the next 12 months, and that is a pretty solid return.”

He says the definition of safe assets has now changed – but he remains confident in the security of dividends and dividend payout ratios. “We are not changing our earnings forecasts for the next couple of years right now – yes there is going to be new developments that will take longer to let and there is going to be shrinkage in demand, but at the same time very few of our companies have any distressed levels of debt.”

Real estate has faced significant challenges in recent years but there were plenty of green shoots prior to Trump’s tariffs plunging the economy into turmoil. However, there remain plenty of attractive opportunities to tap into both from an income and total return perspective and Marcus and the team at TRY have shown historically they are more than capable of finding them.

*Source: investment presentation, March 2025

**Source: FE Analytics, total returns in pounds sterling, 10 April 2015 to 10 April 2025

***Source: Association of Investment Companies, to 10 April 2025

**** Source: FE Analytics, total returns in pounds sterling, 10 April 2022 to 10 April 2025