TR PROPERTY INVESTMENT TRUST PLC
LONDON STOCK EXCHANGE ANNOUNCEMENT
Annual Results for the year ended 31 March 2024
The following replaces the TR Property Investment Trust plc ‘Annual Financial Report’ announcement released today at 07.00 under RNS No 6850R.
As previously released the announcement contained elements of draft text and draft figures.
The full amended text is shown below.
LEI: 549300BPGCCN3ETPQD32
10 June 2024
Information disclosed in accordance with Disclosure Guidance and Transparency Rule 4.1.
TR Property Investment Trust plc announces its full year results for the year ended 31 March 2024.
Chairman Kate Bolsover commented
“We are pleased to announce a modest increase in our dividend. There is no denying that commercial real estate became unfashionable when interest rates began to rise. But as TR Property’s renewed outperformance shows, investors are beginning to differentiate between the less desirable elements of the sector and the companies that our Manager seeks out – that is, companies that own quality assets and have strong balance sheets.”
Manager Marcus Phayre-Mudge commented
“Our central case is that more benign European inflation is drawing closer. But crucially, our optimism is not dependent on near-term cuts to interest rates. The companies we own are positioned to prosper even if rates remain at current levels and the spike in M&A activity this past year is recognition of this. Acquirers have rushed in to take advantage where public markets have left quality assets languishing at significant discounts.”
| Year ended | Year ended | |||||
| 31 March 2024 | 31 March 2023 | Change | ||||
| Balance Sheet | ||||||
| Net asset value per share | 351.10p | 305.13p | +15.2% | |||
| Shareholders’ funds (£’000) | 1,115,503 | 968,346 | +15.2% | |||
| Shares in issue at the end of the year (m) | 317.4 | 317.4 | 0.0% | |||
| Net debt1 | 10.8% | 12.3% | ||||
| Share Price | ||||||
| Share price | 325.00p | 279.00p | +16.5% | |||
| Market capitalisation | £1,031m | £885m | +16.5% | |||
| Year ended | Year ended | |||||
| 31 March 2024 | 31 March 2023 | Change | ||||
| Revenue | ||||||
| Revenue earnings per share | 12.04p | 17.22p | -30.1% | |||
| Dividends2 | ||||||
| Interim dividend per share | 5.65p | 5.65p | 0.0% | |||
| Final dividend per share | 10.05p | 9.85p | +2.0% | |||
| Total dividend per share | 15.70p | 15.50p | +1.3% | |||
| Performance: Assets and Benchmark | ||||||
| Net Asset Value total return3 | +21.1% | -35.5% | ||||
| Benchmark total return | +15.4% | -34.0% | ||||
| Share price total return4 | +22.9% | -36.2% | ||||
| Ongoing Charges5 | ||||||
| Including performance fee | 1.81% | 0.73% | ||||
| Excluding performance fee | 0.82% | 0.73% | ||||
| Excluding performance fee and direct property costs | 0.78% | 0.67% | ||||
1. Net debt is the total value of loan notes, loans (including notional exposure to contracts for difference (‘CFDs’)) less cash as a proportion of net asset value.
2. Dividends per share are the dividends in respect of the financial year ended 31 March 2024. An interim dividend of 5.65p was paid on 11 January 2024 (2023: 5.65p). A final dividend of 10.05p (2023: 9.85p) will be paid on 1 August 2024 to shareholders on the register on 28 June 2024. The shares will be quoted ex-dividend on 27 June 2024.
3. The NAV Total Return for the year is calculated by reinvesting the dividends in the assets of the Company from the relevant ex-dividend date. Dividends are deemed to be reinvested on the ex-dividend date as this is the protocol used by the Company’s benchmark and other indices.
4. The Share Price Total Return is calculated by reinvesting the dividends in the shares of the Company from the relevant ex-dividend date.
5. Ongoing Charges are calculated in accordance with the AIC methodology. The Ongoing Charges ratios provided in the Company’s Key information Document are calculated in line with the PRIIPs regulation which is different to the AIC methodology.
Chairman’s statement
Market backdrop
Investor behaviour continues to be governed by the trajectory of bond yields and inflation. This is particularly acute in leveraged asset classes such as real estate. Compared to the two previous years, when we witnessed seemingly relentless incremental increases in base rates, this period was marked by a more positive shift in sentiment, as investors began to sense a peak in the interest rate cycle. Nevertheless, our manager had to navigate a series of false dawns as markets rallied on expectations of more dovish central bank behaviour – before this more buoyant mood was proved to be premature. Whilst the second half of the year under review saw much greater volatility in share prices, we also sense increasing engagement from investors in our corner of the equity market, as the weakening of inflationary pressures becomes increasingly evident – particularly across Europe.
Given all that has happened in the last year, I am pleased to report the Company’s net asset value (‘NAV’) total return was +21.1%, ahead of the benchmark total return of +15.4%. Of greater importance to shareholders is the share price total return. This, at +22.9%, exceeded the NAV total return given that the discount at which the shares traded was tighter at the end of the year than at the beginning. These encouraging results reflect a strong second half of the financial year, with the first half recording an NAV total return of just +3.3%. In the half year report I highlighted that the vast majority of our companies had made great strides to improve their balance sheets and debt books over the last two years. This was always going to be a key building block in the sector’s recovery. We have subsequently seen a strong reporting season (February and March 2024) as improving market fundamentals overlaid on strengthened balance sheets resulted in healthy earnings growth. Those companies which suspended dividends to protect their cashflows have nearly all returned (or announced the return) to paying dividends. There remain a handful of businesses in financial intensive care, but our manager continues to avoid these, even where sentiment and rumour can lead to dramatic (but often temporary) share price performance.
Our sector continues to see heightened levels of merger and acquisition (‘M&A’) activity. Our involvement in three successful transactions (two privatisations and one merger) took place in the first half and were reviewed in the half year report. They were important valuation underpins. The second half of the year saw a lot of activity around more potential mergers. In the case of the all paper offer by Tritax Big Box for UK Commercial Property REIT (‘UKCM’), our manager voted against the transaction on governance issues.
Revenue Results Outlook and Dividend
For the full year, earnings at 12.04p were just over 30% lower than the earnings recorded for the previous financial year. A fall in earnings for the year to March 2024 was flagged in the 2023 Annual Report. Interim earnings were 39% behind the prior year and whilst our expectations for the second half were slightly exceeded, the pattern did not change.
Whilst the prior year had been inflated by a number of one-off items (all highlighted in the previous annual report), the mix of dividend suspensions and reductions across our German residential, and to a lesser extent, Scandinavian holdings, has hit the income account hard. In addition, rising interest rates increased our own debt costs, despite the reduction in the absolute amount of debt. Added to these income headwinds, we also experienced an increase in the headline rate of UK corporation tax.
Over the year, significant progress has been made by those companies which had suspended or reduced dividends. Their balance sheets have strengthened through cash retention, asset sales and debt restructuring, with many announcing that they will resume distributions at some stage in the forthcoming year. Although their actions have been detrimental to our revenue account in the short term, their decisive and conservative action has been reflected positively in capital returns. Some will be a little slower than others to resume distributions, a handful still have to announce when their distributions will recommence.
We anticipate that underlying income will take some time to recover but with strong revenue reserves built up, the Board is able to support the Company’s dividend. In determining our dividend, we always aim to balance investor appetite for income against the Company’s cashflow in a given period. This approach entails the building up of reserves during fruitful years, allowing us to cover the dividend during dips in income. Against this background, we are pleased to announce a very modest increase in the final dividend to 10.05p, bringing the full year dividend to 15.70p, an increase of 1.3%.
Net Debt and Currencies
Gearing reduced in the second half and ended the year at 10.8%. The cost of our debt remains higher than for some time and the reduction seen at the year-end is more a reflection of this, than on the manager’s outlook.
Sterling staged a couple of rallies through the year, over the summer period and then again in the first quarter of 2024. This had a small negative impact on our non-sterling earnings.
Discount and Share Repurchases
The discount improved by more than 1% over the year, closing at 7.5% (opening at 8.6%) enhancing the share price return over the NAV return for the year. The average discount for the year was 7.7%. A discount of over 10% was seen very briefly in July and again in October, when market sentiment was at its worst. It narrowed to 2.6% in late February as investors began to feel optimistic about an early interest rate cut. However, this proved premature and the Company’s discount widened again into the year end. The average discount for the year remained wider than the five year average (5.8%) which is not particularly surprising as for the most part, the sector remained unloved.
Environmental, Social and Governance
Our Responsible Investment Report is set out in the Annual Report. With the impending changes in disclosure regarding sustainability (SDR), we have worked with our manager to consider how best to set out our credentials and priorities in this area.
The Company has not set out to be an investment fund with any ESG or sustainability characteristics, however, as a long-term investor, governance and sustainability considerations are embedded in our Manager’s investment process. Accordingly, we will continue to put strong corporate governance at the heart of our decision-making process. Many of the environmental targets which our investee companies follow are being driven by their regulatory framework and we expect our companies wholeheartedly to embrace these improvements through refurbishment and development. We also endeavour to “practice what we preach” in our direct property holdings, where we exercise direct control over these issues. Property is of course a socially important investment area. People live, work, and play in the properties which we or our investee companies manage and own. This means that we are adding value and engaging with all of society in all that we do.
Our Managers actively engage with management and regulators on matters of corporate governance and there is one recent situation highlighted below which demonstrates this. We consider this one of our key responsibilities in managing the assets which you have invested with us.
Our manager closely followed the all paper takeover of UKCM by Tritax Big Box. The Company owns shares in both companies. Throughout the process, he remained concerned about poor governance and the lack of transparency on certain commercial aspects of the transaction. He was not alone. The chairman of UKCM also dissented from recommending the transaction. A most unusual and noteworthy situation. Whilst the dominance of one shareholder (Phoenix Life owned 43% of UKCM) ultimately drove the transaction, we engaged extensively with all parties including the Takeover Panel before voting against. The Company has large positions in many smaller property companies and our manager engages extensively with boards. Holding boards to account, as guardians of the interests of all shareholders, is an important part of our governance regime.
Outlook
Our manager’s central case is that we are now closer (than in previous reports) to the peak of this interest rate cycle in Europe. The multiple ‘false dawns’ (where shares prices rallied in anticipation of interest rate cuts, only to fall back) have weighed on sentiment and many investors remain on the sidelines awaiting hard evidence of base rates falling. Also importantly, the manager’s positive viewpoint is not predicated on substantial reductions in interest rates. What is being looked for is stability in the monetary environment with lenders returning and margins normalising.
You will read in the manager’s report of sound fundamentals in many real estate sub sectors particularly for high quality assets. I reiterate, the companies we are invested in have those two key ingredients – quality of assets and depth of balance sheet. The sector continues to trade at attractive discounts to asset value and the year in question brought more examples of good portfolios being taken private as public markets continued to undervalue them – again, covered in more detail in the following pages.
We expect the reduction in our physical property exposure to be temporary. The timing of the rotation of the capital released by the March sale of the Colonnades into equities has proved beneficial. Equity markets are a forward looking discounting mechanism and property share prices have responded to the expectation of a
lowering in the cost of capital.
The team continues to hunt for the next property purchase. In the meantime, the outlook for well financed property equities remains encouraging.
Kate Bolsover
Chairman
7 June 2024