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Fund Profile

Balanced Commercial Property 12 June 2023

Disclaimer

This is a non-independent marketing communication commissioned by Columbia Threadneedle Investments. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
BCPT: active management, strategic assets, and monthly dividends…
Overview

Balanced Commercial Property Trust (LON:BCPT) is a diversified UK commercial property portfolio but has a strong streak of active management in the way the portfolio is constructed, with the manager’s strategic views expressed very clearly. If this was an equity investment trust we might say that the ‘active share’ was quite high. Notably, the trust has a strategic holding in St Christopher’s Place, a Central London mixed-use development very close to Oxford Street, as well as holdings in prime offices currently seeing accretive asset management. It has also developed a long-term bias towards retail warehouses within its retail exposure, one of the bright spots in a sector which has had a challenging few years due to the pandemic and secular changes in consumer behaviour.

In 2021 and 2022 BCPT successfully rebalanced its portfolio, selling a number of office and retail assets at good valuations in order to increase its exposure to the industrial sector, in particular logistics warehouses, which form an increasingly important segment of the industrial sector and which have very strong tenant demand. BCPT also retains a strong bias toward retail warehouses, which is another segment of the property market with strong tenant demand.

BCPT’s relatively conservative balance sheet has allowed it to utilise share buybacks at wide discounts in 2022 to successfully enhance NAV and earnings per share, with the current discount to the net asset value of c.31% very much in line with its peer group.

BCPT pays dividends monthly. The current yield is 6.0% .

Kepler View

BCPT has never tried to be a facsimile of the overall UK property market, with strong strategic views playing a big part in how its portfolio is constructed, and of course that unique Central London St Christopher’s Place asset. During Covid, owning a retail-dominated Central London asset probably caused a few sleepless nights, but assets in locations such as this can form part of a very long game in property and interestingly the valuation of this asset is 20% below its pre-covid level and is performing well, suggesting there is value in the portfolio as well as in the discount.

Although we know investors like investment trusts with an income to use reserves to smooth dividend payments, we think BCPT’s conservative approach during the pandemic was the right response to an unpredictable situation, and certainly appropriate for a core diversified fund that utilises leverage.

In the not-too-distant future BCPT will need to refinance its current debt facilities, with its interest rate swap expiring this year, and its main long-term loan reaching maturity at the end of 2024. Although this is likely to result in higher interest costs, BCPT is conservatively geared and the board has taken a balanced approach to using cash, buying some shares back in 2021 and 2022 at very large discounts, but more recently recognising that retaining cash is important when credit conditions tighten. With property valuations, in our view, perhaps close to their nadir, and with a portfolio mix of strategic assets and high-demand sectors, we think BCPT’s current discount and yield make for an interesting entry point for long-term investors.

Bull

  • Wide discount to net asset value
  • Portfolio rebalanced to reflect secular trends in UK property
  • A 6.0% yield with dividends paid monthly

Bear

  • Property is interest rate sensitive and further interest rate rises could have an industry-wide negative impact
  • BCPT will need to refinance its main debt facility by the end of 2024
  • Investor sentiment may take time to recover
Continue to Portfolio

Fund History

07 May 2024 Thomas McMahon speaks on the Money Makers podcast
Thomas McMahon, Head of Investment Companies Research, appears on the Money Makers podcast to discuss three current themes in the investment trust sector: BCPT and commercial property, ASIT and split-level trusts, and the UK micro-cap sector...
26 Feb 2024 Strong rental growth underlines the attractions of the right commercial properties
Even as property values fell again in Q4 2023, rental growth in 2023 was positive across all the main sectors of commercial property…
07 Feb 2024 Range anxiety
We look at what context we can gain from ten years of discount analysis…
05 Dec 2023 Don’t Panic!
Our analysts look for value against a backdrop of bombed out investment trust discounts…
29 Nov 2023 We need to talk about discounts
Discounts are the problem and the solution…
22 Nov 2023 Built to last
UK commercial property trusts have weathered a fierce storm, but our analysts think their fortunes may already have passed a nadir..
08 Nov 2023 Once more into the breach?
With yawning discounts across the board, some sectors have been hit harder than others - our analysts think there could be value there for those with the sangfroid to fight for it...
14 Nov 2023 Balanced Commercial Property and UK Commercial Property REIT
Dan Walsgrove and Will Fulton
Rewatch this webinar which is part of our November online event 'Discounted opportunities in a tough market'...
Watch Recording
14 Jun 2023 Let's go round again?
Discounts have ballooned across the investment trust world, but our analysis shows we've been here before...
12 Jun 2023 Fund Analysis
BCPT: active management, strategic assets, and monthly dividends…
31 May 2023 Dazed and confused
Property discounts remain stubbornly wide. Why is that and what would make them start to narrow?
27 Sep 2022 Fund Analysis
BCPT’s discount has reached extreme levels which look attractive on a long-term view...
08 Jun 2022 Safe as warehouses
We look into the attractions of the often-overlooked commercial property sector…
02 Mar 2022 Spread 'em!
We explore how much dispersion in returns of stocks drive the differing fortunes of trusts…
23 Feb 2022 Fund Analysis
BCPT has oceans of cash to invest and looks poised for a strong recovery…
01 Dec 2021 How to protect your portfolio from inflation
We highlight trusts which could appeal in an environment where 'transient' inflation is here to stay...
26 Apr 2021 Fund Analysis
BCPT now offers a dividend yield of 5.5%, having restored 70% of its pre-crisis payment…
17 Mar 2021 After the storm
We look at the outlook for dividends in the UK commercial property sector and consider how the portfolio of the future will look after COVID…
14 Jan 2021 Get 'em while they're hot!
We review the widest discounts in the investment trust universe and look at our selection of attractively cheap trusts…
01 Sep 2020 Fund Analysis
BCPT has reintroduced a dividend at 50% of the previous rate and offers a 4.6% annualised yield, paid monthly...
06 Nov 2019 Fund Analysis
The quality tilt of the portfolio could provide defensive qualities…
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