Fund Profile

UK Commercial Property REIT 09 December 2019


Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by UK Commercial Property REIT. 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.

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UK Commercial Property REIT (UKCM) is the largest generalist commercial property vehicle in the AIC UK Commercial Property sector. Managed by Will Fulton at Aberdeen Standard Investments, it owns a portfolio strongly tilted to the industrial sector and to properties benefiting from technological and demographic change. ESG considerations also feature prominently in investment and asset management decisions.

Since Will took over control of the portfolio in 2015, the trust has been moving away from a standard retail/office/industrial strategy and embracing more specialised areas such as logistics and distribution. Furthermore, this year shareholders have approved a wider investment policy which allows the manager to invest across a broad range of ‘alternative’ real estate sectors. These are areas outside the mainstream industrial, office and retail sectors, and which are often the greatest beneficiaries of secular changes in society.

UKCM yields 4.2% and has seen its dividend cover improve in 2019, with strong reversionary potential in the portfolio which could provide a further improvement, as we discuss in the Dividend section.

The trust has one of the lowest levels of gearing in the peer group, which reflects Will’s cautiousness about current volatility and desire to keep cash on hand to take advantage of that volatility.

Kepler View

We believe that Will has prudently positioned the portfolio in the four years since he took over, making this a stand-out option for investors seeking broad exposure to the UK property market. The trust is well positioned in the sectors which are benefiting the most from changes in society and commerce. It also has lower exposure to the troubled retail sector – just 23% as of the end of September 2019, down from 43% when he took over, with that to fall further following the sale of the company’s last shopping centre.

Furthermore, the combination of unused gearing and cash due from recent transactions means UKCM has ~£110m of capital to invest when opportunities arise, and is arguably less exposed to any economic slowdown than its peers. Apart from the political uncertainty around the general election and Brexit process, the economic cycle seems long in the tooth, and so we believe it is prudent for investors to be cautiously positioned. We believe the attractions of this positioning are reflected in the discount of 4.3%, which is narrower than many of its peers, some of which are trading on double-digit discounts. The sheer size of the trust is also a benefit, meaning the shares are more liquid and the manager has greater flexibility to conduct larger transactions.

As well as the strategy of investing in sectors benefiting from social and technological trends, another form of ‘future proofing’ is seen in the prominence given to ESG considerations. UKCM has an established approach to embed ESG in its investment process, and is therefore well positioned with a growing number of investors looking for funds with a strong ESG ethic and impact.

In our view, this year’s expansion of the investment policy to allow further investment in alternatives is also welcome. Although we note Will’s comments that some alternative sectors are looking expensive, it is clear that there are some specialist areas of the property market which are benefiting from demographic changes and shifts in how we live and work, offering better prospects for capital and income growth than many parts of the traditional retail and office sectors in particular.

bull bear
A portfolio tilted to the top-performing and resilient industrial sector
The yield is below the sector average

Improved dividend cover and reversionary potential mean the dividend looks secure
Whilst an underweight, the retail exposure continues to drag down NAV total returns
Low levels of gearing reduce the exposure to volatile markets and increase the ability to be opportunistic
Political uncertainty in the UK could lead to volatility in property values and the discount
Continue to Portfolio

Fund History

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…
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
31 May 2023 Dazed and confused
Property discounts remain stubbornly wide. Why is that and what would make them start to narrow?
24 May 2023 Five alternatives for income investors
Watch the presentations from our event focused on trusts delivering income via a diverse range of strategies…
19 May 2023 UK Commercial Property REIT
Will Fulton
Rewatch this webinar from our online series in May 'Alternatives for income investors' hosted by the team at Kepler Trust Intelligence 15-19 May…
Watch Recording
22 Mar 2023 Good vibrations
We identify some sectors with structural discounts we think could close over time…
02 Mar 2023 Podcast: Trust Issues #12 - Valuations, discounts and rent increases, with UKCM's Will Fulton
We speak to the Abrdn manager about the state of commercial property...
05 Dec 2022 Fund Analysis
UKCM’s high-quality portfolio is delivering income growth even as capital values wobble…
08 Jun 2022 Safe as warehouses
We look into the attractions of the often-overlooked commercial property sector…
04 May 2022 Time to change the record
We ask whether equities can still offer meaningful diversification or whether investors need to turn to alternatives…
26 Apr 2022 Fund Analysis
UKCM looks well-placed to grow the dividend this year and further on…
09 Sep 2021 Fund Analysis
UKCM is in a strong position to take advantage of post-pandemic opportunities...
30 Mar 2021 Fund Analysis
UKCM has weathered the pandemic, and now has cash to invest for income growth…
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…
26 Aug 2020 Fund Analysis
UKCM’s portfolio is well set up to be resilient to the current downturn…
10 Jun 2020 Pick your poison
We try to identify the best compromises between yield, value and security in the property sectors…
09 Dec 2019 Fund Analysis
UKCM is well positioned to take advantage of property market volatility…
21 Mar 2019 Fund Analysis
A commercial property trust focused on sectors and locations benefiting from structural change in society and the economy...
13 Mar 2019 Carry on doctor
With a sector average yield of 4.5% and a highly differentiated risk profile, the primary healthcare sector could be a healthy addition to the property portfolios of income-hungry investors...
28 Nov 2018 Fund Analysis
UKCM aims for an attractive income with the potential for income and capital growth from commercial property investments.
14 Nov 2018 Future shock
How the commercial property sector is coping with widespread disruption caused by the rise of the internet...
16 Oct 2018 The Investment Trust Advantage
Our recent conference for discretionary fund managers saw some of the UK's leading fund managers discussing the outlook for the world's major regions and asset classes...
29 May 2018 Fund Analysis
UK Commercial Property Trust (UKCM) is a large and liquid portfolio of commercial properties that aims to generate an attractive income with the potential for capital growth...
22 Mar 2018 Property income: opportunities for growth during structural change
Standard Life Investments' Will Fulton thinks income will play an important role for property investors in 2018 as capital growth continues to wane...
30 Oct 2017 Fund Analysis
A conservatively managed UK property trust with a focus on industrial and defensive, dominant ‘out of town’ retail properties
30 Oct 2017 Bricking it
As equity income stocks continue to soar, we examine commercial property as an alternative for those who fear a correction is imminent...
08 Aug 2016 New fund research for August
We identify four investment trusts which stand our for different reasons and examine them in detail...
08 Aug 2016 Hot property
We examine the battered property sector in the wake of Brexit and highlight three trusts which we think are worth a closer look...
08 Aug 2016 Fund Analysis
View all

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