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Fund Profile

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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Balanced Commercial Property . 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
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Overview

BMO Commercial Property Trust (BCPT) owns a concentrated portfolio of commercial property located in areas of strong economic fundamentals. The dividend was suspended during the first lockdown but, due to rent collection remaining stronger than expected, has now been restored to c. 70% of its pre-crisis levels. With the shares trading on a 34.5% discount, the annualised dividend yield is now c. 5.5%.

BCPT’s shares have traded on one of the widest discounts in the AIC UK commercial property sector throughout this crisis. It has a relatively low weighting to industrials, with the highest weightings being to offices and retail, which has been unhelpful during the pandemic. The trust has a highly concentrated, high conviction portfolio, with the largest holding being St Christopher’s Place, a mixed-use retail, restaurant and office space, off Oxford Street near Selfridges, which accounts for roughly 21% of the portfolio by value.

While 2020 was a tough period for the trust, with its portfolio seeing a fall of c. 9% in its capital values, the first quarter of 2021 has seen some stabilisation and, in fact, the portfolio’s valuation rose by 1.1% (see performance section). The manager reports that the tenants of their retail properties have seen strong trading since the lockdown lifted, while 17 May should see a number of new restaurants open in the St Christopher’s development.

BCPT has structural debt worth 33% of NAV. However, it currently has net gearing of 29% thanks to holding cash. As we discuss in the gearing section, a loan backed by St Christopher’s Place was extended from 2021 to 2022 in October.

Analyst's View

Although BCPT’s discount has come in since the end of March, it remains the widest in the AIC UK Commercial Property sector at 32%, and we believe it could offer interesting catch-up potential if the reopening of the UK economy goes to plan. In fact, we suspect the two successful steps in the release from lockdown being completed may have contributed to the recent narrowing of the discount, as well as positive news on Q1 2021 revenue collection reported in the 2020 annual report.

BCPT’s shares have hitherto lagged as UK assets have generally enjoyed a re-rating thanks to the vaccination programme and the relatively smooth conclusion to the Brexit process. In our view the remaining wide discount reflects the low weighting to the industrials sector and higher weighting to retail than the peer group average. In this light, the positive NAV update reported on 23 April is encouraging. While retail remains weak, the sharp falls seen last year have slowed. Meanwhile the quick return of heavy footfall to the shops and restaurants that can open augurs well for 17 May when restrictions on indoor dining are lifted – and for the summer, when hopefully a full recovery will occur.

Over the longer term, the trend away from bricks and mortar retailing may limit NAV recovery potential in that sector, and the board has stated that some shift in sectoral positioning should be expected. However, the discount remains very wide and the board notes the improving outlook for the dividend.

BULL
BEAR
Offers a high yield
Some uncertainty around the lifting of restrictions and their effect on retail and office rental collection and capital values remains
Wide discount may offer some downside protection and increase catch-up potential in economic recovery
Structural gearing increases exposure to falling markets
Exposure to prime locations including central London which should retain appeal
Concentration magnifies the risks to the portfolio from individual properties
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...
07 Feb 2024 Range anxiety
We look at what context we can gain from ten years of discount analysis…
29 Nov 2023 We need to talk about discounts
Viewing investment trust discounts as a problem ignores the crucial role they play in keeping the sector on an even keel...
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..
17 Nov 2023 Don’t Panic!
Our analysts look for value against a backdrop of bombed out investment trust discounts…
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
07 Jul 2023 Going deep on discounters
In a cost-of-living crisis, discount retailers are falling into favour…
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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