Fund Profile

BMO Commercial Property 01 September 2020

Disclaimer

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 high-conviction portfolio of actively managed, core commercial property assets. Following the suspension of the dividend at the start of the pandemic, it has now been restored at the level of 3p annualised, which amounts to a 4.6% yield on the current share price. The dividend is paid monthly.

BCPT has fallen onto one of the widest discounts in the commercial property sector, currently 46%. This may be due to its relatively high retail exposure and limited industrials exposure, respectively the most and the least affected sectors by the lockdowns and aftermath. However, managers Richard Kirby and Matt Howard have built a portfolio focussed on high-quality assets in prime locations, which might be expected to be defensive during a recession. The main exposures are to the West End, largely through the largest holding in St Christopher’s Place off Oxford Street, and to the South East.

A recent trading update for the second quarter reported valuation falls of 3% on the portfolio, with the retail and leisure sectors worst hit and the offices and industrials sectors relatively resilient. However, more than 80% of the rent for the lockdown months was collected, with collection for Q3 proceeding at the same rate as in Q2. We give more detail in the Dividend section.

BCPT has 22.9% net gearing on an LTV basis, which translates to 29.7% on an NAV basis. All covenants have been met, and the shorter-term facilities have been extended, with the lender being sympathetic regarding the current economic situation and the potential impact in the coming months.

Analyst's View

BCPT’s discount of in excess of 45% seems to us to be pricing in an Armageddon-like scenario. While the exposure to retail and limited exposure to industrials is not helpful, we think the prime nature of the portfolio means it should come through the other side of the recession in better shape than the sector breakdown would suggest. Although there is gearing in place, valuations would still have to fall by around 34% for the NAV to decrease to the current level of the share price. To our mind there could be value in the price at these levels, although clearly the coming months are likely to be difficult as the full impact of the recession becomes clear and we discover whether a second wave will cause further restrictions on trading and travelling.

Richard describes this recession as a crisis of income, not of capital values. We note that rental collection has beaten the manager’s expectations at the start of the crisis, allowing the reinstatement of the dividend and illustrating that there is income-generating potential in the portfolio even in a crisis. Clearly there are still challenges ahead, but we would hope that the prime nature of the properties would see income generation improve as the economy recovers.

BULL
BEAR
Exposure to economically strong regions could provide defensive qualities
Commercial property likely to see further write-downs during the recession
Good development potential in the trust’s largest holdings
Structural gearing could be a headwind in a falling market
The trust’s size provides a larger opportunity set and greater liquidity
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…
View all

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