Fund Profile

BMO Commercial Property 23 February 2022


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.

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BMO Commercial Property Trust (BCPT) owns a diversified portfolio of commercial property, which has experienced a sharp rebound in capital values following the disruption of the pandemic (see Performance).

Manager Richard Kirby is engaged in a strategic rebalancing of BCPT’S portfolio with recent acquisitions boosting the exposure to the industrials sector. Industrial and retail warehouse exposure is expected to rise further as Richard reinvests cash from successful disposals - the sectors with the strongest momentum behind them in the post-pandemic economy. Richard currently has c. £111m cash to invest, plus unused Gearing facilities, putting him in a strong position to grow the trust’s income.

The pandemic saw commercial property trusts slash their dividends. BCPT’s was suspended for four months but has been steadily built back to 75% of its pre-pandemic levels, with the board stating the opportunity for a further increase will be assessed as the trust reinvests the surplus cash from recent sales. Annualising the dividend at its higher level gives a prospective yield of 4.1% - higher than the number displayed by some data sources, which sum payments over the past year. Unusually, BCPT pays a monthly dividend.

Despite the recent rebound in NAV performance, and despite a strong rally in the shares from the pandemic lows, the discount remains wide at 13.8%.

BCPT’s disposals mean its net gearing has dropped dramatically to c. 18%. This reduces the sensitivity of the NAV in the short term if capital values do fall.

Analyst's View

We think the lingering discount could make BCPT, along with other generalist commercial property trusts, one of the last chances to get in on a COVID-19 recovery play. A huge amount of capital is being invested in real assets across infrastructure, renewables and similar sectors, with the shares of these trusts trading on significant premiums. However, commercial property offers many of the same attractive characteristics, and yet the trusts are largely on discounts. Notable is the good inflation protection offered in property, where many leases have explicit RPI linkage or offer the ability for inflation-busting increases when released – unlike high yielding fixed income. We think as lingering concerns about the pandemic fade (even if it takes a quarter or two) and dividends are restored even further, discounts like BCPT’s are likely to be seen as anomalies.

BCPT’s portfolio has experienced three solid quarters of NAV growth already, albeit recovering from a torrid 2020. While the flagship holding St Christopher’s Place has been weak in recent quarters, strong footfall and strong trading before the omicron wave give reasons for optimism, and the opening of Crossrail later this year could boost the area further. Richard is in a strong position to refashion BCPT for the future and boost the income with further investments. With the dividend at 75% of pre-pandemic levels, there will be income coming online from the forward funded development at Burton-upon-Trent later this year (see Portfolio), and Richard has a significant cash pile to make further investments too. Should the board raise the dividend further in the coming months, we think this could lead to the discount narrowing.

bull bear
Offers a high yield from an asset class with some inflation protection
Concentration magnifies the risks to the portfolio from individual properties
Wide discount may offer some downside protection and increase catch-up potential in economic recovery
Any further coronavirus restrictions could hurt tenants trading and capital values
Exposure to prime locations including central London which should retain appeal
Currently some execution risk in that lots of money needs to be successfully invested in order to maintain and grow the dividend
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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