CT Property 12 May 2023

CT Property Trust (LON:CTPT) has a mandate to invest in a diversified UK commercial property portfolio with a strong thematic element guiding the portfolio construction. The portfolio is predominantly focused on the industrial and retail warehouse sectors, both sectors of the property market where, as we discuss in the Portfolio section, there is tenant demand, rents are relatively affordable, assets are straightforward to adapt and maintain, and achieving ESG standards is more practicable than it may be with other property assets. CTPT’s portfolio is predominantly based in the south-east of England.

Manager Matthew Howard has been running CTPT since July of 2022, but he has been a fund manager in the CT Real Estate Team for over five years, and during this time has managed a segregated mandate of a similar size to CTPT, with a very similar strategy and portfolio. This mandate has won a number of performance awards under Matthew’s leadership.

CTPT is geared c.22% LTV, which is relatively conservative for the UK Commercial Property peer group, and its main refinancing event is due at the end of 2026. It currently has c.£30m of cash on the balance sheet, and could also draw on a further £20m from its credit facility in order to make new acquisitions, having paused on this during 2022 as property valuations started to fall. The trust used some cash in 2022 to make share buybacks but has also paused on this recently.

CTPT pays fully covered dividends quarterly, and at the current share price the historic yield is 6.3% , compared to the yield on the 10 year gilt of c.3.7%. It trades at a 35% discount.

After some big valuation declines across the UK property sector, CTPT’s recent Q1 NAV is one among a number of signs that that valuations may have reached a floor. This may not be true in some more troubled sectors, with regional offices springing to mind, but CTPT is predominantly exposed to sectors with strong fundamentals such as affordable rents, good reversionary opportunities and good tenant demand. As a result, although interest rate risks remain a consideration, CTPT’s current yield of 6.3% and discount to NAV of 35% look potentially good value for a long-term investor.

CTPT’s focus on smaller assets with values below £15m gives it the advantage of greater flexibility and the potential to exploit regional markets, and Matthew expects that over time he may find further opportunities across the UK regions, whilst maintaining the south east bias. This focus does not mean CTPT isn’t able to capture bigger trends in the UK commercial property market. For example, over the long-term CTPT has shifted out of traditional retail assets to focus on retail warehouses and industrial and logistics warehouses. Both of these are crucial sectors undergoing strong demand while there is relatively limited supply. Smaller assets do not mean that CTPT’s tenant base is necessarily more risky than others in its peer group, with many national chains being natural tenants for the types of assets that CTPT owns. CTPT also has a good amount of cash available to take advantage of lower valuations.