Fund Profile

UK Commercial Property REIT 09 September 2021

Disclaimer

This is a non-independent marketing communication commissioned by abrdn. 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

UK Commercial Property REIT (UKCM) is a large and liquid, diversified commercial property trust. UKCM’s portfolio is one of the largest in the sector, with total assets of £1.3bn, and the strategy is to generate income and capital return by investing in sectors and properties which are benefitting from structural changes to the economy and society.

The pandemic has accelerated many trends and kick-started others, and the portfolio has been managed cautiously through this period. Helped by being prudently positioned before the crisis hit, manager Will Fulton built up a war chest of £272m of capital to be invested, putting the portfolio in a strong position to be reshaped now the post-pandemic landscape is becoming clearer. Part of this sum is an uninvested gearing facility, and UKCM has low gearing compared to its peer group of just 1.9% net. While this creates resilience in a falling market, it also means there is potential to juice NAV returns in any post-pandemic upswing.

Sadly, Will has been forced to take a temporary break from the trust’s management while he is treated for a medical condition, with his position being filled on an interim basis by Kerri Hunter. Kerri has over 25 years' experience in the property market, 22 years of which have been in fund management and 18 with Aberdeen Standard.

The current portfolio is heavily exposed to the outperforming industrials sector, which has helped NAV returns. As we discuss in the Portfolio section, the manager is increasingly looking to alternatives for new ideas, while also seeing some potential opportunities in specific areas of the retail sector.

The board took a cautious, prudent approach to dividends during the pandemic, and were able to pay a top-up special dividend for the 2020 financial year as well as increasing the payout for 2021 by 40% from its reduced level. It is currently at 70% of its pre-pandemic level, and the trust is yielding 3.2% on an historic basis (see Dividend section).

UKCM trades on a discount of c. 11.8% to NAV, in line with the average generalist trust (see Discount section).

Analyst's View

Will’s conservative approach prior to and during the pandemic has put the manager in a strong position to create a very ‘progressive’ portfolio. Entering the crisis with low gearing was to some extent fortuitous, but by maintaining his firepower and agreeing with the board to focus on the long-term rather than aiming to quickly restore the dividend, Will has left the trust with a great opportunity to invest just as the post-pandemic landscape is becoming clearer. We think having a portfolio tilted towards industrials is likely to continue to be beneficial, given the strong structural trends identified by Will and his colleagues. Meanwhile the increasing interest in alternatives and in specific areas of retail could see a very different portfolio in a couple of years than the traditional retail/office/industrial split of a generalist trust.

We think UKCM could appeal to those seeking a core property portfolio to hold for the long term, although we acknowledge that investors will have to be patient in waiting for the dividend to return to pre-pandemic levels, and the yield may not be enough for some in the short term.

Bull bear
A portfolio tilted to the top-performing and resilient industrial sector

Commercial property is sensitive to GDP and the UK could pass through a downturn
Lots of uninvested cash and borrowing facilities on hand
Yield is low relative to peers
Scope for dividend growth depending on progress of recovery
Concentration in industrials is high, creating exposure to any down market
Continue to Portfolio

Fund History

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 discuss the 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...
15 Aug 2018 The income edge
Last year saw investment trusts soar in popularity among both retail investors and wealth managers. We examine why this has happened, as well as the structural advantages of investment trusts for income-hungry investors...
30 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...
02 Nov 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...
01 Nov 2017 Fund Analysis
A large, conservatively managed trust with a diversified portfolio of UK commercial property...
20 Oct 2017 Finding income that doesn’t depend on the FTSE
We highlight a number of trusts and strategies which aren't correlated to an index that these days seems to be defying gravity...
19 Sep 2017 Find secure income amid uncertainty
The recovery in commercial property which has taken place since the Brexit vote is set to continue, according to Standard Life Investments' Will Fulton...
30 Nov 2016 Property makes a comeback
Property trusts' share prices have surged since they were knocked for six by the UK referendum, but with little political progress the outlook remains uncertain...
15 Aug 2016 Hot property
We examine the battered property sector in the wake of Brexit and highlight three trusts which stand out for different reasons...
View all

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