F&C Commercial Property's resilient portfolio

One reason is the strong performance of St Christopher’s Place, a complex of boutique retailers just north of Oxford Street. London retail is the only property sector in which capital values have exceeded their previous peak. The company has a much larger weighting to the West End than most of its peers generally, at 41.5 per cent last December.

Another reason is that manager Richard Kirby has timed the market well. He bought nothing in 2006 and 2007, when the open-ended funds were ploughing vast amounts of investor cash into the market. True, he did sell his shares in third-party funds on the way down in 2008; they accounted for about 10 per cent of the portfolio. But – crucially – he bought in again at the very bottom, making his first acquisition since early 2005 in July 2009. He has bought quite a few properties since, particularly high-yielding industrial warehouses that support the dividend.

For all these efforts, however, the dividends remain uncovered – at 86 per cent of distributable income, according to brokerage Oriel Securities. At best, that rules out dividend growth for many years. At worst, the payout will have to be cut; organic rental growth can hardly be expected in a double-dip recession. Another weakness is the number of lease expiries coming up – 43 per cent of leases expire or are subject to breaks within the next five years – though this can and should be managed.

Still, Mr Kirby has got the big things right. He has retained an excellent buying discipline throughout an extremely volatile boom-bust cycle and cannily balanced his flagship West End assets with income-generating industrial property. Investors are up 11 per cent over five years – the best in the sector.

Source: Morningstar, *F&C.

Performance data as at 14 May 2012

Top 10 holdings as at 17 May 2012

Sector breakdown (%)