Its resilience is best explained by good balance-sheet management. Uniquely for the listed property sector, it entered the downturn un-geared and still has the lowest gearing in the sector.
Like its arch-rival F&C Commercial Property - which it failed to buy out in a bitterly contested takeover battle in 2010 – it pays uncovered dividends. The payout last year was only 83 per cent of rental income, reports Oriel Securities. A dividend cut may well be necessary. That said, its dividend yield is substantially higher than that of F&C, and its lease profile is much stronger, with only 29 per cent of leases expiring within the next five years.
The big weakness of UK Commercial is its weighting towards retail property, which is arguably the most fragile sector of the industry. Sixty-one per cent of its portfolio is exposed to some kind of retail or leisure property. That may explain why it underperformed its benchmark last year, with a total return of 7.6 per cent. The void rate at 4.5 per cent was much lower than the benchmark 8.2 per cent at the year-end. But the retail industry has suffered a number of high-profile administrations since, the most recent being Clinton Cards.
These may well hit UK Commercial hard. This risk aside, though, it remains a well-managed trust with a clear commitment to income. With its shares trading on a 6 per cent discount, it is also the more keenly priced of the two sector giants.
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UK COMMERCIAL PROPERTY (GB00B19Z2J52) |
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| PRICE | 72.25p | GEARING | 115% |
| AIC SECTOR | Property Direct - UK | NAV | 74p |
| FUND TYPE | Guernsey investment company | PRICE DISCOUNT TO NAV | -0.26% |
| MARKET CAPITALISATION | £933m | 1-YEAR PRICE PERFORMANCE | -6.01% |
| No OF HOLDINGS | 41* | 3-YEAR PRICE PERFORMANCE | 40.17% |
| SET-UP DATE | 20 September 2006* | 5-YEAR PRICE PERFORMANCE | 11.93% |
| TOTAL EXPENSE RATIO | 1.36% | MORE DETAILS | www.ukcpt.co.uk |
| YIELD | 7.24% | ||
Source: Morningstar, Ignis Investment Services.
Performance data as at 1 May 2012
Top 10 holdings as at 31 March 2012
| The Parade, Swindon | 5.9 |
| Junction 27 Retail Park, Birstall, Leeds | 5.6 |
| Great Lodge Retail Park, Tunbridge Wells | 5.3 |
| 176/206 Kensington High Street, London | 5.0 |
| St George's Retail Park, Leicester | 4.9 |
| The Rotunda, Kingston upon Thames | 4.7 |
| Kew Retail Park, Richmond | 4.3 |
| Darwin Shopping Centre, Shewsbury | 3.9 |
| 15 Great Marlborough Street, London | 3.4 |
| Ocado Distribution Unit, Hatfield | 3.3 |
Sector breakdown (%)
| Retail Warehouses | 26.2% |
| Retail High Street | 13.5% |
| Shopping Centres | 16.2% |
| Offices | 25.7% |
| Industrial | 13.5% |
| Leisure | 4.9% |
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