Investment trusts are widely regarded as the best way to get commercial property exposure in your portfolio, and over the past few years, thanks to their healthy dividend yields compared with the rest of the stock market, their popularity has boomed. That means finding a quality commercial property investment trust that's not on an expensive premium to net asset value (NAV) can be quite a challenge.
- High dividend yield
- Strong performance
- Reasonable charges
- Smaller than average premium
- Weaker three-year performance
IC TIP RATING
Tip style: INCOME
Risk rating: MEDIUM
Timescale: LONG TERM
Shares in UK Commercial Property Trust (UKCM) are trading on a 5 per cent premium, but this is narrow compared with many of its competitors, some of which are on double-digit premiums. Crucially, this is much narrower than its its 12-month average premium of nearly 9 per cent, making it look comparatively cheap.
It has earned a place in the Investors Chronicle Top 100 Funds list, and it also won Best UK Property fund at the IC Fund Awards 2012 for its high income - it has a 12-month yield of 5 per cent, according to Morningstar. It has reasonable costs with an ongoing charge of 1.8 per cent. It also provides its investors with good fund manager commentary to keep them in the loop about what's going on in the trust.
The trust invests in commercial property throughout the UK, aiming to maximise income while at the same time controlling risk. It has beaten the FTSE All UK Property NAV TR GBP index over one and five years, with a respective NAV return of 20 per cent (compared with 19 per cent for this index) and 70 per cent (compared with 62 per cent). Over three years it fell marginally behind, with a 27 per cent return compared with 28 per cent from FTSE All UK Property NAV TR GBP.
In the second quarter of 2014 the trust's sub-sectors recorded positive capital value movements broadly in line or better than its benchmark, IPD UK All Property TR GBP, with the exception of its 'Rest of UK Retail High Street' assets.
Investments in offices in the south east returned an impressive 7 per cent capital value increase over the period, although most of this was down to one successful letting in Hemel Hempstead, which made most of the profits. Offices overall (23.3 per cent of portfolio) increased in value by 5 per cent over the period, compared with their comparative index, IPD All Offices, which was up 5 per cent over the quarter.
The UK Commercial Property Trust's retail assets saw capital value growth of 4 per cent, including an impressive increase of 5 per cent in the value of its retail warehouses, as well as 2 per cent capital growth within its shopping centre assets, which was much improved from the first quarter of 2014 in which they lost 1 per cent.
Senior investment director Robert Boag said: "Our portfolio continues to benefit from the improvement in the UK commercial property market. In line with our objective, a pleasing factor is also the portfolio's income profile, which continues to provide a stable and reliable return."
Analysts at Numis say the trust has performed strongly, reflecting a yield shift across the sub-sectors in general and, more specifically, a strong recovery in the fund's retail assets, which represent a large chunk (48.4 per cent) of the portfolio.
Its biggest holdings are a Leeds-based retail park called Junction 27 (5.4 per cent of the portfolio); Parade & Bridge Street in Swindon (5.2 per cent of the portfolio) and 176 to 206 in Kensington High Street, London (5.1 per cent of the portfolio).
The trust is a strong long-term performer, has resonable charges, and its shares are trading on a much smaller than average premium. Buy.
UK Commercial Property Trust Key Facts
| FUND TYPE | Investment trust | GEARING | 20.40% |
| FUND SIZE: | £1,182.72m | 1-YEAR PERFORMANCE: | 20.7% |
| SET UP DATE: | 20 September 2006 | 1-YEAR BENCHMARK PERFORMANCE: | 19.9% |
| YIELD: | 5% | 3-YEAR PERFORMANCE: | 25.6% |
| MINIMUM INVESTMENT: | £500 | 3-YEAR BENCHMARK PERFORMANCE: | 26.8% |
| ONGOING CHARGE: | 1.8% | 5-YEAR PERFORMANCE: | 70.1% |
| PRICE: | 81.15p | 5-YEAR BENCHMARK PERFORMANCE: | 61.8% |
| MORE DETAILS: | ukcpt.co.uk | AIC SECTOR: | UK Commercial Property |
Source: Morningstar
Performance data as at 5 September 2014
| Sector breakdown Q1 2014 | |
| Sector | % |
| Retail warehouses | 24 |
| Industrial - south east | 15.3 |
| Shopping centres | 12 |
| Retail - south east | 11.3 |
| Offices - West End | 10.1 |
| Offices - rest of UK | 10.1 |
| Industrial - rest of UK | 7.8 |
| Other | 5.1 |
| Retail - rest of UK | 2.5 |
| Offices - south east | 1.8 |
| Top 10 holdings Q1 2014 | |
| Holding | % |
| Junction 27 Retail Park, Birstall, Leeds | 5.7 |
| 176-206 Kensington High Street, London | 5.7 |
| The Parade, Swindon | 5.4 |
| Great Lodge Retail Park, Tunbridge Wells | 5.3 |
| The Rotunda, Kingston upon Thames, London | 5.1 |
| 15 Great Marlborough Street, London | 4.6 |
| Kew Retail Park, Richmond | 4.5 |
| Plot 5200, Hatfield Business Park, Ocado | 4.0 |
| St George’s Retail Park, Leicester | 3.8 |
| Dolphin Estate, Sunbury-on-Thames | 3.1 |
