The current double dip in commercial real estate values is taking an inevitable toll on the property sector. The UK property investment trusts - long appreciated for their stable dividends - posted declines without exception for the second quarter.
This won't surprise regular readers - we noted back in May that "most portfolios will be worth slightly less in a year's time than they are now" (How safe is property income? 24 May 2012). After years of 'extending and pretending', banks are coming clean about the parlous state of their property loan books and offloading assets. But outside of London and a few other affluent hotspots, there's scarcely any appetite for buying the stock, except at seriously reduced prices. The ineluctable result is a falling market.
The worst performer was Picton Property Income. We tipped this trust at 49p last July on the basis that a refinancing would spark a re-rating, but the strategy has been a disappointment. The refinancing completed last month and the shares have yet to move. Instead, the portfolio has slid at an alarming rate, wiping out any income gains. We are hoping manager Michael Morris will now have the mental space to focus on reletting voids and extending leases, which should stem the capital losses.
The best performer was sector stalwart F&C Commercial Property. F&C has a more substantial London weighting than its peers, notably a retail enclave just off Oxford St called St Christopher's Place. As a result, the strong relative performance should continue. The snag is that the shares already trade at an 8 per cent premium to the trust's net asset value (NAV), which seems pretty steep against a backdrop of falling property values.
| Name | Price (p) | NAV 30 Jun (p) | Discount | Yield | NAV Q2 change | Portfolio Q2 change | Gearing |
|---|---|---|---|---|---|---|---|
| F&C Commercial Property Trust | 107 | 98.9 | 8% | 5.6% | -1.60% | -0.70% | 24% |
| IRP Property Investments | 68 | 76.2 | -11% | 10.6% | -2.30% | -0.80% | 40% |
| ISIS Property Trust | 87 | 96.4 | -10% | 9.2% | -1.80% | -0.90% | 33% |
| Picton Property Income | 40 | 54 | -27% | 10.1% | -5.70% | -2.70% | 50% |
| Schroder Real Estate Investment Trust | 37 | 49.2 | -25% | 9.5% | -2.80% | -0.90% | 39% |
| Standard Life Investments Property Income Trust | 62 | 60.3 | 3% | 7.2% | -2.60% | 0.10% | 46% |
| UK Commercial Property Trust | 69 | 72.3 | -4% | 7.6% | -2.40% | -1.40% | 19% |
