Is the commercial property sector finished?

C_Mababejive · 14 January 2020 at 12:56PM

Commerical property funds seem to have taken a bit of a battering of late and we recently saw at least one fund being gated to manage withdrawals.

Clearly there is a linkage toward economic activity and the performance of such funds. also the constituent holdings are of importance.

We all know that high streets are struggling and there is a drift toward on line shopping. There are many disrupters in the market eg Amazon etc and of course big brands also have on line presences.

But what about office space? Are we moving toward more and more people working from home? Maybe so but i think that drift is much more limited and gradual.

Industrial space? Well all that on line activity needs to be managed some how. Orders need to be processed, goods managed,stored,packaged and shipped.

I have a particular interest in this as i have a modest holding in BCPT.

https://www.bmogam.com/commercial-property-trust/

Its price has dropped a fair bit since first purchase though at the moment im just looking at it as short term volatility . A loss isnt a loss until you crystallise it and it is pumping out a dividend so its not all bad.

I also think the NAV has started to slip to more closely reflect the share price. The last NAV valuation was in september 2019 i think.

having said that its portfolio does seem well diversified and although it does own some "retail parks", some of that is also high quality retail space in central London. It also has good holdings in office space/business parks and industrial space. It has also further diversified into student accommodation/flats etc.

All in all im thinking this is a short term blip and ive pressed the divi reinvest button .

Albermarle · 14 January 2020 at 1:16PM

Do not want to depress you but you would have been better with this one .

https://www.trproperty.com/performance/

MaxiRobriguez · 14 January 2020 at 2:52PM

Commercial property sector isn't finished it's just adjusting alongside commercial property in general. There'll be a point whereby more buyers than sellers. Up to you to judge where that point might be and if you want to crystalise and guarantee a loss in order to protect from a potential bigger loss further down the line.

If it's part of a diversified, well balanced portfolio then it perhaps it should remain as is, regardless of where you think it might end up?

fred246 · 14 January 2020 at 3:06PM

Most people seemed to say you should ALWAYS have some commercial property in your portfolio but NEVER more than 10%. When I researched it it seemed to have enough problems for me to think it wasn't worth bothering with. If it is less than 10% of your portfolio it is never going to make that much difference.

ivormonee · 14 January 2020 at 5:05PM

BCPT, or BMO Commercial Property Investment Trust, has been around for a long time and has a reasonably diversified portfolio. It has been trading at a discount of around 19%. This may reflect the level of retail holdings (which I seem to remember were around a third of the portfolio or thereabouts). Given the problems on "the high streets" some of the discount reflects sentiment. It does seem overdone though. A couple of years ago the price peaked at something just over 150 pence per share. Today it almost touched 110 pence per share. Have the overall values of the underlying holdings fallen by as much as 27%? Very likely not, and with a NAV just over 130 pence per share at the last valuation the oversold position may be a bit overdone.

Without knowing how leaving the EU will impact our economy, and all the uncertainties revolving around business, it's difficult to accurately predict any future value in commercial property. It would be re-assuring to see BCPT diversify into other areas of property (ie. other than the ones it currently holds of retail, office space and industrial) but there are limitations in its remit which prevent it from doing so.

The only consolation for now is that a holder of BCPT holds assets valued at more than the share price. There's some comfort to be derived from this but if the NAV continues downwards at forthcoming valuation points that would be a real worry.

For now I'd probably say it's a hold. If it's part of a diversified portfolio then the recent new low is possibly an opportunity to top up to rebalance the portfolio.

pip895 · 14 January 2020 at 5:31PM

I like to keep some property in the portfolio, ITs are the best way to access this sector of the market too. With interest rates as they are, there are few ways of earning a decent income on your investments - I don't see the long term future for property being any more bleak and insecure than many other industry sectors and at least valuations aren't as stretched.

High interest rates are the traditional enemy of property investment and I don't think many are predicting that returning any time soon..

ivormonee · 14 January 2020 at 5:53PM

pip895 wrote: »

With interest rates as they are, there are few ways of earning a decent income on your investments.

True, but we should factor in capital depreciation/ capital loss against that income. So, a yield of x% is great if it is greater than the loss on capital. In the case of BCPT above, x=5%, but the share price has dropped about 25% in two years. An investment, over this period then will have provided a 10% income and a capital loss of 25% giving a net loss of 15%.

The above calculations are rough approximations but you get the idea.

C_Mababejive · 14 January 2020 at 6:09PM

Yes... I checked the interim report this afternoon and as far as I can discern , retail represents only 20% now. They managed to sell some retail assets for a decent price . Overall I’m comfortable with the current situation and as someone mentioned, it’s discounted quite a bit in the last declared NAV

ivormonee · 14 January 2020 at 6:35PM

C_Mababejive wrote: »

Yes... I checked the interim report this afternoon and as far as I can discern , retail represents only 20% now. They managed to sell some retail assets for a decent price .

I wouldn't pay that much attention to the interim report as it only covers up to June 2019. The latest factsheet, itself only up to 30 September 2019, shows retail + retail warehouse (shopping centres) totalling just over 32%. Some of these will be empty thereby producing no income for the trust.

I don't know what "industrial" is; it accounts for 17%. Not sure if warehouse space is included in the portfolio (I haven't read the interim report in any detail so not sure if there's information in there or not - maybe someone might know already and can let us know).

The share price fall and widening discount on BCPT has been more pronounced than many other property trusts; perhaps others are less reliant on retail in their portfolios.

takesyourchances · 14 January 2020 at 7:27PM

I hold BMO as well, my holding is down -19% odd at the moment, I am holding on, it is paying a dividend and I am not planning to crystallise a loss. I hold other property IT's as well, standard life property income is holding up, I have Titax Big Box as well, so plan holding BMO and re-investing my overall dividends.

I expect UK property could be rocky with Brexit, who knows were it will be in 5 to 10 years and I buy long term so planning to hold as it is a small overall holding of my overall portfolio.

msallen · 15 January 2020 at 3:43AM

The only commercial property I own is SLI and the market sentiment is obviously in disagreement with you on that as it has recently returned to trading at a premium.

I suspect this is because its only retail that is viewed pessimistically, not all commercial property.

Is the commercial property sector finished?

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