UK Commercial Property REIT (UKCM) is the largest generalist commercial property vehicle in the AIC UK Commercial Property sector. Managed by Will Fulton at Aberdeen Standard Investments, it owns a portfolio strongly tilted to the industrial sector and to properties benefiting from technological and demographic change. ESG considerations also feature prominently in investment and asset management decisions. Since Will took over control of the portfolio in 2015, the trust has been moving away from a standard retail/office/industrial strategy and embracing more specialised areas such as logistics and distribution. Furthermore, this year shareholders have approved a wider investment policy which allows the manager to invest across a broad range of ‘alternative’ real estate sectors. These are areas outside the mainstream industrial, office and retail sectors, and which are often the greatest beneficiaries of secular changes in society. UKCM yields 4.2% and has seen its dividend cover improve in 2019. There is also potential for higher rental income from the portfolio which could provide a further improvement, as we discuss in the Dividend section. The trust has one of the lowest levels of gearing in the peer group, which reflects Will’s cautiousness about current volatility and desire to keep cash on hand to take advantage of that volatility.
Companies: UK Commercial Property Trust
Greencoat UK Wind – Share issuance programme and initial fundraising | UK Commercial Property – Q1 2019 NAV and dividend
Companies: Greencoat UK Wind UK Commercial Property Trust
Fundraising showed signs of picking up this month, and the focus was very much on the renewables sector. First of all there was Renewables Infrastructure Group, which launched a placing programme and an initial fundraising early in the month, targeting up to £170m. It ended up raising just over £300m, having received applications for nearly three times as many shares as were originally available, in an upsized and scaled back issuance. Greencoat Renewables also announced and completed a placing which raised EUR 148m, around 40% more than the target. Another indication of interest in this sector was John Laing Environmental Assets successfully placing around 22m of its shares that were being sold by The John Laing Pension Trust. Finally, with regard to news in this sector, the close of the US Solar Fund* IPO had to be put back after just falling short of its target by the original closing date – closing is now expected to take place on 10 April.
Companies: TRIG BBOX UKW GRP ALF ELTA ESP FAIR BCPT BREI HTCF MERI UKCM
UK Commercial Property Trust (UKCM) aims to generate an attractive income with the potential for income and capital growth from a diversified portfolio of commercial property. Manager Will Fulton has focused the portfolio on sectors and locations benefitting from structural changes in the economy and society. Recently, the company announced that it is seeking permission from shareholders to widen the manager’s universe into additional real estate sectors which would allow him to expand on that strategy. Will explains these “alternative” sectors are now regarded as mainstream and include healthcare, student housing, hotels, car parks, pubs, petroleum and automotive and the commercially-managed private residential rental sector, amongst others. Representing an increasing share of the commercial property investment market Will believes they can be attractive as they are driven by demographic, urbanisation and trends in technology, together with a stability of income returns and diversification benefits, an environment he believes is set to continue. UKCM yields 4.2%. While this is below the sector average, the portfolio has strong reversionary income potential and one of the lowest levels of gearing in the peer group. The company has also extended its borrowing facilities to be able to take advantage of opportunities emerging from what the manager anticipates could be a volatile property market. The trust trades on a wider discount than the peer group, although the absolute number and the discount to the peer group have both narrowed in recent months. Currently it is trading on a 6% discount compared to a sector average of 4%. Last July the trust gained REIT status, which means it is treated as a UK resident for tax purposes and will remain exempt from corporation tax on the profits and gains from its property rental business, protecting shareholder’s income.
The open-ended commercial property fund sector is under pressure, as concerns about the outcome of the Brexit negotiations and the rapid deterioration of the retail property market have spurred many investors to reduce or eliminate their exposure. In this article, we take a look at primary healthcare properties as a possible alternative to open-ended funds, where the risk of 'gating' - funds closing to outflows - is on the rise in volatile market conditions. With a sector average yield of 4.5% and a highly differentiated risk profile, the primary healthcare sector could be the best place for income hungry investors looking for non-cyclical returns.
Companies: UKCM PHP MXF
UK Commercial Property Trust (UKCM) aims to generate an attractive income with the potential for income and capital growth from a diversified portfolio of commercial property. Manager Will Fulton has overhauled the portfolio since taking over in April 2015, and it is now focused on the outperforming industrial sector with low exposure to the troubled high street and shopping centre retail segments. The trust yields 4.3%. This is below the sector average, but the portfolio has strong reversionary potential following the period of transition which could see dividend cover rise as the manager’s reletting and asset management plans are implemented. The trust trades on a wider discount than the peer group. Currently it is trading on a 10% discount compared to a sector average of 5.4%. In line with Aberdeen Standard Investments’ cautious outlook on the UK economy, the trust is conservatively positioned, with low levels of gearing and cash on hand. In July the trust gained REIT status, which will mean it is treated as a UK resident for tax purposes and will remain exempt from corporation tax on the profits and gains from its property rental business, protecting shareholder’s income.
The effects of technological change on the equity market have been much written about and discussed, and the structure of stock markets profoundly changed over the past decade. The UK commercial property market is seeing equally significant changes which have gone under the radar somewhat, we suspect largely due to concerns about the consequences of Brexit. Whatever those are, they will be temporary and largely cyclical, but the changes effected by technology, chiefly the internet, will be long-lasting and secular and have a much more profound impact on the contents and structure of investment portfolios. The main issue is the rise of online shopping and its consequences for retail property and distribution warehouses. Another issue is the change in how companies use offices: the growth in co-working, the rise in remote working, and more flexible ways of using property, all of which tends to trend towards a reduction in the footprint needed by commercial property users. We review how the mainstream UK property trusts are positioned vis-à-vis these trends and explore how this new reality can be exploited by investors.
Companies: Ediston Property Investment Co UK Commercial Property Trust
UK Commercial Property – Disposal | Unite Group – Quarterly valuation update
Companies: UK Commercial Property Trust Unite Group
UK Commercial Property – Half-year results | PRS REIT – Acquisitions | SQN Secured Income – Annual report to 30 June 2018
UK Commercial Property REIT (UKCM) achieved a 10.6% NAV total return over the year to the end of June 2018, but its share price has lagged its steadily rising NAV and its discount has widened to 5.2%, among the widest in its UK direct property peer group. In July 2018, UKCM became a UK REIT to mitigate the risk of significant potential tax charges falling due from 2020 and agreed a reduced management fee, effective January 2019. UKCM is significantly overweight in the industrial sector, which is expected to continue to lead market performance, while exposure to the weaker retail sector has been reduced. The manager sees considerable scope for near- and medium-term earnings improvement from the portfolio’s reversionary potential, which implies c 26% upside to rental income if market rates are achieved across all property assets.
UK Commercial Property – Q2 2018 NAV and dividend | Renewables Infrastructure Group – Press speculation
Companies: UK Commercial Property Trust Renewables Infrastructure Group
UK Commercial Property Trust (UKCM) is a large and liquid portfolio of 42 commercial properties with over 340 tenants that aims to generate an attractive income with the potential for capital growth. The trust has outperformed the market in two consecutive years since new manager Will Fulton overhauled the portfolio in 2015. However, it remains on a significant discount to NAV, much higher than all but one of its direct property peers despite offering a solid yield of 4%. In line with Standard Life’s cautious outlook on the UK economy, the trust is conservatively positioned, with low levels of gearing and cash on hand. Will is focusing on the industrials sector, particularly sites he thinks will be more resilient in a downturn, and has reduced exposure to the troubled retail sector. The yield of 4.1% is not high relative to peers, but there is potential for this to rise as rents are reviewed and uncommitted cash deployed. The trust is also one of the cheapest options in the peer group. On 29 May shareholders will vote on whether to convert the trust into a REIT. The company’s largest shareholder, Phoenix Life Limited, has given an irrevocable undertaking to support the proposal. If the proposal is passed, then conversion will occur on 1 July 2018. Conversion would mean the company moving its central management and control into the UK from Guernsey and being treated as a UK resident for tax purposes. This will mean the company will remain exempt from corporation tax on the profits and gains from its property rental business, protecting shareholder’s income.
UK Commercial Property Trust (UKCM) is one of the largest UK real estate investment companies and aims to be among the lowest risk in the sector, reflected by its low level of gearing. The portfolio was repositioned in 2015 and UKCM has outperformed its benchmark since March 2016. In recent months, UKCM has moved underweight the weaker shopping centre subsector, as well as making its first hotel investment, which increased the proportion of RPI-linked and long-dated income to 15.2%. The manager sees significant reversionary potential for the portfolio, with its estimated rental value (ERV), based on market rents, indicating c20% upside to rental income, giving the prospect of near-term earnings growth and potentially providing scope for future dividend increases.
UK Commercial Property Trust (UKCM) is a property investment company which seeks to generate an attractive and sustainable income with potential for capital and income growth by investing in high quality UK real estate. UKCM was set up in 2006, aiming to appeal to institutions as well as private investors by adopting a lower risk profile by focusing on prime assets and maintaining a conservative level of gearing. In April 2015, following Standard Life Investments’ (SL) acquisition of Ignis Asset Management, Will Fulton became lead manager. He reshaped UKCM’s portfolio to reflect SL’s house view, while retaining the conservative approach. NAV total return was ahead of its benchmark in 2016, following the repositioning of the portfolio in 2015.
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Ramsdens has reported a strong set of trading results in the last twelve months to March 2020. COVID lockdown has led to store closures, which will lead to weaker trading over the following months. However, Ramsdens has a very solid balance sheet, is diversified and is well positioned to re-open stores and continue its growth. We use an 8x multiple on last 12 months to March 2020 earnings as a reflection of a normalised earnings base which reduces our target price to 162p from 180p. At this target price Ramsdens would trade on a CY20 P/B of 1.5x. This target price offers 15% upside and we re-iterate BUY.
ULR’s finals were in line with on EPRA NAV and earnings a little better than expected. Valuations remain stable and full rent collection has been achieved for the current quarter. We see fundamental quality and resilience in the (now expanded) portfolio – ULR has already invested nearly £100m in the first two months of the new year following the £136m equity raise. We make no material changes to forecasts. Current valuation points to an 7%+ annualised return, with upside remaining from deployment of funding headroom, active management and potential for valuations to improve.
Companies: Urban Logistics REIT
Aside from its FY 19 earnings presentation, British Land has adopted a more cautious anticipation about Offices in the City of London. We share this pessimism and have been surprised by the recent share’s bump. The latter is the opportunity to turn negative, again, and update our divestment case.
Companies: British Land Company
The Merchants Trust (MRCH) is managed by Simon Gergel at Allianz Global Investors (AllianzGI). Aiming to continue to provide a high and growing level of income, he is adjusting the trust's portfolio in the wake of dividend cuts sparked by the negative economic effects of COVID-19. If there is an income shortfall in this financial year, MRCH is well positioned to maintain its dividend, with revenue reserves of more than 1x the last annual payment. It has not been an easy period for value managers over the last decade as growth stocks have led the charge; however, Gergel has outperformed the UK market over this period in both NAV and share price terms. The board reduced MRCH's gearing in late January 2020, which was opportune timing ahead of the recent significant stock market weakness.
Companies: Merchants Trust
A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGR CSH ESP DIGS IHR LXI PHP RESI SIR SUPR THRL SOHO BBOX SHED WHR
The covid-19 pandemic has had a devastating effect on the share price of property companies, with 31% wiped off the value of their total market capitalisation during the first quarter of 2020.
Companies: AEWU CREI CSH BOOT INL HLCL THRL SUPR RESI RGL DIGS GR1T SOHO PHP BOXE ASLI UTG AGR UAI BLND UANC CAL SHED CWD WHR EPIC WKP GRI YEW HMSO PCA INTU NRR
In the past month the group has made significant progress in pivoting its business away from its traditional face-to-face model. Although lending levels remain appropriately subdued, it has achieved an impressive collections performance, with its largest business running at about 90% of pre-lockdown levels. This, combined with the group’s high risk-adjusted margins has enabled it to generate £3m of FCF in the first three weeks of April, taking its net cash position to £38.7m as of 21 April. This strong financial position, combined with the group’s innovative approach to product development puts it in an extremely strong position to serve its clients and win share when the current government restrictions are eventually lifted. Reflecting this positive outlook we reiterate our BUY rating.
Companies: Non-Standard Finance
In this note, we analyze the indebtedness of 35 international E&Ps publicly listed in the UK, Canada, Norway, Sweden and the USA. For each company, we look at (1) cash position, (2) level and nature of debt (including covenants), (3) debt service and principal repayment framework and (4) Brent price required from April to YE20 to meet all the obligations and keep cash positions intact. We also estimate YE20 cash if Brent were to average US$20/bbl from April to YE20. While the oil demand and oil price collapse are of unprecedented historical proportions and the opportunities to cut costs much more limited than in 2014, most companies (with a few exceptions) entered the crisis in much better position than six years ago, with stronger balance sheets and often already extended debt maturities. In addition, this time around, many E&Ps have already been deleveraging for 1-2 years and are not caught in the middle of large developments that cannot be halted. The previous crisis also showed that debt providers could relax debt covenants for a certain period as long as interest and principal repayment obligations were met. This implies that as long as operations are not interrupted and counterparties keep paying their bills (Kurdistan), the storm can be weathered by most for a few quarters.
With (1) Brent price of about US$50/bbl in 1Q20, (2) reduced capex programmes, (3) material hedging programmes covering a large proportion of FY20 production at higher prices and (4) limited principal repayments in 2020, we find that most companies can meet all their costs and obligations in 2020 at Brent prices below US$40/bbl and often below US$35/bbl) from April until YE20 and keep their cash intact, allowing them to remain solvent at much lower prices for some time. In particular, Maha Energy and SDX Energy are cash neutral at about US$20/bbl. When factoring the divestment of Uganda, Tullow needs only US$9/bbl to maintain its YE20 cash equal to YE19. Canacol Energy, Diversified Gas and Oil, Independent Oil & Gas, Orca Exploration, Serica Energy and Wentworth Resources are gas stories not really exposed to oil prices and Africa Oil has hedged 95% of its FY20 production at over US$65/bbl.
Companies: AKERBP AOI CNE CNE DGOC EGY ENOG ENQ GENL GKP GPRK GTE HUR IOG JSE KOS LUPE MAHAA OKEA ORC.B PEN PHAR PMO PTAL PXT RRE SDX SEPL TETY TGL TLW TXP WRL
Today's news & views, plus announcements from VOD, POLY, SMDS, BLND, BYG, WEIR, DC, SNR, SHI, INTU, IHR, CNC, ARE, INCE
Companies: INTU SHI INCE
Companies: AVO AGY ARBB ARIX BUR CMH CLIG DNL GDR HAYD PCA PIN PHP RE/ RECI RMDL STX SHED VTA
U+I’s post-close trading update confirms c. £16m of development and trading gains for FY20, which includes Harwell. This is broadly in line with our revised expectations. Proactive steps are being taken to preserve liquidity in the short-term, including suspending the final dividend and stopping all non-essential spend. Positively, benefits of the cost saving programme will now be realised 12 months early. The balance sheet is strong, with ample liquidity; covenant levels are a long way off. Management’s time is being spent repositioning teams to be ready when restrictions are lifted, when there will be a renewed focus on the short-to-medium term value gain opportunities, of which there are plenty. The shares currently trade at 59% spot discount to our updated NAV forecasts, vs the UK sector at a 9% discount. We leave our recently lowered 180p target price unchanged and continue to see upside from here.
Companies: U&I Group
Recent news: On 21 April CLIG’s 3Q trading update to 31 March 2020, revealed:
27% fall in Funds Under Management (“FUM”) from US$6.0bn to US$4.4bn
- with weaker Sterling, FUM in £ fell 20% from £4.5bn to £3.6bn.
In 3Q, while Diversification CEF strategies (Opportunistic Value and Developed funds) had net inflows of US$25m, the Group’s Emerging Market Funds had net outflows US$68m
The Group has an active pipeline across all its major CEF offerings with increased interest in the Diversification CEF strategies
Post COVID-19, income to FuM remains unchanged at c. 75 bps of FuM
Companies: City Of London Investment Group
Smaller companies are usually a problematic area to invest in during significant downturns or recessions; and the sharp fall in 2020 hasn’t been an exception. In this article we assess the performance of smaller companies trusts throughout the pandemic, while identifying the factors that have differentiated the winners from the losers. This includes the impact that cash, market cap exposure, sector allocation, revenue exposure and growth or value biases have had, with some surprising results. We also ask whether now is an attractive time to invest in smaller companies, highlighting the trusts which stand out to us…
Companies: THRG GHE MINI RMMC ASIT ASL MTE TRG BRSC DSM
We wrote on 7 May, about the shape of the music global industry following the publication of the IFPI 2019 report. Taking a deeper dive into this report we examine the prospects of further growth in streaming numbers as the nonwestern markets come online.
Companies: Hipgnosis Songs Fund
Seneca Global Income & Growth Trust (SIGT) is managed by a four-strong team at Seneca Investment Managers, seeking undervalued securities across multiple asset classes in order to diversify the trust’s risk and return drivers. Its UK equity portfolio was particularly negatively affected by the coronavirus-led market sell-off in March, given its focus on domestic, mid-cap value stocks, which performed relatively poorly. However, these holdings could stand SIGT in good stead during an economic recovery. The trust’s board has committed to continue paying quarterly dividends, using reserves where necessary if income falls short, which seems likely given the number of dividend cuts announced by corporates in response to the global pandemic.
Companies: Seneca Global Income & Growth Trust