After a formal review, the investment trust remains in our rated list of investments. Here’s why.
BMO Commercial Property Trust (LSE:BCPT) has kept its place on interactive investor’s ‘Super 60’ rated list following a formal review over income and discount to net asset value concerns amid the coronavirus crisis.
The investment trust, which is listed in the Alternatives category in the Super 60 list as a property income pick, was placed under formal review on 22 July 2020 having suffered, along with the broader property sector, from the uncertainty over property valuations amid the coronavirus-linked malaise in global markets.
The trust suspended its monthly dividends in April over uncertainty on rental receipts, particularly for retail and leisure tenants, during the government enforced lockdown to tackle the Covid-19 pandemic. But in August, with rent collections in Q2 and Q3 ahead of expectations, the trust reintroduced dividends at half of the previous amount (from 0.5 pence per share to 0.25 pence per share).
In addition, the trust, which had also been held in interactive investor’s Active Income model portfolio since June 2019, is currently trading close to 40% discount below its 12 months average of 35%, but down from above 60% in late Q1.
Dzmitry Lipski, Head of Funds Research, interactive investor, says: “Discounts for property trusts would be expected to widen significantly in times of severe market stress like the coronavirus crisis. Major open-ended property funds were forced to suspend dealing to protect existing investors. While investment trust shareholders are spared such a fate, no structure is perfect and we saw investment trust discounts within the UK property sector widen to levels seen during the financial crisis.
“The trust provides exposure to prime UK commercial property and is managed by one of the most experienced teams, led by Richard Kirby, and the trust’s balance sheet remains strong.
“The trust maintains relatively high retail exposure and is underweight industrial exposure versus peers which has materially impacted the performance record over recent years. The retail sector was already undergoing structural changes and has been affected the most by Covid lockdowns this year. As a result, the trust has fallen onto one of the widest discounts in the sector, currently 40%, which potentially represents a significant margin of safety as the trust’s retail exposure is primarily in the most prime locations such as London and South East.
“The trust is trading close to 40% discount and offering a dividend yield of more than 4% despite being cut by 50%. The management of the trust has demonstrated willingness to re-introduce higher distributions when conditions improve and believe that the portfolio is well positioned to begin its recovery once the restrictions surrounding COVID-19 are lifted.”
The decision was made in line with our Super 60 methodology - which is monitored continuously for events which include, but are not limited to, extended periods of underperformance and fund manager moves. The interactive investor team conducted a formal in-depth review of the investment process, the shape and quality of the portfolio positioning as well as sustainability of the current yield.
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