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Property valuations take a dive

We got the first real insight into the impact covid-19 is having on property valuations this week, with both Picton Property and BMO Commercial Property Trust announcing portfolio values for the quarter to 31 March 2020.

BMO’s portfolio fell in value by 3.8% over the course of the period, while Picton’s was at a much more amenable decline of 0.8%.

Both companies own a diverse portfolio of properties around the UK, but have big differences in their sector weightings.

While Picton has a heavy focus on industrial/logistics and office (48% and 34% respectively) and only an 18% weighting to retail, BMO has a larger portion of its portfolio in retail (31%).

Including its St Christopher’s Place asset in London’s West End, which is by far the largest asset in its portfolio, BMO’s retail portfolio fell in value by 6.5% in the three months.

The two portfolios are not directly comparable, so it is hard to draw concrete assumptions from the two valuation reports. However, when both are compared to the respective valuation reports from the previous quarter (ended 31 December 2019) there is marked similarities in the percentage point change in values.

BMO’s portfolio fell by 1.4% in Q4 2019, while Picton’s portfolio increased in value by 1.4% in the same period. BMO’s -2.4 percentage point change and Picton’s -2.2 percentage point change suggests a similar yardstick being used by their valuers, in both cases CBRE, in the current climate.

Material uncertainty

It should be pointed out that all property valuations are now coming with a ‘material uncertainty clause’ attached to them, which is basically a caveat stating that the valuation should be viewed with some degree of caution.

The unprecedented nature of the covid-19 pandemic has forced valuers, such as CBRE and JLL, to put the material uncertainty clause into their reports.

Last month, open-ended UK property funds suspended trading due to the insertion of the clause as it became difficult for them to show they are providing fair value for all investors.

Closed-end funds don’t have the same difficulties. While the material uncertainty clause has no bearing on the value of listed property companies’ portfolios, it will be interesting to see if investors are spooked by the caveat.

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