Balanced Commercial Property Trust launches strategic review

The board of Balanced Commercial Property Trust (BCPT) has launched a strategic review into the future of the company, with all options – including a sale, merger, or continuing as is – on the table.

The move comes as the company approaches a continuation vote later this year. The board pointed out that the company was not in discussions with any potential suitor at this time.

Like many other property companies and REITs, BCPT has suffered from a materially wide discount in recent years as higher interest rates and other economic factors have weighed on sentiment towards the sector. However, the company’s share price discount to net asset value has narrowed from 42% to 28% over the last six months.

[QD comment: Despite insisting that all options remain on the table, the board has effectively put a ‘for sale’ sign up over the business, which we feel is very premature. In announcing the review, the board listed a number of performance achievements since it launched – including outperforming its benchmark, paying a fully covered dividend (which was increased by 10% last year), and successfully rebalancing its portfolio away from the challenged office sector. Not only that, the FTSE 250 company will be the largest ‘diversified’ company in the REIT sector once UK Commercial Property REIT is merged with Tritax Big Box REIT. It would be a shame to lose another large diversified REIT – which would leave the sub-sector with a handful of small-cap companies. The benefits of having a diversified property portfolio, as opposed to a specialised focus, is that the manager can be nimble in its portfolio construction and move with the times (such as the move away from retail to logistics, and more recently away from offices). For investors to potentially lose access to a reasonably sized diversified REIT would be a shame.]

The board said that it believes BCPT offers an attractive investment proposition: a diversified portfolio of high-quality assets, with an income-focussed, total return strategy supported by active and opportunistic management initiatives. It added that the company also offers the scale that is lacking in its smaller peers.

However, it added: “The board also recognises that the company currently faces significant challenges with a difficult near-term economic and property market backdrop in a higher interest rate environment and the current dislocation in capital markets. Despite the manager delivering steady portfolio performance over recent years, and the share price discount having narrowed, the company’s shares continue to trade at a material discount to their net asset value, which the board does not believe reflects the current value of the underlying property assets, nor the longer-term prospects of the portfolio.”

Strategic Review

As part of the strategic review, the board has said it will consider all options including: continuing the company with further actions to narrow the discount; selling the company’s portfolio or subsidiaries; returning capital to shareholders; changing the company’s investment strategy and/or management arrangements; commencing a managed wind down; selling the entire issued share capital of the company; or undertaking some other form of consolidation, combination, merger or comparable corporate action.

The outcome of the strategic review is expected to be announced in the third quarter of 2024, just before the company’s continuation vote is held.

Paul Marcuse, chairman of BCPT, said:

“Following a very challenging period for REITs during the COVID-19 pandemic and subsequent economic and geopolitical events, BCPT has been repositioning the portfolio away from less attractive sectors and realising cash to facilitate strategic options for the Company. We believe our monthly dividend offers an attractive level of regular income to shareholders.

“We recognise, however, despite recent improvements in the Company’s share rating, the share price remains at a material discount to the Company’s net asset value. In line with our commitment to do the right thing for our shareholders as a whole, we have commenced this Strategic Review to determine the best way to enhance value for shareholders, after which the independent Board will determine the best way forward.

“We welcome the views of all of our shareholders during this consultation period and will carefully take those opinions into consideration before announcing our next steps. The Company will continue to explore all options available to enhance value for its shareholders.”

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