Investment trust insider on UK Commercial Property – James Carthew: The point of maximum pessimism to UK property approaches
Unbelievably, once again open-ended property funds are imposing restrictions on redemptions of units. Funds managed by Schroders, BlackRock and Columbia Threadneedle have been affected, but how long will it be before others follow suit? The sharp falls in share prices and wide discounts within the property investment company sectors suggest not too long.
Despite the enormous effort that has gone into the design of ‘open-ended’ long-term asset funds, none has yet been launched. The best solution for funds investing in illiquid assets remains investment companies. Although, of course, the price for liquidity is a widening discount.
I feel fortunate to have sold the last of my commercial property exposure, shares in CT Property Trust (CTPT), in the middle of August. There was no amazing foresight in this; it just felt as though its post-Covid re-rating had stalled, and with perfect hindsight, I should have sold them in April or May.
The events of the last couple of weeks have hit CTPT and much of the rest of the sector hard. Rising gilt yields represent twin threats to the property sector: investors demanding higher yields, pushing down capital values and rising borrowing costs. To that, we can add the increased risk of tenant default as a recession looms. Thirty-year gilt yields, which spiked but then moderated in the wake of the Bank of England intervention, are now rising again.
UK Commercial Property Reit (UKCM) and Balanced Commercial Property Trust (BCPT) are both trading close to 50% discounts. The yields on these funds are… read more here