AIC Compass, Jennifer Hill, Friday 10 June 2022:
Jennifer Hill finds four compelling reasons to invest in UK Commercial Property
Investors wrote off property during the Covid-19 pandemic, often in the mistaken belief that UK commercial property trusts are chock-full of high street retail and office assets.
But as the cloud of lockdown has lifted, valuations have rebounded sharply. Diversified real estate investment trusts (REITs) have seen double-digit uplifts in portfolio values over the past year, in many cases eclipsing the falls witnessed in 2020.
Share prices have also rebounded, albeit to varying extents. “The winners have clearly been the logistics-focused plays – Tritax Big Box and Warehouse REIT, for example – as well as LXi REIT, the long-lease trust that is one of our core selections for property exposure,” says Charles Stanley analyst Ben Johnson.
“Some other sector-specific plays have worked well too, but interestingly the diversified property trusts have generally been left behind, recovering strongly off their lows but still languishing at wide discounts.”
Underlining investor hesitancy, the diversified property sector was trading on an average discount of more than 25% on 27 May, according to Numis.
There are, however, compelling reasons in the current environment to allocate to the property investment trust sector as part of a wider portfolio – one of them being discounts. Let’s take a closer look:
Inflation linkage
With the consumer prices index (CPI) rising at 9%, its fastest rate for 40 years, and set to go higher, protection against inflation is a priority for investors.
With the consumer prices index (CPI) rising at 9%, its fastest rate for 40 years, and set to go higher, protection against inflation is a priority for investors.
“Property has traditionally been a good hedge against inflation; although rental growth won’t be anywhere near the current levels of CPI, some inflation protection is embedded in the leases of certain REITs,” says Richard Williams, a property analyst at QuotedData.
“Although mostly capped around 4% per annum, index-linked rent reviews do benefit long income specialist LXi REIT and social housing companies Civitas Social Housing and Home REIT.”
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