F&c Commercial Property Share Discussion Threads

[vacendak] 28/6/2019 11:30

New thread for FCPT/BCPT:

[vacendak] 25/4/2019 19:39

Just received a notice of corporate action today:

Soon to be known as "BMO Commercial Property Trust" as the proposal will most likely pass.

[skyship] 04/4/2019 11:14

Mark – sorry, but in your own interests I would challenge much of what you write. You seem to have some cursory knowledge of the sector, but the key word there is cursory!

Perhaps follow the posts over on the CP+ thread; and over time you will both learn and profit.

# Firstly – P. No.176: “Divvies have been steady over that three years; I don't care about valuation fluctuations as long as the income keeps rolling in…”

Income and capital are two sides of the same coin. A good investment needs to preserve or enhance on both counts. If the capital erodes then should you need to access a specific sum of cash, patently you will have to sell far more of your investment than would otherwise be the case. Denying this fact is one of the most basic errors in the investment lexicon; and I would urge you to take that on board.

# Secondly – P.No.189: “So it kind of feels like we are caught up in a general sector decline”

Wrong, there is no general sector decline. Sure, over the past 3 Qtrs the global economy has stalled and property valuations have done likewise; stalled, but not declined to any measurable degree. Here in the UK the rank badly managed Brexit negotiations have sapped confidence from the market, so activity has markedly slowed. But underlying fundamentals remain positive and in the regions rents are still rising, except in most Retail. Once Brexit is resolved, then pent up demand for high yielding assets will once again reassert; and yield compression will again lift valuations.

# Thirdly – P.No.189: “In my opinion the challenge from online is putting pressure on bricks and mortars retailers”.

This is not your opinion – this is FACT. Certainly for the past two years it has been the most important driver affecting property portfolios. An excessive allocation to Retail (NB: NOT Retail Warehouse) in cases such as Intu, Hammerson & New River for instance, has had a profound effect upon valuations; and the dreaded CVA has become the nightmare stalking the text of Property Manager reports!

# Fourthly – P.No.189: “…yield compression…”

This is an important factor driving valuations, but you use the phrase incorrectly. YC arises from active property transactions (acquisitions) in a competitive market driving valuations up and corresponding yields down. With global interest rates again declining, it is perhaps surprising that well-tenanted, regional industrial & office properties can still provide yields of, say, 8.5%. If competitive bidding sustains a yield reduction to, say, 8.0%, then the underlying valuation will rise 6.25%. Now factor in an average LTV of 35%; and suddenly you’re looking at an NAV uplift of 9.0%. All on the back of simple YC.

# Fifthly – P.No.189: “If I were looking for capital growth I'd avoid the property sector altogether.”

Again Wrong; actually totally and manifestly WRONG!!!

There is plenty of evidence that property investment outperforms equity investment.

What you need to bear in mind is that property gain doesn’t come from YC alone. Propcos also gain from:
# rent reviews
# change of use
# portfolio sales and reinvestment on higher yields
# lease extensions (tenancy renewals on longer leases)
# increased occupancy (lettings of empty space)
# property refurb.
# peripheral development
# restricted development driving up local property rentals/values
# & there are likely others I have omitted!

Among other places, read P22 of this RGL Presentation:



I’ve spent enough time on this, so will just end with one final homily: Never, ever buy a propco trading at a premium to NAV. FCPT did just that for far too long; and has cost many for that one reason alone.

[markth] 03/4/2019 16:55

I see a number of things driving share price The first is that property isn't very liquid. When there's structural danger (Brexit) investors will pull their money out of less liquid sectors like property. Of course FCPT is closed end and a rush of redemptions doesn't make them a forced seller at depressed valuations like it would an open ended fund. So it kind of feels like we are caught up in a general sector decline. SLI which I also hold for income has been marked down quite a lot too along with FCPT. The second is mix. In my opinion the challenge from online is putting pressure on bricks and mortars retailers with many well known and long established names going under in recent times. To complete, the B&M guys have to cut costs which means reduced rents, which depresses valuations on retail property due to yield compression. FCPT knows this and is divesting retail as fast as it can, and moving money towards industrials which is doing quite well. The sectoral shift will come at the cost of a small dip to share price from selling out of retail when the price is low, but will increase yield by reinvesting in industrial. Finally there are some interesting (positive) tax angles from restructuring as a REIT. I don't really understand this very well but others say it will be accretive over the medium term.

These views are biased of course as I am in this for income. If I were looking for capital growth I'd avoid the property sector altogether.

[essentialinvestor] 03/4/2019 12:34

Mark, thanks for the view.

Do you think there is now a secular risk to some of their retail holdings
which did not exist in the past?. I'm wondering if the retail aspect of
the portfolio is a significant contribution to the recent share price decline.

For some sector context, look at the huge NAV discount that LAND trades on.

[markth] 03/4/2019 12:07

About the dividend. The EPS as reported by ADVFN currently 11.6p, with dividend of 6p and cash flow of 4.72p.

Last report and available figures suggest that 80% of the dividend is covered by income, which is a solid revenue stream independent of the capital values placed on the properties. Looking back a few periods to 2017 I can see that the dividend has never been covered fully by income during that period, and the remaining balance has been met through disposals and the occasional dip into reserves.

You can argue that the disposals in future may not be as lucrative given the depressed capital values on property, and that may put the dividend under pressure. Let's say that 50% of the disposals are profitable and 50% not. That would impact the dividend by 20%. At this price the stock would then be yielding 4.4%, which is still quite decent.

The dividend has endured for many years and through harder times than this. Once Brexit is out of the way the share price will recover and the Outlook for commercial property will improve as confidence returns to the business sector. The current share price travails are just another small dip on the 20 year history I have with this share.

[essentialinvestor] 02/4/2019 14:50

Andy, some of that yield is being taken from capital is my understanding?.

It's not really a 5% yield.

[vacendak] 02/4/2019 14:40

If one looks at the graph from 2005, FCPT has seen some pretty bad patches. My bet is that the current one is Brexit related, or to be more precise Brexit uncertainty related. Once the indecision is removed, one way or another, the share price will be back to be evaluated on the merits of the trust and what it holds and not just the keywords "Commercial" "Property" "UK".

I will be adding a bit more too, at 117.60p it seems sufficiently down. The proposed change to UK REIT should also improve the image in the medium term.

Looking at it, this is also the sick dog in my holdings too.

[andyj] 02/4/2019 13:04

I am loathe to buy more of my worst performing fund but yielding 5% they are becoming interesting. With a very long and hopeful timeframe.

[vacendak] 01/4/2019 19:30

Just received a notice of corporate action today:

"The Company is continuing with its proposals to achieve UK REIT status, subject to regulatory, bank and shareholder approval. The Company is now aiming for the REIT conversion to take place during the second quarter of 2019."

[vacendak] 06/2/2019 11:45

@markth
True, the trust is moving a bit more towards warehouses. It is not a "big box" investment trust yet (renting to Amazon and the likes) but long term , this should pay off.

[markth] 06/2/2019 08:37

The thing to watch is the void rate. With disposals it fell from 6.9% to 5.1%. There are some rental renegotiations in play which will bring it down to 3%. Of course they will be at a discount, but many of FCPT's retail properties are in prime sites in London which are very resilient. By selling the vacant retail properties, the fund's mix is tilted towards other segments such as industrial which is doing very well. Yes we may see a dip in NAV but as long as the income rolls in and pays the divvy I am happy. This is not, and never has been, a fund to own for its growth prospects. If the share price falls to where the yield goes back over 6% I will buy some more.

[vacendak] 04/2/2019 08:58

An update, mostly bad news:

Drop in NAV, also dropping more than the reference index.

Let's eat my hat viz. my previous statement of the portfolio being stagnant. There have been a few sales, one at premium, another two at a loss. Selling at a loss is explained by "strategy" of course. Cannot be an admission of past mistake, can it?
The sales were of vacant or mostly vacant properties, so the void-rate has now been lowered.

Warning about things potentially getting worse before they get better, as the rules for valuations seem to have become stricter of late, so we should expect further drop in NAV.

No explicit threat to the dividend.

[vacendak] 21/1/2019 14:11

I must agree that FCPT is not doing great at all at the moment.

However, one needs to bear in mind the structure, this is just a list of buildings that the trust owns and they collect the rent.
Significant changes in the portfolio/property list are pretty rare.

Everything comes down to what the valuers tell them the buildings are worth. With tales of bloodbath on the high street and the big B word, these valuations may be at best "tentative" right now. For instance, looking back to the times just after the actual referendum result, they could not even get a proper NAV value.

As already mentioned, the 0.5p per share per month has been paid like clockwork, the quality of the tenants is good so the 0.5p should be safe.

I could be wrong, but this should be something that people buy into and never sell. They buy to hold for the divi. Unless we reset the clock to the mid-90s and somehow expect another twenty years of fever in the "brick and mortar" market; I would not expect the NAV to catch fire anytime soon.

With my current time horizon, I should be into growth only, I got into this for the sake of diversification in style. With hindsight, I should have put the money elsewhere, but I do not see the point of selling now.

The steady erosion of the share price could also be linked to the idea of reorganising the trust, bringing it back from Jersey. I have not checked the latest reports, but last year or so there were some rumblings about tax regime changes and how to adapt to that. The Exchequer always needs more money and hitting property/landlords has been their style since George Osborne. Offshore trusts like this one might be in the cross-hair too.

[andyj] 21/1/2019 11:05

This is the most ineptly run fund I ever bought.

[skyship] 11/12/2018 10:10

So, a 4.6% yield and an 8.3% NAV discount.

Does that represent VALUE? I think not.

Have to agree with andyj on this one. Why would you hold when you can do so much better?
==========================================

Net Asset Value
The unaudited net asset value (‘NAV’) per share of the Group as at 30 September 2018 was 141.8 pence. This represents a decrease of 1.0 per cent from the unaudited NAV per share as at 30 June 2018 of 143.2 pence and a NAV total return for the quarter of 0.1 per cent.
==========================================

[markth] 11/12/2018 09:29

Divvies have been steady over that three years; I don't care about valuation fluctuations as long as the income keeps rolling in. If it's capital growth you're after this probably isn't the share for you.

[andyj] 10/12/2018 15:17

Yet another fund that is only successful at charging you for the slow evaporation of your money. Now lower than three years ago.

[speedsgh] 27/4/2018 08:44

Net Asset Value -

The unaudited net asset value ('NAV') per share of the Group as at 31 March
2018 was 142.9 pence. This represents an increase of 1.2 per cent from the
audited NAV per share as at 31 December 2017 of 141.2 pence and a NAV total
return for the quarter of 2.3 per cent...

[vacendak] 24/10/2017 12:06

NAV update:


Up 0.4% from June and 1.5% total return for the quarter.
Lukewarm results but the premium was still at 6.5% at September 30th share price of 149.1p. Considering the recent price drop, it is now merely 0.9% if rounded generously.

Still no new acquisitions, the Pulteney Street sale now dates back to December last year. Not saying that they should buy something at any cost, but we are still one horse down in the stables.

[vacendak] 30/8/2017 15:36

The HY report for 2017 is out:


NAV 139.4p at June 30th, so a premium of 4.2% on that date.
Last year's premium was 0.7% on June 30th 2016.
So it is back to normal.

Still no new acquisition since the sale of Pulteney Street in December 2016.
Minor worry: "The void rate over the period has increased to 8.8 percent as a result of HSBC vacating Edinburgh Park."

With no acquisition/sale, the report is mostly about collecting rent money.
The borrowing facility with Barclays is still undrawn. There is no debt worry and the dividend is safe, although the cover is down to 80.6% from 87.0% before. This is due partly to the sale of Pulteney Street and the corresponding disappearance of rent there. Management fees reorganisation also seem to have brought down the cover a bit.

[skyship] 21/7/2017 08:38

"Waiting for the next correction in commercial property and will likely pile-in again as a contrarian when the sector tanks."

Agreed, a shake-out would press the reset button and again provide opportunities. I started the original CP+ thread back in Dec'08 under an appropriate title at that time.

I see on the BLND thread that TEMPUS recommends a SELL; in the face of the well-received £300m buyback scheme announced this week!

[vacendak] 20/7/2017 10:40

@SkyShip
You made me have a second look at FCPT, re: the premium and the yield, and stopped adding monthly to this one.
Everything looks expensive these days, ITs are meant to trade at discounts. For the income component, I am now piling-up more on FHI, nothing fancy, this is about big caps (BAT, HSBC, Glaxo, etc.), income at a reasonable discount (for the units anyway, FHIU). FHI have also streamlined (no more bonds investment portfolio), so performance could improve soon with lower charges/expenses. The income sector and big caps are boring, but a pf needs some ballast to smooth the ride.

FCPT can feed itself from its dividend in my portfolio now. Waiting for the next correction in commercial property and will likely pile-in again as a contrarian when the sector tanks.

[skyship] 20/7/2017 10:06

vacendak - like yr 167 above.

All a bit boring at the moment. Substantially reduced my activity since end May & most values stalled. Still H1'17 was better than anticipated, so a period of reflection not a bad idea.

On the PE front bought back into NBPE, as posted on the PE thread.

[vacendak] 20/7/2017 08:53

NAV update as of June 30th, up by 1.5% from March.

Premium down to "only" 4.23% on the NAV release date.