Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

UK commercial property has been through a difficult period, largely as a result of rising interest rates and slowing economic growth. These add to its borrowing costs and increase the risk of tenants being unable to pay the rent, which is why many of the funds that invest in this area have been sharply de-rated.

In the last few months, the valuations seem to have stabilised and if this continues the low prices and large discounts could offer a decent buying opportunity for longer term investors. One option worth considering is the Balanced Commercial Property Trust, a member of the Select 50 that owns a diversified UK portfolio of offices, industrials, retail, warehouses and other types of buildings.

The broker Winterflood says that it offers a core exposure to the sector. They describe the portfolio, which was valued at £1.1bn at the end of March, as having a high quality, prime location. The fund also benefits from a conservative level of borrowing of 23% and a relatively low average rate of interest of 3.6%, although all of the debt will have to be refinanced next year at a potentially higher cost.

Balanced Commercial Property has an experienced manager in Richard Kirby, who is supported by a well-resourced team at CT Real Estate Partners. It is currently paying monthly dividends of 0.40p per share, which gives a prospective dividend yield of 6.6% at the current share price of 73p. This is fully covered by earnings and could increase given that further rental growth is expected to come through.

Balanced Commercial Property Trust 5-year share price chart

None

Source: Yahoo Finance from 19.06.18 to 16.06.23 Basis: Share price in GBP. Excludes initial charge.

Past performance is not a reliable indicator of future returns

The recent performance has been extremely disappointing with a share price total return of -32.1%1 over the last 5 years, which was considerably worse than its peer group. Winterflood believe that this was at least partially attributable to the portfolio’s higher allocation to retail and offices, two areas that have struggled, although they think that the repositioning will help to support future returns.

Despite early signs that the valuations are stabilising, the shares are currently available at a large discount to NAV of 37%. The broker says that there is potential for a re-rating over the medium term, especially if the dividend is increased back towards the pre-pandemic level of 0.50p per month, or if the fund delivers a sustained period of improved absolute and relative performance.

More on the Balanced Commercial Property Trust.

Five-year share price performance table

(%) As at 21 June 2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Balanced Commercial Property Trust -23.4 -32.2 26.0 35.4 -34.5

Past performance is not a reliable indicator of future returns

Source: FE, as at 21.06.23 Basis: Total returns in GBP. Excludes initial charge.

1 Winterflood Securities, Refinitiv as at 17 May 2023.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. The shares in the Balanced Commercial Property Trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. Funds in the property sector invest in property and land. These can be difficult to sell so you may not be able to sell/cash in this investment when you want to. There may be a delay in acting on your instructions to sell your investment. The value of property is generally a matter of a valuer's opinion rather than fact. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

Share this article

Latest articles

Inflation drop: what it means for rates, ISA funds and savings

Hopes for a rate cut in June are in the balance


Andrew Oxlade

Andrew Oxlade

Fidelity International


Richard Evans

Richard Evans

Fidelity International

How I find tomorrow’s big winners

How do you spot the market-leading companies of the future?


Ed Monk

Ed Monk

Fidelity International