BMO COMMERCIAL PROPERTY: Trust turns back to hot property after grueling 15 months
BMO Commercial Real Estate Trust has lived through 15 grueling months. It invests in prime UK properties and specializes in three of the sectors hardest hit by national lockdowns: office, retail and leisure. As a result, a £ 100 investment in the fund at the start of last year would only be worth £ 75 today.
However, as stores, restaurants and offices reopen, the share price has started to rise sharply. It has already increased by 14% since the start of this year, but there is still some way to go before reaching the levels seen before the pandemic.
Fund manager Richard Kirby believes the falling share price presents an attractive opportunity for investors. “It has been a very difficult year with the pandemic and the lockdown,” he says. “Even though we hope to exit now, our stocks are still trading at a discount, which looks very attractive.
The shares are currently trading at 82p, which is a 31p discount to the value of the underlying assets of the fund. The fund also has an attractive dividend yield of just over five percent. It contains over 30 properties, the majority of which are located in London and the South East.
Some have already bounced back. BMO Commercial Property Trust’s largest portfolio is St Christopher’s Place, a small, stylish shopping and entertainment district in London’s West End. During the nationwide lockdowns, the region’s greatest strengths became its weaknesses, but luckily this trend is rapidly reversing once again.
“All of the positive aspects of St Christopher’s Place have turned negative in the pandemic,” says Kirby. “It is heavily exposed to the hospitality, food and beverage and retail sectors. In addition, it is located in central London and relies on office workers, tourism and public transport.
But, it has had a successful reopening – it has been very difficult to book a table in the capital in recent weeks. With the reopening of more businesses, we hope that it will be able to capitalize and stabilize. Much rests on its success: St Christopher’s Place accounts for over 20 percent of the fund’s value.
BMO Commercial Property Trust’s out-of-town retail holdings are also recovering. The sites with free and abundant parking are particularly attractive. Kirby adds, “We have seen continued growth in online sales, particularly in fashion. But I think people are tired of ordering online and then having to return merchandise that doesn’t match or looks different online.
Office spaces might take longer to reclaim. Kirby believes there will always be a high demand for them in the future – although he admits that he and his team are still working successfully from home, as they have for over a year. Office expectations are changing, however, and the fund is working with tenants in its buildings to adapt. For example, he works on monitoring the air quality in his buildings.
“The issue of well-being is really on the agenda,” says Kirby. “People also appreciate the quality, flexible space, with good local amenities.
The composition of the fund has not changed much over the past two years. But as we emerge from the pandemic, Kirby plans to make some changes to take advantage of new trends, considering the sale of commercial properties for reinvestment in other areas. Topping the list for purchases will be warehouses, which are benefiting from the boom in online shopping. Student accommodation could also be on the list.
BMO Commercial Property Trust is on Interactive Investor’s list of Super 60 best bought funds on the wealth management platform. Dzmitry Lipski, Head of Fund Research, says: “With rent collection continuing to improve, the portfolio is well positioned to begin its recovery once the Covid restrictions are lifted.