UK Commercial Property Trust (LON:UKCM) is one of the largest UK real estate investment companies and aims to be among the lowest risk in the sector, reflected by its low level of gearing. The portfolio was repositioned in 2015 and UKCM has outperformed its benchmark since March 2016. In recent months, UKCM has moved underweight the weaker shopping centre subsector, as well as making its first hotel investment, which increased the proportion of RPIlinked and long-dated income to 15.2%. The manager sees significant reversionary potential for the portfolio, with its estimated rental value (ERV), based on market rents, indicating c 20% upside to rental income, giving the prospect of near-term earnings growth and potentially providing scope for future dividend increases.
Investment strategy: Sustainable income focus
UKCM aims to generate a sustainable income from a prime UK commercial property asset portfolio. The portfolio is constructed using a bottom-up approach, but broad sector and regional allocations are aligned with the property team’s market views. The manager prefers to hold resilient assets, such as multi-let industrial properties, that reduce exposure to individual tenants, thus reducing void risk. Drawing on the local market knowledge of all managers in Aberdeen Standard Investments’ property investment team, the manager seeks to add value by identifying market developments before they are reflected in pricing, and actively managing the portfolio to improve the rental value of properties.
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