F&C property trusts express caution over prospects

(Update) The challenges facing commercial property have been underlined by a simultaneous warning note over prospects from the three popular property funds in the F&C investment group stable.

The recently launched £148 million Isis Property Trust, the £200 million Isis Property Trust 2 and £966 million F&C Commercial Property Trust, all delivered cautious outlooks for 2006 as they issued their results yesterday.

'At current valuation levels the scope for further increases in commercial property values is limited and rental growth could come under pressure if there is a prolonged slowdown in economic growth or consumer expenditure,' said Quentin Spicer, chairman of Isis Property Trust 2 .

Peter Niven, chairman of the F&C Commercial Property Trust agreed, saying that investors could expect 'slippage' in the returns available from commercial property in the coming years, with yields falling as investment in the property sector continued at a pace.

He added: 'The narrowing of the sector performance and a more discriminating market will make stock selection and superior asset management increasingly important drivers of outperformance.'

Peter Crook, chairman of Isis Property , the first of the range launched at the end of 2003, took a more upbeat note. He pointed out that commercial property sector should still generate annual returns of 9% over the next five years. This compares with the 13.1% return F&C forecasts for this year.

Earlier this month we reported that Alan Borrows, the Citywire A-rated manager of Midas Balanced Income fund, had slashed his holdings in a number of property trusts and had sold out entirely from Isis Property 2. This was in response to the large premiums on which many of the shares were trading and the large levels of cash held by the funds as they struggled to find suitable investments.

The downbeat forecasts for future growth in the UK commercial property sector came as both investment trusts unveiled healthy first year and half-year figures.

From 21 January to 30 June investors in the FTSE 250 listed F&C Commercial Property Trust saw the company's share price climb by more than 12% since launch, with the trust's net asset value (NAV) per share increasing by 6.8% compared to the launch figure of 97p.

Over six months from December 2004 to the end of June this year, the £148 million ISIS Property Trust grew its portfolio by £6 million, roughly in line with the market. The company's share price climbed by 9% over the period reaching 133p.