Wealth Manager - the site for professional investment managers

Register to get unlimited access to all of Citywire’s Fund Manager database. Registration is free and only takes a minute.

Divi cut threat looms for closed-end property investors

Divi cut threat looms for closed-end property investors

UK property funds could see a series of dividend cuts as returns get harder to come by.

Only one closed-end fund, F&C Commercial Property Trust, was able to grow its net asset value (NAV) in the latest round of trust updates. Capital returns, as measured by the IPD Monthly Property Index, have been on the slide for 11 consecutive months.

Although this remains a far cry from the 25 straight months of capital decline when the sector was in the doldrums between 2007 and 2009, it still reflects weak fundamentals. Property investment companies have also seen their first dividend cut in three years.

Winterflood Securities’ investment companies team, headed by Simon Elliott, pointed out that with such limited scope to grow income, the dividend cover of some property funds could also come under pressure.

‘Dividend cover remains an issue for a number of funds, and we would highlight IRP Property Investments and Isis Property Trust as the most likely contenders to have to cut dividends in the near future,’ the team said.

‘Although both have cover of around 75%, there appears little scope to grow income. Consequently, cover is more likely to fall in the near-term than grow.’

According to its latest shareholder update, the £730 million F&C Commercial Property Trust has for its third quarter delivered the sector’s best NAV performance, benefiting from making disposals at significant premia.

But even its manager, Richard Kirby, highlighted only marginal growth in rental income as tenants are reluctant to commit to long leases given the current economic uncertainty.

Kirby also lamented the ‘subdued’ returns seen in commercial property more broadly. ‘The property market outlook in the short term will continue to be affected by the slow pace of economic growth both in the UK and overseas, problems in the eurozone and the restructuring of the banking system,’ he said.

These headwinds translated into a narrow 0.1% rise in NAV during September, versus the 1.4% total return made on the portfolio over the six months ended in June.

The pressures facing the sector are also evident elsewhere, with the first dividend cut since 2009 being announced by Picton Property Income in September.

While £180 million Picton’s decision to reduce its shareholder payout from 1p to 0.75p per share chimed with its desire only to award dividends supported by earnings, the trust’s portfolio has suffered in recent months as its industrial and rest of UK office exposure caused a drag.

Picton’s NAV performance fell from 60p to 52p, as at 30 September, and on a quarterly basis its NAV is down 3.7%.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Where A-rated Pattullo is finding the best bond opportunities

Where A-rated Pattullo is finding the best bond opportunities

Henderson Global Investors head of retail fixed income explains how he is managing his fund against the surprise current monetary policy divergence.

1 Comment Play Taxicab Tenner: Allianz Global Investors' AA-rated Simon Gergel

Taxicab Tenner: Allianz Global Investors' AA-rated Simon Gergel

Our much anticpated new series is here! We hand a black cab driver a tenner and grill the manager of the 125-year Merchants trust until the meter runs out.    

Play Europe bulls, a retail boost and why a little inequality can be a good thing

Europe bulls, a retail boost and why a little inequality can be a good thing

This week’s Investment Pulse looks at whether investors should be bullish on Europe, the surprise rise in UK retail sales and if a little inequality is a good thing.

Your Business: Cover Star Club

Profile: meet the duo at the heart of Hargreave Hale's succession plan

Profile: meet the duo at the heart of Hargreave Hale's succession plan

For the first time in the company's history a non-Hargreave is now at the head of the north west broker and asset manager

Wealth Manager on Twitter