Ian Scott International


If commercial property is flagging, why is there such demand for these shares?

Sentiment moves rapidly and unexpectedly, and the performance of one of the holdings in this income portfolio, F&C Commercial Property Trust, which published half-year results on Wednesday, offers excellent proof.

We invested £25,000 (5pc) of our £500,000 income portfolio in this company on Jan 13, at a price of 136p. By the time we calculated the table, below, yesterday afternoon, the price was 149p.

The interesting point about that 9.8pc gain is that it is not fully reflected in the growth in value of the underlying assets. In other words, the market has warmed to this stock.

Why? Like Regional Reit, our other quoted property holding, FCPT buys, upgrades, rents out and manages a range of primarily commercial properties.

These are valued periodically by the company’s advisers CBRE and there is thus a continually moving margin between the value of the property assets and the value of the company itself, as reflected in its share price.

When we bought, our 136p price reflected almost exactly the value of the company’s properties (expressed as net asset value or NAV per share), then 135.5p based on a Dec 31 survey date.

Wednesday’s half-year report ascribes a valuation of 139.4p per share, and so today’s 150p share price “overvalues” the company by about 7pc. Or put it this way, in the six months to June 30 the company’s shares were up 9pc while the assets it owns grew a more modest 5pc.

To the question of why, one reason is that it is a well-managed business that owns attractive properties, keeps costs lower than most of its rivals and has inexpensive and low levels of borrowing (debt is currently 17pc of the value of the portfolio).

Another reason is that the devaluation of sterling has helped commercial property: it has ushered in a series of transactions from overseas buyers, especially the Chinese, who want London assets.

Investment Property Databank, the data provider, shows transactions worth £27.4bn in the first half of this year to £26.9bn in 2016. The latter figure, remember, takes no account of the EU referendum and its violent aftermath.

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