Balanced Commercial Property Trust (BCPT ) lived up to its name in the fourth quarter of last year as its evenly-spread portfolio outperformed the MSCI UK Monthly Index, with a comparatively resilient 11.9% like-for-like decline.

BCPT’s capital loss, which includes property purchases and capital expenditure, beat the MSCI benchmark which tumbled 15.6% as real estate was hit by a ‘rapid repricing’ caused by a leap in UK government bond yields after September’s infamous ‘mini’-Budget. 

The decline in the trust’s net asset value (NAV) was closer to the index, however, falling 15.1% to 118.5p per share at 31 December from 139.6p at 30 September. With its monthly dividends included, the total investor loss was 14.3% in the fourth quarter, bringing the total investment decline for the year to 9.2%.

During the quarter, the trust declared monthly dividends totalling 1.2p per share. These were covered by earnings to put BCPT on a 5.9% yield.

Under fund managers Richard Kirby and Matt Howard, the £793m portfolio ended 2022 with 32% invested in offices, 29% retail, 29% industrial and 11% ‘alternatives’, such as student accommodation.

The relatively low weighting to industrial properties such as warehouses and distribution centres meant BCPT was hit less severely by the 18% de-rating in what had become the most expensive sector in real estate after investors chased the structural shift to e-commerce after the pandemic.

Kirby and Howard said the inflationary environment, which has seen interest rates soar from near zero to 4% in the past year, had put ‘pressure on capitalisation rates in the real estate sector’, making investors cautious, constraining liquidity, and pushing down prices.

They pinned the outperformance to the trust’s flagship retail asset, St Christopher’s Place, near Oxford Street in the West End of London. The 150-unit mixed-use estate let to shops, bars, and restaurants fell just 1% in value, having stabilised earlier in the year, with a recovery that culminated in a final fortnight of strong festive trading when footfall surpassed that achieved before coronavirus in 2019.

The managers said the new year had seen a ‘stabilisation’ in values in industrial, retail warehousing and student property. The fourth quarter correction in yields, which jumped nearly 117 basis points (or 1.17), pushed prices down, despite ‘the sector’s strong occupational market, which remains characterised by a supply-demand imbalance that continues to generate rental growth’.

JPMorgan Cazenove analyst Christopher Brown maintained a ‘neutral’ rating on the shares which, steady at 81p, stand on a 32% discount to the updated NAV, reducing its market value to £569m.

‘BCPT seems to have had a good quarter with regards to letting activity across the portfolio, although it would be good to see the rents and/or uplifts quantified as BCPT’s peers do in their own trading statements,’ said Brown.

The steep fall has capped off a tough five years for BCPT and its peers. Since February 2019, even with dividends included, shareholders have suffered a 29% total loss compared with a 10.5% average drop by generalist funds. 

With borrowing of £310m and cash of £54m, the trust has net loan-to-value of 23.4%.