Winterflood Monthly Report - May 2020

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Property subsector hit hard by Covid-19

While the Investment Companies sector has outperformed the wider UK market so far this year, it has certainly not been immune from the impact of Covid-19. One aspect has been the effect on dividends. So far, equity mandates have proven resilient, with very few exceptions. Indeed many have issued defiant messages of intent, citing the presence of revenue reserves. However, we estimate that since the start of March 28 funds have announced either cuts or suspensions to their dividends. Of these 11 have been in the debt subsector, while 13 have been in property.

UK commercial property valuations as at the end of March have been reported on the basis of 'material valuation uncertainty'. However, it appears that the sector is more focused at present on the ability of tenants to survive and pay their rent, rather than the risk of significant capital value declines. Rent collection has varied considerably across different property sub-sectors, reflecting the fact that certain businesses are struggling with cash flow issues more than others.

All of the diversified UK commercial property funds have been impacted and the majority have made adjustments to their dividend payments accordingly. BMO Commercial Property Trust* and Drum Income Plus REIT have temporarily suspended their future dividend payments, while Custodian REIT, Ediston Property Investment Company, Picton Property Income and UK Commercial Property REIT are continuing to make payments but at a reduced rate.

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