The management of split cap to be outsourced to third party specialists Nexus
BFS Investments is to launch its split-capital property trust via a placing through Collins Stewart.
As first reported in Investment Week, BFS Managed Properties, a closed-ended Guernsey registered trust, aims to offer investors a high level of income and long term capital growth through a portfolio predominantly invested in commercial property.
The trust has two classes of shares, zero dividend preference shares with a 10 year life and expected annual capital growth of 9% and ordinary shares with an initial dividend yield of 9.5%pa.
The trust is to be managed by BFS Investments and advised on the property portfolio by Nexus Property Management Services, co-manager of the quoted Primary Health Properties.
There will be two distinct portfolios, with the property element consisting of some 65% of the trust and an income portion, which is expected to account for 35%.
The property element will be invested in a diverse portfolio of freehold or long leasehold, mainly commercial properties, with good quality tenants such as the Government and major corporates. The income portfolio is to consist of investments in income and ordinary shares of split capital investment trusts and investment companies.
The company's capital structure is to comprise of ordinary shares, accounting for some 44% of initial gross assets, zero dividend preference shares for 13% and a bank facility provided by Lloyds TSB and Bank of Scotland, accounting for around 43%.
At the same time, BFS posted the final results for 12 months to the end of April 2001 of its Small Companies Dividend Trust.
This is managed by David Horner, director of Chelverton Asset Management. During the 12 month period the split cap saw its NAV rise by 31.8%, against falls of 4.43% for the FTSE All-Share Index and 3.81% for the FTSE Small Cap Index in the period from 1 May 2000 to 30 April 2001.
Higher yielding smaller companies are still undervalued compared to five years ago despite the return to value over the last 14 months, according to Horner.
Over that same period, the trust, which draws on a universe of around 250 higher yielding sub-£100m companies and Aim stocks, also offered an increased dividend, up 5.5% to 9.5p per ordinary share.
For the year to 28 June, zero dividend preference shares have produced a total return of 11.6% and the ordinary shares have returned 31.9%, according to figures from TrustNet. Over the last 12 months the zeros have returned 22.6% and the ordinary shares 28.6%.
Over 12 months the trust is ranked fourth with returns of 28.5% compared to an average of 4.1%.
The £27.5m BFS Smaller Companies Dividend Trust, was launched in May 1999 with Zero Dividend Preference shares and ordinary shares providing shareholders with a high income and potential capital growth.
Horner, who has run the trust since launch, invests in two distinct pools of companies: those with a 7% plus yield able to maintain or grow dividends and companies with yields around 5% which can increase dividends.
Horner said: 'Going back to March 2000 super growth companies were all the vogue. That was when our asset value was at its lowest and these kind of companies were seen as dull and predictable. They have come back into favour in the last year because they have dividends, cash flow and profits, balance sheets and products.
'The market has seen a gradual return to value for our sort of companies, but compare them now with say five years ago, they are significantly undervalued. They are solid cash generative businesses and there is always a price on those.'
Around 20% of the portfolio is in household goods and textiles.
The trust also has a high weighting in engineering but almost nothing in support services or software, neither of which offer significant dividends.
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