The property sector keeps booming. The latest confirmation comes from the Halifax house price index, which showed 9.5% annual growth in May. It is at the highest level in almost seven years. To assess how this is playing out among publicly listed real estate companies, I looked at a FTSE 250 property-related penny stock, UK Commercial Property Real Estate Investment Trust (LSE: UKCM).
It recently touched 52-week highs, which is one indication that the performance has been positively impacted by the property market boom. A bunch of short-term developments have come together to prop up property prices. These include the June deadline for the stamp-duty holiday, an increase in UK households’ savings during the lockdown and a traditionally busy summer period.
But Halifax expects the real estate boom to continue. A booming post-pandemic economy and a change in preferences towards more spacious properties are the reasons given for this. This can bode well for the penny stock in question. The next question is whether its individual profile also supports the trend in real estate.
Fundamentals for the penny stock
I last wrote about UK Commercial Property Real Estate Investment Trust (REIT) in late April. At that time, it looked positive from a strategic point of view, with customers in the e-commerce sector like Ocado and Amazon. Its rent collection was also at a healthy 84% for the first quarter of 2020.
A few days later, it updated its financials, which were a mixed bag. Rent collection for 2020 was 83%, marginally below the number for the first quarter as lockdowns continued.
Its performance was also diminished from the year before. Its earnings per share (EPS) fell based on alternative performance measures, which indicate how the company believes it has performed. Going by statutory measures, it made a loss. So it follows that there was a loss per share in 2020.
It is also hard to ignore that its performance in terms of net income was sliding downwards even before the pandemic. Also, there is a possibility that some permanent shift towards working from home has reduced the potential for gains from commercial properties.
Future looks positive
But there are reasons to be positive too. With the lockdown now lifted, I am optimistic about UK Commercial Property REIT’s performance over the rest of 2021. Even if the commercial property market stays weak, it can be protected by the fact that 58% of its portfolio is in the industrial sector.
The company has already started seeing signs of revival, according to its latest factsheet. In particular, it continues to be positive about retail warehousing. I think this can provide long-term returns for the business.
My takeaway for the FTSE 250 stock
This is still a penny stock, still trading below pre-pandemic levels. I think that just going by the fact that its share price is still weak when many others have risen substantially, it could become attractive to investors over time. I would certainly consider it as a long-term purchase for my own portfolio.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Manika Premsingh owns shares of Ocado Group. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Ocado Group and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.