UK Commercial Property Trust, the £915 million investment trust run from Glasgow by Ignis Asset Management, says subdued conditions in the office and retail markets outside London have prompted it to reset its dividend and cut it by 30%.
The trust says its dividend policy was set at launch in 2006 at a time of strong rental growth prospects. "The economic downturn has, however, significantly undermined rental growth and, despite an improving economic outlook, the prospects for rental growth remain muted outside central London," it said.
Investors had been buying into a yield of almost 7% last year, twice the sector average, and at the current share price the yield would still be around 4.8%.
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Robert Boag, the manager, said: "We don't see this as a backward step, it is the culmination of 12 to 15 months' thinking by the board."
He said rental growth outside London might be only 2% a year over a five-year term, perhaps half the level envisaged in 2006, which would not guarantee 80% dividend cover.
The trust was reporting a 5.2% increase in net asset value in the final quarter of 2013, and an estimated portfolio total return of 5.9% for the quarter against the industry's 4.7%.
The portfolio is 58% in south-east England and 42% in the rest of the UK. Shopping centres, retail warehouses and offices had shown some capital growth.
Mr Boag said: "Demand is getting better but it is not as strong. It is still a big challenge out there, although we are seeing an improvement in the economy."
Half the portfolio is retail but only 2.5% is high street retail outside the south-east.
In a key transaction, the trust sold an under-occupied development in Uxbridge, Middlesex, at a £4.5m gain on its £22m recent valuation, "materially de-risking the portfolio, removing the prospect of significant capital expenditure and helping reduce the void rate to 4.4%".
Mr Boag said: "We have been able to redeploy that money into an acquisition in Aberdeen, as part of the strategy of strengthening the portfolio."
The UK Commercial Property Trust has committed up to £48m to forward fund an industrial development at Aberdeen Gateway business park with Muir Construction, securing three major oil companies on 19-year leases with fixed rental uplifts. It is due for completion by December.
The dividend will move to 3.68p or 0.92p a quarter, from May.