News

Apr 08, 2023

UK Commercial Property REIT Ltd

10 May 2023 UK Commercial Property REIT Limited (“UKCM” or “the Company”) Net

10 May 2023

UK Commercial Property REIT Limited ("UKCM" or "the Company")

Net Asset Value at 31 March 2023

MARGINAL VALUATION INCREASES POINT TO PORTFOLIO STABILISATION WHILE LEASING MOMENTUM REMAINS STRONG

10 May 2023: UK Commercial Property REIT Limited ("UKCM" or the "Company") (FTSE 250, LSE: UKCM), which owns a £1.32 billion portfolio of high quality and diversified real estate across the UK today provides a net asset value ("NAV") and trading update for the first quarter of 2023.

Highlights

* Calculated, under AIC guidance, as gross borrowings less cash divided by portfolio value.

Ken McCullagh, Chair of UKCM, commented: "After a rerating of the UK commercial real estate sector in the final quarter of last year, as a result of a dramatic increase in interest rates as governments tried to stem inflation, there has been a period of stabilisation in the first quarter of 2023. During the period, the Company has continued its asset management initiatives to drive earnings. These factors have led to a marginal increase in the value of UK Commercial Property REIT's high-quality, diversified portfolio, which is also reflected in the small increase to NAV. I am also encouraged by the continued strong operational performance across the portfolio which has benefited from high occupancy, strong demand led leasing momentum and, in turn, rental growth. The Company's balance sheet remains robust with low leverage and ample resources to complete our development pipeline. While we remain aware of the uncertainty that still prevails in the market, this more positive broader outlook and the Company's healthy first quarter performance gives us further confidence about the future prospects for the Company."

Will Fulton, Lead Manager of UKCM at abrdn, said: "During the first quarter of the year we have continued to see strong occupational demand for the limited amount of space we have available to let across our portfolio, allowing us to maintain high occupancy at 98% and capture significant reversion. While our industrial assets were the biggest driver of rental growth, encouragingly we saw positive leasing activity and uplifts at renewal across our office and retail warehouse assets as well. The final phase of our student accommodation development completed during the period, with a rent guarantee for the first year and bookings already strong for the next academic year. Our development pipeline will add further rent as the new properties come on line in the months ahead. With valuations having stabilised during the quarter, we are starting to see anecdotal evidence that the investment markets are beginning to open up which should help provide further confidence to the market."

Asset management delivering rental growth potential and high occupancy

The Company has maintained a very low void rate of 2.0% which provides good visibility of future income and clearly demonstrates both the quality of the Company's portfolio and the asset management team's ability to retain income while focusing on capturing reversionary potential.

Continued strong leasing momentum in the investment portfolio during the last quarter including:

As previously disclosed, at Ventura Park, Radlett, the 31,803 sq ft Unit B was let to Aerospace Reliance Ltd, which supplies aircraft maintenance materials worldwide, at a rent of £558,025 per annum (£17.55psf pa). The tenant has entered into a 10 year lease, with a tenant only break option in year 5. A seven month lease incentive was provided as the tenant accepted the unit in its current condition without the need for any Landlord works or additional capital contribution.

Unit 7, also at Ventura Park Radlett and previously disclosed, has been let to Location Collective Ltd, a Film & Media Production Company at a rent of £1,455,880 per annum (£17psf pa). The property has an area of 85,640 sq ft and the tenant has entered into a 15 year lease with a mutual break in year 12. An incentive of twelve months rent free has been provided to the tenant.

Demonstrating the ability to drive rental income and capture reversion in the portfolio, these two new leases equate to a 69% increase on the previous rent paid and are 63% ahead of December 2021's ERV; they leave Ventura Park with a low 6% available in which the Company has good interest .

At Trafford Retail Park, Manchester, a lease renewal was completed with Kentucky Fried Chicken, which occupies the 2,388 sq ft unit 4 at the Park, for a new 20 year lease term with a tenant only break option at the end of year 15. A six month rent free period was provided, with a new headline rent of £83,580 per annum (£35psf pa), reflecting a 17% increase in passing rent and a 9% premium to ERV.

Unit 11, Emerald Park, Bristol has been let to South West Ambulance Service on a 10 year lease without break. A rent of £92,022 per annum (£10.50psf pa) has been agreed over the 8,764 sq ft unit with a lease incentive of nine months’ rent free. The new rent is 21% ahead of the previous passing rent and is also ahead of ERV.

Webcon, a supplier of car parts, has agreed a five-year lease renewal for the c.10,000 sq ft Unit 1 at Dolphin Industrial Estate in Sunbury-on-Thames, Surrey. The new lease increases annual rental income on the unit by 63% to £155,000, or 4% ahead of ERV as at the December 2022 valuation and includes a three-month rent-free period.

These three new leases were achieved at a combined weighted premium of 40% to previous passing rent.

Also, at Gatwick Gate, Crawley, a 12 month extension over Unit 2B was agreed with Airbase at a rent of £13.50 per sq ft, equating to £330,000 per annum, increased from £11.50 per sq ft. This is a significant rental increase and improves the Estate's rental tone.

Finally, three rent reviews, a mix of open market review, index-linkage, and a stepped increase, have been completed at the Dolphin Industrial Estate, Sunbury-on-Thames, the Centrum logistics warehouse at Burton-upon-Trent, and the White Building office in Reading, increasing income by £214,000 representing a weighted 11% uplift on the previous rent and in line with ERV.

Progress continues to be made in the Company's development pipeline:

Strong balance sheet with significant covenant headroom and flexibility

Robust balance sheet with low gearing and financial resources of £44.4 million available after allowing for future capital commitments and the May 2023 dividend.

The Company has three debt facilities in place with all covenants well covered and an additional £437 million of unencumbered property which provides further significant headroom and flexibility with respect to the Company's covenant package. The current blended interest rate is 3.93% per annum on drawn debt of which 68% is at a fixed rate.

The Company adopts a prudent approach to debt which allows it to benefit from relatively low gearing with a group loan to value of 20.0%*, as calculated using AIC methodology, and 21.3% ** as calculated using Gross Assets methodology, as at 31 March 2023.

The Company has a remaining pipeline of two high quality developments due to complete, one in the coming weeks and one in 2024, which will add further long-term income to the Group's rent roll. It is intended that the c.£52 million of remaining development commitments will be funded through existing borrowings which will move gearing to approximately 24.3%***, based on the assumption that development valuations change in line with project expenditure. As previously intimated it is reasonably foreseeable that the economic and investment climate, with its market wide impact on valuations, or potentially opportunities arising from this, could take gearing slightly above, over the medium term, the Board's target level of gearing of 25%. The Board, with the investment manager, will continue to ensure that borrowings are controlled and managed effectively taking into account the Company's development plans.

* Calculated, under AIC guidance, as gross borrowings less cash divided by portfolio value

**calculated as (Current Borrowings £293m / Gross Assets £1,368m).

***calculated as (Current Borrowings £293m + Development Commitments £51.7m) / (Gross Assets £1,368m + Development Commitments £51.7m).

Rent Collection

Rent collection rates have normalised with 99% of second quarter rents already received allowing for those tenants who have paid, by agreement, on a monthly basis.

The Company has a diverse tenant mix of quality occupiers, the largest five of which comprise resilient businesses such as Ocado (5.7% of rent), Public Sector (5.1%), Amazon (4.0%), Armstrong Logistics (3.5%) and Total (3.1%). In total the portfolio's income is secured from 199 tenancies.

Dividends

The first quarter dividend has been maintained at 0.85p per share and is payable 31 May 2023, giving dividend cover of 95%.

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited net asset value per share calculated under International Financial Reporting Standards ("IFRS") over the period from 31 December 2022 to 31 March 2023:

UK Commercial Property REIT Limited

Per Share (p)

Attributable Assets (£m)

Comment

Net assets as at 31 December 2022

79.7

1,035.7

Unrealised increase in valuation of property portfolio

1.2

15.9

Capex

-0.3

-4.3

Primarily relates to ongoing development capex for the student accommodation at Exeter, the industrial units at Sussex Junction and Leamington Spa and the hotel in Leeds.

Income earned for the period

1.4

17.7

Equates to dividend cover of 95%.

Expenses for the period

-0.6

-7.2

Dividend paid in February 2023

-0.8

-11.0

Net assets as at 31 March 2023

80.6

1,046.8

The EPRA Net Tangible Assets per share is 80.6p (31 December 2022: 79.7p) with EPRA earnings per share for the quarter being 0.81p (31 December 2022: 0.82p).

Sector Analysis

Portfolio Value as at 31 March 23 (£m)

Exposure as at 31 March 23 (%)

Like for Like Capital Value Shift (net of CAPEX)

Capital Value Shift (including sales & purchases & development spend) (£m)

(%)

Valuation as at 31 Dec 22

1,308.0

Industrial

789.7

59.7

2.1

16.3

South East

36.2

2.3

11.0

Rest of UK

23.5

1.3

5.3

Retail

183.9

13.9

1.9

3.6

High St – South East

0.9

0.0

0.0

High St- Rest of UK

1.2

-4.3

-0.7

Retail Warehouse

11.8

2.8

4.3

Offices

167.2

12.6

-2.4

-4.0

West End

1.9

0.2

0.1

South East

5.0

-1.8

-1.3

Rest of UK

5.7

-3.6

-2.8

Alternatives

183.1

13.8

-1.3

0.0

Leisure

5.7

-5.4

4.3

Student Accommodation

4.4

3.1

1.9

Hotels

3.7

0.4

2.5

Valuation as at 31 Mar 23

1,323.9

100.0

0.9

1,323.9

Top Ten Investments Sector

Properties valued in excess of £100 million

Ventura Park, Radlett

Industrial

Properties valued between £50 million and £100 million

Ocado Warehouse, Hatfield

Industrial

Hannah Close, Neasden, London

Industrial

Dolphin Industrial Estate, Sunbury-on-Thames, London

Industrial

Newton's Court, Dartford

Industrial

Junction 27 Retail Park, Leeds

Retail Warehouse

Properties valued between £25 million and £50 million

XDock 377, Lutterworth

Industrial

The Rotunda, Kingston on Thames

Alternatives

Emerald Park, Bristol

Industrial

Trafford Retail Park, Manchester

Retail Warehouse

The independent valuation as at 31 March 2023 was carried out by CBRE Ltd.

Net Asset Value analysis as at 31 March 2023 (unaudited)

£m

% of net assets

Industrial

789.7

75.4%

Retail

183.9

17.6%

Offices

167.2

16.0%

Alternatives

183.1

17.5%

Total Property Portfolio

1,323.9

126.5%

Adjustment for lease incentives

-32.4

-3.1%

Fair value of Property Portfolio

1,291.5

123.4%

Cash

28.4

2.7%

Other Assets

47.6

4.5%

Total Assets

1,367.5

130.6%

Current liabilities

-29.3

-2.8%

Non-current liabilities (bank loans)

-291.4

-27.8%

Total Net Assets

1,046.8

100.0%

The NAV per share is based on the external valuation of the Company's direct property portfolio as at 31 March 2023. It includes all current period income and is calculated after the deduction of all dividends paid prior to 31 March 2023.

The NAV per share at 31 March 2023 is based on 1,299,412,465 shares of 25p each, being the total number of shares in issue at that time.

The Board is not aware of any other significant events or transactions which have occurred between 31 March 2023 and the date of publication of this statement which would have a material impact on the financial position of the Company.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.

Details of the Company may also be found on the Company's website which can be found at: www.ukcpreit.com

For further information please contact:

Will Fulton / Jamie Horton, abrdn

Tel: 0131 528 4261

William Simmonds, J.P. Morgan Cazenove

Tel: 020 7742 4000

Richard Sunderland / Andrew Davis / Emily Smart, FTI Consulting

Tel: 020 3727 1000

[email protected]

The above information is unaudited and has been calculated by abrdn Fund Managers Limited.