Net Asset Value at 31 March 2021

5 May 2021

UK Commercial Property REIT Limited (“UKCM” or “the Company”)

LEI: 213800JN4FQ1A9G8EU25 

Net Asset Value at 31 March 2021

STRONG BALANCE SHEET, POSITIVE INVESTMENT AND ASSET MANAGEMENT ACTIVITY TOGETHER WITH IMPROVED OUTLOOK SUPPORT INCREASED DIVIDEND

Net Asset Value

  • 1.5% growth in NAV per share to 88.0p (31 December 2020: 86.7p), resulting in a NAV total return of 2.0% for the first quarter, with continued low net gearing of 5.6%* (gross gearing 14.9%**).
  • Like-for-like portfolio capital value, net of capital expenditure, increased by 1.6%, outperforming the MSCI monthly index, which increased 0.9% over the quarter.
  • Portfolio value of £1.18 billion (31 Dec 2020: £1.21 billion) following £58 million of sales and £7 million of investments during the period.
  • Rent collection for the second quarter of 2021 (collectively the 25 March and 1 April English, and 28 February Scottish, quarterly billing dates) stood at 86% after allowing for agreed rent deferrals and including those tenants who have paid, by agreement, on a monthly basis. This figure is in line with the whole of 2020.
  • Quarterly dividend increased by 40% to 0.644p per share.

*Net gearing - Gross borrowing less cash divided by total assets (excluding cash) less current liabilities

** Gross gearing - Gross borrowings divided by total assets less current liabilities

Positive Investment Activity

  • Acquisition of a land parcel with planning permission for a 230 bed student accommodation facility at Gilmore Place in Edinburgh completed in January, together with an agreement to fund the construction of the scheme, which is scheduled to complete ahead of the 2022/23 academic year.  This investment is expected to generate a net operating yield of 5.5% on a total commitment of £29.1 million.
  • Sale of Hartshead House, a single-let office investment in Sheffield, to Arella Property Holding Limited completed in February for £17 million, reflecting its December valuation.
  • In March, capitalising on housebuilder interest for strategic London sites and having worked to position leases to better facilitate future redevelopment, the Company sold Kew Retail Park in London to a leading UK housebuilder. UKCM received a consideration of £41 million for the asset, marginally below the 31 December 2020 book value.
  • In April, after the quarter end, the Company completed the sale of its last high street shop, 140-146 Kings Road, London for £9,925,000, in line with valuation. The asset was predominantly let to French Connection with a small O2 unit and had particular income and sector risk with the likelihood of future non-accretive capital expenditure requirements. The disposal is in line with UKCM’s strategy of reducing exposure to discretionary retail.
  • The Company, through its Investment Manager, continues to actively seek opportunities to invest in modern economy, future fit, property sectors which are supported by structural changes in society, while at the same time ensuring its investors still benefit from the geographic and sector diversification its portfolio affords.

Asset management driving occupancy and value

The further lockdown of the UK economy as a result of the COVID-19 pandemic which commenced at the start of the year has again had a significant impact on business and the economy.  However, despite it being a challenging time for a number of the Company’s tenants, occupancy improved to 96%, up from 94% at the end of the last quarter, as a result of some strong letting activity, most notably at Ventura Park, Radlett.

The asset management team continue to actively manage the portfolio to drive down the void rate and increase income. Notable transactions over the last quarter include:

  • At Ventura Park there has been a flurry of leasing activity with five lettings agreed. In total these transactions have secured £2.45 million of annual rent which is 4.4% ahead of the ERV. The transactions include:

  - Unit 7 and Unit B have been let to an existing global occupier on two year leases at a rent of £1,234,000 per annum

  - Unit A, extending to 34,502 sq.ft., was let to GL Events, and a new rent of £373,000 per annum has been secured over a five year term certain.  A nine month lease incentive was granted as reduced rent for a two year period. 

  - Unit 6A has been let to Stand & Deliver, a subsidiary company of an existing occupier, Forward Trucking Services Ltd.  Unit 6A is 44,734 sq. ft. and a rent of £480,879 per annum has been secured for a 10 year term certain.  A lease incentive of 10  months’ rent free was granted.

  - Unit E has been let to Planners Services & Sundries on a 10 year lease, which is subject to landlord works being completed, at a rent of £357,400 per annum. 

  • New 10 year lease with Clarke Wilmott at the Company’s 9 Colmore Row offices in Birmingham following the completion of new cycle and shower facilities, which have added further amenities to the building. The lease covers the entire 4,222 sq.ft 7th Floor at a rate of £26.50psf with a five year break option and a £150,000 landlord capital contribution to complete fit out.
  • A new five year lease was agreed with MedDeX Solutions Ltd at Unit 2, Newton’s Court, Dartford at a rent of £165,000 per annum, 2% ahead of the ERV of the unit. 

Strong balance sheet with significant covenant headroom and flexibility

  • Robust balance sheet with low gearing and significant financial resources of £268 million available, comprising uncommitted cash of £118 million, after allowing for future capital commitments and the dividends payable in May 2021, as well as £150 million available from UKCM’s low cost, revolving credit facility. Together, these resources provide the Company with significant liquidity and flexibility at both a corporate and portfolio level.
  • At 5.6% as at 31 March 2021, the Company’s net gearing continues to be one of the lowest in its peer group and the wider REIT sector. The drawn debt has an overall blended interest rate of 2.88% per annum with a weighted maturity of 7.9 years. Gross gearing as at 31 March 2021 was 14.9% (Dec 20: 15.1%).

Rent Collection remains robust

Rent collection has remained robust into the second quarter and in line with the whole of 2020 with payments reflecting 86% of rents due received as at close of business on 26 April 2021, (collectively the 25 March and 1 April English, and 28 February Scottish, quarterly billing dates) after allowing for agreed rent deferrals and including those tenants who have paid, by agreement, on a monthly basis. 

The table below sets out the second quarter’s rent collection, split between sectors:

% of Q2 2021 rent demanded % collected
Industrial  55% 93%
Office  19% 91%
Retail  14% 77%
Other  12% 53%
Total 100% 86%

The Company has a diverse tenant mix with a number of high quality tenants, the largest of which comprise COVID-19 resilient businesses such as Ocado (5.7% of rent), Amazon (5.2%), Total (4.0%), B&Q (3.5%) and the Public Sector (3.2%). 

Rent collection rates have continued to improve quarter on quarter albeit there is still a large discrepancy between the high collection rates achieved in the industrial and office assets and the lower levels amongst the retail and leisure sector assets. With the lockdown easing and the expectation of more normality in the coming months we expect to continue to see rent collection rates increasing.

A key aim of the Board throughout the pandemic has been to continue to pay a dividend, recognising how important income is to shareholders. The Board has also been keen to ensure that the dividend level being paid is sustainable given rent collection levels and investment activity.The Board is therefore pleased to announce it will increase the quarterly dividend payable to 0.644p per share, an increase of 40% from the quarterly dividends paid in respect of the 2020 financial year .

The Board believes this current new rate to be an appropriate level given the improved outlook for the wider economy and rent collection as lockdown is eased. This level also offers the potential for future growth as and when the Company’s significant financial resources are utilised.

Ken McCullagh, Chair of UKCM, commented:  “Despite the implementation of another lockdown at the beginning of the year creating continued economic headwinds, we have begun 2021 with some positive momentum with solid rent collection, portfolio valuation growth and strong leasing activity, which has further reduced our void rate.  In addition, we have been active in the investment markets with a number of sales and acquisitions undertaken, as we continue to increase our diversified portfolio’s weighting towards modern economy sectors.  While we remain fully cognisant of the fact that the longer term impact of the pandemic on the economy remains to be seen, with the vaccine being successfully rolled out and lockdown restrictions gradually being eased there is a definite feeling of renewed optimism in the market.  This improved outlook and positive first quarter performance, together with our low gearing and strong cash resources, has given us the confidence to recommend an increased dividend for the quarter under review.”

Will Fulton, Lead Manager of UKCM at Aberdeen Standard Investments, said:  “A combination of our continued focus on both working successfully with occupiers through a third lockdown, the hard work of our asset management team translating into several significant new leases, as well as the overweight position in industrials we have built up over the past few years, has helped us achieve a strong first quarter given the challenges created by the pandemic.  As the economy seemingly returns to some semblance of normality we are seeing increased activity in certain areas of the investment market, allowing us to increase our focus on using our existing healthy cash resources and recycle capital into investment opportunities within modern economy sectors supported by structural tailwinds.”

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 2020 to 31 March 2021:

UK Commercial Property REIT Limited Per  Share (p) Attributable Assets (£m) Comment
Net assets as at 31 December 2020 86.7 1,127.0
Unrealised increase in valuation of property portfolio 1.5 19.2 Predominantly like for like increase of 1.8% in property portfolio
Loss on sale -0.2 -2.5 Loss on sale after costs relating to Kew Retail Park and Hartshead House, Sheffield
Capex -0.2 -2.2 Predominantly relates to student accommodation developments at Exeter and Edinburgh
Income earned for the period 1.1 14.1 Dividend covered by earnings in quarter
Expenses for the period -0.4 -6.5
Dividend paid on 26 Feb 2021 -0.5 -6.0
Net assets as at 31 March 2021 88.0 1,143.1

The EPRA Net Tangible Assets per share is 88.0p (31 Dec 2020: 86.7p) with EPRA earnings per share for the quarter being 0.58p (31 Dec 2020: 0.69p).

Sector Analysis

Portfolio Value as at 31 Mar 21 (£m) Exposure as at 31 Mar 21 (%) Like for Like Capital Value Shift (excl sales, purchases & CAPEX) Capital Value Shift (including sales & purchases)  (£m)
(%)
Valuation as at 31 Dec 20 1,206.8
Industrial 723.3 61.5 3.8 26.3
South East 39.7 3.3 14.8
Rest of UK 21.8 4.7 11.5
Retail 134.0 11.4 1.1 -41.6
High St – South East 2.0 1.7 0.4
High St- Rest of UK 1.4 0.0 0.0
Retail Warehouse 8.0 1.1 -42.0
Offices 175.6 15.0 -3.2 -22.7
West End 2.5 0.0 0.0
South East 4.5 -3.6 -2.0
Rest of UK 8.0 -3.8 -20.7
Alternatives 142.7 12.1 -0.8 6.8
External valuation at 31 Mar 21 1,175.6 100.0 1.8 1,175.6

The independent valuation as at 31 March 2021 was carried out by CBRE Ltd.

Net Asset Value analysis as at 31 March 2021 (unaudited)

  £m % of net assets
Industrial 723.3 63.3%
Retail 134.0 11.7%
Offices 175.6 15.3%
Alternatives 142.7 12.5%
Total Property Portfolio 1,175.6 102.8%
Adjustment for lease incentives -26.3 -2.3%
Fair value of Property Portfolio 1,149.3 100.5%
Cash 131.8 11.5%
Other Assets 87.0 7.6%
Total Assets 1,368.1 119.6%
Current liabilities -27.0 -2.4%
Non-current liabilities (bank loans & swap) -198.0 -17.2%
Total Net Assets 1,143.1 100.0%

The NAV per share is based on the external valuation of the Company’s direct property portfolio as at 31 March 2021. It includes all current period income and is calculated after the deduction of all dividends paid prior to 31 March 2021.

The NAV per share at 31 March 2021 is based on 1,299,412,465 shares of 25p each, being the total number of shares in issue at that time.

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 / Graeme McDonald, Aberdeen Standard Investments
Tel: 0131 528 4261

Harry Randall, J.P. Morgan Cazenove
Tel: 020 7742 4000

Richard Sunderland / Claire Turvey / Eve Kirmatzis, FTI Consulting
Tel: 020 3727 1000
UKCM@fticonsulting.com

The above information is unaudited and has been calculated by Aberdeen Standard Investments^.
 

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