COVID-19 AND DIVIDEND UPDATE
UK Commercial Property REIT Limited ("UKCM" or "the Company")
LEI: 213800JN4FQ1A9G8EU25
COVID-19 AND DIVIDEND UPDATE
STRONG BALANCE SHEET, LOW LEVERAGE AND DIVERSIFIED PORTFOLIO
UK Commercial Property REIT Limited (FTSE 250, LSE: UKCM), today provides an update in relation to the impact of COVID-19 on the Company. The Company entered the crisis in a strong position, with a diversified portfolio of high quality income producing UK commercial property that is heavily weighted towards the industrial and logistics sectors (52%) with no shopping centre exposure; it also has low gearing and significant cash and capital resources.
However, as with all businesses the Company is not immune from the impact of the pandemic, most notably in relation to rent collection, having currently received 68% of advance payments due for the second quarter of the year, which are detailed by sector below, as tenants are constrained in their ability to trade during the lockdown. While this is marginally above the current industry average1 and the Board has full confidence in the Company's financial strength, it also places great emphasis on exercising prudence in these uncertain times and ensuring the robustness of the Company's balance sheet is maintained so that UKCM is well positioned as we emerge from the crisis.
The Board is equally cognisant of the importance of dividends to its shareholders, both large and small, who are reliant on this income, particularly in these difficult times when the COVID-19 crisis has forced many companies across the board to cancel their distributions.
As a result the Board has taken the decision to maintain a quarterly dividend, due in May 2020, but at the reduced rate of 50% which equates to 0.46 pence per share, while clearly communicating its aspiration to use the strength of its balance sheet and its current financial resources to continue paying a dividend throughout this period of uncertainty. A further announcement around the timing of this dividend will be made shortly. The Board will, however, continue to monitor closely the evolution of COVID-19, together with its impact on the economy, rent receipts and recurring earnings, while balancing the income requirements of its shareholders, and keep its future dividend policy under review. In particular the Board will have clear visibility of 2020 earnings at the time of the Q4 distribution and therefore this will provide the opportunity to review the total dividend distribution for 2020 and future dividend policy.
The members of the Board of Directors have also agreed to reduce their own fees by 20% for the remainder of this year and to keep all other costs and capital expenditure commitments under review.
Investment Activity
The Company's Investment Manager is fully functional in this working from home environment with the team in regular contact with tenants and suppliers.
During February and March 2020, the Company completed two sales at prices agreed before the COVID-19 outbreak, as well as one investment, as follows:
· £29.8 million sale of Motor Park in Portsmouth, a multi-use asset predominantly comprising seven car showrooms, to Glasgow City Council, representing a 3% discount to the December 2019 valuation;
· Sale of Broadbridge Retail Park in Horsham for £18.1 million, in-line with the September and December 2019 valuations, following the exercise of an option by Delancey and Tritax which had been agreed in November 2019;
· Following the expansion of the Company's investment policy in 2019, the Company has agreed to a forward funding of a new 221 bed student residential development in central Exeter, adjacent to the main university campus, with completion expected to match the start of the 2022/23 academic year. The land, with full planning permission, was acquired for £6.5 million with an additional capped funding commitment of c. £21.5 million. Exeter is a Russell Group University, that is ranked 10th in the UK according to The Guardian's University League Table 2020 and, from an investment perspective, benefits from an under-supply of modern accommodation.
These transactions are in-line with the Company's strategy of selling assets with limited future return prospects, reducing the Company's retail exposure, and investing in assets that have the scope to provide attractive, secure income streams over the long term.
Portfolio Valuation
The portfolio valuation as at 31 March 2020 was £1.29 billion which represents a 3.1% like for like decline in valuation after capital expenditure adjustments from 31 December 2019 (3.4% before adjustments, largely the successful receipt of a significant dilapidations settlement previously allowed for in the valuation). The components of the movement in valuation, split by sector, are shown in the table below.
The Company's portfolio is well diversified with a 51.8% weighting to the industrial sector and only 19.5% in the retail sector and 11.5% in the alternatives sector. The Company owns no shopping centres.
|
|
Portfolio Value as at 31 Mar 20
(£m) |
Exposure as at 31 Mar 20
(%) |
Like for Like Capital Value Shift (excl sales, purchases & CAPEX)
(%) |
Capital Value Shift (including sales & purchases)
(£m)
|
|
Valuation as at 31 Dec 19 |
|
|
|
1,377.9 |
|
Industrial |
669.2 |
51.8 |
-1.0 |
-37.5 |
|
South East |
|
32.1 |
0.1 |
-30.3 |
|
Rest of UK |
|
19.7 |
-2.8 |
-7.2 |
|
Retail |
251.6 |
19.5 |
-7.3 |
-37.9 |
|
High St - South East |
|
2.3 |
-11.5 |
-3.9 |
|
High St- Rest of UK |
|
2.4 |
-3.3 |
-1.0 |
|
Shopping Centres |
|
0.0 |
0.0 |
0.0 |
|
Retail Warehouse |
|
14.8 |
-7.2 |
-33.0 |
|
Offices |
222.0 |
17.2 |
-2.4 |
-5.5 |
|
City |
|
3.2 |
6.4 |
2.5 |
|
West End |
|
2.2 |
-3.0 |
-0.9 |
|
South East |
|
4.7 |
-3.5 |
-2.2 |
|
Rest of UK |
|
7.1 |
-5.1 |
-4.9 |
|
Alternatives |
148.1 |
11.5 |
-8.2 |
-6.1 |
|
External valuation at 31 Mar 20 |
1,290.9 |
100.0 |
-3.4 |
1,290.9 |
The independent valuation as at 31 March 2020 issued by CBRE had the following Material Uncertainty clause applied to it:
"The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organisation as a "Global Pandemic" on the 11 March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries. Market activity is being impacted in many sectors. As at the valuation date, we consider that we can attach less weight to previous market evidence for comparison purposes, to inform opinions of value. Indeed, the current response to COVID-19 means that we are faced with an unprecedented set of circumstances on which to base a judgement. Our valuation is therefore reported on the basis of 'material valuation uncertainty' as per VPS 3 and VPGA 10 of the RICS Red Book Global. Consequently, less certainty - and a higher degree of caution - should be attached to our valuation than would normally be the case. Given the unknown future impact that COVID-19 might have on the real estate market, we recommend that the Company keep the valuation of the portfolio under frequent review."
Financial Resources
The Company is in a strong financial position. It has a robust, lowly geared balance sheet with significant financial resources available of £154 million. This comprises uncommitted cash of £54 million after allowing for future capital commitments and the May 2020 dividend plus £100 million available from its low cost, revolving credit facility. Together, these resources provide the Company with significant liquidity and flexibility at both a corporate and portfolio level.
Gearing
The Company has low net gearing of c.13%, based on the Company's most recent 31 March 2020 valuation, and cash held at the same date. This remains one of the lowest in the Company's peer group and the wider REIT sector; the debt has an overall blended interest rate of 2.74% per annum with a weighted maturity of 7.9 years.
The Company has three facilities in place and set out below are the covenants as reported to the various lenders as at the end of March 2020 reflecting the rental collection position detailed below. In addition, as at 31 March 2020, the Company has over £480 million of unencumbered property which provides further significant headroom and flexibility.
|
|
Barclays RCF |
Barings 2027 |
Barings 2031 |
|
Actual ICR |
471% (Limit 175%) |
244% (Limit 200%) |
353% (Limit 200%) |
|
Forecast ICR |
714% (Limit 175%) |
317% (Limit 200%) |
374% (Limit 200%) |
|
LTV |
13.3% (Limit 60%) |
45.7% (Limit 75%) |
41.8% (Limit 75%) |
* In relation to the Barings 2027 facility the two assets sold in Q1 were removed from the secured pool with two other existing assets highlighted for substitution; once these are secured the 2027 covenant headroom will increase (estimated to an ICR of 356%, forecast ICR 334%).
Rent collection
The Company's diverse property portfolio comprises 233 tenancies within 40 assets, with low tenant income concentration - its top three tenants account for 5.3% (B&Q), 4.7% (public sector) and 4.1% (Ocado) of contracted rental income.
As at close of business on 22 April 2020, the Company had received payments reflecting 68% of rents due for what can collectively be termed advance billing for the second quarter of the year; this comprises both old and new English quarter days (25 March and 1 April) and the Scottish quarter day (28 February). The figures below include those tenants who have paid, by agreement, on a monthly in advance basis. The statistics, split between sectors, are shown below and highlight the benefit of a portfolio weighted towards the Industrial and logistics distribution sector.
|
Sector |
Paid as % of Sector Billing |
|
Industrial |
82% |
|
Office |
78% |
|
Retail |
59% |
|
Other |
34% |
|
TOTAL |
68% |
Of the 32% rent remaining outstanding, 12% is derived from the Industrial and Office sectors - both areas in which we are more confident of recovery. The payment rate is continuing to rise and the Investment Manager is in close communication with tenants to understand their difficulties and assess where genuine challenges exist which can be alleviated by alternative rent solutions from deferral of repayment to rent rebates in return, for example, for extensions of leases.
Year end results
The Company announced a comprehensive set of preliminary full year results containing the main key performance indicators alongside its fourth quarter NAV statement on 30 January 2020. Due to the impact of COVID-19 and guidance from both the Company's auditors and the Financial Conduct Authority, the release of the Company's final full year 2019 results is now expected to be made during May 2020. In addition, a full quarterly net asset value statement for the quarter ending 31 March 2020 will also be issued shortly.
1 Source: Remit Consulting 22 April 2020 https://www.remitconsulting.com/blog
There will be a conference call for analysts at 0830 this morning, please contact FTI Consulting at UKCM@fticonsulting.com if you wish to participate.
For further information please contact:
Will Fulton / Tom Elviss/ Graeme McDonald, Aberdeen Standard Investments
Tel: 07801039483 / 07557800617 / 07717543309
Edward Gibson-Watt / Oliver Kenyon, J.P. Morgan Cazenove
Tel: 020 7742 4000
Richard Sunderland / Claire Turvey / Eve Kirmatzis, FTI Consulting
Tel: 020 3727 1000
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