Net Asset Value(s)
12 February 2015
UK Commercial Property Trust Limited ("UKCPT" or the "Company")
Net Asset Value/ Trading Statement
For the three month period from 1 October 2014 to 31 December 2014
STRONG NAV GROWTH AND POSITIVE PORTFOLIO ACTIVITY
UK Commercial Property Trust Limited (LSE: UKCM), the largest Guernsey based,
London listed, UK focused commercial property trust, today provides its Trading
Statement for the three months to 31 December 2014 and unaudited quarterly Net
Asset Value ("NAV") as at 31 December 2014.
Key Highlights
* 2.9% increase in NAV per share* as at 31 December 2014 to 83.0p (30
September 2014: 80.7p);
* 3.2% increase in portfolio valuation over the quarter to £1,272.3million
before capital expenditure and stamp duty, ahead of IPD Balanced Monthly &
Quarterly Funds benchmark ("IPD") of 2.8%;
* Total return over the quarter of 4.0% and total return for the whole of
2014 of 18.4%, compared to IPD equivalents of 4.1% and 17.4% respectively;
* Positive performance driven by the Company's Central London Office and
South East Industrial assets plus valuation uplifts in recently completed/
acquired assets at Aberdeen and Dartford and as a result of successful
asset management initiatives;
* Key portfolio activity during the quarter:
+ Acquisition of Site D1 at Aberdeen Gateway plus completion of forward
funding at Site A.The combined valuation of the entire Aberdeen project
is £48.7 million, 5% above cost;
+ Partial completion of the purchase of Regent Circus, Swindon,
increasing the Company's exposure to the favoured leisure sector;
+ Purchase of Unit 12 Newton's Court, Dartford which complements the
existing Dartford holding and has provided significant marriage value;
+ Sale of two small offices in Bristol for £3.6million, above valuation
and in-line with portfolio strategy of selling small assets with
limited return prospects;
+ Post quarter end, successful sales of Pall Mall Court, Manchester and
the Sovereign Centre, Weston-super-Mare for a combined £49.4million,
both sales being at December valuations and in-line with Company's
portfolio strategy.
* Void level of 2.6% as at 31 December 2014, significantly below the IPD
figure of 6.8%;
* Issue of 32.6 million shares, raising proceeds of £26.9million at a premium
to ex-dividend NAV of 4.7%, providing the Company with further resources to
invest in the portfolio;
* The Company's Investment Manager Ignis Fund Managers Limited (a Standard
Life Investments ('SLI') company) has advised the Board of the resignation
of Robert Boag and recommended to the Board the appointment of Will Fulton
to lead the team dedicated to the management of the Company's portfolio.
* After careful consideration the Board have concluded that Mr Fulton has the
appropriate experience and expertise to lead the property management team
and therefore has agreed to his appointment.
Christopher Hill, Chairman of the Company, commented:
"This quarter has seen the Company produce another strong performance driven by
robust capital growth. The stable financial position of theCompany hasoffered
greater flexibility in terms of the portfolio strategy and provides a strong
platform to allow the Company to continue to pursue income focused
acquisitions, which we believe will continue to provide investors with a strong
and sustainable return.
"We have taken full advantage of the strong investment sentiment in both the
regional office and secondary shopping centre markets and, through the disposal
of assets such as Pall Mall Court, Manchester and The Sovereign Shopping
Centre, Weston-super-Mare, we were able to achieve an overall sale price ahead
of September valuation. This has released equity for future revenue focused
acquisitions and income enhancing initiatives, in line with our wider strategy.
"We also completed the contracted acquisitions announced earlier in the year at
Aberdeen and Swindon, in addition to supplementing an existing asset with a
solus unit at Newton's Court, Dartford, a successful asset management
initiative which provided significant marriage value.
The Board is sorry that Robert Boag has decided to seek other opportunities. We
wish to thank him sincerely for his significant contribution to the success of
the Company. Robert has been involved in the management of UK Commercial
Property Trust since its formation in 2006 and was appointed lead manager in
2009. Much of the success of the Company has resulted from his conscientious
approach and patient leadership and we wish him well in the future.
Having overseen the successful transition of the Company's portfolio onto SLI's
platform, Mr Boag will leave SLI at the end of April 2015. Until then he and Mr
Fulton will work closely together in order to achieve a smooth handover of
property management.
On Robert's departure, Mr Fulton will assume the role of named individual fund
manager wholly dedicated to UKCPT. He has 27 years' experience in UK and
continental European commercial real estate markets, across a variety of
different real estate funds, and has been the fund manager of the Standard Life
Heritage With Profits Fund's £2.3 billion real estate portfolio for the last 4
years.
We are confident that the transfer of management and administration is
substantially complete and the Board is reassured by the depth of resource
provided by SLI."
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 quarter from 1 October 2014 to 31 December 2014. The property portfolio
has been externally valued by CBRE.
UK Commercial Property Per Share Attributable Comment
Trust (p) Assets (£m)
Limited
Net assets as at 1 October 80.7 1,022.8
2014
Unrealised increase in 2.9 37.3 Increase of 3.2% in quarter
valuation of property on both existing and
portfolio acquired assets before
capital expenditure
Stamp duty costs on (0.2) (2.1) At Swindon and Dartford
purchases
Capital expenditure during (0.3) (4.4) Principally relates to
the period acquisition costs on
purchases plus expenditure
on asset management
initiatives
Share Issuance in the 0.1 26.9 NAV accretive issue of
period 32.6million shares
Income earned for the 1.3 17.5 Equates to dividend cover of
period 104% for the quarter
Expenses for the period (0.4) (5.4)
Dividend paid on 28 (0.9) (11.7)
November 2014
Interest rate swaps mark to (0.2) (2.0) Increase in swap liabilities
market revaluation as interest rate
expectations affected by
Eurozone issues and falling
oil price
Net assets as at 31 83.0 1,078.9
December 2014
*The NAV per share is calculated under IFRS and is unaudited. It includes all
current period income and is calculated after the deduction of all dividends
paid prior to 31 December 2014. It does not include provision for any unpaid
dividends relating to periods prior to 31 December 2014 i.e. the proposed
dividend for the period to 31 December 2014.
The NAV per share at 31 December 2014 is based on 1,299,412,465 shares of 25p
each, being the total number of shares in issue at that time.
The EPRA NAV (IFRS NAV but excluding swap liabilities) is 83.7p
Net Asset Analysis as at 31 December 2014 £m %
Property Portfolio
Retail 565.8 52.4
Office 281.9 26.1
Industrial 332.2 30.8
Leisure 92.4 8.6
Total Property Market Value 1,272.3 117.9
Adjustment for lease incentives (7.1) (0.6)
Fair Value of Property Portfolio 1,265.2 117.3
Net Current Assets 50.9 4.7
Loan facilities (incl swap liabilities) (237.2) (22.0)
Total Net Assets as at 31 December 2014 1,078.9 100.0
Economic and Property Market Review
The economic fundamentals supporting the UK economy remain robust with
consensus growth forecasts of around 2.6% in 2015. Strong new business flows,
the promise of a boost to demand from the slump in oil prices, stable interest
rates in a low inflationary environment and evidence of an upbeat mood amongst
consumers augurs well for 2015 although this may be tempered by the imminent
general election and continuing travails of the Eurozone.The UK commercial
property sector has been a key beneficiary of these factors, as total returns
for the quarter to end December reached 4.1% as measured by the IPD Quarterly
and Monthly benchmark, with a total return for the whole of 2014 of 17.4%.
Over the quarter, capital values grew by 2.8%, in the main still driven by yield
compression as the sector continues to attract a large amount of capital from
both foreign and domestic participants. Rental growth continues to improve on a
quarterly basis with rents expected to pick up further into the recovery cycle.
In the final quarter of the year, rents rose by 1.0%.
UK investment reached £59.6billion in 2014, up 18% and the highest level since
the financial crisis, boosted by a 41% increase in regional investment to
£21.1 billion. Whilst every region outside London showed positive investment
growth on 2013, demand for Central London remains very strong, with the fourth
quartershowing double the investment volume of quarter three. Although overseas
investors remain the largest buyers, with US investment doubling year-on-year
and interest from Asia also increasing, UK institutions are the principal
investors in the regions.
Portfolio Performance
The external portfolio valuation as at 31 December 2014 is £1,272.3 million, an
increase of 3.2% (excluding capital expenditure and stamp duty on purchases) on
the quarter (Q3 2014: 3.1%) which is ahead of the IPD benchmark capital return
of 2.8%.The table below sets out the capital value movements in each of the
main sub-sectors.
Portfolio Exposure as at Capital Value Capital Value
Value 31 Shift Shift
as at 31 Dec Dec (£m)
2014 (£m)
2014 (%) (%)
External 1,175.5
Valuation as at
30 Sep 2014
Retail 565.8 44.5 2.0 11.0
High St - South 9.3 1.6 1.9
East
High St- Rest of 2.1 0.0 0.0
UK
Shopping Centres 11.0 3.1 4.2
Retail Warehouse 22.1 1.8 4.9
Offices 273.8 21.5 3.7 9.9
West End 10.9 5.0 6.6
South East 1.7 0.0 0.0
Rest of UK 8.9 2.9 3.3
Industrial 283.1 22.3 4.1 11.2
South East 15.5 4.6 8.7
Rest of UK 6.8 3.0 2.5
Leisure/Other 58.8 4.6 0.0 0.0
Purchase of 48.7 3.8 5.0 26.1
Aberdeen Gateway
Purchase of Unit 8.5 0.7 50.4 8.5
12,
Newton's Court,
Dartford
Purchase of 33.6 2.6 0.0 33.6
Regent's
Circus, Swindon
Sale of - - - -3.5
WCA/Freshford
House, Bristol
External 1,272.3 100.0 3.2 1,272.3
valuation at
31 Dec 14
Industrial
The best performing sector for the second consecutive quarter was Industrial
with a total return of 6.0% (IPD:5.5%), supported by a 4.6% capital increase.This
is a direct consequence of the strong investor demand which still pervades the
sector, resulting in improved yields for South East industrial estates in
particular in addition to Greater London industrials.
The Company`s Dartford and Dolphin Industrial Estates benefited from this yield
improvement with Dartford also benefiting from the acquisition of Unit 12,
Newton`s Court which was revalued as part of the Newton's Court Estate at a
value significantly ahead of the purchase price. The inclusion of No 12 and the
improvement in the overall yield for the Estate resulted in a double digit
increase in value over the September valuation and Unit 12 purchase price
combined. The successful asset managementwork achieved throughout the year in
letting the vacant industrial units at Dolphin Estate, Sunbury has also
provided a platform for a similar level of increase in value over the quarter.
Outside the South East, the Company`s regional industrial portfolio also made a
strong contribution to performance with the valuation of all three recent
acquisitions at Aberdeen Gateway at the end of December showing an increase of
5%above purchase cost. Emerald Park, Bristol also benefited from an uplift in
valuation from asset management over the quarter with more anticipated in the
first quarter of 2015.
Offices
Offices were the next best performer with a value increaseof 3.7% to produce an
overall total return of 5.0% (IPD:5.5%).
The Company`s Central London offices provided a strong 5.0% increase in value
with evidence of further increase in rents for West End (Soho) assets in part
crystallised by the lease renewal with Sony at No 15 Great Marlborough Street.
Investment demand also continues to be strong in the regions with up to 25bp
yield improvement on those assets showing strong income characteristics. The
office portfolio outsideLondon and the South East improved in value by 3.0%.
Retail
The Company`s Retail Portfolio produced an overall total return of 3.3% (IPD:
2.7%),with all sub sectors improving or holding value.
The retail high street and shopping centre portfolio grew in value by 2.2% over
the quarter in response to an improving investor market for prime and good
secondary assets in this sector.
Divergence within the sector remains, with our South East high street retail
assets providinga 1.6% increase, in contrast to valuations for the rest of UK
high street which were flat, although this is better explained by the short
lease length on the two principal assets for that sector. In both cases the
Company is confident of retaining the existing tenants on satisfactory terms
which should improve values.
The combined value of the Company`s three shopping centres at Shrewsbury has
been maintained as work continues to build income. The Parade, Swindon
benefited from yield improvement as a result of the low level of voids as well
as the healthy tenant line up and income characteristics, although there is
potential for further upside should additional asset management initiatives be
realised. The Sovereign Centre, Weston-super-Mare, which was sold in January
2015, is included at the agreed sale price less costs. Shopping Centres overall
produced a positive capital increase of 3.1%.
Retail Warehouses performed well but with a more modest increase of 1.8%,
benefiting from marginal improvement in yields for the Bulky Goods parks.
Leisure
There was no change in the value of our holdings in this sector; the Rotunda
valuation was unchanged from September while Regent Circus, Swindon, is
included at the purchase price less rent free periods, retentions and capital
contributions. The remaining commitment at Regent Circus (c.£4.7million) will
be paid when the leases for the car park and Unit 7/8 are completed, which
should be in Q1 2015.
Sales
InOctober 2014 the Company completed the sale of the two leasehold office
buildings at Freshford and WCA House, Bristol to a UK institutional fund at a
price of £3.6 million, marginally ahead of the September valuation. Combined,
these assets were the smallest in the portfolio andthe sale was in line with
the Company`s strategy to reduce exposure to those assets with shorter income
and limited overall return prospects.
Strategy implementation was also evident following the period end, with the
sale of the Pall Mall Court office building in Manchester in January for
£19.5 million and the sale of The Sovereign Shopping Centre, Weston-super-Mare
for £29.9 million. Having successfully completed a number of asset management
initiatives on both assets, the Company took advantage of the strong investment
sentiment in both the regional office and secondary shopping centre market to
reduce its overall exposure to both sectors and achieve an overall sale price
ahead of their combined September 2014 valuation. The net proceeds of these
sales will be recycled into further prime, revenue focused acquisitions and
income enhancing asset management initiatives in line with the Company's
strategy.
Purchases
The final quarter of the year was an active one for the Company as it completed
on the contracted acquisitions announced earlier in the year at Aberdeen and
Swindon and also supplementedan existing asset with the acquisition of a solus
unit at Newton's Court in Dartford.
In October, the Company completed the acquisition of Site D, Aberdeen Gateway
for £10.6 million. As previously reported, the 60,000 sq.ft. warehouse and office
facility is fully let on a 20year lease.
Also in Aberdeen Gateway, the Company completed the forward funding of the
180,000 sq.ft. warehouse facility at Site A following the practical completion
of that development and the completion of a 25year lease to Total (E&P) Ltd.
The Company`s ownership in Aberdeen now extends to three predominantly
industrial properties totalling 265,000 sq.ft, all fully let to sound, secure
covenants on leases with a 19 year average weighted unexpired lease length and
with provision for fixed guaranteed uplifts offering some inflation protection
over the lease term.The total commitment (before stamp duty and costs) was
£46.4 million which generates a net income yield of 6.3% on the total income of
£3.0 million; this represents a significant margin to South East England
industrial yields for similar quality stock.
Notwithstanding the recent volatility in the oil market, the Company is
satisfied that theinvestment in Aberdeen, given the location,
specification,long-term income characteristics and, in particular, the strong
occupier profile, will support the Company`s income objective over the long
term.
On 16 December,the Company completed the freehold purchase of the 97,000 sq.ft.
leisure and supermarket development at Regent Circus, Swindon. Let to Morrisons,
Cineworld, Zizzi, Gourmet Burger Kitchen and Nando's amongst others, the nature
of the development is such that the Company will meet the total commitment of
£40.3 million in phases with a payment of £35.6 million made in December. As
previously reported, the total income on completion will be £1.9 million, with
an average lease length of 18 years 8 months. The Cineworld lease also benefits
from fixed guaranteed uplifts.
In the final acquisition of the year, the Company paid £5.65 million on a sale
and lease back basis for a 71,000 sq.ft. industrial unit at Unit 12 Newton`s
Court, Dartford, let to Compagnie Fruitier. The purchase of this unit
complements the Company`s existing larger ownership within the Estate.
Voids
The Company's void position as at 31 December 2014 was 2.6%, compared to 3.1%
in September 2014. Allowing for tenant failures through administrations, the
void rate could increase to 3.1%. However, it should be highlighted that
administrations do not always equate to a loss in income or value and both
figures remain comfortably below the IPD benchmarkvoid rate of 6.8%
Gearing & Cash
As at 31 December 2014, gross gearing was 17.5% (gross borrowings excluding
swaps divided by total assets less current liabilities excluding loan
facilities) which remains the lowest in the Company's peer group. Net gearing
(borrowings excluding swaps less cash divided by total assets less current
liabilities and cash) was 13.3%. The Company is currently in advanced
negotiations to re-finance the £80 million Lloyds facility that is due to expire
in June 2015 and expects to be able to make an announcement on this in the near
future.
As at 31 December 2014, the Company had £63.4 million of cash. Aggregating the
£49.4 million sales completed post year end, the Company has significant
resources available for prime, revenue focused acquisitions and asset
management initiatives.
Market Outlook and Forecast
Recovery continues to materialise strongly in the UK commercial real estate
sector with prices maintaining reasonable acceleration and rents gathering
further momentum. In the favourable environment of improving confidence and
reducing void rates, investors are allocating more capital to the sector and
consequently, given the increased weight of capital, risk appetite is
increasing.
In terms of outlook, our Investment Manager expects positive total returns for
investors on a three year hold period due to the strong income component and
further modest capital appreciation. The sector remains attractive from a
fundamental point of view with strengthening economic drivers and a limited
pipeline of developments. Eurozone deflation and the forthcoming UK general
election are immediate risks, although there is a reasonable buffer in pricing
to compensate, particularly as the prospects for any rise in interest rates
seems to have abated for the moment.
The retail sector continues to face a series of headwinds that may hold back
recovery in weaker locations due to oversupply and structural issues, but the
prospects for retail towards the South East and Central London are expected to
improve further as the economic recovery gains more traction. Opportunities are
arising in the transactions market for goodquality secondary buildings where
these assets can be repositioned as prime. There is also likely to be a further
rebound for secondary asset prices due to the elevated margin in pricing
between prime and secondary reducing as risk appetite improves. In the long
term, however, poorer quality secondary assets remain unattractive at a broad
level, although there will be opportunities for repositioning assets or
generating reasonably good returns on a comparable basis from some poorer
quality secondary assets. Given the Company`s income objective, however, this
is seen as an opportunity to dispose of certain assets which do not meet the
Company`s criteria and performance expectations.
We expect location choices and a continued focus on property fundamentals to be
the defining characteristics contributing to returns over 2015. Prime/good
quality secondary assets as well as selective poorer quality secondary assets
in stronger locations are likely to provide the best opportunities in the
robust economic environment we anticipate over 2015.
The Board is not aware of any other significant events or transactions which
have occurred between 31 December 2014 and the date of publication of this
statement which would have a material impact on the financial position of the
Company.
Enquiries
Robert Boag / Graeme McDonald, Standard Life Investments
Tel: 0131 245 3272 /0131 245 3151
Edward Gibson-Watt / Oliver Kenyon, J.P. Morgan Cazenove
Tel: 020 7742 4000
Richard Sunderland /Claire Turvey/Clare Glynn, FTI Consulting
Tel: 020 3727 1000
The above information is unaudited and has been calculated by Standard Life
Investments.
Further information can be found on the Company'swebsite at www.ukcpt.co.uk.
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