Net Asset Value(s)

Guernsey, 28 July 2017

UK Commercial Property Trust Limited (“UKCPT” or “the Company”)

Net Asset Value at 30 June 2017

UK Commercial Property Trust Limited (FTSE 250, LSE: UKCM), which is advised by Standard Life Investments and owns a diversified portfolio of high quality income producing UK commercial property announces its unaudited quarterly Net Asset Value (“NAV”) as at 30 June 2017.

Continued strong performance

• NAV per share up 1.7% to 88.9p (31 March 2017: 87.4p), resulting in a NAV total return of 2.8% over the quarter.

• Like-for-like portfolio capital value increase of 1.8% during the quarter; after allowing for capital expenditure investment on the existing portfolio, net capital growth was 1.7%. This compares favourably to the 1.1% increase in the MSCI/IPD Monthly index over the same period.

• Share price total return of 8.3% in the quarter.

Asset management strategy delivering value

During the quarter to 30 June 2017, the Company secured a further £2.1 million of annual rental income, in line with estimated rental value, through a successful focus on asset management initiatives. In total, four new leases and eleven lease renewals / rent reviews were concluded, including:

• 38% uplift in annual rent to £450,000 at High Street, Exeter following a rent review with Barclays Bank Plc.

• Letting to Wilko, a strong covenant, at the former BHS store at The Parade, Swindon. Following unit reconfiguration works, the new 15 year lease at estimated rental value will generate rental income of £385,000 per annum, leaving only a small proportion to let in the upper floors. 

• Lease renewal with JMT Indisplay at Ventura Park, Radlett, securing £328,000 per annum over a 10 year term, 9% ahead of estimated rental value. 

• New 10 year term secured via a lease renewal at £64,000 per annum (4% ahead of estimated rental value) with Jacksons Commercial & Private Law at Central Square, Newcastle. 

The void rate of the portfolio remained low at 4.4% as at 30 June 2017, well below the latest available MSCI/IPD benchmark figure of 6.8% as at 31 March 2017, while we continue to collect 99% of rent within 21 days of due date.

Further secure, long term and sustainable income being generated through investment acquisitions:

• Acquisition of Hartshead House, Sheffield, for £20.2 million, reflecting a net initial yield of 5%.  This office asset is let to Capita Business Services Limited (part of Capita plc) on a lease with annual inflation-linked rent increases and 22 years to expiry.
   
• Purchase of two strategic units at the entrance to The Parade, Swindon, which, when combined with an existing unit, allowed the Company to secure a new 25 year lease with Metro Bank Plc at a rent of £275,000 per annum.  Metro Bank will fund the construction of a new flagship unit, scheduled to open in December 2017.

• After the period end, the Company completed its forward funding of the 280,000 sq.ft. industrial logistics warehouse in Burton on Trent with a payment of £17.5m. The asset is occupied on a 15 year lease to Palletforce Ltd, with annually compounded inflation-linkage (adjusted every five years) reflecting a yield on capital of 5.8%. When combined with Hartshead House in Sheffield, as described above, these two recent purchases total £42.4 million at a blended index-linked yield on cost of 5.4%. 

• Also in July, after the period end, the Company sold for £4.69 million its smallest investment, an industrial warehouse let to Dreams Ltd, at Loudwater, High Wycombe.

Strong financial position and attractive dividend yield

• Financial resources of £50 million are currently available for targeted investment in line with the Company strategy.  Additional firepower from the undrawn £50 million revolving credit facility remains available.

• Low net gearing of 11.6%* (gross gearing of 17.8%*) ensuring that UKCPT’s leverage remains one of the lowest in the Company’s peer group and the quoted REIT sector.

• Dividend yield of 4.0% at period end, comparing favourably to the FTSE All-Share Index (3.6%) and FTSE All-Share REIT Index (3.6%).

* 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

Andrew Wilson, Chairman of UKCPT, commented:

“Today's announcement reflects continued growth and portfolio outperformance by UKCPT.  Successful asset management initiatives and strategic recycling of capital continue to enhance returns. Despite ongoing uncertainty following the recent general election, UKCPT's defensive portfolio is well positioned to combat headwinds. This portfolio is UK based with a capital value of £1.32 billion, diversified by location and sector and with a high quality and sustainable rental income stream.”

Will Fulton, Lead Manager of UKCPT at Standard Life Investments, said:

“During the period we successfully realised a number of opportunities to strengthen the positioning and income profile of our portfolio. This was achieved through a series of notable asset management initiatives and strategic disposals, as well as the acquisition of assets that provide additional long term, secure and growing rents, whilst simultaneously enhancing dividend cover. We now look to continue this strong momentum through selective acquisitions that are accretive to dividend cover, as well as addressing vacancies within the portfolio.”

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 1 April 2017 to 30 June 2017.

UK Commercial Property Trust Limited	Per  Share (p)	Attributable Assets (£m)	Comment
Net assets as at 1 April 2017	87.4	1,136.2
Unrealised increase in valuation of property portfolio	1.7	22.6	Like for like increase of 1.8% in property portfolio.
Capital expenditure during the period	-0.2	-2.4	Includes purchase costs of Sheffield and Swindon and ongoing work at Shrewsbury to facilitate the opening of Primark store.
Income earned for the period	1.4	17.8	Equates to dividend cover of 94% for the quarter
Expenses for the period	-0.5	-6.6
Dividend paid on 31 May 2017	-0.9	-12.0
Interest rate swaps mark to market revaluation	0.1	0.7	Decrease in swap liabilities as interest rate expectations rise
Net assets as at 30 June  2017 (excl deferred tax)	89.0	1,156.3
Deferred tax	-0.1	-1.3	*See below
Net assets as at 30 June 2017	88.9	1,155.0

*This adjustment reflects the ongoing write-off of the deferred tax asset as tax losses are utilised against profits.

Net Asset Value analysis as at 30 June 2017 (unaudited)

	£m	% of net assets
Retail	494.2	42.8
Industrial	433.6	37.6
Offices	264.6	22.9
Leisure	130.7	11.3
Total Property Portfolio	1,323.1	114.6
Adjustment for lease incentives	-13.3	-1.2
Fair value of Property Portfolio	1,309.8	113.4
Cash	98.6	8.5
Other Assets	22.7	2.0
Total Assets	1,431.1	123.9
Current liabilities	-25.1	-2.2
Non-current liabilities (bank loans & swap)	-251.0	-21.7
Total Net Assets	1,155.0	100

The NAV per share is based on the external valuation of the Company’s direct property portfolio. It includes all current period income and is calculated after the deduction of all dividends paid prior to 30 June 2017. It does not include provision for any unpaid dividends relating to periods prior to 30 June 2017, i.e. the proposed dividend for the period to 30 June 2017.

The NAV per share at 30 June 2017 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 per share (excluding swap liability) is 89.1p (Mar 2017 – 87.7p) with EPRA earnings per share for the quarter (excl deferred tax movement) being 0.86p.

Sector analysis

	Portfolio Value as at 30 Jun 2017 (£m)	Exposure as at 30 Jun 2017 (%)	Like for Like Capital Value Shift (excl sales purchases & CAPEX)	Capital Value Shift (including sales & purchases) (£m)
			(%)
Valuation as of 31 March 2017				1,277.6
Retail	494.2	37.4	1.4	9.5
High St – South East		2.9	2.6	1.0
High St- Rest of UK		5.1	0.7	0.5
Shopping Centres		8.0	4.6	7.2
Retail Warehouse		21.4	0.3	0.8
Offices	264.6	20.0	2.6	26.2
City		2.2	1.7	0.5
West End		6.8	4.4	3.8
South East		1.7	7.1	1.5
Rest of UK		9.3	0.3	20.4
Industrial	433.6	32.7	2.0	8.6
South East		24.2	2.2	6.9
Rest of UK		8.5	1.6	1.7
Leisure/Other	130.7	9.9	0.9	1.2
External valuation at 30 Jun	1,323.1	100.0	1.8	1,323.1

Market Review

While UK real estate continues to provide an elevated yield compared to other asset classes, in the first half of 2017 the resilience of the UK economy seen post the EU Referendum has somewhat diminished.  A weaker consumer sector, impacted by a squeeze on spending power, caused the economy to grow by only 0.3% in the second quarter of 2017, a pronounced slowdown from the 0.7% growth recorded in Q4 2016.

As wages lagged further behind inflation, forecasts for household spending continued to be mixed, despite the employment rate in the three-month period to May showing the strongest rise since 1975. Wage growth is one of the key indicators that the Bank of England is monitoring closely as in recent weeks the Monetary Policy Committee (“MPC”) is becoming increasingly divided as to the timing of shifting its policy stance. Ultimately, the MPC’s interest rate decision is dependent on how the economy evolves and currently the Bank’s forecast GDP growth is a solid 1.9% for the 2017 calendar year. However, the in-house forecast of our Investment Manager, Standard Life Investments, is for slower growth and implies a small increase in UK spare capacity, which should ease the MPC's concerns about a trade-off between growth and inflation. Any interest rate increases are therefore expected to be gradual and modest.

Within real estate, the industrial and logistic distribution sector has continued to demonstrate its strength generating a total return of 4.6% in Q2 2017.   Retail and offices fell behind industrial with similar total returns for the quarter of 1.8% and 1.9% respectively. Office returns are feeling the impact of political uncertainty feeding into the leasing market. Rents remained largely stable over the last three months with rental growth in the retail, office and industrial sectors of 0.1%, 0.3% and 1% respectively.  

Investment Outlook

UK real estate continues to provide an elevated yield compared to other assets and the market has stabilised following last year’s post-Brexit upheaval. Lending to the sector is at a lower level than in 2007/08 and liquidity remains reasonable, while at the same time development continues to be relatively constrained by historical standards, with below average vacancy levels in most markets, which should help to maintain the positive returns that the sector is currently recording.  In this environment, the steady secure income component generated by the asset class is likely to be the key driver of future returns, and the strategy for UKCPT reflects this. The market is expected to continue to be sentiment driven in the short term as the political and economic impact associated with the UK’s withdrawal from the European Union continues to evolve. The retail sector continues to face a series of headwinds that may hold back recovery in weaker locations due to oversupply and structural issues. Given the backdrop of continuing heightened macroeconomic uncertainty, investors are becoming more risk averse and better quality assets are once again broadly outperforming those of a poorer quality.

Against this backdrop, UKCPT is well positioned to continue to deliver value for shareholders.

REIT Conversion

In its 2016 annual report, the Company stated that it was actively considering joining the UK REIT regime as a result of the proposed restrictions on interest deductions for non UK resident property companies. These restrictions would be likely to result in additional tax being paid on the net rental profits of the Company were it to maintain its current structure.  Since then, the Company has liaised with a number of shareholders on this issue.  Following these discussions, the Company has received from its largest shareholder, Phoenix Life Limited, an indication of support for REIT conversion, should the Board decide that is the best course of action for the Company and shareholders as a whole. The Company continues to progress its evaluation of the implications of entering the UK REIT regime and expects to make a final decision before the end of 2017.  Shareholders will be updated at that time and, if the decision is taken to convert, it is likely that the date of this conversion will be early in the second quarter of 2018.

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.ukcpt.co.uk

For further information please contact:

Will Fulton / Graeme McDonald, Standard Life Investments
Tel: [phone]

Edward Gibson-Watt / Oliver Kenyon, J.P. Morgan Cazenove
Tel: [phone]

Richard Sunderland / Claire Turvey / Polly Warrack, FTI Consulting
Tel: [phone]

The above information is unaudited and has been calculated by Standard Life Investments Limited.