NAV & Dividend Statement at 30 September 2020

RNS Number : 2960E

UK Commercial Property REIT Ltd

05 November 2020

 

5 November 2020

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

Net Asset Value & Dividend Statement at 30 September 2020

STRONG BALANCE SHEET, LOW LEVERAGE AND DIVERSIFIED PORTFOLIO SUPPORT MAINTAINED DIVIDEND

Net Asset Value

· NAV per share of 84.0p (30 June 2020: 83.9p), resulting in a NAV total return for the quarter of 0.7% with continued low net gearing of 10.5%*.  

· Like-for-like portfolio capital value increased by 0.2%, outperforming the MSCI monthly index which fell 0.7% over the same period.

· Portfolio value as at 30 September 2020 stood at £1.22 billion (30 June 2020: £1.22 billion). Following the successful retail park sale referred to below it currently stands at £1.18 billion.  

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

Positive Investment Activity

On 10 September 2020 the Company announced it had exchanged contracts for the sale of Great Lodge Retail Park in Tunbridge Wells, to M7 Real Estate for £46.25 million less rent guarantee deductions.  The transaction completed on 30 October at this headline price, ahead of the June and September valuations; even if all the rent guarantees have to be paid to the purchaser, the net sale price will be in line with both valuations.  The disposal further progresses UKCM's strategy to reduce its retail exposure and secure additional capital to invest in sectors with strong underlying fundamentals. Following the sale, the Company's portfolio now comprises 16.1% retail assets with no shopping centre exposure.

Continued asset management progress

We continue to see a significant impact of the COVID-19 pandemic on the economy and property market with ongoing uncertainty pushing some areas of the economy into a second phase of disruption and recent government lockdown measures. The Company's portfolio occupancy rate has improved significantly over the last quarter to 94% compared with 90% at the end of the last quarter predominantly due to the letting of the Company's largest void at XDock377, Magna Park.

The current environment has, however, provided an added focus for many tenants to engage with our asset management team on their lease commitments to reach a mutually beneficial solution; where merited some short term crisis-cashflow assistance has been provided in return for extended leases. The team have had a successful quarter completing a number of notable commercial transactions, including:

· Fully leasing XDock377, a 377,000 sq ft logistics unit at Magna Park in Lutterworth to Armstrong Logistics, a pan-European distribution company. Armstrong Logistics has signed a 15.5-year lease with open market rent reviews at £6.50 per sq ft, in line with ERV. This will add a further £2.45 million of annualised income to the Company's rent roll after incentives that comprised a capital contribution amounting to 14 month's rent free equivalent (payable in three instalments subject to completion of lighting and fit out) as well as 18 months' rent free from 1 September 2020 comprising 12 month's initial rent free followed by 12 months half rent.  This transaction filled the largest void in the Company's portfolio which had accounted for 3.5% of portfolio ERV.

· Completed lease re-gears with Odeon and David Lloyd at The Rotunda, Kingston upon Thames. Odeon extended their lease from 7 years to 15 years in return for a 12-month incentive equivalent and a lower fixed rental rebase in 2027 to a figure ahead of ERV. David Lloyd extended their lease to 25 years without break at a rent of £350,000 per annum subject to 5 yearly RPI linked reviews. This has secured the scheme's two anchor tenants on long term lease commitments.

· Let Unit C , Dolphin Industrial Estate, Sunbury on Thames to Avenue 51, a distribution operator on a 10 year lease with a break at year 5 at a rent of £275,000 per annum which reflects £13.00 per sq ft, which is in excess of ERV. The estate is now fully let and saw a valuation uplift of 4.6% over the quarter.

· Completed lease extensions with Barker and Stonehouse and Furniture Village at Junction 27 Retail Park, Leeds. Both tenants agreed 5 year lease extensions giving 9.5 year and 8.75 year terms respectively. The tenants were granted six months' rent free and rents rebased to £25.00 per sq ft and £27.00 per sq ft respectively, ahead of and in line with ERV. Tenant trading reports from this retail park are, in the main, very positive.

Strong balance sheet with low gearing, significant covenant headroom and flexibility

· Significant financial resources of £232 million available. This comprises uncommitted cash of £82 million plus £150 million unutilised credit available from UKCM's low cost, revolving credit facility ("RCF"). The cash figure is net of an allowance for future capital and revenue expenditure commitments and the November 2020 dividend; the available RCF figure takes account of a recent repayment of the facility by the efficient use of surplus cash, largely from the Tunbridge Wells sale, to reduce borrowings. Together, these resources provide the Company with significant liquidity and flexibility at both a corporate and portfolio level and we are currently appraising a number of opportunities.

· At 10.5% as at 30 September 2020, the Company's net gearing continues to be one of the lowest in its peer group and the wider REIT sector. The debt has an overall blended interest rate of 2.65% per annum with a weighted maturity of 7.4 years. Post the quarter end the repayment of £50 million of the RCF resulted in net gearing reducing to 6.4%

The Company has three facilities in place and set out below are the covenant tests as at the end of September 2020, reflecting the rental collection position detailed further below. In addition, as at 30 September 2020, the Company has over £390 million of unencumbered property which provides further significant headroom and flexibility with respect to the Company's covenant package.

	Barclays RCF	Barings 2027	Barings 2031
Actual ICR*	530% (Limit 175%)	356% (Limit 200%)	343% (Limit 200%)
Forecast ICR*	439% (Limit 175%)	395% (Limit 200%)	384% (Limit 200%)
LTV	13.3% (Limit 60%)	50% (Limit 75%)	41.8% (Limit 75%)

Rent Collection

As at close of business on 30 October 2020, the Company had received payments reflecting 81% of rents due for the fourth quarter of the year (collectively the 29 September and 1 October English, and 28 August Scottish, quarterly billing dates) after allowing for agreed rent deferrals and including those tenants who have paid, by agreement, on a monthly basis. This is at approximately the same level as when the Company provided rent collection details for the previous quarters billed in March and June. Rent Collection for March and June now stands at 77% and 83% respectively which, taken with our September statistics, increase our rental debtor number. Although the Government extended the moratorium on lease forfeiture we continue to engage with tenants to collect unpaid rents from the previous quarters and proactively engage with tenants in order to provide assistance and restructure leases where appropriate .

*Interest Cover Ratio

The table below sets out the rent collection in respect of Q4 2020 split between sectors:

Sector	Paid as % of sector billing
Industrial	90%
Office	84%
Retail	74%
Alternatives	52%
TOTAL	81%

Dividends

The Board has agreed to maintain the dividend of 0.46 pence per share for the next quarter, due in November 2020. The Board will continue to monitor the evolution of COVID-19 closely, 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. The Board will have clear visibility of 2020 earnings at the time of the dividend announcement in respect of Q4 and this will provide the opportunity to review the total dividend distribution for 2020 and future dividend policy.

Ken McCullagh, Chair of UKCM, commented:  "While there is no doubt that the economic environment and outlook have remained at the mercy of the COVID-19 pandemic, I am pleased with the performance of the Company's portfolio over the third quarter.  Rent collection has remained above 70% and we have delivered a positive NAV return.  We have also undertaken a number of successful asset management initiatives which have increased occupancy.  These, combined with our strong balance sheet and financial resources, support our decision to  maintain our dividend for this quarter."

Will Fulton, Lead Manager of UKCM at Aberdeen Standard Investments, said:  " Against what remains a challenging backdrop, we have secured a number of positive asset management outcomes which make important contributions to the Company's future income streams, most notably fully leasing our XDock logistics property in Lutterworth which reduced UKCM's void rate by some 35%.  We have also progressed our strategy of selective rotation out of retail.  Our asset management team continued to be busy over the quarter, negotiating with tenants to find innovative and mutually beneficial ways to work together in the face of the unprecedented impact of the pandemic.  Whilst we continue to take a firm line with regards to those tenants that fall into the 'won't pay' rather than the 'can't pay' bracket"; I am pleased that in most cases we have been able to find solutions that provide our occupiers with breathing space in the near term while creating longer term value for UKCM's 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 July 2020 to 30 September 2020:

UK Commercial Property REIT Limited	Per  Share (p)	Attributable Assets (£m)	Comment
Net assets as at 30 June 2020	83.9	1,090.50
Unrealised increase in valuation of property portfolio	0.2	2.8	Like for like increase of 0.2% in property portfolio
Income earned for the period	1.1	13.9	Dividend cover of 115% year to date
Expenses for the period	-0.6	-8.5
Dividend paid on 31 August 2020	-0.5	-6.0
Movement in lease incentives	-0.1	-1.7
Net assets as at 30 September 2020	84.0	1091.0

The EPRA NAV per share is 84.0p* (30 June 2020: 83.9p) with EPRA earnings per share for the quarter being 0.41p (30 June 2020: 0.75p).

* The EPRA net asset value measure is to highlight the fair value of net assets on an on-going, long-term basis. Assets and liabilities that are not expected to crystallize in normal circumstances, such as the fair value of financial derivatives, are therefore excluded. The Company notes the new best practice recommendations (BPR) for financial guidelines on its definitions of NAV measures issued by EPRA in October 2019 and will look to report these measures in its 2020 Annual Report although there is not expected to be any material change in the EPRA NAV reported above.

Sector Analysis

	Portfolio Value as at 30 Sep 20 (£m)	Exposure as at 30 Sep 20 (%)	Like for Like Capital Value Shift (excl sales, purchases & CAPEX)	Capital Value Shift (including sales & purchases)  (£m)
			(%)
Valuation as at 30 Jun 20				1,219.2
Industrial	674.4	55.2	1.5	10.3
South East		34.5	1.7	7.0
Rest of UK		20.7	1.3	3.3
Retail	234.7	19.2	-0.9	-2.1
High St - South East		2.1	-4.7	-1.3
High St- Rest of UK		2.4	-1.4	-0.4
Retail Warehouse		14.7	-0.2	-0.4
Offices	174.4	14.3	-1.9	-3.4
West End		2.3	0.0	0.0
South East		4.7	-3.2	-1.9
Rest of UK		7.3	-1.6	-1.5
Alternatives	138.5	11.3	-1.4	-2.0
External valuation at 30 Sep 20	1,222.0	100.0	0.2	1,222.0

The independent valuation as at 30 September 2020 carried out by CBRE did not have a Material Uncertainty clause applied to it.

Net Asset Value analysis as at 30 September 2020 (unaudited)

	£m	% of net assets
Industrial	674.4	61.8%
Retail	234.7	21.5%
Offices	174.4	16.0%
Alternatives	138.5	12.7%
Total Property Portfolio	1,222.0	112.0%
Adjustment for lease incentives	-21.8	-2.0%
Fair value of Property Portfolio	1,200.2	110.0%
Cash	121.7	11.2%
Other Assets	44.9	4.1%
Total Assets	1,366.8	125.3%
Current liabilities	-28.1	-2.6%
Non-current liabilities (bank loans & swap)	-247.7	-22.7%
Total Net Assets	1,091.0	100.0

The NAV per share is based on the external valuation of the Company's direct property portfolio as at 30 September 2020. It includes all current period income and is calculated after the deduction of all dividends paid prior to 30 September 2020.

The NAV per share as at 30 September 2020 is based on 1,299,412,465   shares of 25p each, being the total number of shares in issue at that time.

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 / Tom Elviss / Graeme McDonald, Aberdeen Standard Investments

Tel: [phone]

Edward Gibson-Watt / Harry Randall, J.P. Morgan Cazenove

Tel: [phone]

Richard Sunderland / Claire Turvey / Eve Kirmatzis, FTI Consulting

Tel: [phone]

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

 

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