Net Asset Value at 30 September 2019

31 October 2019

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

LEI: 213800JN4FQ1A9G8EU25 

Net Asset Value at 30 September 2019

Active asset management and continuation of strategy to reduce retail exposure

UK Commercial Property REIT Limited (FTSE 250, LSE: UKCM), announces its unaudited quarterly Net Asset Value (“NAV”) as at 30 September 2019. The Company owns a diversified portfolio of high quality income producing UK commercial property and is advised by Aberdeen Standard Investments.

Net Asset Value

• NAV per share of 90.5p (30 June 2019: 93.2p), resulting in a NAV total return of -1.9% for the quarter with continued low net gearing of 17.0%*.

• Like-for-like portfolio capital value decreased by -2.1% with overall capital performance net of capital expenditure investment of -2.2%. This was driven by further valuation pressure in the retail sector and, in particular, the Company’s only shopping centre, which is in Swindon but has now been contracted for sale. This compares to a -0.7% fall in the MSCI IPD monthly index over the period. After the disposal of Manchester in the quarter, the portfolio is now valued at £1,419 million (30 June 2019: £1,459 million).

• The passing rent at 30 September 2019 was £66.2 million compared to an ERV of £80.2 million demonstrating the reversionary nature of the portfolio. In addition, over the last 12 months, 99% of the Company’s rent roll continues to be collected within 21 days.

• With close to a 50% exposure, the Company’s current, strategic overweight position to the industrial /logistics sector, with a bias towards urban stock and the south-east, continues to provide a positive contribution to returns and contains the majority of the Company’s reversionary potential. In the office sector, where the Company has a 16.5% exposure with approximately two thirds outside London, capital value has remained resilient whilst tenant leasing enquiries in the relatively small 7% vacancy have picked up over the quarter.

Investment activity – Progress on strategic aim of reducing retail exposure

Two retail investment sales have been contracted:

• On 30 September the Company completed the sale of a retail unit for £10.3 million in Market Street, Manchester, let to Adidas with a lease break in 1.5 years; this was completed in line with its June valuation.
   
• Post the quarter end, on 29 October, the Company exchanged a binding contract to sell its one remaining shopping centre asset, The Parade, Swindon, for £23.35 million, which was in line with the September valuation.

The sales will provide the Company with additional firepower for reinvestment into assets that offer more sustainable income and are in line with the Company’s strategy of reducing exposure to assets that have significant future return risk. After completion of the sale of The Parade, the retail weighting of the Company’s portfolio will be 21.6% compared to the benchmark weighting of 32%^.

^ as at 30 June 2019

Continued Asset management and leasing momentum

• A Lease renewal with Compagnie Fruitiere UK Limited at Newton’s Court, Dartford, for a 2 year lease at a rent of £711,000 per annum, up 30% on the previous passing rent of £497,700 per annum and 11% ahead of ERV.

• Completion of a new 10 year lease with SPL Powerlines at M8 Interlink, Coatbridge, Glasgow securing £88,416 per annum in line with ERV. 

Portfolio occupancy remained relatively constant at 92% with over half of the remaining vacancy in well located industrial assets.

Strong Balance Sheet with significant resources

• As at 30 September, prudent net gearing of 17.0%* remains one of the lowest in the quoted REIT sector (gross gearing of 18.4%**) at a blended interest rate of 2.8%
• £85 million of unutilised revolving credit facility still available for investment
   

*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

Director Appointment

The Board is pleased to announce the appointment of Mr Chris Fry to the Board from 1 January 2020. Mr Fry is a Chartered Surveyor and has significant experience of the UK property industry. He is currently Chief Executive Officer of a privately owned property company, Kingsbridge Estates Limited, having previously been a Senior Fund Manager with LaSalle Investment Management. As previously announced, Mr Andrew Wilson will retire from the Board on 31 December 2019 and be replaced as Chair by Mr Ken McCullagh who is currently Chair of the Audit Committee and Senior Independent Director.

There are no further disclosures required under listing rule 9.6.13.

Andrew Wilson, Chair of UKCM, commented: “Significant further progress has been made to the Company’s ongoing strategy of reducing its exposure to retail.  The sale of two retail assets has further reduced the Company’s weighting to this sector which is already significantly below that of the benchmark. The portfolio also remains highly reversionary as evidenced by the leasing activity undertaken during the period which locked in some of the rental growth that we expect to be a key driver of future income and shareholder returns.  I am also delighted that Chris Fry has accepted an invitation to join the Board from January next year.  He brings with him a wealth of property expertise and experience which I am sure will be invaluable to the Company in the future.”

Will Fulton, Lead Manager of UKCM at Aberdeen Standard Investments, said: “We took the opportunity to capitalise on good investor interest ahead of a potential lease break to sell our High Street retail asset in central Manchester.  We were also pleased to make further progress towards reducing our exposure to retail after the period end, when we signed an agreement to sell The Parade in Swindon, our only remaining shopping centre, to an investor with a different return and risk profile. Around half of the portfolio is now weighted towards the industrial and logistics sector of which more than half is of an urban nature – a sub-sector where we continue to see strong interest and rental prospects. Looking ahead, we will continue to assess further opportunities to recycle capital through strategic disposals whilst making investments to grow 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 July 2019 to 30 September 2019:

UK Commercial Property REIT Limited	Per  Share (p)	Attributable Assets (£m)	Comment
Net assets as at 30 June 2019	93.2	1,211.3
Unrealised decrease in valuation of property portfolio	-2.3	-30.5	Predominantly like for like decrease of 2.1% in property portfolio.
Capital expenditure during the period	-0.2	-2.8	Principally relates to the now completed refurbishment of the Company’s pre-let industrial unit in Wembley, North London and ongoing asset management initiatives at Dolphin Estate and Gatwick Gate, two of the Company’s industrial assets.
Income earned for the period	1.3	16.6	Dividend cover of 88% for the nine month period to 30 September with significant resources still available for investment and a reversionary portfolio.
Expenses for the period	-0.6	-7.2
Dividend paid on 30 August  2019	-0.9	-12.0
Net assets as at 30 September 2019	90.5	1,175.4

The EPRA NAV per share is 90.5p (30 June 2019: 93.2p) with EPRA earnings per share for the quarter being 0.73p (30 June 2019: 0.88p).

Sector analysis

	Portfolio Value as at 30 Sep 2019 (£m)	Exposure as at 30 Sep 2019 (%)	Like for Like Capital Value Shift (excl sales, purchases & CAPEX) since 30 Jun 19	Capital Value Shift (including sales & purchases) (£m)
			(%)
Valuation as at 30 Jun 19				1,458.7
Industrial	705.5	49.7	0.7	4.6
South East		31.2	1.5	6.4
Rest of UK		18.5	-0.7	-1.8
Retail	324.4	22.9	-8.9	-42.0
High St – South East		2.4	-2.0	-0.8
High St- Rest of UK		2.3	-2.7	-11.2
Shopping Centres		1.6	-35.6	-12.9
Retail Warehouse		16.6	-6.8	-17.1
Offices	234.0	16.5	0.0	0.1
City		2.7	1.3	0.5
West End		2.1	0.0	0.0
South East		5.0	0.1	0.1
Rest of UK		6.7	-0.5	-0.5
Alternatives	154.6	10.9	-1.9	-2.9
External valuation at 30 Sep 2019	1,418.5	100.0	-2.1	1,418.5

Net Asset Value analysis as at 30 September 2019 (unaudited)

	£m	% of net assets
Industrial	705.5	60.0%
Retail	324.4	27.6%
Offices	234.0	19.9%
Leisure	154.6	13.2%
Total Property Portfolio	1,418.5	120.7%
Adjustment for lease incentives	-18.7	-1.6%
Fair value of Property Portfolio	1,399.8	119.1%
Cash	24.0	2.0%
Other Assets	36.3	3.1%
Total Assets	1,460.1	124.2%
Current liabilities	-22.3	-1.9%
Non-current liabilities (bank loans)	-262.4	-22.3%
Total Net Assets	1,175.4	100.0

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 September 2019.

The NAV per share at 30 September 2019 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 / Graeme McDonald, Aberdeen Standard Investments
Tel: [phone]

Edward Gibson-Watt / Oliver Kenyon, 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.