Net Asset Value at 30 September 2023

8 November 2023

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

Legal Entity Identifier (LEI) : 213800JN4FQ1A9G8EU25

Net Asset Value at 30 September 2023

STABLE VALUES AND POSITIVE LEASING MOMENTUM DRIVE TOTAL RETURN

8 November 2023: UK Commercial Property REIT Limited (“UKCM” or the “Company”) (FTSE 250, LSE: UKCM), which owns a £1.27 billion portfolio of high quality and diversified real estate across the UK today provides a net asset value (“NAV”) and trading update for the third quarter of 2023.

Highlights

• Q3 NAV total return of 0.6% bringing the total to 4.5% for the year to date;

• Portfolio valuation remained stable, with growth in the industrial and alternative components which account for 74% of the total, and a marginal overall 0.3% decrease, net of capital expenditure, to £1.27 billion.  This reflects the quality of the Company’s assets, while continuing to compare favourably to the MSCI UK Balanced Portfolios Quarterly Property Index, where capital values fell by 1.9% over the quarter. The Company’s portfolio now beats the MSCI benchmark over the current 1, 3, 5 and 10 year time periods;

• Capital expenditure of £9.3 million was deployed during the period as the Company continues to invest in driving future earnings growth, the majority of this in progressing the Company’s Hyatt hotel development in Leeds which is expected to generate a 7.25% yield on cost;

• Unaudited NAV per share 80.7p (30 June 2023: 81.1p);

• The Company continues to benefit from its strong balance sheet and low, prudent gearing with a 16.7% group loan to value*. The current blended interest cost is 3.56% per annum with 84% of this at a low fixed rate; all covenants are well covered;

• EPRA earnings per share at grew 5.5% to 0.77p over the same quarter last year (30 September 2022: 0.73p, YTD’23 2.47p**);

• Dividend maintained at 0.85p per share for the third quarter, payable 30 November 2023, giving dividend cover of 97%** for the nine months of this year;

• Rent collection remains strong at 99%;

• The Company maintained its track record of keeping occupancy high at 97% (30 June 2023: 96%). While low vacancy meant there was comparatively less leasing activity than in previous periods, three renewals were completed during the quarter, at an average 24% above previous passing rent and in line with ERV, with further opportunities to capture reversion in the coming year and beyond.

*Calculated, under AIC guidance, as gross borrowings less cash divided by portfolio value.
** Includes Cineworld adjustment announced in Q2 2023 results.

Peter Pereira Gray, Chair of UKCM, commented: “The third quarter results show a further stabilisaton in values as the Company continues to benefit from the quality of its well let and diverse portfolio.  This, together with our leasing momentum, where we have continued to agree rates well ahead of current rents and in line with rental value, have led to a positive total return for the period as well as growth in earnings over the same period last year. While we continue to be aware of the broader macro conditions and the uncertainty that these present, we remain optimistic about the Company’s ability to drive value, income and earnings through successful asset management and capturing the near term reversionary potential in the portfolio.”

Will Fulton, Lead Manager of UKCM at abrdn, said: “Occupier demand has remained strong during the third quarter and while our high occupancy has meant there have been fewer leasing events in the period under review, those we have transacted were at levels well above the previous rents.  On top of that, there are a number of near term opportunities to capture further rental uplift and reversion across the portfolio, which will help us drive further earnings growth.  In doing so I am pleased with the action we have taken to carefully control our low debt levels through prudent balance sheet management. The stabilisation of our NAV demonstrates the quality of the properties we own and the advantages of both a diversified investment strategy and our deliberate weighting towards future-fit sectors, such as industrial and logistics, which benefit from compelling structural and demographic tailwinds.”

Asset management delivering rental growth potential and high occupancy

The Company has a very low void rate of 3% which provides good visibility of future income and clearly demonstrates both the quality of the Company’s portfolio and the asset management team’s ability to retain income while focusing on capturing reversionary potential.  This has continued with another quarter of good leasing momentum including:

• At Emerald Park Industrial Estate, Bristol two lease renewals were completed in the quarter at an aggregate 22% higher than the previous rents passing and broadly in line with ERVs:

-          UPS agreed a five year lease extension on its 22,524 sq ft unit at a rent of £247,000 per annum, equating to £11psf.

-          Medequip extended its lease for seven years, subject to a break in year five, over its 5,815 sq ft unit at a rent of £60,900 per annum, equating to £10 psf.  

• At Newton’s Court, Dartford, Smart Access Platforms renewed the lease over their 6,650 sq ft unit.  The tenant has entered into a new ten year lease with a tenant only break option in year five and a new rent of £92,500 per annum, equating to £14 psf. The agreed rent is in line with the asset’s latest ERV and is 29% higher than the previous rent passing. 

• On Trafford Retail Park, Manchester, an ESG focussed initiative was completed with the resurfacing and remodelling of the customer car park. An additional access lane was introduced to assist vehicle access and egress from the extremely popular, heavily used retail park. A sustainable construction method was used involving the shredding, rather than landfilling, of 1,700 tyres. These were incorporated in the resurfacing material, reducing the bitumen component, and in turn reducing the use of fossil fuels.  Recycled plastic drinks bottles were also used in the manufacture of the replaced slot drains that serve the property.

Development

The Company has one current development, its Hyatt-branded 305 bed hotel development at Sovereign Square in Leeds, which continues to make good progress towards its target opening in Q3 2024. On completion the hotel will serve a strong regional market which lacks good quality mid-priced hotels such as this, with the added benefit of strong ESG credentials.

Strong balance sheet with significant covenant headroom and flexibility

The Company’s prudent approach to debt has allowed it to maintain a robust balance sheet with low gearing of 16.7% (Q2:15.6%) across three debt facilities, as calculated using AIC methodology. All covenants are well covered and there is an additional £335 million of unencumbered property which provides further significant headroom and flexibility with respect to the Company’s covenant package. The current blended interest rate is 3.56% per annum on drawn debt of which 84% is at a low fixed rate.

UKCM has financial resources of £117.1 million available, after allowing for future capital commitments and the November 2023 dividend. The bulk of these resources relate to the Company’s RCF which is a relatively expensive form of debt and it is therefore only likely to be deployed if a compelling and accretive opportunity arises.

Rent Collection

Rent collection rates remain strong with 99% of fourth quarter rents already received allowing for those tenants who have paid, by agreement, on a monthly basis.

The Company has a diverse tenant mix of quality occupiers, the largest five of which comprise resilient businesses such as Ocado (5.9% of rent), Public Sector (5.0%), Armstrong Logistics (3.6%), Total (3.2%) and Kantar (2.8%).  In total the portfolio’s income is secured from 193 tenancies.

Dividends

Dividend maintained at 0.85p per share for the third quarter, payable 30 November 2023.

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 30 June 2023 to 30 September 2023:

UK Commercial Property REIT Limited	Per Share (p)	Attributable Assets (£m)	Comment
Net assets as at 30 June 2023	81.1	1,053.9
Unrealised increase in valuation of property portfolio	0.4	5.3
Capex in the quarter	(0.8)	(9.3)	Predominantly relates to ongoing development capex for the hotel in Leeds.
Income earned for the period	1.4	17.9	Dividend cover of 97% for the nine months of this year**
Expenses for the period	(0.6)	(8.0)
Dividend paid in August 2023	(0.8)	(11.0)
Net assets as at 30 Sept 2023	80.7	1,048.8	Decrease of 0.5%

** Includes Cineworld adjustment announced in Q2 2023 results.

The EPRA Net Tangible Assets per share is 80.7p (30 June 2023: 81.1p) with EPRA earnings per share for the quarter being 0.77p.

Sector Analysis

	Portfolio Value as at 30 Sept 23 (£m)	Exposure as at 30 Sept 23 (%)	Like for Like Capital Value Shift (net of CAPEX)	Capital Value Shift (including sales & purchases & development spend) (£m)
			(%)
Valuation as at 30 June 23				1,263.8
Industrial	745.4	58.8	0.8	6.1
South East		33.7	1.1	4.6
Rest of UK		25.1	0.5	1.5
Retail	181.3	14.2	-2.5	-4.5
Supermarkets		2.1	-2.3	-0.4
Retail Warehouses		12.1	-2.6	-4.1
Offices	154.6	12.2	-3.8	-5.8
West End		1.9	-7.7	-2.0
South East		4.8	-2.3	-1.5
Rest of UK		5.5	-3.4	-2.3
Alternatives	187.9	14.8	0.2	9.6
Leisure		5.3	0.1	0.1
Student Accommodation		4.7	0.5	1.0
Hotels		4.8	0.0	8.5
Valuation as at 30 Sept 23	1,269.2	100.0	-0.3	1,269.2

Top Ten Investments                         Sector

Properties valued in excess of £100 million
Ventura Park, Radlett	Industrial
Properties valued between £50 million and £100 million
Ocado Warehouse, Hatfield	Industrial
Dolphin Industrial Estate, Sunbury-on-Thames, London	Industrial
Newton’s Court, Dartford	Industrial
Junction 27 Retail Park, Leeds	Retail Warehouse
XDock 377, Lutterworth	Industrial
Properties valued between £25 million and £50 million
The Rotunda, Kingston on Thames	Alternatives
Emerald Park, Bristol	Industrial
Trafford Retail Park, Manchester	Retail Warehouse
The Maldron Hotel, Newcastle	Alternatives

The independent valuation as at 30 September 2023 was carried out by CBRE Ltd.

Net Asset Value analysis as at 30 September 2023 (unaudited)

	£m	% of net assets
Total Property Portfolio	1,269.2	120.9
Adjustment for lease incentives	(28.1)	-2.7
Fair value of Property Portfolio	1,241.1	118.2
Cash	25.7	2.4
Other Assets	50.3	4.8
Total Assets	1,317.1	125.6
Current liabilities	(32.2)	-3.1
Non-current liabilities (bank loans)	(236.1)	-22.5
Total Net Assets	1,048.8	100.0

The NAV per share is based on the external valuation of the Company’s direct property portfolio as at 30 September 2023. It includes all current period income and is calculated after the deduction of all dividends paid prior to 30 September 2023.

The NAV per share at 30 September 2023 is based on 1,299,412,465 shares of 25p each, being the total number of shares in issue at that time.

The Board is not aware of any other significant events or transactions which have occurred between 30 September 2023 and the date of publication of this statement which would have a material impact on the financial position of the Company.

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 / Jamie Horton, abrdn

Tel: [phone]

William Simmonds, J.P. Morgan Cazenove

Tel: [phone]

Richard Sunderland / Andrew Davis / Emily Smart, FTI Consulting

Tel: [phone]

[e-mail]

The above information is unaudited and has been calculated by abrdn Fund Managers Limited.

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