Net Asset Value at 31 March 2019

2 May 2019

UK Commercial Property REIT Limited (“UKCM” or “the Company”)
LEI: 213800JN4FQ1A9G8EU25 

Net Asset Value at 31 March 2019

UK Commercial Property REIT Limited (FTSE 250, LSE: UKCM), announces its unaudited quarterly Net Asset Value (“NAV”) as at 31 March 2019. The Company owns a diversified portfolio of high quality income producing UK commercial property and is advised by Aberdeen Standard Investments (“ASI”)^.

Net Asset Value

• NAV per share of 93.9p (31 December 2018: 93.3p), resulting in a NAV total return of 1.6% in the period with continued low net gearing of 15.3%*.

• Like-for-like portfolio capital value increased by 1.2% with overall capital performance net of capital expenditure investment of 0.6%. This compares to the -0.8% fall in the MSCI monthly index over the period. The portfolio is now valued at £1.46 billion (31 Dec 2018: £1.45 billion).

• The Company’s strategy of building  an overweight position to Industrials and logistics property over the past few years and successful asset management activity combined to produce strong positive capital returns, which were partially offset by a decline in values across the Company’s retail holdings.  

Successful debt refinancing further strengthens balance sheet

On 21 February 2019, the Company announced that it had restructured its debt facilities.  The refinancing increased UKCM’s total debt availability by £50 million and means the Group now has £95 million available but undrawn to take advantage of investment opportunities that may arise.  In addition, the refinancing provides the Group with:

• an increase in the weighted maturity profile of its fixed term debt from 4 years to 10 years;
• additional flexibility with £150 million  or 43% of total available debt  (£350 million) now in the form of a revolving Credit Facility (“RCF”) which is available until 2024;
• Based on the current cost of the drawn RCF,  a reduction in the Group’s current blended cost of debt from 2.89% per annum to 2.80%; and
• Net gearing of 15.3%* and gross gearing of 17.3%** that is one of the lowest in the Company’s peer group and the quoted REIT sector.  

*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

Asset management and leasing momentum underpinning performance

Most significant this quarter was the pre-letting of the entire 180,000 sqft of the Company’s Wembley logistics distribution centre, Central Way, Neasden, ahead of the current tenant, Marks & Spencer, moving out at the end of March 2019.  The Company has exchanged contracts on a new 10 year index-linked lease with an international business at a rent of £2.7 million per annum capturing and exceeding the property's reversionary rental value.  The new occupier is expected to take occupation in October 2019 following a comprehensive refurbishment by the Company, with work having already started on site.

Other notable asset management initiatives in the period included:

• St George’s Retail Park, Leicester – the completion of three new 10 year leases to Wren Living, Tapi Carpets & Floors & Laura Ashley generating £599,500 per annum after lease incentives. These follow construction of a new terrace of units and the reconfiguration of the park’s entrance to improve customer access.  

• 81/85 George Street, Edinburgh  - now 100% occupied with the letting of the third floor office suite on a 10 year lease with a break option at year 5 to a global information technology company at a rent of £304,399 per annum, in line with the estimated rental value (“ERV”) for the property. 
   
• Junction 27 Retail Park, Leeds – at this prime destination which is adjacent to Ikea, the last remaining vacant unit was let to NI North West Ltd t/a Natuzzi for 10 years at a rent of £225,450 pa. This 5,000 sq.ft unit, previously let to Carpetright, which vacated following a CVA process and the rent is in line with both ERV and the previous tenant’s rent.

• Cineworld, Glasgow - Comic Enterprises which trades as The Glee Club,  signed a new 15 year lease at a rent of £100,000 per annum, completing the asset management plan for this asset which is now 100% let.

• In addition,  Â£83,960 of annual rental income, 3% ahead of ERV at the time, secured from one lease renewal and three rent reviews, including:

• A new five year lease renewal completed with The Arts Council England at Central Square, Newcastle, at a new rent of £39,616 per annum, 22% ahead of ERV. 

• Rent reviews agreed with Malibu Health, Azzuri Restaurants & Five Guys at various assets, secured a new rent of £70,466 per annum, 13% ahead of the previous passing rent and 2% ahead of ERV at the time. 

Occupancy improved slightly from 93% to 94% during the quarter and remains ahead of the benchmark number of 92.9%_#. Over half of the remaining vacancy is in well located industrial assets. The largest of these is the Company’s recently refurbished well located 377,000 sq ft cross-docked distribution warehouse at Magna Park, Lutterworth, in the centre of the logistics “Golden Triangle”.  

#as at 31 December 2018

Expanded Investment Policy

At an extraordinary general meeting on 18 April 2019, shareholders passed a resolution to expand the Company’s investment policy which provides the Investment Manager with the flexibility to invest across the spectrum of commercial property including alternative property assets.

Takeover Panel Waiver on Share Buybacks

At the Extraordinary General Meeting referred to above, the Board was also pleased to note that 73.6% of shareholders eligible to vote, voted to approve a Rule 9 waiver granted by the Takeover Panel.  However, in respect of this resolution, the Board acknowledges that 26.4% shareholders who voted did not support the resolution.

The Circular that was published by the Company on 29 March 2019 contained a full explanation of the background to and reasons for the proposal of the Rule 9 Waiver.  The Board recognises the 'creeping control' concerns of standard voting guidelines set by some voting bodies and therefore some institutional shareholders in the Company in relation to resolutions relating to Rule 9 Waivers. However, without the approval of independent shareholders of the Rule 9 Waiver, the Company would not have been able to exercise its share buyback authority as to do so would have triggered an obligation for a mandatory offer to be made under Rule 9 of the Takeover Code.

The Board believes, particularly in the light of the Company being a listed closed-ended investment company, that it is in the interests of shareholders as a whole that the Company has flexibility to exercise the buyback authority.

The Board will continue to engage with shareholders as part of its normal investor relations activities to understand and consider any ways to address their concerns regarding the Rule 9 Waiver. The Company remains committed to engaging with shareholders on issues of concern to ensure that its policies and practices are transparent, clear and understood in the context of the Company's business model and performance.

Andrew Wilson, Chair of UKCM, commented:  ““It has been an active first quarter for the business with the completion of a significant debt refinancing and the extension of the Company’s investment policy. The period also saw us deliver a capital performance that outperformed the property sector, reflecting not only the quality of the portfolio we have assembled, but also the active asset management successes in the quarter.”

Will Fulton, Lead Manager of UKCM at Aberdeen Standard Investments, said:  “The active management of our assets resulted in an increase in the occupancy of the portfolio, which remains high at 94%, and a boost to NAV. We remain confident in the leasing prospects for the majority of the remaining vacant space in the portfolio which provides potential for future earnings growth.”

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 January 2019 to 31 March 2019:

UK Commercial Property REIT Limited	Per  Share (p)	Attributable Assets (£m)	Comment
Net assets as at 31 December 2018	93.3	1,212.6
Unrealised increase in valuation of property portfolio	1.3	16.6	Like for like increase of 1.2% in property portfolio.
Gain on Sale	0.1	0.9	Gain on the sale of three small units in The Parade, Swindon.
Capital expenditure during the period	-0.7	-8.6	Principally relates to the development of Maldron Hotel, Newcastle refurbishment of XDock 377 at Lutterworth and ongoing pre-let asset management initiative at St. George's Retail Park, Leicester and Ventura Park, Radlett.
Income earned for the period	1.3	17.5	Equates to dividend cover of 89% in the period but significant resources still available for investment.
Expenses for the period	-0.5	-6.9
Dividend paid on 28 February 2019	-0.9	-12.0
Interest rate swaps mark to market revaluation	0.0	0.0	Swap Breakage costs as part of the refinance included as liability in previous NAV
Net assets as at 31 March 2019	93.9	1,220.1

The EPRA NAV per share is 93.9p (31 December 2018: 93.4p) with EPRA earnings per share for the quarter being 0.82p (31 December 2018: 0.88p).

Sector analysis

	Portfolio Value as at 31 Mar 2019 (£m)	Exposure as at 31 Mar 2019 (%)	Like for Like Capital Value Shift (excl sales, purchases & CAPEX)	Capital Value Shift (including sales & purchases)     (£m)
			(%)
External valuation as at 31 Dec 18				1,445.2
Industrial	694.7	47.5	3.6	24.2
South East		29.4	5.2	21.3
Rest of UK		18.1	1.1	2.9
Retail	375.7	25.7	-2.4	-9.3
High St – South East		2.5	-5.6	-2.2
High St- Rest of UK		3.0	2.4	1.1
Shopping Centres		2.8	-5.3	-2.3
Retail Warehouse		17.4	-2.3	-5.9
Offices	231.9	15.9	0.0	0.0
City		2.6	0.3	0.1
West End		2.0	0.0	0.0
South East		4.8	-0.1	-0.1
Rest of UK		6.5	0.0	0.0
Alternatives	160.0	10.9	1.4	2.2
External valuation as at 31 Mar 2019	1,462.3	100.0	1.2	1,462.3

Net Asset Value analysis as at 31 March 2019 (unaudited)

	£m	% of net assets
Industrial	694.7	56.9
Retail	375.7	30.8
Offices	231.9	19.0
Alternatives	160.0	13.1
Total Property Portfolio	1,462.3	119.8
Adjustment for lease incentives	-15.2	-1.2
Fair value of Property Portfolio	1,447.1	118.6
Cash	35.7	2.9
Other Assets	24.2	2.0
Total Assets	1,507.0	123.5
Current liabilities	-34.7	-2.8
Non-current liabilities	-252.2	-20.7
Total Net Assets	1,220.1	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 31 March 2019. It does not include provision for any unpaid dividends relating to periods prior to 31 March 2019, i.e. the proposed dividend for the period to 31 March 2019.

The NAV per share at 31 March 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^.
 

^Aberdeen Standard Investments is a brand of the investment businesses of Aberdeen Asset Management and Standard Life Investments. The Company is managed and advised by Standard Life Investments (Corporate Funds) Limited (the Company’s appointed AIFM).