Net Asset Value(s)

2 November 2018

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

Net Asset Value at 30 September 2018

UK Commercial Property REIT Limited (FTSE 250, LSE: UKCM), announces its unaudited quarterly Net Asset Value (“NAV”) as at 30 September 2018. The Company owns a diversified portfolio of high quality income producing UK commercial property and is advised by Aberdeen Standard Investments (“ASI”)^.

Positive NAV performance

• NAV per share of 94.3p (30 June 2018: 94.5p), resulting in a NAV total return of 0.8% in the period with continued low net gearing of 14.3%**.

• Like-for-like portfolio capital value increased by 0.8% with overall capital performance net of capital expenditure investment flat, compared to the 0.4% increase in the MSCI/IPD Monthly index over the period. The portfolio is now valued at £1.45 billion (30 June 2018: £1.42billion).

• The overweight position to Industrials (42% after the transactions discussed below) and the Company’s prime office portfolio continued to produce strong capital returns offset by a negative capital return from retail.  

Delivering on strategy of producing sustainable income streams

• Acquisition of M8 Industrial Estate near Glasgow in Scotland from a privately owned Company for a headline price of £24.6 million, based on a topped up net initial yield of 5.9%. The asset has 92% occupancy and is well let to tenants including Boots UK and Rentokil with an attractive average lease term of seven years. With an affordable average passing rent of £5.25 per sq ft across the estate, there is an opportunity to let up the small amount of vacant space and grow rents.
• Post the quarter end an off-market sale of 15 Great Marlborough Street, an office asset in London's Soho, to a major UK Insurance Company for £73.2 million. Having completed a number of asset management initiatives during UKCM’s ownership, the sale was ahead of the last valuation as at 30th June 2018.
• Also after the quarter end, the sale of a retail asset let to H&M and Barclays Bank at 16-20 High Street in Exeter, to a UK pension fund for £23.5 million reflecting a net initial yield of 4.75%.
• These transactions match the Company’s strategy to invest in good quality assets in favoured sectors. They also offer the opportunity to grow earnings whilst securing profits on keenly priced assets with the aim of transferring capital to higher yielding stock that have sustainable income streams and growth potential.

Asset management and leasing momentum underpinning performance

• Completion of a new 20 year lease to Harwoods Ltd which operates the Audi car showroom at Motor Park, Portsmouth, incorporating annual RPI increases capped and collared at between 1% and 3%, at an annual rent of £265,500. 

• At the Cineworld complex in Glasgow, a new 25 year lease was completed with the Stone Gate Pub Company at a rent of £250,000 per annum, incorporating RPI increases capped and collared at between 1% and 4%. The unit has also been extensively refurbished by the tenant. 

• Completion of a new lease with Natwest Bank at The Parade, Swindon, delivering £170,000 per annum over 10 years. 
   
• In addition,  Â£381,000 of annual rental income, 8% ahead of estimated rental value (“ERV”), secured from two lease renewals and a rent review, including:

        Â·      A new ten year reversionary lease with Rhys Davies & Sons Ltd at Ventura Park, Radlett, incorporating a new rent of £343,485 per annum, 10% ahead of ERV.  The new contract will commence upon the expiry of their current lease in 2020 and incorporates a tenant break option in 2025.   

        Â·      Rent review agreed with William Hill at Eldon House, City of London, securing a new rent of £79,000 per annum, 22% ahead of the previous passing rent. 

• Occupancy marginally decreased to 91%*; approximately half the vacancy is well located within the generally under-supplied industrial sector with strong leasing prospects; the Company is also experiencing good interest in its office vacancy and making progress with its retail vacancy.

• Post the completion of the Dalata Hotel 16.5% of the portfolio income will be in leases that have fixed or inflation linked uplifts.

•  Successes achieved across industry environmental, social and governance (ESG) benchmarks - sector Leader status in the Global Real Estate Sustainability Benchmark ("GRESB") as a top ESG performer and awarded an ‘A’  score for Public Disclosure; EPRA “Gold” rating for European Sustainability Best Practice Recommendations in September 2018. 

Strong balance sheet providing flexibility and attractive dividend yield

• Post the transactions reported above, cash resources of £90 million are currently available for investment (after allowing for dividend commitment and projected capital expenditure on the portfolio) in addition to a further £50 million of undrawn revolving credit facility.

• Low net gearing of 14.3%** (gross gearing of 16.9%**) remaining one of the lowest in the Company’s peer group and the quoted REIT sector.

• Dividend yield of 4.2%*, comparing favourably to the FTSE All-Share Index (3.8%*) and in-line with the FTSE All-Share REIT Index (4.2%*).

*30 September 2018
**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 UKCM, commented:  “UKCM has delivered another solid performance during the third quarter as a result of the continued active management of the Group’s portfolio and its sector split. Our strategy to recycle capital into higher yielding, longer term income producing assets, particularly in the favoured industrial sector, while selectively reducing the portfolio’s weighting towards retail, is progressing well. In August we completed the acquisition of the M8 Industrial Estate near Glasgow, which not only generates stable income but also offers potential to deliver additional income and increased value. The post quarter sale of our retail holding in Exeter reflects our strategy of continued portfolio rationalisation when appropriate”

Will Fulton, Lead Manager of UKCM at ASI, said:  “We have talked for some time about the importance of income to drive returns, both from earnings and, by growing or improving income, to feed into capital appreciation. Construction of our hotel funding in Newcastle, pre-let for 35 years to Dalata Hotels, is progressing well and is expected to complete late Q4 or Q1 next year when income will start; similarly the refurbishment of X377, our large “cross-docked” logistics warehouse in the distribution “Golden Triangle” of the Midlands, Lutterworth, is progressing well and due to complete and become available for letting at the end of this year – all to plan. During the reporting quarter we have successfully secured three new long-term leases which, together with the lease renewals and rent review, have contributed to the Group’s annual rental income.  In a weakened retail environment it is good to be able to report the successful sale of our High Street investment in Exeter having repositioned the asset.”

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 2018 to 30 September 2018.

UK Commercial Property REIT Limited	Per  Share (p)	Attributable Assets (£m)	Comment
Net assets as at 30 June 2018	94.5	1,227.4
Unrealised increase in valuation of property portfolio	0.9	11.7	Predominantly like for like increase of 0.8% in property portfolio.
Capital expenditure during the period	-0.9	-11.8	Principally relates to costs associated with the development of Maldron Hotel, Newcastle refurbishment of XDock 377 at Lutterworth and ongoing asset management initiative at St. George's Retail Park, Leicester plus acquisition costs on the M8 Industrial Estate.
Income earned for the period	1.1	15.3	Equates to dividend cover of 81% in the quarter but £90million of cash available for investment
Expenses for the period	-0.4	-5.6
Dividend paid on 31 August 2018	-0.9	-12.0
Interest rate swap mark to market revaluation	0.0	0.3	No material movement in the quarter
Net assets as at 30 September 2018	94.3	1,225.3

The EPRA NAV per share (excluding swap liability) is 94.4p (30 June 2018: 94.6p) with EPRA earnings per share for the quarter being 0.75p (30 June 2018: 0.67p).

Sector analysis

	Portfolio Value as at 30 Sep 2018 (£m)	Exposure as at 30 Sep 2018 (%)	Like for Like Capital Value Shift (excl sales, purchases & CAPEX)	Capital Value Shift (including sales & purchases)     (£m)
			(%)
Valuation as of 30 Sep 2018				1,416.4
Retail	427.9	29.4	-3.4	-15.3
High St – South East		2.7	0.0	0.0
High St- Rest of UK		4.5	0.0	0.0
Shopping Centres		3.1	-14.7	-7.8
Retail Warehouse		19.1	-2.6	-7.5
Offices	300.6	20.7	1.5	4.4
City		2.3	0.0	0.0
West End		7.1	3.9	3.9
South East		4.8	0.4	0.3
Rest of UK		6.5	0.2	0.2
Industrial	567.6	39.1	3.2	41.1
South East		27.3	3.5	13.2
Rest of UK		11.8	2.4	27.9
Leisure/Other	156.4	10.8	3.9	5.9
External valuation at 30 Sep 2018	1,452.5	100.0	0.8	1,452.5

Net Asset Value analysis as at 30 September 2018 (unaudited)

	£m	% of net assets
Industrial	567.6	46.2
Retail	427.9	34.9
Offices	300.6	24.5
Leisure/Other	156.4	12.8
Total Property Portfolio	1,452.5	118.4
Adjustment for lease incentives	-12.8	-1.0
Fair value of Property Portfolio	1,439.7	117.4
Cash	46.4	3.8
Other Assets	22.5	1.8
Total Assets	1,508.6	123.0
Current liabilities	-33.6	-2.7
Non-current liabilities (bank loans & swap)	-249.7	-20.3
Total Net Assets	1,225.3	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 2018. It does not include provision for any unpaid dividends relating to periods prior to 30 September 2018, i.e. the proposed dividend for the period to 30 September 2018.

The NAV per share at 30 September 2018 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).