TIDMUKCM
Guernsey: 30 September 2022
UK Commercial Property REIT Limited
("UKCM" or the "Company")
LEI: 213800JN4FQ1A9G8EU25
INTERIM RESULTS FOR THE HALF YEARED 30 JUNE 2022
UK Commercial Property REIT Limited (FTSE 250, LSE: UKCM) which owns a £1.7
billion diversified portfolio of high-quality income-producing UK commercial
property and is managed and advised by abrdn, announces its interim results for
the half year ended 30 June 2022.
FINANCIAL REVIEW AS AT 30 JUNE 2022
* NAV TOTAL RETURN
Net Asset Value ("NAV") total return of 12.3% (H1 2021: 6.0%) primarily
driven by valuation increases and the portfolio weighting to the industrial
sector.
* SHARE PRICE TOTAL RETURN
Share price total return of 2.3% (H1 2021: 13.4%).
* EPRA EARNING PER SHARE
EPRA earnings per share increased 36% to 1.58 pence per share (H1 2021:
1.16p)
* DIVID
Quarterly dividend increased by a further 6.3% to 0.85 pence per share,
following the uplifts announced in both the fourth quarter of 2021 and the
first quarter of 2022. This brings the increase in the H1 2022 fully
covered dividend to 13.3%.
* GEARING
Low gearing of 13.7% (2021: 13.5%) as at 30 June 2022 remains one of the
lowest in the Company's peer group.
PORTFOLIO REVIEW AS AT 30 JUNE 2022
* PORTFOLIO PERFORMANCE
Portfolio total return of 11.2% resulted in continued outperformance of the
Company's MSCI benchmark, of 8.1%, driven by the positive relative
performance of the Company's industrial portfolio.
* PORTFOLIO VALUE
Portfolio is now valued at £1.71 billion. We believe that the Company's
well-let portfolio of scale, which is heavily weighted towards future-fit
sectors and offers good prospects for rental growth, is well placed to
deliver positive relative performance with good potential for future
earnings growth.
* OCCUPANCY
Occupancy rate of 98.5%.
* RENT
19% increase in portfolio annualised rent and ERV growth of 9%. Rent
collection for the three billing periods in 2022 of 99% as at 31 August
2022.
* ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
2040 net zero carbon target for all emissions.
Commenting on the results, Ken McCullagh, Chair of UKCM, said: "UKCM has
delivered another strong set of results for the first six months of 2022, with
the team's ability to invest into a diversified range of sectors and
proactively manage the portfolio towards income growth and security ensuring
that the Company continues to outperform its benchmark. This performance has
been driven by a disciplined investment focus on future fit and operational
asset classes that look to capitalise on the imbalance between supply and
demand, are underpinned by societal changes that remain highly supportive of
the occupational markets and rental growth. The special dividend, paid in
August, is reflective of the Board's desire to return some of the strong
performance delivered over the last number of quarters to shareholders,
allowing them all to benefit from the recent growth in net asset value that is
not currently being reflected in the Company's share price.
Looking ahead, as a Board we are acutely aware of the broader economic
challenges that have been prevalent throughout the year and, more recently, the
impact of the government's latest fiscal announcement on the debt markets,
which have created further uncertainty. However, UKCM is extremely lowly
levered, has a strong and flexible balance sheet and a portfolio that has been
positioned over the past few years to deliver income growth through market
cycle. As a result, we have a number of options available to us to both manage
and, where appropriate, seek opportunities arising from the current
environment, and are confident in the future prospects for the Company."
Will Fulton, Fund Manager at UKCM at abrdn, added: "The UK real estate market's
performance remained very positive throughout the first half of this year,
despite the economic challenges. The Company's portfolio also successfully
outperformed the benchmark again, benefitting from our strategic overweight
position to the industrial sector, which again delivered the strongest returns
of all the major sectors, and from positive leasing and asset management.
Against a backdrop of economic and inflationary pressure, and rising interest
rates, we are alert to the challenges that lay ahead for our sector, but remain
positive on the ability of our Company's portfolio to deliver positive rental
and earnings growth going forward. Our strategy has been fashioned with this in
mind by targeting those areas of the market most likely to benefit from
positive structural changes and so experience positive demand versus supply
over the coming years with the ability for active asset management to enhance
income.
As we move into the second half of the year we expect ESG considerations to
become even more integral to investor decision making and asset underwriting.
This trend was expedited as a result of the Covid-19 pandemic, but with the
current energy crisis and pathway to net-zero, the case for integrating ESG
considerations across all UK real estate sectors has never been greater. An
even greater emphasis on ESG requirements for both acquisitions and
developments is already underway across our portfolio."
PERFORMANCE SUMMARY
CAPITAL VALUES AND GEARING 30 June 31 December %
2022 2021 Change
Total assets less current liabilities (excl bank 1,733,981 1,573,554 10.2
loan) £'000
IFRS Net asset value (£'000) 1,467,443 1,325,228 10.7
Net asset value per share (p) 112.9 102.0 10.7
Ordinary share price (p) 75.0 74.7 0.4
Discount to net asset value (%) (33.5) (26.8) n/a
Gearing (%)* 13.7 13.5 n/a
6 month 1 year 3 year 5 year
% return % return % return % return
TOTAL RETURN
NAV? 12.3 28.8 33.0 50.9
Share Price? 2.3 1.5 (5.0) (1.1)
UKCM Property portfolio 11.2 26.8 35.5 56.0
MSCI Benchmark 8.1 19.6 25.7 43.2
FTSE Real Estate Investment Trusts Index (18.8) (5.2) 4.9 9.2
FTSE All-Share Index (4.6) 1.6 7.4 17.8
30 June 30 June
EARNINGS AND DIVIDS 2022 2021
EPRA Earnings per share (p) 1.58 1.16
Dividends paid per ordinary share (p) # 1.55 1.635
Dividend Yield (%)? 3.8 3.3
MSCI Benchmark Yield (%) 3.9 4.5
FTSE Real Estate Investment Trusts Index Yield (%) 3.6 2.7
FTSE All-Share Index Yield (%) 3.5 2.8
* Calculated, under AIC guidance, as gross borrowings less cash
divided by portfolio value.
? Assumes re-investment of dividends excluding transaction
costs.
? Based on last four quarterly dividends, paid pre-30 June of
2.838p and the share price at 30 June 2022.
# Notes to the accounts, note 6 for further details.
Sources: abrdn, MSCI
CHAIR'S STATEMENT
Background
UKCM has delivered a strong set of results from our portfolio during the first
half of 2022, with capital allocation and further positive leasing momentum by
our asset management team driving rental growth and an increase in portfolio
valuation. The Company delivered a NAV total return of 12.3% for the period and
once again outperformed its benchmark. Over the past few years we have taken
advantage of our ability to invest in a diversified range of sectors to
proactively manage our portfolio towards income growth and security, with a
focus on future fit and operational
asset classes. Of particular note we have built a strong position in both urban
and big box logistics and the living asset classes, where we are invested in
student housing, and hotels. In all of these, the imbalance between supply and
demand and the societal changes continue to be highly supportive of the
occupational markets and rental growth.
We are acutely aware of the broader economic challenges ahead, including rising
inflation and interest rates, that
could be negative on valuations. However, we believe that we are well placed,
both in terms of the quality of our portfolio and the strength of our lowly
leveraged balance sheet, to continue to deliver shareholder value through a
growing level of income. The Investment Manager has delivered a 19% increase in
portfolio annual rent over the last 12 months and 9% ERV growth within the
standing portfolio. This confidence is reflected in the additional - and fully
covered - dividend increases the Company announced in the first half of 2022.
The Board, as noted in recent prior statements, is conscious of the significant
discount on the share price to NAV which, in line with the broader real estate
sector, has continued to widen since the end of June. The Company paid a
special dividend of 1.92p per share in August to return some of the strong
gains that have been realised over the last number of quarters from capital
allocation and asset management initiatives, allowing all shareholders to
benefit from the recent growth in net asset value that is not currently being
reflected in the Company's share price. The Board believes this type of
distribution could be utilised in the future to reward shareholders, while
still also keeping the option of share buy-backs under consideration.
While the ongoing situation in Ukraine has created further economic uncertainty
just as Covid-19 restrictions were
receding, resulting in higher energy and developments costs, we remain
confident in the robustness and resilience of our portfolio. The Company is
also benefitting from the improved corporate efficiencies arising from the
reduction in investment management fees we announced at year end. These factors
combined with the strength of the current financial performance and future
investment pipeline were integral to our decision to recommend further
increases to shareholder dividends.
Portfolio Activity
In line with our strategy of increasing portfolio exposure to operational
assets and the alternatives sector, the Company committed to funding the
development of a high-quality hotel in central Leeds which will operate under
the renowned Hyatt brand. The development has a maximum commitment of £62.7
million and will complete in mid-2024 when it will be operated under a lease by
Interstate Hotels & Resorts. We expect it to be one of the best hotels in Leeds
on completion and to deliver a high income return as the lease structure means
the rents will be derived from the performance of the hotel.
The Company has made progress on its student housing developments in Gilmore
Place, Edinburgh. We were pleased to secure a strong 20-year lease with the
University of Edinburgh at an annual rent of £1.24 million per annum, which is
subject to annual CPIH increases. Whilst the Company had originally expected to
operate and lease the asset independently to generate a higher level of rent,
the opportunity to secure a lease of this nature to a leading UK university
whilst de-risking the asset was felt to be in the best interest of
shareholders. The Company will retain operational leasing exposure in the
student residential market at its asset in Exeter.
Portfolio occupancy increased to 98.5% within the period and this low level of
vacancy demonstrates the appeal of the assets to both current and prospective
tenants and provides good visibility on income streams. The Board and the
Investment Manager are focussed on driving earnings growth from the portfolio
and capturing the reversionary potential of the assets to deliver value for
shareholders.
Rent collection rates have normalised and returned to pre-Covid levels.
Cumulatively across the three relevant billing periods straddling the first
half of the year 99% of rents due have been received taking in to account
agreed deferrals and monthly payments.
Further details on all investment transactions and significant lettings are
given in the Investment Manager's Review.
Portfolio and Corporate Performance
The portfolio delivered a total return of 11.2% in the half year, ahead of the
MSCI benchmark total return of 8.1%. UKCM has continued to outperform against
its MSCI UK Balanced Portfolio Quarterly Index benchmark for 1,3,5 and 10
years.
Further details on the Company's portfolio performance are given in the
Investment Manager's Review.
The strong portfolio performance allowed the Company to report a 12.3% NAV
total return for the period. This strong performance, both absolute and
relative to its peers, is not reflected in the share price total return of 2.3%
for the same period. The discount at which the Company's shares traded versus
their net asset value increased from 26.8% at the end of December 2021, to
33.5% at 30 June 2022.
Financial Resources
UKCM continues to be on a solid financial footing with a NAV of £1.47 billion
as at 30 June 2022, and gearing of just 13.7%, meaning the Company remains one
of the lowest geared in its AIC peer group and the wider REIT sector. The
weighted average cost of this debt remains low at 2.79% per annum, and the
Company continues to be comfortably within the covenants on its three debt
facilities. In addition, with over £520 million of unencumbered assets, the
Company has significant headroom and further flexibility with respect to its
covenants and overall gearing strategy.
On the 19 August 2022 the Group increased its revolving credit facility with
Barclays Bank plc to £180 million (Dec 2021: £150 million). There were no
other amendments to the agreement. The facility expires in April 2024 and is
cancellable at any time.
Dividends
The Company paid two interim dividends totalling 1.55 pence per share during
the period. The second quarter dividend was increased by a further 6.3% to
0.85p per share. This follows a 6.7% increase for the prior quarter and
reflects the Board's continued recognition of the importance of income to
shareholders. Dividend cover for the first half of 2022 was 103% and the Board
believes the further increase to be appropriate and sustainable given the
current level of investment and development activity within the Company.
The Company paid a special dividend of 1.92p per share in August to return some
of the strong gains that have been realised over the last number of quarters
from capital allocation and asset management initiatives so that all
shareholders can benefit from the recent growth in net asset value that is not
currently reflected in the Company's share price.
Environmental, Social and Governance ("ESG")
ESG is embedded within the processes of UKCM and underpins every Board
discussion and decision.
ESG considerations are expected to become even more integral to investor
decision making and asset underwriting. This trend was expedited as a result of
the Covid-19 pandemic, but with the current energy and climate crisis, the case
for the pathway to net-zero and integrating ESG considerations across all UK
real estate sectors has never been greater.
Within the 2021 Annual Report & Accounts the Company made a commitment of
achieving Net Zero Carbon on Landlord emission by 2030 and Net Zero Carbon on
all emissions by 2040 and the Board is focussed on these ambitious targets.
Discount Policy / EGM
The Company's discount control policy provides that if the market price of the
ordinary shares of 25 pence each in the Company (the "shares") is more than 5
per cent below the published NAV for a continuous period of 90 dealing days or
more, following the second anniversary of the Company's most recent
continuation vote in relation to the discount control policy, the Directors
will convene an extraordinary general meeting to be held within three months to
consider an ordinary resolution for the continuation of the Company. The most
recent continuation vote in relation to the share discount policy was held on
18 March 2020.
The closing market price of the shares had been more than 5 per cent below the
published NAV for more than 90 continuous days up to 29 July 2022. In
accordance with the discount control policy, the Board is therefore convening
an extraordinary general meeting in October 2022 to consider a resolution to
approve the continuation of the Company.
The Investment Manager continues to improve earnings and identify attractive
opportunities for the Company's property portfolio and the Board believes it is
important for shareholders to approve the continuation vote in order that the
Investment Manager may continue to pursue the investment strategy effectively.
Accordingly, the Company will be publishing a circular convening an
extraordinary general meeting to consider that continuation resolution and the
Board will be recommending shareholders vote in favour of the Company's
continuation.
The Company has discussed the upcoming resolution with its largest shareholder,
Phoenix, which currently holds in aggregate approximately 43.4 per cent of the
Company's issued shares, and which has indicated it intends to vote in favour
of continuation.
Outlook
We have delivered a strong set of results from our portfolio during the first
half of 2022 with further positive leasing momentum by our asset management
team driving rental growth and an increase in portfolio valuation. Over the
past few years we have taken advantage of our ability to invest in a
diversified range of sectors to proactively manage our portfolio towards income
growth and security, with a focus on future fit and operational asset classes.
Of particular note we have built a strong position in both urban and big box
logistics, and the living asset classes, where we are invested mainly in
student housing, and hotels - in all of these the supply demand imbalance and
societal changes continue to be highly supportive of the occupational markets
and rental growth.
The underlying pace of the UK economy is clearly slowing whilst inflation is
running at multi-year highs. Despite the government's announcement that energy
prices will be frozen to help UK households and businesses, short-term
inflation is still set to rise above 10% in October. The government's huge
fiscal stimulus was always going to cause interest rates to rise further, but
the large market moves since the government's economic agenda was announced
suggest even higher rates will be necessary to restore confidence in UK assets.
We are sceptical on what is currently priced by markets, but a period of high
and sustained rates is likely increasing our conviction that the economy will
soon be in a recession. For UK real estate, the environment of rising rates
has resulted in a repricing of debt and other asset classes, which has been a
catalyst for a change in sentiment towards UK real estate more generally, with
prices having started to adjust. Weaker returns are expected for UK real estate
over the next 12-18 months, led by the lower yielding industrial and logistics
sector although almost all sectors are expected to follow suit. On a positive
note the occupational market for the industrial sector remains well balanced,
with healthy levels of take-up and a national vacancy at a low 3%. Despite
increased development for this sector, build cost inflation and development
delays are expected to act as a natural cap on future supply. Meanwhile, the
office market is becoming increasingly polarised between truly best in class
space and the rest. ESG is playing an increasingly critical role in this
regard, as are changing tenant requirements due to hybrid working arrangements,
necessitating greater flexibility of space. With the cost of living crisis
likely to weigh on consumer spending, the retail sector is more exposed, but
this will be felt most acutely for discretionary led retailers, with high
street shops and shopping centres more vulnerable.
While we are acutely aware of the broader economic challenges ahead, we believe
that we are well placed both in terms of the quality of our portfolio and the
strength of our lowly leveraged balance sheet, to continue to deliver
shareholder value through a growing level of income.
Ken McCullagh
Chair of UKCM
29 September 2022
MANAGER'S REVIEW
For the half year ended 30 June 2022
Commercial Property
UK real estate carried some of its positive performance momentum from 2021 into
the early part of 2022. However, this year will likely be one defined by the
proverbial 'game of two halves' as some of the strong performance in the first
half of the year is expected to be unwound moving forward. With sentiment
towards UK real estate weakening, investment volumes have slowed as the market
pauses for breath and takes stock.
Over the first half of the year, performance remained very positive and, at an
all property level, the UK real estate market delivered a total return of 8.1%
over the first six months of 2022 (MSCI Balanced Portfolios Quarterly Property
Index). As expected, the industrial and logistics sector continued to drive the
market and posted a total return of 13.3% in the first half of the year, whilst
over the same period the office sector once again provided the weakest
performance at 3.3%. The retail sector recorded performance and provided a
total return of 8.0%, but much of this positive performance was attributable to
the retail warehouse sector, which provided a robust total return of 14.1% in
the first half according the Company's MSCI benchmark.
Transaction volumes in the first half of 2022 remained very robust and UK real
estate recorded the strongest first half investment volumes since 2015
according to Real Capital Analytics with £31.2 billion transacted over this
period. However, approximately two thirds of the activity occurred in the
first quarter of 2022. Investment volumes were £10.2 billion in the second
quarter of 2022, which was lower than the Q2 10-year average of £13.5 billion.
The slowdown in investment activity towards the end of the second quarter of
2022 can largely be attributed to the emergence of a less accommodative
monetary policy environment as the Bank of England tries to bring inflation
back closer to its target rate of 2%. This has resulted in slowing economic
growth expectations, rising bond yields, and an increased cost of capital for
debt-backed real estate investors, which has caused weaker sentiment towards UK
real estate at this time.
The industrial sector experienced a record year in 2021 in terms of both
performance and transaction volumes and carried this momentum into 2022.
However, with the weakening economic environment, the sector has begun to slow
and investor sentiment has begun to cool somewhat. Whilst reflected in a
slowing level of transaction volumes, occupier markets have seen strong
performance, with leasing driven by the imbalance between supply and demand.
Amazon's announcement in April 2022 that it was to reduce its operational
estate surprised the market, but we believe this statement was primarily
focused on the US and, more importantly, that occupational demand is and has
proven to be more multi-faceted and deeply diverse than being wholly reliant on
one operator or business segment. The industrial sector continues to benefit
from longer term thematic tailwinds and rental value growth should remain
positive in response to tight supply levels, but return to a more normalised
growth rate.
Polarisation within the office sector has been gathering pace as both occupiers
and investors continue to narrow their focus on best in class office assets
with strong environmental credentials. There have been increased reports of
positive letting activity in the office sector over the second quarter of 2022.
But, according to CBRE Ltd ('CBRE'), the central London vacancy rate remains
elevated at 9%. Secondary accommodation accounts for approximately 70% of all
available accommodation. Overall office demand is expected to fall as a poorer
economic outlook weighs on job growth across the market, placing additional
pressure on occupational sentiment. However, Grade A 'future fit' office
assets, in prime locations, are anticipated to be more resilient in this
weakening environment, whilst the outlook for secondary assets is much more
challenging.
The UK retail sector was showing tentative signs of green shoots at the start
of 2022, but momentum, particularly in the occupational market, is expected to
experience a marked slowdown as the current cost-of-living crisis and slowing
economic growth puts pressure on consumer spending. This will be more acutely
felt in the consumer discretionary and fashion-led part of the market.
Essential, discount and convenience-led retail is expected to be much more
resilient in this environment, but not entirely immune to the cost-of-living
pressures facing UK households. Retail sales volumes fell by 0.5% in May 2022
and, in the three months to May 2022, by 1.3% when compared to the previous 3
months, continuing a downward trend that began in summer 2021. Foodstore sales
provided the largest contribution to the fall in sales over May, as sales fell
a further 1.6%. This supports the view that consumers are seeking to reduce
their outgoings in the face of rising costs.
Strong demographics and structural tailwinds are expected to continue to drive
interest in the alternative sectors, particularly in healthcare, build-to-rent
and student housing over the medium-to-long term. With the occupational
pressures facing the office and retail markets, investor allocation to
alternative sectors more generally is expected to grow. However, these sectors
are not immune to the weakening macro environment and a focus on quality will
be important to ensure performance remains resilient.
Portfolio Performance
The Company's portfolio delivered strong outperformance against its MSCI IPD
benchmark in the first half of the year. For the six months to 30 June 2022,
UKCM portfolio's total return was 11.2%, significantly ahead of the benchmark
return of 8.1%. The property portfolio continues to show outperformance over 1,
3, 5 and 10 years. Total return performance was particularly strong in Q1 2022
at 8.8% v 4.9% for the benchmark with performance still positive but slowing in
the second quarter, which was in line with our expectations, at 2.3% against
the benchmark return of 3.0%.
The table below breaks down this return by sector with all valuations
undertaken by the Company's external valuer, CBRE. The portfolio delivered an
income return marginally below benchmark of 1.8% (benchmark 1.9%) over the
first six months of the year, but this was offset by greater capital value
growth than the benchmark, 9.3% vs 6.1%. Portfolio-level outperformance has
been driven by the Company's strong overweight position to the industrial
sector which again delivered the strongest returns of all the major sectors.
The Company's exposure stands at 63.9% weighted by capital value at the end of
H1 2022. The office and retail assets within the portfolio also significantly
outperformed their benchmark over the first half of the year.
Exposure Total Return Income Return Capital Growth
UKCM % Benchmark % UKCM % Benchmark % UKCM % Benchmark
All 100.0% £1,711.0m 11.2 8.1 1.8 1.9 9.3 6.1
Industrials 63.9% £1,092.5m 12.5 13.3 1.4 1.6 11.0 11.6
Offices 13.3% £227.6m 6.1 3.3 2.3 1.8 3.8 1.5
Retail 12.4% £212.7m 16.7 8.0 2.5 2.6 14.0 5.3
Alternatives 10.4% £178.2m 1.8 5.1 3.5 2.4 (1.6) 2.6
Source: MSCI June 2022
Industrial
The Company has maintained for some time a strong, strategic overweight
position to the industrial sector which continues to be well placed to benefit
from the structural changes that have fuelled tenant demand for space such as
the growth e-commerce and renewed demand for storage of inventory due to the
disruption of global supply routes. Whilst demand is likely to taper down from
the heightened levels seen in 2020 and 2021 it is still expected to outstrip
levels of supply leading to rental growth, particularly in strategic locations
and those where supply of industrial land for development is restricted.
In the first half of 2022 the Company's industrial holdings delivered a strong
total return of 12.5%, albeit this was behind the benchmark return of 13.3%.
The six-month industrial income return of 1.4% which is below the benchmark
level of 1.6%.
As the strongest performing segment of the benchmark, our strategic overweight
allocation to the sector enhanced overall portfolio returns. The Company's
industrial holdings are split respectively between multi-let industrial estates
at 45% by capital value and 55% by capital value in single-let big-box
distribution units in strategic locations throughout the South-East and the
Midlands. In general, the multi-let estates offer more immediate prospects for
asset management, and therefore opportunities to grow income, whilst the
distribution units tend to be longer let and offer secure income streams with
the opportunity to capture growth at rent reviews and lease renewals. We expect
that returns from the sector will be driven by rental growth and would expect
some yield weakening throughout the rest of 2022 as a result of interest rate
rises. This will be most pronounced initially on very low yielding London /
South East assets but is likely to have a knock-on effect to the rest of the
sector.
Office
The Company has a low exposure to the office sector of 13.3% against the
benchmark weighting of 25%. The office portfolio significantly outperformed the
benchmark with a return of 6.1% vs 3.3%. It delivered an above benchmark income
return of 2.3% vs 1.8% for the 6-month period reflecting that the Company is
deliberately underweight to lower yielding London offices, with the vast
majority of its office exposure being elsewhere in the South East or in
regional cities where yields are generally higher.
Over H1 2022 a strong capital return of 3.8% was also delivered by the office
portfolio significantly ahead of the benchmark level of 1.5%. Capital growth
was driven by positive asset management at assets such as 2 Rivergate, Bristol
where a lease extension was agreed with the Secretary of State and at Craven
House in London where a strong rent review settlement was also agreed. There
was also the positive impact of acquisitions completed in Q4 2021 particularly
Kantar House at Hanger Lane where the value is underpinned by the redevelopment
value of the site which has significantly increased.
The polarisation of the sector is expected to continue with occupiers strongly
favouring best in class 'future-fit' properties with access to amenities and
excellent ESG credentials. The Company is focused on ensuring all its office
assets meet, or can meet, these standards and as a result of this analysis the
decision was made to sell 9 Colmore Row, Birmingham in July for £26.48 million.
Full details are provided below.
Retail
At the end of the half year, the Company's weighting to retail was 12.4%
compared to 22% in the benchmark. The portfolio comprises supermarkets and
retail parks dominated by either bulky goods retailers or convenience and
discount operators. These tenants have generally emerged strongly from the
Covid-19 pandemic and should prove to be robust in the forthcoming challenging
economic environment where spending is likely to be focussed away from
non-discretionary items. The Company has no exposure to shopping centres and
its only remaining high street shops are part of the office investment at 81
George Street, Edinburgh which are well let. At the end of Q2 2022 there were
no vacancies in the retail portfolio which reflects the strength of these
locations and their appeal to tenants.
The quality of the Company's retail holdings is further demonstrated by its
total return in the period of 16.7% against 8.0% recorded in the benchmark.
This was principally driven by much stronger capital growth in the period of
14.0% against 5.3% for the benchmark with the majority of this performance
derived from the retail park element of the portfolio. These assets closely
match those sought by investors in 2021 and H1 2022 in that they are
well-located and let to tenants suited to the surrounding demographic at
sustainable rental levels, and they have therefore benefitted from the strong
yield compression seen in this sub-sector of the market.
Alternatives
Within the alternatives sector we saw positive total returns of 1.8% delivered
over the first half of 2022 which was below the benchmark level of 5.1%. The
Company's alternatives portfolio at the end of the period was split evenly in
terms of capital value between three cinema-led leisure schemes in Kingston
upon Thames, Glasgow and Swindon and four hotel / student housing assets, of
which three are developments and therefore will not fully contribute to
portfolio performance until completion. The Maldron Hotel in Newcastle which is
let on a long-lease to Dalata and trades strongly is the fourth non-leisure
asset within the alternatives sector.
Rent collection levels at the leisure assets have normalised which contributed
to an above benchmark income return of 3.5% v 2.4%, but this was offset by a
capital decline of 1.6% in the portfolio whilst the benchmark recorded capital
growth of 2.6%.
The Company's student housing development in Edinburgh completed in time for
the 2022/2023 academic year. Within the period the Company agreed an attractive
20 year lease, which includes annual index-linked rental uplifts, with the
University of Edinburgh over its asset at Gilmore Place, Edinburgh
substantially derisking the operation of this asset. UKCM also committed to the
funding of a 305 bed Hyatt Hotel in Leeds which is scheduled to complete in
mid-2024 and detailed below.
Investment Activity
Following the significant levels of investment activity seen in 2021 there have
been fewer transactions completed in the first half of this year. In May, the
Company committed to the development of a high-quality hotel in central Leeds
which will complete mid-2024 with a 25-year franchise agreement in place with
Hyatt Hotels, one of the leading global hotel brands. UKCM is funding the
development for a total commitment of £62.7 million. The hotel will be operated
under a lease by Interstate Hotels & Resorts, a 50+ year old global leader in
hotel operation, with UKCM's rental income based on the income generated from
the operation of the hotel.
The 140,000 sq ft hotel's 305 rooms will be split between the short stay Hyatt
Place and the long stay Hyatt House brands. The upscale hotel will provide
meeting rooms, a gym and several food and beverage options, including a rooftop
bar with its own dedicated entrance and on completion should be one of the best
quality hotels in Leeds. The acquisition is in line with part of UKCM's
strategy to increase its exposure to alternatives and to invest in operational
real estate sectors that are expected to deliver resilient rental incomes. On
completion the asset is expected to have strong ESG credentials with a target
EPC rating of A and an expected BREEAM rating of Excellent.
After the reporting period in July, the Company disposed of its 68,400 sq ft
central Birmingham office, 9 Colmore Row, to Birmingham City Council at a price
of £26.48 million, ahead of the asset's book cost and at a premium to the
latest valuation. In addition to securing a strong sale price, the disposal is
in line with the Company strategy of exiting risk assets and those in need of
capital expenditure which will not enhance value.
The building's current EPC rating is D and this will require to be improved to
meet forthcoming Minimum Energy Efficiency Standards legislation, with an
expectation these costs will primarily fall upon the landlord.
The Company has financial resources totalling £24 million available as at 30
June 2022 to utilise for further acquisitions including the post-period receipt
from the sale of Colmore Row, and allowing for future commitments and the
dividends paid in August 2022. We are exploring sectors offering higher initial
income returns but with some future capital growth potential with a focus on
best in class regional offices which meet future occupier demands in terms of
access to amenity and ESG credentials and well as further assets in the
alternatives sector which offer strong fundamentals and robust incomes.
Asset Management and Rent Collection
Rent collection rates have normalised throughout the first half of 2022 and
have largely returned to pre-pandemic levels of collection. There continue to
be some tenants within the portfolio that pay rents by agreement on a monthly
basis as opposed to quarterly however once these are adjusted for rent
collection for the three billing periods covering the start of this year, 99%
of rents due have been collected.
The Company benefits from low tenant income concentration due to its diverse
tenant mix of 227 tenancies across 41 assets, with its top tenant, Ocado,
accounting for 6% of contracted rental income. In total the portfolio's top ten
tenants account for 36.9% of total rents at the end of June 2022.
Occupancy levels in the portfolio increased to 98.5% at the end of H1 2022
which reflects a void rate approximately one fifth of the MSCI Benchmark rate
of 7.7% at the same period. The portfolio occupancy rate is also an improvement
on the position at the end of 2021 when the occupancy rate stood at 97.9%. This
minimal level of vacancy reflects the work undertaken by the asset management
team in securing income for the Company as well as the quality and appeal to
occupiers of the assets themselves.
Asset management highlights within the period included:
* As previously mentioned, at Gilmore Place in Edinburgh, the Company's
student housing development, a 20 year lease has been agreed with
University of Edinburgh at an annual rent of £1.238m per annum. The rent is
increased annually by CPIH with a cap and collar of 1-4%. The development
is due to complete in time for the commencement of the 2022/23 academic
year.
* At Temple Quay in Bristol, the Secretary of State has extended its
occupation of the Company's 70,000 sq ft HQ-style office building for a
further three years which includes an increase in rent to £1.72 million per
annum. The asset is located in a prime location within Bristol's office
core directly opposite Temple Meads railway station which is due to benefit
from an investment of £95 millon into to the station and surrounds. The
lease is now outside the Landlord & Tenant Act and the deal therefore
secures the opportunity for a future redevelopment in this excellent
location.
* A new tenant was secured for Unit 12, Newton's Court, Dartford following a
comprehensive refurbishment and environmental upgrade of the property. Paak
Logistics UK Limited has taken a new 15 year lease without break over the
67,300 sq ft unit at a rent of £942,816 per annum, representing a 27%
premium to the ERV at the start of the year and demonstrating the continued
demand for high quality, well located logistics space. This also sets a new
headline rental tone for the estate of £14 psf per annum and the lease
incorporates 5 yearly upward only open market rent reviews. The achieved
rent is significantly ahead of the original underwritten rental level when
the refurbishment commenced demonstrating the potential within the
portfolio to capture strong rental growth. In line with the Company's ESG
priorities the building's EPC was improved from a rating of D to A through
the refurbishment works which included using energy efficient materials and
installing photo voltaic panels.
* Also at Newton's Court, Dartford, Unit 6 was let to Rodenstock UK Ltd on a
new 10 year lease with a tenant only break option in year 5 over the 6,650
sq ft unit which had recently fallen vacant. The agreed annual rent is £
89,775 per annum equating to £13.50 psf per annum, which is 6% ahead of the
unit's previous ERV at the start of the year. Overall Newton's Court,
Dartford has experienced 9% growth in market rents in the first six months
of the year.
* The rent review from June 2021 over the accommodation at Craven House,
Foubert's Place, London the Company's 20,100 sq ft West End office, was
settled 5% ahead of ERV at an increased rent equating to £54 psf per annum.
The prominent building is situated adjacent to Carnaby Street and is let to
film and television production company Molinaire until June 2026.
* St George's Retail Park in Leicester became fully occupied within the
period as Autoglass completed a new 10 year lease with a tenant break on
the fifth anniversary at a rent of £52,500 per annum in line with ERV. The
park has been substantially repositioned following extensive letting
activity on 2021 and boasts an attractive line-up of strong tenants
including Next, Home Bargains, DSG and Iceland.
Environmental, Social and Governance (ESG)
The Company received a three star rating and was second in its GRESB peer group
for ESG performance and made its 2022 submission in Q2. The Company also
obtained a Gold Star from EPRA for ESG reporting in 2021. UKCM is working
towards the long-term commitments announced within its 2021 Annual Report of
Net Zero Carbon for landlord emissions by 2030 and Net Zero Carbon for all
portfolio emissions by 2040.
A number of asset-specific initiatives have been completed within the period
such as the ESG-focussed refurbishment of Unit 12, Newton's Court, Dartford
detailed above. The Manager continues to assess all assets within the portfolio
for potential opportunities to improve ESG performance and also to ensure that
the buildings can comply with forthcoming Minimum Energy Efficiency Standards
legislation in a commercially sensible manner.
Investment Outlook
Looking forward we expect some of the strong first half 2022 performance to be
unwound over the second half and, given the current market environment, our
overall outlook for the next 12-18 months has been revised downwards.
By early September 2022, the spread between UK real estate and UK 10 year gilts
reached the lowest level since 2008 as the UK 10 year yield peaked at 3.1% in
response to increasing inflation and interest rate expectations. We expect the
yield on the UK 10 year gilt to remain at or above this level in the near-term
adding pressure on UK real estate yields to move out to maintain an appropriate
yield buffer. On top of this, with rising debt costs driven by tightening
monetary policy, a number of leveraged players have begun to step back from the
market as the cost of debt outstrips yields in several sectors making its use
in these sectors prohibitive. As a result, we are now beginning to see some
repricing across the UK real estate market, driven predominantly by interest
rates 're-rating' and an increased cost of capital impacting yields.
Investors are anticipated to take a more risk off approach towards UK real
estate in the second half of this year and we expect polarisation of investor
focus to widen, as investors target best in class assets which should provide
more resilient returns in a weakening environment, with greater scrutiny on the
sustainability of income streams.
ESG considerations are expected to become even more integral to investor
decision making and asset underwriting. This trend was expedited as a result of
the Covid-19 pandemic, but with the current energy crisis and pathway to
net-zero, the case for integrating ESG considerations across all UK real estate
sectors has never been greater. An even greater emphasis on ESG requirements
for both acquisitions and developments is already underway.
The government's huge fiscal stimulus was always going to cause interest rates
to rise further, but the large market moves since the government's economic
agenda was announced suggest even higher rates will be necessary to restore
confidence in UK assets. We are sceptical on what is currently priced by
markets, but a period of high and sustained rates is likely increasing our
conviction that the economy will soon be in a recession. Whilst we expect a
slowdown in the market in the near term, we also expect inflation to fall
through 2023 into 2024 as a result of interest rate tightening from the Bank of
England before a cutting cycle starts. When the overall cost of debt does in
time move lower, and become more widely available as the economic environment
and investor sentiment towards UK real estate improves, UK government bond
yields will also move lower. We therefore expect a relatively short period of
increasingly tight spreads over the next 12-18 months, before UK real estate
begins to look more attractive. Opportunities within the market should emerge
once repricing has occurred and a rebound in real estate performance is
anticipated.
Portfolio Strategy
Against a backdrop of economic and inflationary pressure, and rising interest
rates, we remain positive on the ability of your Company's portfolio to deliver
positive rental, and so earnings, growth. Our strategy has been fashioned with
this in mind by targeting those areas of the market most likely to benefit from
positive structural changes and so experience positive demand versus supply
over the coming years with the ability for active asset management to enhance
income. Embedded across your Company's strategic thinking is an awareness of
the current and future implications of environmental, social and governance
factors, collectively ESG, with the Company's February announcement of its net
carbon zero targets of 2030 (landlord-controlled emissions) and 2040 (all
emissions) a focus for asset management and investment decision-making.
Whilst, as highlighted earlier, we do expect some negative repricing of real
estate over the short term we also believe winners and losers will emerge. We
look to maintain a diversified portfolio to reduce specific risk which we
achieve by maintaining a wide spread of tenants, geography and a diversified
property sector allocation - but importantly diversified across those sectors
and assets we believe will deliver better rental growth and value prospects
rather than simply spreading across a benchmark. The bulk of the portfolio
comprises a solid bedrock of assets with strong fundamentals, durable income
streams and a low risk profile. Layered on this is a select group of assets
allowing the team to add value and rent through more active management and, in
some cases, controlled development exposure aiming to drive superior income and
returns. And across all an aim to maintain relatively low levels of gearing
from our low cost and flexible debt facilities.
Although we may consider selective disposals in the logistics/distribution and
industrial sector to recycle to higher yielding stock, we wish to maintain a
strong allocation to this important part of the market in high demand locations
and fit-for-purpose property. We believe this sector remains well placed to
deliver rental growth as we continue to see growing demand from the twin
engines of continuing e-commerce penetration plus the growth expected in the
demand for UK on-shoring of goods as the country adapts to disrupted global
supply chains. Both, we believe, will lead to a growing demand for distribution
space in a market still short of the right supply.
We remain keen on parts of the alternative property 'beds' sector, particularly
selective student accommodation and hotel opportunities, which can also offer
the opportunity for enhanced returns versus traditional leasing models. Our
latest commitment is to a Hyatt Hotel due to open in Leeds city centre during
summer 2024 which will supplement our hotel investment in Newcastle and two
student developments at Exeter and Edinburgh.
The office sector potentially offers the greatest scope for divergence of
returns and opportunity, as ever with care. Not only is it exposed to the force
of an evolving model for how business and employees use an office, but it is
also approaching regulatory hurdles to be met on energy efficiency in buildings
by 2027 and 2030. Many offices will require significant investment to meet
these.
It is very easy to imagine business embracing the potential of agile or
flexible home working to reduce office occupancy costs, but also allocating
that smaller overall budget to higher quality offices to attract and retain
staff to encourage regular office participation for the business community
benefits that can bring. And so we believe extreme bifurcation is the watchword
for the office sector. Those assets in strong locations displaying flexibility,
with good built-in or locally available amenities, strong e-connectivity,
multi-modal transport links and sustainability are likely to emerge best placed
to capture this focused demand. The reverse is likely to be true for those that
do not with the potential they become 'stranded' economic assets requiring
investment to meet regulations that is not rewarded by demand and rental
growth. We are interested in opportunities in this thin slice of the overall
office market, those asset-specific opportunities representing offices of the
future. Conversely, we may disinvest from those assets we do not believe pass
muster on this test and indeed our sale of Colmore Row, Birmingham, fits that
category.
We believe that the Company's well-let portfolio of scale, heavily weighted
towards future-fit sectors, and with good prospects for rental growth, is well
placed to deliver positive relative performance with good potential for future
earnings growth.
Will Fulton
Fund Manager
29 September 2022
PRINCIPAL RISKS AND UNCERTAINTIES
The Group's assets consist of direct investments in UK commercial property. Its
principal risks are therefore related to the UK commercial property market in
general, but also the particular circumstances of the properties in which it is
invested and their tenants. Other risks faced by the Group include those
relating to strategy, investment & asset management, macroeconomics & finance,
operations, regulation and shareholder engagement. These risks, and the way in
which they are mitigated and managed, are described in more detail under the
headings Principal Risks and Emerging Risks within the Report of the Directors
in the Company's Annual Report for the year ended 31 December 2021, published
in April 2022, on pages 34 to 41. The Group's principal risks have not changed
since the date of that report.
GOING CONCERN
After making enquiries, and bearing in mind the nature of the Company's
business and assets, the Directors consider that the Company has adequate
resources to continue in operational existence for the next twelve months. In
assessing the going concern basis of accounting the Directors have had regard
to the guidance issued by the Financial Reporting Council. They have considered
the current cash position of the Group, forecast rental income and other
forecast cash flows. The Group has agreements relating to its borrowing
facilities with which it has complied during the period. Based on the
information the Directors believe that the Group has the ability to meet its
financial obligations as they fall due for the foreseeable future, which is
considered to be for a period of at least twelve months from the date of
approval of the financial statements. For this reason, they continue to adopt
the going concern basis in preparing the accounts.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN
RESPECT OF THE HALF YEARLY FINANCIAL REPORT TO 30 JUNE 2022
We confirm that to the best of our knowledge:
* The condensed set of half yearly financial statements have been prepared in
accordance with IAS 34 "Interim Financial Reporting", and give a true and
fair view of the assets, liabilities, financial position and return of the
Company.
* The half yearly Management Report includes a fair value review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related
party transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the company during that period; and any changes in the related
party transactions described in the last Annual Report that could do so.
On behalf of the Board
Ken McCullagh
Chair
29 September 2022
HALF YEARLY CONDENSED Consolidated Statement of Comprehensive Income
For the HALF year ended 30 JUNE 2022
Half year ended Half year Year ended 31
30 June 2022 ended 30 June December 2021
(unaudited) 2021 (audited)
Notes £'000 (unaudited) £'000
£'000
REVENUE
Rental income 32,326 28,769 58,307
Impairment reversal/(loss) on trade 641 (1,152) 412
receivables
Service charge income 3,024 2,963 6,063
Gains on investment properties 2 141,768 51,761 201,753
Interest income 66 61 116
Total Income 177,825 82,402 266,651
EXPITURE
Investment management fee (4,798) (4,080) (8,500)
Direct property expenses (1,756) (4,004) (5,343)
Service charge expenses (3,024) (2,963) (6,063)
Other expenses (1,754) (1,125) (3,229)
Total expenditure (11,332) (12,172) (23,135)
Net operating profit before finance 166,493 70,230 243,516
costs
FINANCE COSTS
Finance costs (4,137) (3,422) (7,283)
Operating profit after finance costs 162,356 66,808 236,233
Net profit from ordinary activities 162,356 66,808 236,233
before taxation
Taxation on profit on ordinary 8 - - -
activities
Net profit for the period 162,356 66,808 236,233
Total comprehensive income for the 162,356 66,808 236,233
period
Basic and diluted earnings per share 3 12.49p 5.14p 18.18p
EPRA earnings per share 3 1.58p 1.16p 2.65p
All of the profit and total comprehensive income for the period is attributable
to the owners of the Company. All items in the above statement derive from
continuing operations.
The accompanying notes are an integral part of this statement.
HALF YEARLY CONDENSED Consolidated Balance Sheet
As at 30 JUNE 2022
Year ended
30 June 2022 31 December 30 June
(unaudited) 2021 2021
Notes £'000 (audited) (unaudited)
£'000 £'000
NON-CURRENT ASSETS
Investment properties 2 1,655,915 1,508,368 1,172,556
1,655,915 1,508,368 1,172,556
CURRENT ASSETS
Investment properties held for sale 2 22,675 - 6,250
Trade and other receivables 56,198 50,763 41,073
Cash and cash equivalents 34,288 42,121 176,742
113,161 92,884 224,065
Total assets 1,769,076 1,601,252 1,396,621
CURRENT LIABILITIES
Trade and other payables (35,095) (27,698) (26,017)
(35,095) (27,698) (26,017)
NON-CURRENT LIABILITIES
Bank loan (266,538) (248,326) (198,065)
Total liabilities (301,633) (276,024) (224,082)
Net assets 1,467,443 1,325,228 1,172,539
5
REPRESENTED BY
Share capital 539,872 539,872 539,872
Special distributable reserve 568,891 568,891 566,194
Capital reserve 358,233 216,465 66,473
Revenue reserve 447 - -
Equity shareholders' funds 5 1,467,443 1,325,228 1,172,539
Net asset value per share 5 112.9p 102.0p 90.2p
EPRA Net tangible asset value per 5 112.9p 102.0p 90.2p
share
The accompanying notes are an integral part of this statement.
HALF YEARLY Consolidated Statement of Changes in Equity
FOR THE HALF YEARED 30 JUNE 2022
Equity
HALF YEARED Share Special Capital Revenue Shareholders'
30 JUNE 2022 Capital Distributable Reserve Reserve funds
(UNAUDITED) Notes £'000 Reserve £'000 £'000 £'000 £'000
At 1 January 2022 539,872 568,891 216,465 - 1,325,228
Total Comprehensive - - - 162,356 162,356
income
Dividends paid 6 - - - (20,141) (20,141)
Transfer in respect of 2 - - 141,768 (141,768) -
gains on investment
property
As at 30 June 2022 539,872 568,891 358,233 447 1,467,443
Special Equity
FOR THE YEARED Share Distributable Capital Revenue Shareholders'
31 DECEMBER 2021 Capital Reserve Reserve Reserve Funds
(AUDITED) Notes £'000 £'000 £'000 £'000 £'000
At 1 January 2021 539,872 572,392 14,712 - 1,126,976
Total comprehensive - - - 236,233 236,233
income
Dividends paid - - - (37,981) (37,981)
Transfer in respect of - - 201,753 (201,753) -
gains on investment
property
Transfer from special - (3,501) - 3,501 -
distributable reserve
539,872 568,891 216,465 - 1,325,228
As at 31 December 2021
Special Equity
HALF YEARED Share Distributable Capital Revenue Shareholders'
30 JUNE 2021 Capital Reserve Reserve Reserve Funds
(UNAUDITED) Notes £'000 £'000 £'000 £'000 £'000
At 1 January 2021 539,872 572,392 14,712 - 1,126,976
Total comprehensive - - - 66,808 66,808
income
Dividends paid 6 - - - (21,245) (21,245)
Transfer in respect of - - 51,761 (51,761) -
gains on investment
property
Transfer from special - (6,198) - 6,198 -
distributable reserve
539,872 566,194 66,473 - 1,172,539
As at 30 June 2021
The accompanying notes are an integral part of this statement.
HALF YEARLY CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE HALF YEARED 30 JUNE 2022
30 June 2022 30 June 2021 Year ended
Notes (unaudited) (unaudited) 31 December
£'000 2021
£'000 (audited)
£'000
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit for the period before taxation 162,356 66,808 236,233
Adjustments for:
Gain on investment properties 2 (141,768) (51,761) (201,753)
Movement in lease incentive 2 (2,277) (2,827) (5,877)
Movement in provision for bad debts 641 (1,152) 412
(Increase)/decrease in operating trade and (3,312) 10,338 2,134
other receivables
Increase/(decrease) in operating trade and 7,397 (2,578) (464)
other payables
Finance costs 4,137 3,422 7,283
Net cash inflow from operating activities 27,174 22,250 37,968
CASH FLOWS FROM OPERATING ACTIVITIES
Purchase of investment properties 2 (6,552) (7,124) (179,861)
Sale of investment properties - 67,926 74,181
Capital expenditure 2 (21,902) (4,424) (18,077)
Net cash (outflow)/inflow from investing (28,454) 56,378 (123,757)
activities
CASH FLOWS FROM FINANCING ACTIVITIES
Facility fee charges from bank financing (657) (560) (1,020)
Dividends paid 6 (20,141) (21,245) (37,981)
Bank loan interest paid (3,755) (2,823) (5,831)
Bank loan drawdown 28,000 - 50,000
Bank loan repaid (10,000) - -
Net cash (outflow)/inflow from financing (6,553) (24,628) 5,168
activities
Net (decrease)/increase in cash and cash (7,833) 54,000 (80,621)
equivalents
Opening cash and cash equivalents 42,121 122,742 122,742
Closing cash and cash equivalents 34,288 176,742 42,121
REPRESENTED BY
Cash at bank 17,800 53,247 22,879
Money market funds 16,488 123,495 19,242
34,288 176,742 42,121
The accompanying notes are an integral part of this statement.
NOTES TO THE ACCOUNTS
1. ACCOUNTING POLICIES
The condensed consolidated financial statements have been prepared in
accordance with International Financial Reporting Standard ('IFRS') IAS 34
'Interim Financial Reporting' and, except as described below, the accounting
policies set out in the statutory accounts of the Group for the year ended 31
December 2021.
The condensed consolidated financial statements do not include all of the
information required for a complete set of IFRS financial statements and should
be read in conjunction with the consolidated financial statements of the Group
for the year ended 31 December 2021, which were prepared under full IFRS
requirements.
These condensed interim financial statements were approved for issue on 29
September 2022.
2. INVESTMENT PROPERTIES
FREEHOLD AND LEASEHOLD PROPERTIES Period ended
30 June 2022
£'000
Opening valuation 1,508,368
Purchases at cost 6,552
Capital expenditure 21,902
Gain on revaluation to fair value 144,045
Adjustment for lease incentives (2,277)
Total fair value at 30 June 2022 1,678,590
Less: Current Assets - reclassified as held for sale (22,675)
Non-current Assets - Fair value as at 30 June 2022 1,655,915
GAINS ON INVESTMENT PROPERTIES AT FAIR VALUE COMPRISE
Valuation gains 144,045
Movement in provision for lease incentives (2,277)
141,768
ASSET HELD FOR SALE
At the balance sheet date one asset was classified as held for sale, Colmore
Row, Birmingham. The asset has been shown at market value in the Balance Sheet
as a held for sale asset and included within the investment property table
shown in this note.
3. BASIC AND DILUTED EARNINGS PER SHARE
Period ended Period ended
30 June 2022 30 June 2021
Weighted average number of shares 1,299,412,465 1,299,412,465
Net Profit (£'000) 162,356 66,808
Basic and diluted Earnings per share (pence) 12.49 5.14
EPRA earnings per share (pence) 1.58 1.16
4. EARNINGS
Earnings for the period to 30 June 2022 should not be taken as a guide to the
results for the year to 31 December 2022.
5. NET ASSET VALUE
Period ended Period ended
30 June 2022 30 June 2021
Number of ordinary shares in issue at the 1,299,412,465 1,299,412,465
period end
Net assets attributable at the period end (£ 1,467,443 1,172,539
'000)
Net asset value per ordinary share (pence) 112.9 90.2
EPRA net tangible asset per share (pence) 112.9 90.2
6. DIVIDS
Period ended Period ended
30 June 2022 30 June 2021
£'000 £'000
2021 Fourth interim: PID of 0.466p per share, 9,746 5,977
Non PID of 0.284p per share paid 25 February
2022 (2020 Fourth interim: PID of 0.46p per
share)
2021 Fifth interim: nil - 6,900
(2020 Fifth interim: PID of 0.531p per share)
2022 First interim: PID of 0.80p per share paid 10,395 8,368
25 May 2022 (2021 First interim: PID of 0.644p
per share)
20,141 21,245
7. RELATED PARTY TRANSACTIONS
No Director has an interest in any transactions which are or were unusual in
their nature or significant to the nature of the Group.
abrdn Fund Managers Limited (previously Aberdeen Standard Fund Managers
Limited) received fees for their services as investment managers. The total
management fee charged to the Statement of Comprehensive Income during the
period was £4,798,238 (30 June 2021: £4,079,597) of which £4,798,238 (30 June
2021: £2,061,904) remained payable at the period end.
The Directors of the Company are deemed as key management personnel and
received fees for their services. Total fees for the period were £134,377 (30
June 2021: £159,759) of which £Nil (30 June 2021: £Nil) was payable at the
period end.
The Group invests in the abrdn Liquidity Fund which is managed by abrdn. As at
30 June 2022 the Group had invested £16.5 million in the Fund (30 June 2021: £
123.5 million). No additional fees are payable to the Investment Manager as a
result of this investment.
8. TAXATION
Period ended
30 June 2022
£'000
Net profit from ordinary activities before tax 162,356
UK corporation tax at a rate of 19 per cent 30,848
Effects of:
Capital gain on investment properties not taxable (26,936)
UK REIT exemption on rental profits and gains (3,912)
Total tax charge -
9. FINANCIAL INSTRUMENTS AND INVESTMENT PROPERTIES
The Group's investment objective is to provide ordinary shareholders with an
attractive level of income, together with the potential for income and capital
growth from investing in a diversified UK commercial property portfolio.
Consistent with that objective, the Group holds UK commercial property
investments. The Group's financial instruments consist of cash, receivables and
payables that arise directly from its operations and loan facilities.
The main risks arising from the Group's financial instruments are credit risk,
liquidity risk, market risk and interest rate risk. The Board reviews and
agrees policies for managing its risk exposure. These policies are set out in
the statutory accounts of the Group for the year ended 31 December 2021. The
Board, through its Risk Committee, has undertaken a thorough review of these
risks and believe they have not changed materially from those set out in the
2021 statutory accounts.
Fair value hierarchy
The following table shows an analysis of the fair values of investment
properties recognised in the balance sheet by level of the fair value
hierarchy:
Explanation of the fair value hierarchy:
Level 1 Quoted prices (unadjusted) in active markets for identical
assets or liabilities that the entity can access at the measurement date.
Level 2 Use of a model with inputs (other than quoted prices included in
level 1) that are directly or indirectly observable market data.
Level 3 Use of a model with inputs that are not based on observable
market data.
Total fair
Level 1 Level 2 Level 3 £ value
30 June 2022 £'000 £'000 '000 £'000
Investment properties - - 1,678,590 1,678,590
The lowest level of input is the underlying yields on each property, which is
an input not based on observable market data.
The fair value of investment properties is calculated using unobservable inputs
as set out in the statutory accounts of the Group for the year ended 31
December 2021.
The following table shows an analysis of the fair value of bank loans
recognised in the balance sheet by level of the fair value hierarchy:
Total fair
Level 1 Level 2 Level 3 value
30 June 2022 £'000 £'000 £'000 £'000
Loan Facilities - 266,538 - 266,538
The lowest level of input is the interest rate applicable to each borrowing as
at the balance sheet date which is a directly observable input.
The fair value of the bank loans is estimated by discounting expected future
cash flows using the current interest rates applicable to each loan.
The following table shows an analysis of the fair values of financial
instruments and trade receivables and payables recognised at amortised cost in
the balance sheet by level of the fair value hierarchy:
Total fair
Level 1 Level 2 Level 3 value
30 June 2022 £'000 £'000 £'000 £'000
Trade and other receivables - 56,198 - 56,198
Trade and other payables - 35,095 - 35,095
The carrying amount of trade and other receivables and payables is equal to
their fair value, due to the short-term maturities of these instruments.
Expected maturities are estimated to be the same as contractual maturities.
There have been no transfers between levels of the fair value hierarchy during
the period.
10. FINANCING
The Company has fully utilised the £100 million facility, which is due to
mature in April 2027, with Barings Real Estate Advisers (previously Cornerstone
Real Estate Advisers LLP).
The Company has fully utilised the £100 million facility, which is due to
mature in February 2031, with Barings Real Estate Advisers.
The Company has in place a £150 million revolving credit facility with Barclays
Bank Plc of which £68m was drawn down at the period end (30 June 2021: £nil).
11. SUBSIDIARY UNDERTAKINGS
The Company owns 100 per cent of the issued share capital of UK Commercial
Property Estates Holdings Limited (UKCPEHL), a company incorporated in Guernsey
whose principal business is to hold and manage investment properties for rental
income. UKCPEHL Limited owns 100 per cent of the issued share capital of UK
Commercial Property Estates Limited, a company incorporated in Guernsey whose
principal business is to hold and manage investment properties for rental
income. UKCPEHL also owns 100% of Brixton Radlett Property Limited and UK
Commercial Property Estates (Reading) Limited, both are UK companies, whose
principal business is that of an investment and property company. In addition,
UKCPEHL owns 100% of the issued share capital of Duke Distribution Centres Sarl
and Duke Offices & Developments Sarl; both companies are incorporated in
Luxembourg with the principal business being to hold and manage investment
properties for rental income.
The Company owns 100 per cent of the issued ordinary share capital of UK
Commercial Property Finance Holdings Limited (UKCPFHL), a company incorporated
in Guernsey whose principal business is to hold and manage investment
properties for rental income.
UKCPFHL owns 100 per cent of the issued share capital of UK Commercial Property
Nominee Limited, a company incorporated in Guernsey whose principal business is
that of a nominee company. UKCPFHL owns 100 per cent of the issued ordinary
share capital of UK Commercial Property Holdings Limited (UKCPHL), a company
incorporated in Guernsey whose principal business is to hold and manage
investment properties for rental income. UKCPT Limited Partnership, (LP), is a
Guernsey limited partnership, whose principal business is to hold and manage
investment properties for rental income. UKCPHL and GP, have a partnership
interest of 99 and 1 per cent respectively in the LP. The GP is the general
partner and UKCPHL is a limited partner of the LP.
In addition, the Group controls three JPUTS namely Junction 27 Retail Unit
Trust, St George's Leicester Unit Trust and Rotunda Kingston Property Unit
Trust. The principal business of the Unit Trusts is that of investment in
property.
As at 31 March 2021, Brixton Radlett Property Limited, UK Commercial Property
Estates (Reading) Limited, the GP, Nominee and the Limited Partnership were all
placed in the hands of liquidators as part of a solvent liquidation process and
the conclusion of this process is due to conclude in the second half of 2022.
During the period the Group successfully completed the voluntary liquidation of
Kew Retail Park, a JPUT whose principal business prior to liquidation was that
of investment in property.
12. POST BALANCE SHEET EVENTS
The Group completed the sale of Colmore Row, Birmingham on 7 July for a
headline sales price of £26.48m.
On the 10 August 2022 the Company declared a Property Income Distribution of
0.85p per ordinary share payable in respect of the quarter-ended 30 June 2022
and a Special Dividend of 1.92p per ordinary share. Both were paid to
Shareholders on the 31 August 2022.
On the 19 August 2022 the Group increased its revolving credit facility with
Barclays Bank plc to £180m (Dec 2021: £150m). There were no other amendments to
the agreement, the facility expires in April 2024 and is cancellable at any
time.
- For further information please contact:
Will Fulton / Jamie Horton, abrdn
Via FTI consulting
William Simmonds / Harry Randall, J.P. Morgan Cazenove
Tel: 020 7742 4000
Richard Sunderland / Claire Turvey / Emily Smart / Andrew Davis, FTI Consulting
Tel: 020 3727 1000
UKCM@fticonsulting.com
------------
The Interim Report will be posted to shareholders in October 2022 and
additional copies will be available from the Manager or by download from the
Company's webpage (www.ukcpreit.co.uk).
Please note that past performance is not necessarily a guide to the future and
that the value of investments and the income from them may fall as well as
rise. Investors may not get back the amount they originally invested.
All enquiries to:
The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Tel: 01481 745001
END OF ANNOUNCEMENT
END
(END) Dow Jones Newswires
September 30, 2022 02:00 ET (06:00 GMT)
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