Uk Commercial Property R... Share Discussion Threads

[giltedge1] 17/5/2023 09:32

Property shares ticking up today, must be jobs report & anticipating interest rates peaked. For any top ups in UKCM wouldn't want to pay more than 55p, on risk/reward basis. I will hold my current holding as seeing covered dividend maintained.
I have topped up on Retail Landlords PRS & GRI as easier to relet on vacancies & rents still rising, that is my theory!. On commercial I prefer SHED, as logistics still best sector.

[spectoacc] 12/5/2023 13:20

Any director buying is a plus, but 50k? It's barely an ISA subscription.

[nickrl] 12/5/2023 12:10

See the new NED has loaded up with 50k shares at 53pish

[spectoacc] 11/5/2023 05:51

Ah missed that, thanks @nickrl - so £23m of UKCM's cash is to buy the deal/site, and £40m to the construction. That should also make over-runs less costly.

Stick to my original view a year ago tho - wrong deal, wrong time. T/o rents aren't generally positive to the owner.

[nickrl] 10/5/2023 17:16

Interesting that Helios are still promoting it on their website and presumably paying for the webcam sitting in another building to produce this!

hxxps://heliosrealestate.com/time-lapse-of-hyatt-hotel-build/

Anyhow UKCM agreement is 63m to the JV developer but the contract for construction, also from developer, to GMI construction is 40m so potentially the JV is taking the construction risk given that delta.

[spectoacc] 10/5/2023 13:22

I reckon wages, materials etc up 30-50%. Difficult to equate that to overall contract cost - but the obvious delays also add costs.

Say an overall say 20-25% overrun, maybe an extra £15-20m to UKCM. As you say, they'd undoubtedly stump up.

Of more concern is that it's a revenue lease, and they've never divulged what they expect to get on it. It's the wrong side of the station and who knows what the economy will look like in late 2024/2025?

I'm suspicious of development where it's been purchased wholesale from someone who's put it together. Doing an EPIC-style Haddington deal is great, and all the REITs are capable of things like that - spot an opportunity, buy some land (or own it already), put it through planning, develop it.

That's now what UKCM have done. They've bought (at near the top of the market) a deal that someone else has assembled. Maybe it works out just fine, maybe it doesn't, but shareholders have no way of being able to form a judgement because UKCM won't divulge any info.

And UKCM's track record on gearing in particular has been very poor.

A reminder they "acquired this opportunity" in May 2022, having no doubt been in discussions for many months:
"..A hotel development opportunity in Leeds, from Marrico (Sovereign Square) Ltd, a joint venture between Marrico LLP and Helios. "

It isn't a vast chunk of the NAV (c.5% - currently..) but is a chunk of the gearing.

[nickrl] 10/5/2023 13:00

Im surmising that UKCM have a contract with the developer to purchase which presumably allowed them to contract with the builder, who is a decent sized organisation, but i do see daily construction companies going into administration due to cost overruns on contracts they couldn't recover all too often due to material cost rises. So its a credible concern and my understanding is UKCM are the funders so given the sunk costs they would in all likelihood stump up extra if necessary but unlikley to be more than a few million so wouldn't be a dead loss.

[spectoacc] 10/5/2023 11:53

Lol yes - I wonder why not! Hopefully they've all been fired.

Hotel going up, but "2024" is highly suspicious to me. And who covers cost overruns? We've never been told, and UKCM wouldn't tell me.

Rent-frees interesting, but strength of covenants also. That's the next angle on commercial property IMO.

[spectoacc] 10/5/2023 06:09

A small NAV uptick at UKCM, but I really dislike them.


"...portfolio occupancy also high at 98%;

•The Company benefits from relatively low and prudent gearing at 20.0% group loan to value* and a current blended interest cost of 3.93% per annum, of which 68% is at a fixed rate. All covenants covered."


Definitely need to read lower for that, arguably fake headlines. I note the Leeds hotel is now forecast to complete "...In 2024", yet more wriggle room!

[nickrl] 27/4/2023 10:44

@giltedge i raked back through years of RNS but could find no lease info and UKCM not one for giving much detail anyhow.

[giltedge1] 26/4/2023 09:16

Hopefully Ocado lease has a few years to run, but could not find any mention in the report. Shows disadvantage of Big Boxes, not many other tenants to step in. On the plus side proximity to London, as still big shortage of logistics Depots near M25.
Suppose can be split into smaller units, but would require Cap - Ex. Was bound to happen one day, so a test for management. Strangely property shares up today. I have noticed all property shares correlated, so does not matter which one you own, rise & fall together. But I am disappointed with this management!, made a few mistakes last 12 months, knocking at least 10% off NAV.

[spectoacc] 26/4/2023 07:20

UKCM ought to RNS it really. From OCDO's RNS & analyst comment, looks like they plan to vacate in summer, & wouldn't surprise me if there was a break then. Moving employees over to their newly-opening Luton site.

At least industrial has 6 months of empty rates relief. And ought to be some decent dilaps after this length of time. Key will be finding a new tenant for something that old/large, at what rent, and with what rent-free.

[spectoacc] 26/4/2023 05:53

Read an analyst comment on the closure of Hatfield saying the cost to OCDO was going to be low, the one-off redundancy costs etc. No mention of ongoing rent to be paid.

UKCM are maybe waiting to spin it - the spin will be that they can now re-let it at a higher rent. What they won't tell you is that there'll be a massive rent-free to get the next tenant in.

Interesting to see first Amazon, now OCDO retrenching a little from Big Box, particularly the older stock.

My bear case on UKCM remains the hotel development, with no income until late 2024, something they didn't even put together themselves but bought off someone else.

[nickrl] 25/4/2023 19:13

UKCM should be happy given this comment in the AR (para 2)

"An open market rent review from September 2021 over the 298,400 sq ft automated distribution warehouse was settled in Q3 2022 with leading online logistics solutions retailer Ocado at £4,000,000 per annum, equating to £11.88 per sq ft
over the warehouse space.

The reviewed rent reflects a 32% increase on the previous rent passing and was 13% ahead of ERV at the time of review. Since the review, the unit has experienced further rental growth and remains reversionary with the prospect of a further rental uplift at the next review cycle"

As an aside if Ocado had an exit opportunity they were daft not to take it but then they just seem to burn through cash like its going out of fashion.

[essentialinvestor] 25/4/2023 16:22

* may be Ocado UK, which is a JV with MKS.

[spectoacc] 25/4/2023 16:16

Good spot @giltedge1. But is there a break/expiry here, or are OCDO very much still liable for the rent even when vacant? Only issue is if OCDO went bust (not yet..), and that they'd obviously walk away when at the next break.


Assuming still liable (hence no RNS from UKCM), be interesting to see who they sublet it to, if they can.

[dodger777] 25/4/2023 11:05

Surprised this hadn’t affected the share price today or maybe it just hasn’t filtered through 🤔

[cc2014] 25/4/2023 10:37

Not only is it 6% it's their largest tenant.

And this is the crux of this sector for me. What he have is companies who are struggling to make sufficient profits not being able to just tap the credit markets for more millions and carry on regardless. Instead we have reached the point where these companies are having to make appropriate business decisions.

All the excess capacity is going to come on the market and I wonder who is going to take on this sort of building?

[hugepants] 25/4/2023 09:41

Good spot. I think its one of their biggest properties by value. I wonder what the future is for the site. This from 30 sept update;

In Hatfield, an open market rent review over the 298,400 sq ft distribution warehouse was settled with online logistics solutions retailer Ocado at £4,000,000 per annum, equating to £11.88 psf. The reviewed rent reflects a 32% increase on the previous rent passing and was 13% ahead of ERV at the time of review.


It's 6% of income

[giltedge1] 25/4/2023 07:44

Is Ocado Hatfield closure owned by this trust? Hope not.

[skyship] 19/4/2023 10:28

Indeed so. Actually those CBRE stats were better than many expected.

[giltedge1] 19/4/2023 08:40

Okay thanks for correction, read headlines on phone over breakfast, thought report a bit early. Looks like flat Q1 2023, better than down!.

[skyship] 19/4/2023 08:11

? Sorry giltedge - but old news surely. That NAV fall to Dec'22 was revealed as long ago as 6th February!

For more up-to-date info on values in the sector, see this link to a regular post by Nexus giving us the monthly CBRE stats:

[giltedge1] 19/4/2023 08:01

After reading BCPT report this morning who have a good portfolio & low gearing not great -9% NAV & not very convincing on refinancing, so this sector will be under pressure next 12 months. Was going to average down, but hold off only safe sectors, niche ones storage, logistics & PRS.