UK Comm Prop REIT Ltd Net Asset Value(s)

 
TIDMUKCM 
 
2 August 2018 
 
      UK Commercial Property REIT Limited ("UKCP REIT" or "the Company") 
 
                        Net Asset Value at 30 June 2018 
 
UK Commercial Property REIT Limited (FTSE 250, LSE: UKCM), announces its 
unaudited quarterly Net Asset Value ("NAV") as at 30 June 2018. It owns a 
diversified portfolio of high quality income producing UK commercial property 
and is advised by Aberdeen Standard Investments ("ASI")^. 
 
Robust second quarter NAV performance 
 
  * NAV per share up 1.2% to 94.5p (31 March 2018: 93.4p), resulting in a NAV 
    total return of 2.2% in the period with low net gearing of 11.9%**. 
 
  * Like-for-like portfolio capital value increased by 1.9% with overall 
    capital performance of 1.7% net of capital expenditure investment, 
    outperforming the 0.9% increase in the MSCI/IPD Monthly index over the 
    period. The portfolio is now valued at GBP1.416 billion. 
 
Delivering on strategy 
 
  * Acquisition of The White Building, a fully refurbished, multi-let office in 
    Reading for around GBP51 million, based upon a topped-up net initial yield of 
    5.75%.   The asset, which is 82% let to nine tenants, has a weighted 
    average unexpired lease term of five years to break and is expected to 
    deliver an annual rental income of around GBP3.0 million once fully let. 
  * Disposal of 1 Rivergate, an office building on Temple Quay in Bristol city 
    centre, to a pension fund for a net price of GBP26.6 million allowing for a 
    rental top up, ahead of the 31 March valuation. 
  * Industrial assets now account for 37% of the portfolio and delivered a 
    capital return of 5.8% in the period. 
 
Value Creation through asset management 
 
  * Contract signed for a new 15 year lease with no breaks at the largest 
    vacant unit on Ventura Park, Radlett. The letting to an existing global 
    tenant on the site is at a rent of GBP1.34 million per annum with five yearly 
    inflation-linked and upwards only rent reviews, subject to completion of 
    landlord's roof works, expected November this year. This letting represents 
    an increase of 39% on the previous passing rent and is in-line with ERV. 
    After the completion of the lease 15.3% of the Company's income will be in 
    leases that are inflation linked or have fixed uplifts. 
 
  * Completion of the pre-agreed new eight year lease with Ovo Energy Ltd at 1 
    Rivergate, Bristol, for GBP1.7 million per annum facilitating the sale of 
    this investment ahead of valuation. 
 
  * In addition,  GBP831,000 of annual rental income, 10% ahead of estimated 
    rental value ("ERV"), secured from three new leases / lease renewals and 
    two rent reviews, including: 
 
  * Rent review agreed with Ocado, Hatfield, the Company's largest single 
    tenant, securing a rent of GBP3.03 million, 12% ahead of ERV at the review 
    date, an uplift of GBP322,000 per annum; 
 
  * Ten year lease renewal with Nomenca at Emerald Park, Bristol at GBP76,000 per 
    annum, 15% ahead of the previous passing rent and 3% ahead of ERV. 
 
  * Occupancy increased to 93%* with half the remaining vacancy in strong 
    locations within the industrial sector, which has good prospects to enhance 
    future income and capital returns, further increasing occupancy. Less than 
    20% of the vacancy is in the retail sector. 
 
Strong balance sheet providing flexibility and attractive dividend yield 
 
  * Cash resources of GBP30 million (after allowing for dividend commitment and 
    projected capital expenditure on the portfolio) are currently available for 
    investment in addition to a further GBP50 million from the undrawn revolving 
    credit facility. 
 
  * Low net gearing of 11.9%** (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 
    (3.6%*) and FTSE All-Share REIT Index (3.9%*). 
 
*30 June 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 
 
Conversion to REIT status completed 
 
Following shareholder approval the Company converted to a REIT on 1 July 2018 
and changed its name to UK Commercial Property REIT Limited. This conversion 
mitigates the risk to the Company resulting from the base erosion and profit 
shifting legislation due to be implemented in 2020 and the proposal to charge 
capital gains tax on Guernsey companies who hold UK commercial property. 
 
Reduced Investment Management Fees 
 
The Board of UKCP REIT routinely assesses its fees against the market. As a 
result of the latest benchmarking exercise, a reduced management fee 
arrangement has been agreed with ASI^. As from 1 January 2019, the management 
fee will be calculated as follows: 
 
  * 0.60% on gross assets up to GBP1.75billion 
  * 0.475% on gross assets over GBP1.75billion 
 
This compares to the current management fee of 0.65% on gross assets plus GBP 
100,000 administration fee. Based on the current quarter end's gross assets 
this equates to a fee decrease of GBP839,000 per annum. 
 
Andrew Wilson, Chairman of UKCP REIT, commented: 
 
"It has been another active period for UKCP REIT with the Group's portfolio 
continuing to perform well and the successful conversion to a REIT taking 
effect at the start of July. In line with our strategy, we have crystallised 
value for our shareholders through the sale of 1 Rivergate in Bristol and 
recycled the capital into a high quality office asset, which will add 
materially to the Group's income stream. We enter the second half of the year 
with a good momentum and are well placed to continue to unlock value and grow 
income across our diverse portfolio." 
 
Will Fulton, Lead Manager of UKCP REIT at Standard Life Investments, said: 
 
"During the period we have successfully grown the group's income both through 
net investment into an asset with good potential for income growth, while also 
delivering on our active asset management strategy, letting up space across the 
portfolio and agreeing leases at rents ahead of ERVs. The agreement of a new 
long lease at Ventura Park was a significant achievement as we continue to 
identify active asset management opportunities across our portfolio, in 
particular across our industrial assets, to grow future income and capital 
returns. 
 
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 April 2018 to 30 June 2018. 
 
UK Commercial Property REIT    Per  Share    Attributable           Comment 
Limited                               (p)     Assets (GBPm) 
 
Net assets as at 1 April         93.4         1,214.0 
2018 
 
Unrealised increase in           2.1           27.2       Predominantly like for like 
valuation of property                                     increase of 1.9% in property 
portfolio                                                 portfolio. 
 
Gain on Sale                     0.1            1.2       Gain relating to the sale of 
                                                          1 Rivergate, Bristol 
 
Capital expenditure during       -0.7          -8.3       Principally relates to costs 
the period                                                associated with the 
                                                          development of Maldron 
                                                          Hotel, Newcastle and 
                                                          purchase of the White 
                                                          Building, Reading plus 
                                                          ongoing asset management 
                                                          initiative at St. George's 
                                                          Retail Park, Leicester 
 
Income earned for the period     1.3           16.9       Year to date dividend cover 
                                                          of 77.5% but income from 
                                                          White Building, Reading, 
Expenses for the period          -0.5          -8.1       Newcastle development and 
                                                          Radlett letting yet to be 
                                                          included 
Dividend paid on 31 May 2018     -0.9          -12.0 
 
 
Interest rate swap mark to       0.0           -0.2       No material movement in the 
market revaluation                                        quarter 
 
Net assets as at 30 June         94.8         1,230.7 
2018 before deferred tax 
movement 
 
Deferred tax                     -0.3          -3.3       Following REIT conversion 
                                                          release of deferred tax 
                                                          asset previously set up to 
                                                          reflect the Company's built 
                                                          up tax losses. 
 
Net assets as at 30 June         94.5         1,227.4 
2018 
 
The EPRA NAV per share (excluding swap liability) is 94.6p (31 March 2018: 
93.5p) with EPRA earnings per share for the quarter (excluding deferred tax 
movement) being 0.67p (31 March 2018: 0.75p). 
 
Sector analysis 
 
                        Portfolio    Exposure as at 30   Like for Like   Capital Value 
                      Value as at 30    Jun 2018 (%)     Capital Value       Shift 
                      Jun 2018 (GBPm)                       Shift (excl      (including 
                                                        sales, purchases    sales & 
                                                            & CAPEX)     purchases) 
                                                                              (GBPm) 

                                                              (%) 
 
External valuation as                                                       1,364.0 
of 31 Mar 2018 
 
Industrial                526.5             37.2              5.8             28.9 
 
South East                                  27.0              6.2             22.3 
 
Rest of UK                                  10.2              4.8             6.6 
 
Retail                    443.2             31.2              -2.4           -11.1 
 
High St - South East                        2.8               0.8             0.3 
 
High St- Rest of UK                         4.6               -1.9            -1.3 
 
Shopping Centres                            3.7               -6.2            -3.5 
 
Retail Warehouse                            20.1              -2.3            -6.6 
 
Offices                   296.2             21.0              2.1             27.6 
 
City                                        2.4               4.4             1.4 
 
West End                                    7.0               2.2             2.2 
 
South East                                  5.0               0.0             47.6 
 
Rest of UK                                  6.6               1.7            -23.6 
 
Leisure/Other             150.5             10.6              1.6             7.0 
 
External valuation as    1,416.4           100.0              1.89          1,416.4 
of 30 Jun 2018 
 
Net Asset Value analysis as at 30 June 2018 (unaudited) 
 
                               GBPm       % of net 
                                         assets 
 
Industrial                526.5           42.9 
 
Retail                    443.2           36.1 
 
Offices                   296.2           24.1 
 
Leisure/Other             150.5           12.3 
 
Total Property           1,416.4         115.4 
Portfolio 
 
Adjustment for lease      -12.8           -1.0 
incentives 
 
Fair value of            1,403.6         114.4 
Property Portfolio 
 
Cash                       84.1           6.9 
 
Other Assets               19.5           1.6 
 
Total Assets             1,507.2         122.9 
 
Current liabilities       -29.9           -2.4 
 
Non-current               -249.9         -20.5 
liabilities (bank 
loans & swap) 
 
Total Net Assets         1,227.4         100.00 
 
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 June 2018. It does not 
include provision for any unpaid dividends relating to periods prior to 30 June 
2018, i.e. the proposed dividend for the period to 30 June 2018. 
 
The NAV per share at 30 June 2018 is based on 1,299,412,465 shares of 25p each, 
being the total number of shares in issue at that time. 
 
Investment Manager's Market Commentary 
 
In contrast to the unusually warm and dry summer the UK has been experiencing, 
the first quarter's cold snap appears to have been largely behind the weakness 
in the UK economy in Q1 rather than a more fundamental slowing.  Real income 
growth should start to provide a modest tailwind to GDP growth during the 
course of this year although business investment continues to be held back by 
elevated uncertainty over the UK's future Brexit "end state" and trading 
relationship with the EU. Our base case is for a free-trade agreement (FTA) 
with an all-UK customs union and some regulatory devolution to Northern 
Ireland. At the start of the year we forecast UK GDP of 1.4% for 2018 and 1.5% 
for 2019 and our current forecast remains the same. 
 
Looking at inflation, although it is expected the rise in oil prices will push 
the energy component of CPI inflation higher, the overall rate of inflation is 
expected to fall over the course of the year. The Bank of England is expected 
to increase interest base rates by 25bps in August, as the bounce in data 
reassures the Bank the Q1 slowdown was largely temporary, and then by further 
gradual increases in 2019 and 2020 continuing a period of relatively low rates 
into the medium term. 
 
Difficulties in the retail sector have dominated the headlines over the last 
few months which are now being reflected in retail rents shown by MSCI IPD to 
be falling. News that half-year profits at John Lewis would be "close to zero" 
was further evidence of the mounting challenges in the industry. At the 
opposite end of the spectrum, industrial demand remains buoyant and in the 
supply-starved South East this has pushed rents 7% higher over the year to 
June, according to MSCI. Demand is broad-based, with the continued expansion of 
trade counters and urban logistics uses a feature, and supply is generally 
constrained. Regional industrial rents rose by a more modest 2.3% over the 
period with some pockets of more balanced supply and demand. London office 
rents remain broadly static with take-up supported by flexible office providers 
who do not drive net absorption. Take-up in the regional office markets has 
slowed somewhat over the first half of 2018, although grade 'A' stock levels 
are low in many markets, maintaining some rental tension. 
 
Investment volumes in Q2 suggest a higher total than Q1 although there was a 
noticeable fall in the number of industrial transactions, reflecting the dearth 
of stock as investors hold what they have and continue to compete very strongly 
for assets that do come to market. UK institutions were the major net investor 
on the quarter, selling less real estate than any quarter since 2006. Overseas 
investors were only marginal net investors but a number of large transactions 
are expected to complete early in the third quarter. The result of that 
competitive demand has been continued strong capital growth in the industrial 
sector, 20.3% for the 12 months to June according to MSCI, and this growth is 
expected to continue through the rest of 2018, though at a slower pace. Demand 
for retail assets across the spectrum remained weak. 
 
Activity in the listed sector broadly mirrors the trends being seen in the 
direct market. Industrial stocks are trading at a premium to NAV which is 
indicative of optimism for sustained capital growth. London office names are 
still trading at a discount to NAV, but a narrower one, as the expectation has 
shifted from a market correction to one of stagnation. Negative sentiment 
around growth prospects means retail dominated REITs remain at discounts to 
NAV. 
 
Investment Outlook 
 
Investor sentiment and activity continues to illustrate that the hierarchy of 
sector preference remains largely unchanged. The industrial sector remains the 
favoured sector call as investors seek to take advantage of the structural 
shift towards online retailing. The alternative sectors remain another sector 
call favoured by many investors. Typically targeting these sectors for their 
long, stable inflation-linked leases, alternative sectors remain highly 
sought-after as we move into an environment of predominantly income-led 
returns. However, the sub-sectors are diverse and the risks associated with 
these sectors equally so. Nevertheless investors are broadening their 
investment requirements in the alternative space and rather than purely seeking 
defensive long income, investors are more comfortable with operational risk in 
alternatives and the associated diversification and sustainable income 
benefits. Residential and student accommodation are already firmly established 
in this regard. Our Investment Manager's five-year total return forecast for 
the property market is below market consensus. They do not see inward yield 
shift contributing positively to total returns going forward. Rather, returns 
will be driven by income and, as such, a key focus will be appropriate 
management of income risk at the asset and portfolio level. The focus on income 
is reflected in their projected sub sector returns which have become more 
divergent in the short term, with industrials and income-focussed sectors, 
including the Private Rented Sector, expected to be the strongest performing 
areas of the market. 
 
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, Standard Life 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). 
 
 
 
END 
 

(END) Dow Jones Newswires

August 02, 2018 02:00 ET (06:00 GMT)