UK Comm Prop Tst Ltd Net Asset Value(s)

 
TIDMUKCM 
 
UK Commercial Property Trust Limited 
                          ("UKCPT" or "the Company") 
                           LEI: 213800JN4FQ1A9G8EU25 
 
      UKCPT grows Net Asset Value with a total return of 12.2% over 2017 
 
Guernsey, 1 February 2018:  UK Commercial Property Trust Limited (FTSE 250, 
LSE: UKCM) announces its unaudited quarterly Net Asset Value ("NAV") as at 31 
December 2017. It owns a diversified portfolio of high quality income producing 
UK commercial property and is advised by Standard Life Investments. 
 
Strong performance driven by continued outperformance of industrial portfolio 
 
-    NAV per share of 92.8p (30 September 2017: 90.4p), resulting in a NAV 
total return of 3.7% over the final quarter and 12.2% for the whole of 2017. 
 
-    Like-for-like portfolio capital value increased by 2.4% during the quarter 
or 2.3% net of acquisition costs and capital expenditure investment. The 
portfolio is now valued at GBP1,397 million. This performance compares favourably 
to the 2.0% increase in the MSCI/IPD Monthly index for the period and was 
driven principally by the continued strong performance of the Company's 
industrial portfolio, which increased by 6.4%. 
 
Continued investment into assets that deliver secure income while reducing 
retail sector exposure 
 
-    The Company has acquired its first hotel in the quarter with the forward 
funding of a 265 bedroom four-star Maldron Hotel development in Newcastle City 
Centre for GBP32 million.  The development, which includes an ancillary retail 
unit, has been pre-let on a long lease to the Dalata Hotel Group Plc and is 
expected to deliver a yield on cost of 5.4%. 
 
-    Having exchanged contracts in December, the Company completed its sale of 
Charles Darwin, Pride Hill and Riverside shopping centres in Shrewsbury to 
Shropshire Council in January for approximately GBP51 million. This represents a 
small premium to the year-end valuation and is in line with the Company's 
strategy of reducing retail exposure, particularly shopping centres (now 4.2% 
of the portfolio, down from 7.5%), which it believes will come under further 
pressure in the polarising retail environment. 
 
-    The Company also sold one of its smallest assets in the quarter, a 25,802 
sq ft office in Aberdeen for GBP6.5 million, representing a premium to book 
value. 
 
Delivering value through asset management 
 
In the final quarter, GBP3.1 million of annualised income was secured through a 
successful focus on asset management initiatives. 
 
-    In total, nine new leases and 15 lease renewals / rent reviews were 
concluded, including: 
 
-    A new five year lease of unit 1, Newton's Court Dartford to Fabb Projects 
Ltd at GBP215,250pa, 16% above the ERV for the unit.  The estate is now fully 
let. 
 
 
-    Two new lettings at Eldon House in the City of London securing a combined 
rent of GBP193,751pa for the next five years, at rental levels ahead of ERV and 
53% above the average rental tone at acquisition. 
 
 
-    A one year lease renewal to March 2019 with Marks & Spencer at the 
Company's well located distribution facility in Neasden, in line with ERV, 
securing an improved rent of GBP2,349,360pa, up 12% on the previous rent agreed 
in March 2016. 
 
-    Rent review settlements within the Company's strong performing industrial 
portfolio, totalling GBP646,858pa, were 10% ahead of the previous rents and 7% 
ahead of ERVs at the time of review.  Individual rent reviews took place at 
Newton's Court, Dartford, Emerald Park, Bristol and Dolphin Estate, Sunbury. 
 
-    Void rate of 7.6% at quarter end (30 September 2017, 4.1%) with the 
increase expected and attributable to a lease expiry during the quarter at the 
Company's logistics warehouse at Magna Park, Lutterworth. Almost three quarters 
of this void rate is in the industrial sector, at strong locations, 
representing an opportunity to undertake asset management initiatives expected 
to enhance future income and capital returns. 
 
-    The Company continues to collect 99% of its rental income of GBP68.9million 
per annum within 21 days. 
 
Strong financial position and attractive dividend yield 
 
-    Following the sale of Shrewsbury, significant financial resources of GBP59 
million currently available for investment, in addition to the undrawn GBP50 
million revolving credit facility. 
 
-    Low net gearing of 12.8%* (gross gearing of 17.2%*) remaining one of the 
lowest in the Company's peer group and the quoted REIT sector. 
 
-    Dividend yield of 4.1%**, comparing favourably to the FTSE All-Share Index 
(3.6%**) and FTSE All-Share REIT Index (3.5%**). 
 
* 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 
 
**26 Jan 2018 
 
REIT Conversion 
 
The Board notes the proposals in the Budget to charge capital gains tax on 
offshore holders of UK commercial property and the decision to bring 
non-resident landlords into the corporation tax regime in 2020 both of which 
would result in the Company paying significant additional tax if, at the time, 
the Company was outside the UK REIT regime. 
 
The Company continues to make progress in working through the implications of 
REIT conversion with various stakeholders.  It now expects to make its final 
decision in the second quarter of 2018 and, if the decision is taken to 
convert, it aims to do so during the summer. 
 
Board Changes 
 
As previously announced Mr John Robertson will step down from the Board at the 
end of March when Margaret Littlejohns, who joined the Board on 1 January, will 
become Chair of the Risk Committee. The Board is delighted that Mr Robert 
Fowlds, a UK resident, has agreed to join the Board on 1 April. Mr Fowlds was 
previously Head of Real Estate Investment Banking at JP Morgan Cazenove before 
retiring in 2015. He is a Chartered Surveyor and has extensive experience in 
the Listed Real Estate sector. 
 
Andrew Wilson, Chairman of UKCPT, commented: 
 
"UKCPT continues to benefit from its sector repositioning, careful stock 
selection, successful asset management initiatives and its creditable financial 
position all of which have driven a strong NAV total return of 12.2% in 2017. 
It has cash to deploy during 2018 and further latent value to be crystallised 
from successful asset management initiatives in its portfolio.  Therefore the 
Board remains optimistic in regard to the Company continuing to deliver 
attractive shareholder returns. Additionally, the Board would like to thank Mr 
John Robertson for his most valuable contribution to the business and to wish 
him a very happy and healthy retirement.  Further to the recent appointment of 
Ms Littlejohns, the Directors and I are delighted that Mr Robert Fowlds has 
also accepted an invitation to join the Board." 
 
Will Fulton, Lead Manager of UKCPT at Standard Life Investments, said: 
 
"Alongside good letting activity in the quarter, a focus during the period was 
continuing to deliver on our portfolio strategy.  We made our first acquisition 
in the hotel sector and, after the quarter end, completed on the sale of our 
three shopping centres in Shrewsbury in one transaction to the Borough Council. 
This significantly reduces our exposure to less prime shopping centres which we 
believe, as a sub-sector, is particularly susceptible to the ongoing 
polarisation of the retail landscape.  Our focus for the year ahead is to 
capitalise on the asset management initiatives within the portfolio and 
carefully to deploy the capital we have available.  As anticipated, our void 
rate rose during the final quarter and, with the vast majority of space being 
in prime, well located assets in our favoured industrial sector, this presents 
a strong opportunity to grow rents." 
 
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 October 2017 to 31 December 2017. 
 
UK Commercial          Per Share (p)   Attributable          Comment 
Property Trust                          Assets (GBPm) 
Limited 
 
Net assets as at 1         90.4         1,175.1 
October 2017 
 
Unrealised increase        2.5            33.5      Like for like increase of 
in valuation of                                     2.4% in property 
property portfolio                                  portfolio. 
 
Gain on Sale               0.0            0.1       Gain relating to the sale 
                                                    of the Ensco Site, 
                                                    Aberdeen Gateway 
 
Capital expenditure        -0.2           -2.8      Principally relates to 
during the period                                   costs associated with the 
                                                    purchase of Maldron Hotel, 
                                                    Newcastle 
 
Income earned for the      1.4            18.0      Equates to dividend cover 
period                                              of 95% for the quarter. 
 
 
Expenses for the           -0.5           -6.6 
period 
 
Dividend paid on 30        -0.9          -12.0 
November 2017 
 
Interest rate swaps        0.0            0.0       No material movement in 
mark to market                                      the quarter 
revaluation 
 
Net assets as at 31        92.7         1,205.3 
Dec 2017 pre deferred 
tax asset 
 
Deferred tax asset         0.1            0.8       *Movement in deferred tax, 
movement                                            see additional detail 
                                                    below 
 
Net assets as at 31        92.8         1,206.1     Increase of 2.7% 
Dec 2017 
 
* It is forecast that the Company will utilise the losses it has built up since 
inception to offset future taxable profits. Given this, the Company is required 
to recognise a deferred tax asset. This reflects the movement in the deferred 

tax asset over the quarter. 
 
Portfolio Performance 
 
The external portfolio valuation as at 31 December 2017 was GBP1,397.3 million, 
representing an increase of 2.4% in the quarter on a like-for-like basis 
(excluding capital expenditure). Whilst the Company's benchmark MSCI/IPD 
Balanced Monthly and Quarterly index has not yet been published, the MSCI/IPD 
Monthly Index, which can normally be seen as a proxy for the wider market, rose 
by 2.0% over the same period which can be compared with net capital growth for 
the Company's portfolio (after capital expenditure) of 2.3%. 
 
Sector Analysis 
 
                  Portfolio      Exposure as at  Like for Like   Capital Value 
                  Value as at 31 31 Dec 2017 (%) Capital Value   Shift (including 
                  Dec 2017 (GBPm)                  Shift (excl     sales & 
                                                 sales,          purchases) 
                                                 purchases &     (GBPm) 
                                                 CAPEX) 
 
                                                 (%) 
 
Valuation as of                                                      1,362.6 
30 Sep 2017 
 
Retail                505.1           36.1            -0.2             -1.0 
 
High St - South                        2.8             2.9             1.1 
East 
 
High St- Rest of                       4.9             0.9             0.6 
UK 
 
Shopping Centres*                     7.5*            -2.4             -2.6 
 
Retail Warehouse                      20.9             0.0             -0.1 
 
Offices               264.9           19.0             1.5             -2.5 
 
City                                   2.2             0.8             0.2 
 
West End                               6.7             2.1             1.9 
 
South East                             1.6             0.0             0.0 
 
Rest of UK                             8.5             1.5             -4.6 
 
Industrial            487.1           34.9             6.4             29.3 
 
South East                            25.1             8.2             26.5 
 
Rest of UK                             9.8             2.1             2.8 
 
Leisure/Other         140.2           10.0             0.5             8.9 
 
External             1,397.3          100.0            2.4           1,397.3 
valuation at 31 
Dec 2017 
 
* including the three Shrewsbury shopping centres as at 31 December 2017. 
 
Net Asset Analysis as at 31 December 2017 (unaudited) 
 
                               GBPm 
 
Retail                       505.1 
 
Industrial                   487.1 
 
Offices                      264.9 
 
Leisure/Other                140.2 
 
Total Property              1,397.3 
Portfolio 
 
Adjustment for lease         -16.7 
incentives 
 
Fair value of Property      1,380.6 
Portfolio 
 
Cash                          72.4 
 
Other Assets                  26.7 
 
Total Assets                1,479.7 
 
Current liabilities          -23.0 
 
Non-current                  -250.6 
liabilities (bank 
loans & swap) 
 
Total Net Assets            1,206.1 
 
The NAV per share is based on the external valuation of the Company's direct 
property portfolio. It includes all current period income and is calculated 
after the deduction of all dividends paid prior to 31 December 2017. It does 
not include provision for any unpaid dividends relating to periods prior to 31 
December 2017, i.e. the proposed dividend for the period to 31 December 2017. 
 
The NAV per share at 31 December 2017 is based on 1,299,412,465 shares of 25p 
each, being the total number of shares in issue at that time. 
 
The EPRA NAV per share (excluding swap liability) is 93.0p (Sep 2017 - 90.6p) 
with EPRA earnings per share for the quarter (excluding deferred tax movement) 
being 0.87p (Sep 2017 - 0.82p). 
 
Economic and Property Market Review 
 
The Company's Investment Manager generally expects relatively subdued economic 
growth for the year ahead, with some further moderation in economic momentum in 
2019, as the impact of the UK leaving the European Union becomes more 
pronounced. Despite the relatively weak economic backdrop, UK real estate 
returns were stronger than most analysts originally anticipated at the start of 
2017. For the calendar year 2017, UK direct real estate recorded total returns 
of 11.2%, up on the 10.4% total return in the twelve months to end September. 
Capital growth was relatively strong over the year with values rising by 5.4%, 
an increase on the 4.5% growth in the twelve months to end September. Rents 
increased by 1.9% overall during the year. 
 
The UK equity market gave a total return of 5% over the fourth quarter of 2017, 
with listed real estate equities delivering a total return of 8.3% over the 
same period.  For the full year, the total returns for the FTSE All-Share 
Index and FTSE All-Share REIT Index were 13.2% and 12.2% respectively. 
 
At a property sector level, industrials remained the star performer with 
healthy take up in comparison to historic standards and a total return of 21.1% 
for 2017. Retail was the laggard sector, but still generating positive 
performance, delivering total returns of 7.7% off relatively flat rents and a 
small amount of capital growth - early indicators are that retailer trading 
over Christmas 2017 has been a mixed bag with those better attuned to internet 
sales doing well. Pressures in the sector remain significant with consumers' 
disposable income continuing to be under pressure; earnings growth remains 
muted and consumer confidence is relatively weak. Despite the political 
uncertainty, the office sector recorded a total return of 8.5% p.a. in the year 
to end December with Central London leasing activity remaining robust, boosted 
by an 18% share from "flexible/co-working" companies. Investment in offices 
continues to be buoyant regardless of the caution in the occupier markets. 
Overseas investors, and particularly the Chinese, continue to account for a 
significant proportion whilst investment in the better regional markets remains 
strong, with a reasonable amount of overseas activity. 
 
Rents remained largely stable in 2017, but within sectors, retail rental 
growth, at 0.4% p.a., continued to be considerably weaker than the other 
sectors. It was below office rental growth at 1.4% p.a. and industrials at 4.9% 
p.a. in the twelve months to end December. 
 
Market Outlook 
 
UK real estate continues to provide an elevated yield compared to other assets 
and market values are now ahead of the level they attained before the Brexit 
upheaval in 2016. Lending to the sector remains prudent, liquidity remains 
reasonable, and development remains relatively constrained by historic 
standards. With existing vacancy rates below average levels in most markets, 
aside from pockets of oversupply in some markets such as Central London and 
concern over poorer retail, these favourable fundamentals and the steady secure 
income component generated by the asset class is likely to drive an income-led 
return over the next few years. The retail sector in particular continues to 
face a series of headwinds likely to hold back recovery in less strong 
locations and the City of London office market faces most uncertainty driven by 
politics. The market is likely to be sentiment driven in the short term as 
politics and the real and perceived economic impact associated with the UK's 
withdrawal from the European Union continue to evolve. Given the backdrop of 
ongoing heightened macro uncertainty, investors are becoming more risk averse 
and better quality assets are once again broadly outperforming poorer quality. 
Prime, good quality assets, with stronger tenants on longer leases, are likely 
to provide the best opportunities in the weaker economic environment we 
anticipate further into 2018. 
 
The Board is not aware of any other significant events or transactions which 
have occurred between 31 December 2017 and the date of publication of this 
statement which would have a material impact on the financial position of the 
Company. 
 
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 UKCPT's website which can be 
found at: www.ukcpt.co.uk 
 
 
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, FTI Consulting 
Tel: [phone] 
 
 
The above information is unaudited and has been calculated by Standard Life 
Investments Limited. 
 
 
 
END 
 

(END) Dow Jones Newswires

February 01, 2018 02:00 ET (07:00 GMT)