UK Commercial Property Trust Ltd - Net Asset Value(s)

Guernsey, 3 May 2018

UK Commercial Property Trust Limited (“UKCPT” or “the Company”)

Net Asset Value at 31 March 2018

UK Commercial Property Trust Limited (FTSE 250, LSE: UKCM), announces its unaudited quarterly Net Asset Value (“NAV”) as at 31 March 2018. It owns a diversified portfolio of high quality income producing UK commercial property and is advised by Standard Life Investments.

Positive first quarter performance

• NAV per share of 93.4p (31 December 2017: 92.8p), resulting in a NAV total return of 1.6% in the period.

• Like-for-like portfolio capital value increased by 1.1% with overall capital performance of 0.9%, net of capital expenditure investment. The portfolio is now valued at £1.364 billion. This performance compares to the 1.0% increase in the MSCI/IPD Monthly index over the period.  

Delivering value through asset management

• £1.55 million of annual rental income, 6.3% ahead of estimated rental value (“ERV”), secured from three new leases and four lease renewals / rent reviews including:
   
  • Wilko Retail Ltd completed the pre-agreed new 15 year lease at the former BHS unit at The Parade, Swindon, securing a headline rent of £385,000 per annum, following completion of reconfiguration by UKCPT. 

• Lease renewal with Tesco also completed at The Parade, Swindon, securing occupation for a 10 year term with a tenant-only break in year five, at a rent of £200,000 per annum, in line with ERV.

• Lease renewal 8.5% ahead of ERV with GAP at Kew Retail Park, London, SW15 securing a rent of £439,600 per annum for a ten year term. 

• Lease renewal with Cushman & Wakefield at Central Square Newcastle, securing a rent of £95,400 per annum for a five year term, 18% ahead of ERV. 
   

• Void rate of 7.8%*, 70% of which is in the industrial sector, at strong locations, providing asset management opportunities to enhance future income and capital returns and therefore reduce the void rate.

Strategic disposals reducing retail sector exposure

• Disposals of Charles Darwin, Pride Hill and Riverside shopping centres in Shrewsbury to Shropshire Council in January for approximately £51 million, representing a small premium to year-end valuation and reducing exposure to the retail sector, with shopping centres now 4.1% of the portfolio (IPD Benchmark – 5.3%**).

Strong financial position and attractive dividend yield

• Significant cash resources of £55 million are currently available for investment in addition to a further £50 million from the undrawn revolving credit facility.

• Low net gearing of 10.1%*** (gross gearing of 17.1%***) 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 (3.7%****) and FTSE All-Share REIT Index (3.8%****).

*31 March 2018

**31 Dec 2017

***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

****30 April 2018

Conversion to REIT status

• The Company has previously noted the intentions 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. These measures would ultimately result in the Company paying significant additional tax if it were to remain outside the UK REIT regime.

• Today the Company has announced that it intends to seek shareholder approval at an Extraordinary General Meeting on 29 May 2018 to convert to REIT status on 1 July 2018 and concurrently change its name to UK Commercial Property REIT Limited. A circular to shareholders has been published today setting out further details.

• Phoenix Life Limited (“PLL”), which holds 38.09% of the Company’s shares and Phoenix Life Assurance Limited (“PLAL”) which holds 9.78% of the Company’s shares have both given an irrevocable undertaking to vote in favour of the proposals. PLL is in the process of an internal restructuring of their shareholding to ensure it will not be deemed to be a substantial shareholding under the REIT regime, which would otherwise result in a tax charge being levied on the Company.

Andrew Wilson, Chairman of UKCPT, commented:

"Successful asset management initiatives across the portfolio have provided positive momentum for UKCPT in the first quarter. The sale of our retail assets in Shrewsbury, in line with the Company strategy to reduce our weighting in the retail sector, has increased the overall resilience of the portfolio and further improved the quality of our income. With a number of other opportunities available to us to drive underlying performance in the short term, and an intention to finalise our conversion to REIT status in the summer, that momentum is set to continue into the second half of the year."

Will Fulton, Lead Manager of UKCPT at Standard Life Investments, said:

“We have made a very positive start to the year by reducing our shopping centre exposure through the sales in Shrewsbury and securing income through asset management. We expect to build on this positive momentum and unlock the reversionary potential in the portfolio, particularly through leasing the vacant space in our industrial assets, which are well located in areas with good supply and demand fundamentals.  We have a strong balance sheet and will continue to seek acquisition opportunities aimed at improving portfolio income and delivering long term returns for investors.”

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 January 2018 to 31 March 2018.

UK Commercial Property Trust Limited	Per  Share (p)	Attributable Assets (£m)	Comment
Net assets as at 1 January 2018	92.8	1,206.1
Unrealised increase in valuation of property portfolio and gain on sale	1.1	14.0	Like-for-like increase of 1.1% in the property portfolio.
Gain on Sale	0.1	1.0	Gain relating to the sale of Shrewsbury Shopping Centres and an overage receipt from Bushey Road, Raynes Park, London which was sold in 2013.
Capital expenditure during the period	-0.5	-6.1	Principally relating to the development of the prelet Maldron Hotel, Newcastle.
Income earned for the period	1.2	16.2	Equating to dividend cover of 82% for the quarter. The Company still has significant cash resources to utilise and a number of asset management initiatives which, when completed, should enhance dividend cover.
Expenses for the period	-0.5	-6.4
Dividend paid on 28 February 2018	-0.9	-12.0
Interest rate swaps mark to market revaluation	0.1	1.2	Decrease in swap liabilities as an increase in expectations for interest rate rises.
Net assets as at 31 March  2018	93.4	1,214.0

The EPRA NAV per share (excluding swap liability) is 93.5p (31 December 2017: 93.0p) with EPRA earnings per share for the quarter (excluding deferred tax movement) being 0.75p (31 December 2017: 0.87p).

Sector analysis

	Portfolio value as at 31 March 2018 (£m)	Exposure as at 31 March 2018 (%)	Like-for-like capital value shift (excluding sales, purchases & capex)	Capital value shift (including sales and purchases)     (£m)
			(%)
Valuation as at 31 December 2017				1,397.3
Industrial	497.6	36.5	2.2	10.6
South East		26.4	2.6	9.0
Rest of UK		10.1	1.2	1.6
Retail	454.2	33.2	-0.7	-50.9
High St – South East		2.9	0.0	0.0
High St – Rest of UK		4.9	-2.2	-1.5
Shopping Centres		4.1	-2.0	-48.8
Retail Warehouse		21.3	-0.2	-0.6
Offices	268.6	19.8	1.4	3.7
City		2.4	6.2	1.8
West End		7.1	2.8	2.6
South East		1.7	0.0	0.0
Rest of UK		8.6	-0.6	-0.7
Leisure/Other	143.6	10.5	2.4	3.3
External valuation at 31 March 2018	1,364.0	100.0	1.1	1,364.0

Net Asset Value analysis as at 31 March 2018 (unaudited)

	£m	% of net assets
Industrial	497.6	41.0
Retail	454.2	37.4
Offices	268.6	22.1
Leisure/Other	143.6	11.9
Total Property Portfolio	1,364.0	112.4
Adjustment for lease incentives	-11.8	-1.0
Fair value of Property Portfolio	1,352.2	111.4
Cash	114.2	9.4
Other Assets	21.5	1.8
Total Assets	1,487.9	122.6
Current liabilities	-24.4	-2.0
Non-current liabilities (bank loans & swap)	-249.5	-20.6
Total Net Assets	1,214.0	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 31 March 2018. It does not include provision for any unpaid dividends relating to periods prior to 31 March 2018, i.e. the proposed dividend for the period to 31 March 2018.

The NAV per share at 31 March 2018 is based on 1,299,412,465 shares of 25p each, being the total number of shares in issue at that time.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014). Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.

Details of the Company may also be found on the Company’s website which can be found at: www.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 / Polly Warrack, FTI Consulting
Tel: [phone]

The above information is unaudited and has been calculated by Standard Life Investments Limited.

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