UK Commercial Property REIT Limited
(an authorised closed-ended investment company incorporated in
Guernsey with registration number 45387)
LEI Number: LEI number: 213800JN4FQ1A9G8EU25
(The “Company” or “UKCM”)
19 April 2024
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023
UK Commercial Property REIT Limited (FTSE 250, LSE: UKCM) which owns a £1.25
billion diversified portfolio of high-quality income-producing UK commercial
property and is managed and advised by abrdn, announces its final results for
the year ended 31 December 2023.
Productive portfolio management and weighting to structurally supported
sectors driving earnings growth
* 6.3% growth in annual EPRA EPS to 3.35p1 (FY 2022 3.15p).
* Total dividend paid in 2023 increased 4.6% to 3.40p and 99% covered (FY2022:
3.25p).
* Annual NAV total return of 3.0%. Audited NAV per share 78.7p (FY2022:
79.7p).
* Strong track record of high occupancy maintained at 96% at year-end.
Asset management generating earnings growth
* Continued momentum in rental reversion opportunities and expected Autumn
2024 earnings boost from delivery of Hyatt, Leeds development.
* Strategic asset management focus contributing to strong earnings growth by
adding net £4.9 million p.a. (excluding lease incentives adjustments) in rent
across 2023 and maintaining low void rate at 4%; this demonstrates the appeal
of UKCM’s portfolio to occupiers and the ability to capture reversionary
rents.
Values stable with continued outperformance from diversified portfolio
* Portfolio valuation remained broadly stable, with a marginal 0.89% drop over
the year, net of capital expenditure, to £1.25 billion. The Company’s
portfolio continues to compare favourably to the MSCI Balanced Portfolio
Quarterly Property Index’s 6.4% fall and has outperformed the MSCI
benchmark2 over 1, 3, 5 and 10 years.
Investing in future earnings growth
* Capital expenditure of £30 million in the year as the Company continues to
invest in driving future earnings growth, with the majority used to progress
UKCM’s Hyatt hotel development in Leeds which is expected to generate a
7.25% yield on cost when it completes later this year.
Disciplined Capital Allocated
* Strengthened balance sheet via strategic disposals focussed on lower
yielding assets and reducing RCF draw. Alive to reinvestment opportunities.
* Balance sheet provides flexibility with total group LTV at 17.2%3 (FY2022:
20.0%) at a blended drawn cost of 3.56%.
1 Excludes Cineworld non cash adjustment announced in Q2 2023 results.
2 Benchmark: MSCI UK Balanced Portfolios benchmark to 31 December 2023
3 Calculated under AIC guidance, as gross borrowings less cash divided by
portfolio value.
For further information please contact:
Will Fulton / Jamie Horton / Peter Taylor, abrdn
Via FTI consulting
Richard Sunderland / Emily Smart / Andrew Davis, FTI Consulting
Tel: 020 3727 1000
UKCM@fticonsulting.com
The Company's Annual Report and Accounts for the year ended 31 December 2023
will shortly be available to view on the Company's corporate website at
https://www.ukcpreit.com/en-gb/literature/. The Documents have also been
submitted to the National Storage Mechanism and are available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
PERFORMANCE SUMMARY
CAPITAL VALUES AND GEARING 31 December 2023 31 December 2022 % Change
Total assets less current liabilities (excl Bank loan) £’000 1,259,579 1,327,405 -5.1%
IFRS Net asset value (£’000) 1,023,247 1,035,719 -1.2%
Net asset value per share (p) 78.7 79.7 -1.3%
Ordinary Share Price (p) 62.0 58.4 6.2%
Discount to net asset value (%) (21.2) (26.7) n/a
Gearing (%)*: 17.2 20.0 n/a
1 year % return 3 year % return 5 year % return
TOTAL RETURN
NAV † 3.0 2.5 1.7
Share Price † 13.1 6.6 (4.7)
UKCM Direct Portfolio 3.9 9.3 12.0
MSCI Balanced Portfolios Quarterly Property Index (1.9) 3.7 4.3
FTSE Real Estate Investment Trusts Index 11.6 (1.1) 8.3
FTSE All-Share Index 7.9 28.1 37.7
31 December 2023 31 December 2022
EARNINGS AND DIVIDENDS
Net profit / (loss) for the year £’000 31,708 (222,329)
Adjusted EPRA Earnings per share (p) 3.35 3.15
IFRS Earnings per share (p) 2.44 (17.11)
Dividends declared per ordinary share (p) 3.40 3.25
Dividend Yield (%)# 5.5 5.6
MSCI Benchmark Yield (%) 5.1 4.8
FTSE Real Estate Investment Trusts Index Yield (%) 4.5 4.6
FTSE All-Share Index Yield (%) 4.0 3.6
ONGOING CHARGES AND VACANCY RATE
As a % of average net assets including direct property costs 1.5 1.2
As a % of average net assets excluding direct property costs 0.9 0.8
Vacancy rate (%) 4.0 2.0
* Calculated, under AIC guidance, as gross borrowings less cash divided by
portfolio value.
† Assumes re-investment of dividends excluding transaction costs.
# Based on dividend paid in 2023 of 3.40p and the share price at 31 December
2023.
Sources: abrdn, MSCI
CHAIR’S STATEMENT
Dear Shareholder,
I am pleased to present the UKCM Annual Report for the year to December 2023.
The Board can report that the UK market has recovered a little of the poise
that was lost in the steep decline in commercial property values experienced
in the second half of 2022. The MSCI UK Quarterly property index recorded a
–1.0% total return for the year; a marked improvement from the –9.1% of
2022.
To set the scene for this muted performance, the Bank of England (BoE)
aggressively raised interest rates through the first half of 2023 before
settling at 5.25% in their August 2023 meeting, (and where they remain at the
time of writing). The UK’s Consumer Price Index (CPI), measuring inflation,
declined over the calendar year from a peak of 10.4% in February 2023 to 4.0%
by December 2023.
In such a context, with interest rates rising as inflation was falling, the
Government’s 10-year Gilt has been relatively volatile. Starting from a
yield as low as 1.13% at the beginning of January 2022, it peaked at around
4.5% in September that year, and then declined to around 3.0% by February
2023. The later months of the year have seen gilt yields rise back and surpass
that September 2022 peak, hitting 4.75% in August 2023. At the time of
writing, the 10-year Gilt has fallen back to a yield of around 4.3%, but the
generally increasing rate environment of 2023 has made it a difficult backdrop
for values to move ahead strongly, especially as GDP growth has remained
lacklustre.
The improvement in property returns recorded in 2023 (whilst still overall
negative) was led by the industrial and living sectors, both of which posted
positive total returns for the year, counterbalancing the office sector which
continued its decline as thematic headwinds remained. The lack of uniformity
across the sectors has been notable and offered opportunities for diversified
portfolio managers to orientate toward those sectors which would prospectively
perform well.
The industrial market rebounded from a bruising second half of 2022, posting a
positive annual total return of 4.1% by the end of the year according to the
MSCI Quarterly Index. Yields stabilised so that capital value growth levelled
out on an annual basis at the All Industrial level at –0.4%. London and the
Southeast posted
total returns of 3.2% and 4.0% respectively, and all regions posted positive
capital value changes on an annual basis. Market rental growth has decelerated
from the positive growth seen in 2022 as levels of supply and demand became
more balanced.
The retail sector posted an annual total return of –0.1% to December 2023
according to the MSCI Quarterly Index. The sector enjoyed something of a year
of two halves, with a relatively robust total return of 2.2% in the first half
but reducing again in the second half as the cost-of-living pressures cemented
themselves in consumer psychology. Consequential consumer spending habits and
structural changes in the market continue to influence performance. Typically,
value-conscious consumers have propelled discount retailers to the forefront
of UK retail sales and much of the recovery was influenced by strong
performance within the high-yielding shopping centres and resilient retail
warehousing sub-sectors, with the latter posting consistent month-on-month
rental growth over the year.
The office sector continued to underperform, delivering an annual total return
of –10.2% to December 2023 according to the MSCI Quarterly Index. Weakening
capital values led this decline, with the deterioration accelerating over 2023
as the Bank of England raised interest rates. An uneven performance
across the sector was experienced as London West End offices were
substantially stronger at –2.4% total annual return than the –13.9% and
–15.4% for the City of London and wider Southeast respectively. Market
rental value growth was also uneven with Midtown and West End offices leading
the pack with an annual 4.8% and 4.4% respectively, compared to 2.4% for the
year for all offices.
The alternatives sector, or ‘Other’ as categorised by MSCI, saw an annual
total return of –0.3% over 2023. Notable within these returns were a
resilient living sector, benefitting from a supply demand imbalance. Purpose
Built Student Accommodation (PBSA) delivered strong total returns of 2.7%,
with a return of 1.4% delivered solely in Q4. Elsewhere, the hotel market
reversed its recent fortunes in the face of sustained cost of living pressures
and delivered above All Property total returns at 0.8% to December 2023.
2024 has started with a renewed confidence and whilst ‘caution’ is the
watchword, the market is displaying the hallmarks of producing a positive
annual return for the year which would be welcomed by many. The Real Estate
Investment Trust market is seen by some as a leading indicator of the direct
market, and share prices have moved ahead in recent months, triggered by clear
anticipation of an improving macroeconomic
picture and the consequent potential for corporate transaction activity. The
direct property market is expected to follow later in the year and should
continue to improve into 2025 if lower interest rates result from inflation
stabilising. At the time of writing, oil and commodity prices are rising which
suggests the path to lower interest rates and uninterrupted economic growth
might not be straightforward.
In such a diverse out turn across sectors, assets and regions, the Company’s
managers have done well to record a relatively strong positive total return,
meaningfully exceeding the MSCI Benchmark index for the year.
Portfolio and Corporate Performance
Earnings Growth – the Company delivered a net £4.9 million p.a. increase in
rental income from active asset management (excluding lease incentive
adjustments) and three development completions (243,000 sq ft) during the
year.
Interest costs have been managed carefully and the company has shown
considerable balance sheet discipline. For example, during the year, the
Company sold an industrial asset in Wembley at 3.49% initial yield and paid
down its revolving credit facility (RCF) which had an interest cost of approx.
7.2% hence significantly enhancing net earnings on this sum.
Dividend cover on adjusted EPRA earnings for 2023 was 99% with an expectation
of this improving later in 2024 as asset management initiatives come through.
Year Adjusted EPRA EPS
2021 2.65 pence per share
2022 3.15 pence per share
2023 3.35* pence per share
*Excluding non-cash Cineworld adjustment announced in Q2 2023 results
NAV Stability – Valuations stabilised following the aggressive market
repricing in the final quarter of 2022, recording a -1.2% net asset value
movement in 2023. Taking into account the positive earnings for the year, the
Company’s NAV total return was 3% for the year.
The Board continued to authorise capital expenditure throughout the year to
invest in assets that would drive future earnings growth. The majority of
capital was utilised to progress the Company’s Hyatt hotel development in
Leeds which is expected to generate a 7.25% yield on cost when it completes
later this year, and which should contribute to enhanced earnings for the
company overall.
Pence per share
Opening Net Asset Value 31 December 2022 79.7
Gross Valuation movement 1.3
Capital Expenditure (2.3)
Net revenue 3.4
Quarterly dividends paid (3.4)
Closing Net Asset Value 31 December 2023 78.7
Disciplined Balance Sheet Management – Mindful of the uncertain
macroeconomic and geopolitical environment at the current time, the Company
continues to maintain a prudent approach to debt to allow it to maintain a
robust balance sheet. Gearing remains low relative to UKCM’s peer group at
17.2% (2022:20.0%) across its three debt facilities, as calculated using AIC
methodology.
All debt covenants are well covered and there is an additional £330 million
of unencumbered property which provides further significant headroom and
flexibility with respect to the Company’s covenant package.
UKCM consequently had financial resources of £91 million available at the end
of the year, after allowing for future capital commitments and the February
2024 dividend. The bulk of these resources relate to the Company’s reduced
RCF which is currently a relatively expensive form of debt and so only likely
to be deployed if a compelling and accretive opportunity arises.
Blended Group Loan to Value 17.2%*
Blended period to maturity 4.7 years
Weighted cost of drawn debt 3.56%
Drawn debt at fixed rate 84%
*Calculated under AIC guidance
As mentioned, the combination of balance sheet and asset management has led to
a property performance of 3.9% total return from UKCM’s high quality
portfolio, which represents a strong 1-year outperformance of 5.8%. against
the MSCI benchmark. UKCM’s Board and Manager are pleased to report long-term
outperformance of the property portfolio against the MSCI Benchmark over all
the traditional time periods of 1, 3,5 and 10 years as shown below.
UKCM Benchmark
1 Year 3.9% -1.9%
3 Years (% p.a.) 3.0% 1.2%
5 Years (% p.a.) 2.3% 0.9%
10 Years (% p.a.) 6.0% 5.4%
Since Inception (% p.a.) 4.7% 3.9%
Source :- MSCI
Portfolio Activity
Further details on all investment transactions and significant lettings during
2023 are outlined in the Annual Report and Accounts which is available to view
on the Company's corporate website at
https://www.ukcpreit.com/en-gb/literature/
Post the December 2023 year end, at the end of January 2024, the Company
completed the sale of its Craven House offices in London’s West End for £22
million at December 2023 valuation, representing a 4.6% net initial yield.
The Company believes that the benefits of recycling sale proceeds to reduce
floating rate debt costing 7.2% at this time outweighed the planning risk and
capital expenditure that would have been required to generate future rental
growth from the asset.
Furthermore, at the end of February 2024, the Company completed the sale of
its Temple Quay office in Bristol for £14.5 million, in line with the year
end December 2023 valuation. Although well located in Bristol, the property
was close to the end of its economic life with a short lease remaining. The
Investment Manager worked on many options but concluded that the property
would require a significant injection of capital to rejuvenate the asset,
which, together with planning risk and a redevelopment period would have
resulted in an extended period of no income.
Dividends
The Company paid four interim dividends totalling 3.40 pence per share during
the period. This represents an 4.6% increase in ordinary distributions over
the year, a level which was 99% covered. Positive initiatives in hand within
the portfolio are anticipated to give the Board an opportunity to keep this
dividend level under review in 2024.
Environmental, Social and Governance (“ESG”)
The Board fully appreciates the importance of embedding ESG within our ways of
working, and ESG considerations underpin every Board discussion and decision.
Whilst taking ESG seriously is of critical importance to the world in general,
the Board believes that it also plays a critical role in both protecting and
creating future value for the company’s portfolio, and that the Board’s
focus on ESG at the company and asset level will lead to enhanced income for
shareholders.
Real estate has a very large role to play in our environment, and the Company
has previously announced two significant Net Zero Carbon targets following a
bottom-up asset-level review across the entire portfolio. By 2030, we aim to
achieve Net Zero Carbon for landlord operational emissions and extend this to
all emissions by 2040. These targets are in advance of the UK Government’s
target of 2050. Further details on all targets are outlined in the ESG Report.
I would like to thank my fellow Board members and the Investment Manager for
their considerable commitment to the company over the reporting year, and it
has been gratifying to see the share price improve markedly to the benefit of
shareholders over this time.
Recommended all-share combination
On 21 March 2024, the Company announced they had reached agreement on the
terms of a recommended all-share combination with Tritax Big Box REIT plc
(“BBOX”) pursuant to which BBOX will acquire the entire issued and to be
issued ordinary share capital of the Company (the "Combination").
The Combination is conditional on, among other things, the approval of the
Company's shareholders at a Court Meeting and a General Meeting to be held on
2 May 2024.
For full details of the Combination, please refer to the scheme document
published by the Company on 9 April 2024, available through the Company's
website at ukcpreit.com/en-gb/merger
Peter Pereira Gray
Chair
19 April 2024
DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Annual Report and the Group
Consolidated Financial Statements in accordance with applicable Guernsey law
and those International Financial Reporting Standards (“IFRS”) as adopted
by the European Union. They are also responsible for ensuring that the Annual
Report includes information required by the Rules of the FCA.
In preparing those Group Consolidated Financial Statements the Directors are
required to:
* Select suitable accounting policies in accordance with IAS 8: Accounting
Policies, Changes in Accounting Estimates and Errors and then apply them
consistently;
* Make judgement and estimates that are reasonable and prudent;
* Present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* Provide additional disclosures when compliance with the specific
requirements in IFRS as adopted by the European Union is insufficient to
enable users to understand the impact of particular transactions, other events
and conditions on the Group’s financial position and financial performance;
* State that the Group has complied with IFRS as adopted by the European
Union, subject to any material departures disclosed and explained in the Group
Consolidated Financial Statements; and
* Prepare the Group Consolidated Financial Statements on a going concern basis
unless it is inappropriate to presume that the Group will continue in
business.
The Directors confirm that they have complied with the above requirements in
preparing the Group Consolidated Financial Statements.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain, the Group’s transactions and disclose with
reasonable accuracy at any time, the financial position of the Group and
enable them to ensure that the Group Consolidated Financial Statements comply
with The Companies (Guernsey) Law 2008.
The Directors are responsible for ensuring that the Group complies with the
provisions of the Listing Rules and the Disclosure Rules and Transparency
Rules of the FCA which, with regard to corporate governance, require the Group
to disclose how it has applied the principles, and complied with the
provisions, of the AIC Code on Corporate Governance applicable to the Group.
The maintenance and integrity of the Company’s website is the responsibility
of the Directors through its Investment Manager; the work carried out by the
auditors does not involve considerations of these matters and, accordingly,
the auditors accept no responsibility for any change that may have occurred to
the Consolidated Financial Statements since they were initially presented on
the website. Legislation in Guernsey governing the preparation and
dissemination of the consolidated financial statements may differ from
legislation in other jurisdictions.
On behalf of the Board
Peter Pereira Gray
Director
19 April 2024
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2023
Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
INCOME
Rental income 66,602 66,930
Service charge income 6,229 6,451
Loss on investment properties (8,451) (263,090)
Loss on liquidation of subsidiaries - (117)
Total income / (expense) 64,380 (189,826)
EXPENDITURE
Investment management fee (6,738) (8,617)
Direct property expenses (6,911) (6,266)
Service charge expenses (6,229) (6,451)
Other expenses (2,832) (2,299)
Total expenditure (22,710) (23,633)
Operating profit / (loss) before finance costs 41,670 (213,459)
FINANCE COSTS
Finance costs (11,189) (9,181)
Interest income 1,227 311
Net finance costs (9,962) (8,870)
Operating profit / (loss) after finance costs 31,708 (222,329)
Net profit / (loss) from ordinary activities before taxation 31,708 (222,329)
Taxation on profit/(loss) on ordinary activities - -
Net profit / (loss) for the year 31,708 (222,329)
Total comprehensive income / (deficit) for the year 31,708 (222,329)
Basic and diluted earnings per share 2.44p (17.11)p
Adjusted EPRA earnings per share 3.35p 3.15p
The accompanying notes are an integral part of this statement, these are
available to view on the Company's corporate website at
https://www.ukcpreit.com/en-gb/literature/
All of the profit and total comprehensive income for the year is attributable
to the owners of the Company. All items in the above statement derive from
continuing operations.
CONSOLIDATED BALANCE SHEET
As at 31 December 2023
Year ended Year ended
31 December 2023 £’000 31 December 2022 £’000
NON-CURRENT ASSETS
Investment properties 1,179,527 1,275,610
1,179,527 1,275,610
CURRENT ASSETS
Investment properties held for sale 44,068 -
Trade and other receivables 42,125 52,648
Cash and cash equivalents 22,115 30,861
108,308 83,509
Total assets 1,287,835 1,359,119
CURRENT LIABILITIES
Trade and other payables (28,256) (31,714)
(28,256) (31,714)
NON-CURRENT LIABILITIES
Bank loans (236,332) (291,686)
Total liabilities (264,588) (323,400)
Net assets 1,023,247 1,035,719
REPRESENTED BY
Share capital 539,872 539,872
Special distributable reserve 538,451 542,472
Capital reserve (55,076) (46,625)
Revenue reserve - -
Equity shareholders’ funds 1,023,247 1,035,719
Net asset value per share 78.7p 79.7p
The accompanying notes are an integral part of this statement, these are
available to view on the Company's corporate website at
https://www.ukcpreit.com/en-gb/literature/
The accounts were approved and authorised for issue by the Board of Directors
on 19 April 2024 and signed on its behalf by:
Peter Pereira Gray
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December
2023
Share Capital Special Distributable Reserve Capital Reserve Revenue Reserve Equity shareholders’ funds
£’000 £’000 £’000 £’000 £’000
At 1 January 2023 539,872 542,472 (46,625) - 1,035,719
Total comprehensive income - - - 31,708 31,708
Dividends paid - - - (44,180) (44,180)
Transfer in respect of loss on investment property - - (8,451) 8,451 -
Transfer from special distributable reserve - (4,021) - 4,021 -
As 31 December 2023 539,872 538,451 (55,076) - 1,023,247
For the year ended 31 December 2022
Share Capital Special Distributable Reserve Capital Reserve Revenue Reserve Equity shareholders’ funds
£’000 £’000 £’000 £’000 £’000
At 1 January 2022 539,872 568,891 216,465 - 1,325,228
Total comprehensive deficit - - - (222,329) (222,329)
Dividends paid - - - (67,180) (67,180)
Transfer in respect of loss on Investment property - - (263,090) 263,090 -
Transfer from special distributable reserve - (26,419) - 26,419 -
As 31 December 2022 539,872 542,472 (46,625) - 1,035,719
The accompanying notes are an integral part of this statement, these are
available to view on the Company's corporate website at
https://www.ukcpreit.com/en-gb/literature/
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2023
Year ended Year ended
31 December 2023 £’000 31 December 2022 £’000
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit/(loss) for the year before taxation 31,708 (222,329)
Adjustments for:
Loss on investment properties 8,451 263,090
Loss on liquidation of subsidiaries - 116
Movement in lease incentives (4,451) (2,360)
Movement in provision for bad debts 1,876 256
Decrease in operating trade and other receivables 13,098 219
(Decrease) / Increase in operating trade and other payables (3,458) 4,016
Net Finance costs 9,962 8,870
Net cash inflow from operating activities 57,186 51,878
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment properties (225) (8,304)
Sale of investment properties 73,664 25,609
Capital expenditure (29,707) (48,517)
Net cash inflow/(outflow) from operating activities 43,732 (31,212)
CASH FLOWS FROM FINANCING ACTIVITIES
Facility fee charges from bank financing (828) (727)
Dividends paid (44,180) (67,180)
Bank loan repaid (68,000) (10,000)
Bank loan drawdown 12,500 53,000
Bank loan interest paid (9,609) (7,166)
Loan facility set up costs (744) (164)
Interest income 1,227 311
Net cash outflow from financing activities (109,664) (31,926)
Net decrease in cash and cash equivalents (8,746) (11,260)
Opening cash and cash equivalents 30,861 42,121
Closing cash and cash equivalents 22,115 30,861
REPRESENTED BY
Cash at bank 16,066 21,321
Money market funds 6,049 9,540
22,115 30,861
The accompanying notes are an integral part of this statement, these are
available to view on the Company's corporate website at
https://www.ukcpreit.com/en-gb/literature/
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
Fax: 01481 745051
Will Fulton / Jamie Horton / Peter Taylor, abrdn
Via FTI consulting
Richard Sunderland / Emily Smart / Andrew Davis, FTI Consulting
Tel: 020 3727 1000
UKCM@fticonsulting.com
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