UK Commercial Property REIT Ltd - Fourth Interim Dividend for 2023
(an authorised closed-ended investment company incorporated in
Guernsey with registration number 45387)
LEI Number: LEI number: 213800JN4FQ1A9G8EU25
(The “Company” or “UKCM”)
FINAL RESULTS FOR THE YEAR ENDED
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
3 Calculated under AIC guidance, as gross borrowings less cash divided by portfolio value.
For further information please contact:
Via FTI consulting
Tel: 020 3727 1000
The Company's Annual Report and Accounts for the year ended
PERFORMANCE SUMMARY
CAPITAL VALUES AND GEARING 31 December 2023 31 December 2022 % Change
Total assets less current liabilities 1,259,579 1,327,405 -5.1%
(excl Bank loan) £’000
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 3 year 5 year
% return % return % 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 (1.9) 3.7 4.3
Property Index
FTSE Real Estate Investment Trusts 11.6 (1.1) 8.3
Index
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 31,708 (222,329)
£’000
Adjusted EPRA Earnings per share (p) 3.35 3.15
IFRS Earnings per share (p) 2.44 (17.11)
Dividends declared per ordinary share 3.40 3.25
(p)
Dividend Yield (%)# 5.5 5.6
MSCI Benchmark Yield (%) 5.1 4.8
FTSE Real Estate Investment Trusts 4.5 4.6
Index Yield (%)
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
Sources: abrdn, MSCI
CHAIR’S STATEMENT
Dear Shareholder,
I am pleased to present the UKCM Annual Report for the year to
The Board can report that the
To set the scene for this muted performance, the
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
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
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
The office sector continued to underperform, delivering an annual total return of –10.2% to
across the sector was experienced as London
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
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.
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
________________________________________________________ | |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
_____________________________________ |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
Furthermore, at the end of
Dividends
The Company paid four interim dividends totalling
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
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
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
For full details of the Combination, please refer to the scheme document published by the Company on
Chair
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
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
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
Director
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended31 December 2023 Year ended Year ended 31 December 2023 31 December 2022 £’000 £’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 41,670 (213,459) costs 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 31,708 (222,329) before taxation Taxation on profit/(loss) on ordinary - - activities Net profit / (loss) for the year 31,708 (222,329) Total comprehensive income / (deficit) for 31,708 (222,329) the year 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 at31 December 2023 Year ended Year ended 31 December 2023 31 December 2022 £’000 £’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
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2023
Special Equity
Capital Revenue
Share Capital Distributable Reserve Reserve shareholders’
Reserve funds
£’000 £’000 £’000 £’000 £’000
At 1 January 539,872 542,472 (46,625) - 1,035,719
2023
Total
comprehensive - - - 31,708 31,708
income
Dividends paid - - - (44,180) (44,180)
Transfer in
respect of
loss on - - (8,451) 8,451 -
investment
property
Transfer from
special - (4,021) - 4,021 -
distributable
reserve
As 31 December 539,872 538,451 (55,076) - 1,023,247
2023
For the year ended 31 December 2022
Special Equity
Capital Revenue
Share Capital Distributable Reserve Reserve shareholders’
Reserve funds
£’000 £’000 £’000 £’000 £’000
At 1 January 539,872 568,891 216,465 - 1,325,228
2022
Total
comprehensive - - - (222,329) (222,329)
deficit
Dividends paid - - - (67,180) (67,180)
Transfer in
respect of
loss on - - (263,090) 263,090 -
Investment
property
Transfer from
special - (26,419) - 26,419 -
distributable
reserve
As 31 December 539,872 542,472 (46,625) - 1,035,719
2022
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 ended31 December 2023 Year ended Year ended 31 December 2023 31 December 2022 £’000 £’000 CASH FLOWS FROM OPERATING ACTIVITIES Net profit/(loss) for the year before 31,708 (222,329) taxation 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 13,098 219 receivables (Decrease) / Increase in operating trade and (3,458) 4,016 other payables 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 43,732 (31,212) activities 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
Trafalgar Court
Les Banques
Guernsey
GY1 3QL
Tel: 01481 745001
Fax: 01481 745051
Via FTI consulting
Tel: 020 3727 1000
