UK Commercial Property REIT Limited (LON: UKCM) which is managed and advised by Aberdeen Standard Investments and owns a diversified portfolio of high quality income-producing UK commercial property announces its final results for the year ended 31 December 2018.
Four important initiatives delivered in 2018 and into 2019 which are expected to strengthen the business and enhance future returns for shareholders
· Conversion to a REIT on 1 July 2018, safeguarding the Company from future changes in legislation that would have negatively impacted returns. UKCM is now one of the largest diversified REITs in the UK.
· In December, the Company completed its largest acquisition to date through the purchase of an earnings enhancing portfolio of distribution units in the Midlands for £85.4 million.
· In February 2019, the Company refinanced its debt facilities at a reduced cost, extending the maturity dates, increasing both the flexibility and quantum of debt available.
· In April 2019, Shareholders approved the expansion of the Company’s investment policy allowing the Investment Manager the flexibility to invest further into alternative property assets such as healthcare, student housing, hotels, car parks, pubs, petroleum and automotive and the commercially-managed private rental residential sector.
Financial Highlights – Positive returns and attractive dividend yield
· NAV total return of 4.5% (2017: 12.2%) delivered with continued low net gearing of 14.6% which remains one of the lowest in the Company’s peer group and the wider REIT sector.
· Portfolio total return of 5.9% (MSCI IPD benchmark of 6.7%) as real estate returns continued to prove resilient. Over three years the portfolio has returned 24.0% (MSCI IPD benchmark 22.2%).
· Attractive dividend yield of 4.4% in an environment where interest rates are forecast to stay low.
· Share price total return of -2.0% in the year comparing favourably to the minus 12.4% on the FTSE All-Share REIT Index and -9.5% on the FTSE All Share Index.
· £95 million of financial resources available for investment opportunities following the debt refinancing in February 2019.
· EPRA earnings per share (excluding non-recurring tax items) of 3.03p (2017: 3.42p), equating to a dividend cover of 82% which is expected to grow given acquisition of Midlands portfolio in December 2018.
Investment activity continues to drive valuation and improve long term income returns
· 3.4% increase in portfolio valuation to £1.45 billion as at 31 December 2018 (2017: £1.40 billion).
· £329 million of investment transactions during the year, selling retail and low yielding peak-cycle assets, and buying higher yielding, largely industrial, stock where we see further value potential is anticipated.
· 16.5% of portfolio income now derived from leases with fixed or inflation-linked uplifts
Positive leasing momentum with portfolio offering strong reversionary potential.
· Over £7.7 million of the annual income was secured after rent free periods and incentives through 19 new leases and 19 lease renewals / rent reviews.
· Occupancy rate increased to 93.1% in the year (2017: 92.4%) and compares favourably to the benchmark occupancy rate of 92.8%. Over half the remaining vacancy is in well located units in the industrial sector which offer opportunities to improve future returns. Less than 20% of the vacancy is in the retail sector.
· 99% of rent collected within 21 days underlining the continued strength of a tenant base that has an unexpired lease term of 9.4 years.
· Portfolio yield of 4.5% with reversionary yield of 5.3% highlighting the reversionary nature of the portfolio and scope for future earnings growth.
Commenting on the results, Andrew Wilson, Chair of UK Commercial Property REIT Limited , said:
“During the past year the Company has completed on a number of strategic initiatives to ensure that UK Commercial Property REIT remains well positioned for growth despite the current climate of political uncertainty. This includes the Company’s conversion to REIT, as well as a debt refinancing which concluded post the year end and will provide greater flexibility and firepower whilst reducing borrowing costs. The Company has continued to reduce its exposure to the retail sector and to sell out of ex-growth assets, recycling proceeds into opportunities with sustainable income characteristics whilst maintaining low gearing. As a result, an increasing percentage of portfolio income is subject to fixed uplifts, underpinning an attractive dividend yield and the potential for improving dividend cover.”
Will Fulton, Lead Manager of UK Commercial Property REIT Limited at Aberdeen Standard Investments added:
“Investment activity during the year saw the percentage of UKCM’s portfolio weighted towards the favoured industrial sector increase to 46%, following the Company’s largest acquisition to date of a distribution portfolio in the Midlands. We have also secured shareholder approval to expand UKCM’s investment policy, which coupled with a strong balance sheet, provides us with greater flexibility to further expand our well-diversified portfolio by deploying capital into opportunities where we see value for shareholders. Occupancy across the portfolio remains high at 93.1%, with the majority of vacancy in well located industrial units, where we have already secured a significant pre-let at Wembley, and which is the focus of our ongoing active asset management strategy.”