UK Commercial Property REIT Limited (FTSE 250, LSE: UKCM) which owns a £1.3 billion diversified portfolio of high-quality income-producing UK commercial property and is managed and advised by abrdn, announces its interim results for the half year ended 30 June 2023.
FINANCIAL REVIEW AS AT 30 JUNE 2023
Net Asset Value (“NAV”) total return of 3.9*% (H1 2022: 12.3%) reflecting portfolio quality and strength.
Share price total return of -14.5%* (H1 2022: 2.3%).
• EPRA EARNING PER SHARE
Underlying EPRA earnings per share increased 6% to 1.67# pence per share (H1 2022: 1.58p)
1.70p paid to shareholders. 98%* dividend cover.
Low gearing of 15.6%* (2022: 20.0%) as at 30 June 2023 remains one of the lowest in the Company’s peer group. Strong balance sheet and low weighted cost of debt at 3.35% per annum, with a blended period to maturity of 5.3 years.
PORTFOLIO REVIEW AS AT 30 JUNE 2023
Portfolio total return of 3.9% resulted in continued outperformance of the Company’s MSCI benchmark, of 0.0%, driven by the positive relative performance of the Company’s industrial portfolio and minimal office exposure.
Portfolio is now valued at £1.3 billion. We believe that the Company’s well-let portfolio of scale, which is heavily weighted towards future-fit sectors and offers good prospects for rental growth, is well placed to deliver positive relative performance with good potential for future earnings growth.
Strategic disposal of Wembley logistics asset for £74 million (3.49% sale yield) allowed the Company to reduce debt and optimise its balance sheet.
Occupancy rate of 95.6% at 30 June 2023. 96.4% post period after fully letting newly developed Sussex Junction. Majority of remaining vacancy is at three assets, of which two are industrial developments or major refurbishments completed in H1 2023.
243,482 sq ft completed in H1 2023. 305-bedroom Hyatt Hotel in Leeds on track for completion in H2 2024.
#EPRA EPS 1.45p allowing for non-cash exceptional item. As a result of the Company’s restructure with Cineworld it experienced a non-cash, accounting adjustment creating dividend cover of 85% for the period, without which it would have been 98% covered.
*See EPRA and Alternative performance measures for further details.
Commenting on the results, Peter Pereira Gray, Chair of UKCM, said: “At my first interim results as Chair of UKCM, I am pleased to report a strong performance for the first six months of 2023, with the Company’s diversified portfolio proactively positioned towards income growth and security, which has delivered a valuation uptick over the period. The long term strategic overweight position to future fit, operational asset classes that look to capitalise on the imbalance between supply and demand has enabled the team to capture rental reversion and increase earnings on behalf of shareholders”.
“Disciplined balance sheet management, including the use of sales proceeds to pay down debt, ensures UKCM is one of the lowest geared companies in its peer group and the wider REIT sector. This is particularly prudent in the current interest rate environment as it maximises income accretion and provides the company with greater flexibility”.
“While UKCM’s portfolio valuation has stabilised and continues to perform well at an operational level, the Board is aware of the discount at which the Company’s shares, and other diversified REIT’s shares, trade relative to their net asset value and it is considering options to redress this with the Investment Manager. I am cautiously optimistic that the strength of UKCM’s portfolio and its robust, growing income will ensure it performs well over the longer term and is well positioned as the macroeconomic outlook improves.”
Will Fulton, Fund Manager of UKCM at abrdn, added: “The valuation increase of our portfolio is a reflection of the stabilisation of the real estate sector and the quality of our assets, which are heavily weighted towards sectors that benefit from structural tailwinds, such as industrial and logistics. Our sale of the Company’s Wembley logistics asset, for a healthy £74 million at a 3.49% yield, allowed us to optimise the Company’s balance sheet by repaying our sliver of more expensive debt to enhance earnings.”
“Through active management we have also unlocked some of the significant reversion potential in the existing portfolio during the period, including letting space significantly ahead of ERV at several of our assets. Positively we have further near-term opportunities for earnings growth across the portfolio, as well as the expected completion of the 305-room Hyatt Leeds hotel next year to boost rental income further”.
“As we move into the second half of the year, we remain confident in the strength of our portfolio, with low vacancy and robust rent collection demonstrating its underlying quality. While we are aware of the share price dislocation, we believe earnings growth through active asset and company management, a strategic portfolio allocation set for growth, and strong balance sheet discipline will create the best foundations for the stock to shine when, or ahead of, a recovery in the real estate sector.”