The following amendment(s) has (have) been made to the 'Net Asset Value at 30 September 2021' announcement released on 04 November 2021 at 07.00am.

The like-for-like changes in the Sector Analysis table for South East Offices and the total portfolio have been changed from -16.7% and 8.1% respectively, to -5.4% and 4.7%.

All other details remain unchanged.

The full amended text is shown below.


4 November 2021

UK Commercial Property REIT Limited (“UKCM” or “the Company”)

Net Asset Value at 30 September 2021


Net Asset Value

  • 4.8% growth in NAV per share to 94.5p (30 June 2021: 90.2p) for the third quarter, reflecting a 9.0% increase since the start of the year. This has resulted in an NAV total return of 5.5% for the third quarter and 15.1% year to date.
  • Continued low net gearing of 4.3%1 (gross gearing 14.0%2).
  • Like-for-like portfolio capital value, net of capital expenditure, increased by 4.7% to £1.3 billion, outperforming the MSCI monthly index, which increased 3.3% over the quarter.
  • Rent collection for the fourth quarter of 2021 (collectively the 29 September and 1 October, English, and 28 August, Scottish, quarterly billing dates) stood at 92% after allowing for agreed rent deferrals and including those tenants who have paid, by agreement, on a monthly basis. This figure is in line with rent collection rates for the previous quarters of 2021, reflecting the improved economic picture.
  • The EPRA Net Tangible Assets per share is 94.5p (30 Jun 2021: 90.2p) with EPRA earnings per share for the quarter increasing 3.5% to 0.59p (30 Jun 2021: 0.57p).
  • The quarterly dividend of 0.644p per share has been maintained for the third quarter.

Positive Investment Activity

  • UKCM today announced the Company has exchanged on the £35 million purchase of West Gate, a 98,000 sq ft office building on Hanger Lane in West London, which is let to Kantar UK Limited for 10 years.  The asset offers a growing income return that is immediately accretive to the existing portfolio, subject to a five yearly CPI-linked rent review. The asset also presents a number of redevelopment options as part of the medium term business plan with a conversion to industrial being the most likely option given the property’s close proximity to Park Royal, one of Europe’s largest urban industrial areas.
  • In September, the Company purchased Trafford Retail Park in Manchester for £33 million.  It is a good quality asset in a strategic location, with a robust tenant base of bulky goods, discount and convenience retailers let at sustainable rents.  This type of retail asset has seen growing interest from the investment market and this is reflected in a 6% capital uplift between acquisition and the Q3 valuation.
  • These acquisitions are in line with the Company’s strategy to invest in modern economy, future fit property sectors which are supported by structural changes in both the economy and society. 
  • Also in September Network House, Hemel Hempstead, a stand alone vacant office pavilion, was sold for residential development for a sum of £6.3 million, significantly reducing the void rate.

Asset management driving occupancy and value

The Company has further reduced its already very low void rate to 2.5% as the asset management team continues to make good progress on growing the portfolio’s income.  The successful disposal of the vacant office, Network House, Hemel Hempstead, further improved wider portfolio occupancy.

Notable transactions over the last quarter include:

  • At St Georges Retail Park, Leicester Next entered into a new five year lease over Unit 3. The turnover based rent is expected to provide the Company with around £150,000 of income per annum.  The store, which will act as a Next clearance outlet, will further improve the Park’s tenant mix and is expected to drive footfall.
  • At Trafford Retail Park, Manchester a new 15 year lease was completed with fast food operator Five Guys over the former Carphone Warehouse unit at an annual rent of £66,000 per annum. On opening the restaurant will significantly enhance the already strong F&B offering at this newly acquired asset.   
  • At Regents Circus, Swindon, unit 1 has been let to pizza restaurant Dough & Co on a 15 year lease at an annual rent of £75,000 per annum ahead of the unit’s ERV. The asset has significant leasing momentum following successful lettings announced in the summer.

Strong balance sheet with significant covenant headroom and flexibility

  • Robust balance sheet with low gearing and significant financial resources of £207 million available, after exchanging on Hanger Lane, comprising uncommitted cash of £57 million, after allowing for future capital commitments and the dividend payable in November 2021, as well as £150 million available from UKCM’s low cost, revolving credit facility. Together, these resources provide the Company with significant liquidity and flexibility at both a corporate and portfolio level.
  • The Company’s net gearing is 4.3% as at 30 September 2021. The drawn debt has an overall blended interest rate of 2.88% per annum with a weighted maturity of 7.4 years. Gross gearing as at 30 September 2021 was 14.0% (Jun 21: 14.6%).

Rent Collection remains robust

  • Rent collection has remained robust, improving in the third quarter. Payments received so far for Q4 rent reflect 92% of rents due as at close of business on 1 November 2021, (collectively the 29 September and 1 October English, and 28 August Scottish, quarterly billing dates) after allowing for agreed rent deferrals and including those tenants who have paid, by agreement, on a monthly basis. 

The table below sets out the third quarter’s rent collection, split between sectors:

% of Q4 2021 rent demanded % collected
Industrial  54% 97%
Office  17% 81%
Retail  16% 86%
Other   13% 96%
Total 100% 92%

The Company has a diverse tenant mix with a number of high quality occupiers, the largest five of which comprise COVID-19 resilient businesses such as Ocado (5.5% of rent), Warner Brothers (5.3%), Amazon (5.0%), Total (3.9%), and B&Q (3.4%). 

Overall rent collection rates have remained robust and have notably improved at the Company’s leisure assets this quarter reflecting the renewed optimism in the sector brought by the easing of Covid-19 restrictions and in particular the release of high profile films such as the latest James Bond film which has brought filmgoers back to the portfolio’s cinema-anchored assets. The Team continues to work closely with tenants to collect rents and arrears accrued in previous quarters.

The third quarter dividend has been maintained at 0.644p per share, following the 40% dividend increase announced in relation to the first quarter of 2021.

The Board believes this current level continues to be appropriate and sustainable given the improved outlook for the wider economy as lockdown is eased and in light of the Company’s rent collection levels and planned investment activity. This level of dividend also offers the potential for future growth as and when the Company’s significant financial resources are utilised for further acquisitions following the purchase of Trafford Retail Park at the end of the quarter.

1Net gearing - Gross borrowing less cash divided by total assets (excluding cash) less current liabilities

2Gross gearing - Gross borrowings divided by total assets less current liabilities

Ken McCullagh, Chair of UKCM, commented: “Over the course of the summer and into autumn the UK economy has continued to perform well as life has returned to normal.  This is reflected in another strong quarter for UKCM, with a positive portfolio revaluation driven by the performance of our industrials assets which is underpinned by continued demand led rental growth and yield compression.  We are exploring a healthy pipeline of investment opportunities and expect to put our balance sheet to work in acquiring these in line with our strategy of growing our diversified portfolio and our income on behalf of shareholders.  With the onset of winter, we remain acutely aware that the next few months will give us a true reflection of where the UK is in relation to pandemic and, while we remain cautiously optimistic, we also are well placed financially and operationally to weather any temporary setbacks in the unlocking of the economy.”

Kerri Hunter, Interim Lead Manager of UKCM at abrdn, said: “Over the course of the third quarter we added the Trafford Retail Park to the portfolio, a strong asset expected to deliver a solid income stream, with the potential for future growth. Over the same period we also disposed of a vacant and obsolete office asset which, alongside the continued strong leasing momentum, helped us further improve portfolio occupancy which now stands at around 97.5%. Additionally, today we have progressed our investment strategy with the agreement to purchase Hanger Lane. Looking forward, we have a strong pipeline of further investment opportunities under consideration which, if converted, will allow us to commit a sizeable amount of further capital over the coming months.”

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 30 June 2021 to 30 September 2021:

UK Commercial Property REIT Limited Per Share (p) Attributable Assets (£m) Comment
Net assets as at 30 June 2021 90.2 1,172.5
Unrealised increase in valuation of property portfolio 7.3 95.1 Predominantly like for like increase of 4.7% in property portfolio.
Loss on sale 0.0 -0.1 Principally loss on sale after costs relating to Network House, Hemel Hempstead.
Capex -3.0 -39.4 Predominantly relates to the acquisition of Trafford Park and the capex for the ongoing student accommodation developments at Exeter and Edinburgh.
Income earned for the period 1.1 14.1 Equates to dividend cover of 92%.
Expenses for the period
Dividend paid on 27 August 2021 -0.6 -8.4
Net assets as at 30 Sept 2021 94.5 1,227.4

The EPRA Net Tangible Assets per share is 94.5p (30 Jun 2021: 90.2p) with EPRA earnings per share for the quarter being 0.59p (30 Jun 2021: 0.57p).

Sector Analysis

Portfolio Value as at 30 Sep 21 (£m) Exposure as at 30 Sep 21 (%) Like for Like Capital Value Shift (excl sales, purchases & CAPEX) Capital Value Shift (including sales & purchases)     (£m)
Valuation as at 30 Jun 21 1,205.6
Industrial 811.5 62.7 7.0 52.8
South East 40.5 7.3 35.5
Rest of UK 22.2 6.4 17.3
Retail 171.7 13.2 5.7 42.6
High St – South East 1.1 2.3 0.3
High St- Rest of UK 1.4 2.4 0.4
Retail Warehouse 10.7 6.8 41.9
Offices 161.8 12.5 -2.7 -10.7
West End 2.3 0.0 0.0
South East 3.3 -5.4 -8.7
Rest of UK 6.9 4.9 -2.0
Alternatives 150.3 11.6 0.6 5.0
External valuation at 30 Sep 21 1295.3 100.0 4.7 1,295.3

The independent valuation as at 30 September 2021 was carried out by CBRE Ltd.

Net Asset Value analysis as at 30 September 2021 (unaudited)

       £m % of net assets
Industrial 811.5 66.1%
Retail 171.7 14.0%
Offices 161.8 13.1%
Alternatives 150.3 12.2%
Total Property Portfolio 1,295.3 105.5%
Adjustment for lease incentives -27.6 -2.3%
Fair value of Property Portfolio 1,267.7 103.2%
Cash 143.1 11.7%
Other Assets 42.5 3.5%
Total Assets 1,453.2 118.4%
Current liabilities -27.6 -2.3%
Non-current liabilities (bank loans) -198.2 -16.1%
Total Net Assets 1,227.4 100.0%

The NAV per share is based on the external valuation of the Company’s direct property portfolio as at 30 September 2021. It includes all current period income and is calculated after the deduction of all dividends paid prior to 30 September 2021.

The NAV per share at 30 September 2021 is based on 1,299,412,465 shares of 25p each, being the total number of shares in issue at that time.

Investment Manager’s Market Commentary

Economic outlook

  • UK GDP grew by more than previously thought in the April-to-June period, increasing by 5.5% in the second quarter. This was stronger than the preliminary estimate of growth of 4.8% from the ONS. Encouragingly, this means that the UK economy is now 3.3% below its level in the fourth quarter of 2019, before the pandemic struck. The underlying pace of recovery is expected to slow from here but the trajectory remains positive.
  • Despite the upward revision to second-quarter GDP, more timely monthly figures showed that the recovery had largely stalled in July. Hesitation caused by the spread of the Delta variant of Covid-19 and the ‘pingdemic’ kept many workers at home self-isolating. Despite a slowdown in recovery in July, the abrdn Research Institute (aRI) forecasts GDP growth of 6.8% for the calendar year 2021. 
  • Pricing pressures are building in the UK, with headline and core CPI inflation increasing to 3.2% and 3.1%, respectively, in August. Some of the increase reflected coronavirus schemes that were introduced last summer to help support the economy. These included ‘eat out to help out’, which lowered prices temporarily. Cost pressures on businesses, supply chain issues and a tight labour market are expected to keep inflation at higher levels for the remainder of 2021. aRI expects UK inflation to reach a peak of around 5% heading into 2022, before gradually returning to more normalised levels.
  • The Bank of England has given clear signals that interest rates may have to be increased gradually to bring inflation back closer to the 2% target rate. Expectations are that increases are imminent, rates are forecast to remain very low in a historical context.

Occupier trends

  • There is little indication that demand for industrial space is waning, with the sector continuing to record impressive take-up numbers. As a result, the vacancy rate for the sector is now below 3%, according to CoStar data. The industrial sector has experienced a supply response but with increased build-cost inflation presenting a major headwind, it is widely anticipated that some of this supply pipeline will face delays in completion. This will benefit up-and-built assets.
  • Workers in the UK have been gradually returning to offices throughout the third quarter, after coronavirus restrictions were lifted. Levels of occupation remain significantly below pre-pandemic levels and it is clear that there is no one-size-fits-all approach applied by employers. The long-term impact on the way that offices are utilised, and how much space businesses will require in the future, remains highly uncertain at present. Although vacancy rates are higher, they have shown tentative signs of stabilisation – particularly for Grade A offices in central London.
  • Retail footfall data is recovering as restrictions have been lifted across the UK, but it remains below pre-Covid-19 levels. High street footfall is being supported by a move back to the office, demonstrated by a greater increase in central London and large city centres outside the capital. However, with inflation increasing and National Insurance contributions set to increase by 1.25% in April 2022, there is a risk that consumer spending will be detrimentally affected heading into next year. This presents a headwind for the retail sector.

Investment trends

  • Investment volumes picked up considerably during the second quarter of 2021, reaching £15.8 billion. Despite a modest slowdown during the summer, the trend has continued into the third quarter; investment volumes were over £10 billion, according to property data. Sentiment towards UK real estate has improved markedly, which is now feeding through into the investment market.
  • UK real estate performance has rebounded during the third quarter, as restrictions were lifted and the economy has re-opened. During the 12 months to August 2021, all property total returns reached 11.6%, with the industrial sector recording an exceptional 27.2% return over the same period. A recovery in retail warehouse performance is now evident, with a total return of 12.4% recorded over the 12 months to August. This helped lift overall retail total returns to 5.1%, which were ahead of those from the office sector (1.8%) and is reflected in our own portfolio.
  • The demand for prime office assets was evident once again this quarter, with offices accounting for six of the top-ten deals recorded. Overseas investors continue to play a very important role in terms of demand in this area of the market.

Performance outlook and risk tolerance

  • Structural tailwinds are now acutely visible within the industrial sector in particular. Driven predominantly by yield compression, total returns in the 12 months to August reached 27.2% – a figure not seen since December 1989. Moving forward, the occupational market is expected to be the key driver of performance, with prime industrial assets best placed to capture rental value growth.
  • Polarisation within the retail sector is expected to continue, given recent performance within the retail warehouse sector. The sector rebounded strongly in the second half of 2021, with prime yields moving in by 75-100 basis points (bps). But this is narrowly focused on assets that are let on affordable rents, and anchored by grocery, discount and DIY occupiers. The outlook for fashion-oriented parks, high-street shops and shopping centres remains more challenging, given their vulnerability to online retail sales.
  • As is the case with the retail sector, the polarisation in performance will become more evident in the office sector, in our view. The best-quality space will continue to experience more robust demand, providing greater support for rents and pricing. However, for secondary office assets that fail to comply with increasingly stringent ESG requirements and don’t possess the necessary amenity or flexibility credentials, the outlook is far more challenging. This is yet to be shown in performance, but we expect this to be more evident as we move into 2022.
  • Despite indications that the Bank of England could be looking to increase interest rates in 2022, rates will remain at low levels in a historical context. This will continue to support real estate pricing and, in particular, long-let secure income.

Investment themes                                                                                

  • The recovery in pricing for a select portion of the retail warehouse sector can be partly attributed to the more attractive income yield on offer relative to other sectors. Demand remains narrowly focused on modern parks, let on affordable rents, with a food or DIY anchor tenant. Despite yields moving in by 75-100 bps during the third quarter alone, the weight of capital targeting this portion of the retail warehouse sector (and a lack of suitable investment stock) is expected to result in further yield compression for the sector. 
  • Despite a recent increase in gilt yields on the back of increased inflation expectations, the pricing of secure, indexed real estate relative to index-linked bonds offers a very large yield premium. While the margin for conventional real estate over conventional gilts has also narrowed, the margin remains healthy in a historical context.

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:

For further information please contact:

Kerri Hunter / Gregg Carswell, abrdn
Tel: 0131 528 4261

Harry Randall, J.P. Morgan Cazenove
Tel: 020 7742 4000

Richard Sunderland / Claire Turvey / Emily Smart / Andrew Davis, FTI Consulting
Tel: 020 3727 1000

The above information is unaudited and has been calculated by abrdn.


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