UK Commercial Property REIT continues to outperform benchmark

UK Commercial Property REIT reported a net asset value total return of 1.9% in its half-year results on Thursday, down from 12.2% a year earlier, with the boards saying the result was achieved with low relative net gearing of 16.2% as its property portfolio continued to outperform the benchmark.

The FTSE 250 company said it saw a 19% increase in EPRA earnings per share to 1.70p for the six months ended 30 June when compared to the same period last year, as income accretive acquisitions and successful asset management boosted its earnings, equating to dividend cover of 92% for the half-year.

Its debt refinancing in February achieved an increased maturity profile of debt to 8.5 years from 4.1 years, increased flexibility of debt through its revolving credit facility, an increased quantum of debt available by £50m, and a decreased cost of 2.78% from 2.89%.

The board said up to £90m was available for investment, being the unutilised portion of its low cost, flexible, revolving credit facility.

On the portfolio front, UK Commercial Property REIT said it saw continued portfolio outperformance, which was delivered by a reversionary portfolio which was overweight to the favoured industrial sector.

It said its portfolio total return of 2.1% for the period was ahead of the MSCI IPD benchmark total return of 1.2%, as its strategic overweight position in the industrial sector, which now accounted for 48% of the portfolio by value, and its asset management initiatives continued to drive performance.

The board said £5.2m of annualised income, after rent-free periods, was secured through a number of successful asset management initiatives that boosted earnings and captured longer term, secure income.

It also claimed a high occupancy rate of 92.5%, with more than half of its remaining vacancy in “well-located” industrial properties.

The net initial yield on the portfolio of 4.2%, with a reversionary yield of 5.2%, highlighted the opportunity to grow earnings by capturing future reversion, it added.

A total of 99% of rent was collected within 21 days, which the firm said underlined the “continued strength” of the tenant base.

“The company’s strategy to create a diverse commercial portfolio continues to produce sustainable, high quality rental income, and has once again outperformed the benchmark in the first half of this year,” said UK Commercial Property REIT chair Andrew Wilson.

“A successful debt refinancing in February provides greater flexibility and firepower whilst the refreshed investment policy enables further potential investment into alternative sectors.

“With a high quality portfolio of assets located throughout the UK, a strong balance sheet and the lowest gearing amongst the company’s peer group, UKCM is well positioned to add value to its property portfolio and enhance returns for its shareholders.”

Will Fulton, lead manager of UK Commercial Property REIT at its adviser, Aberdeen Standard Investments, added that successful asset management initiatives and high tenant occupancy across the portfolio had created value while providing reliable income to shareholders, ensuring positive results for the company during the half-year.

“Our portfolio’s strategic weighting towards industrial is now up to 48% and we continue to reduce our exposure to the retail sector.

“Following the change in our investment policy earlier this year, we are now looking to explore attractive investment opportunities in alternative sectors, while upholding our ability to recycle capital into high quality assets that are well positioned to deliver growing and sustainable income.”