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UK Commercial Property Trust performs well as it prepares for REIT conversion
UK Commercial Property Trust issued its final results for the year ended 31 December on Friday, reporting a strong net asset value total return of 12.2%, up from 3.8%.
The FTSE 250 firm, which owns a diversified portfolio of income-producing UK commercial property, said that was driven by an above-benchmark portfolio total return of 12.2% - up from 4.4% year-on-year, and compared to an IPD benchmark return of 10.7%, rising from 3.6% in 2016.
Its share price total return for the year was 9.4%, up from 3.8%, leading to a share price total return of 72.5% since inception, and comparing favourably to the negative 4.4% FTSE All-Share REIT Index total return over the same period.
Net gearing stood at 12.8%, with the board claiming that remained one of the lowest in its peer group and the wider REIT sector.
The trust posted a dividend yield of 4.2%, which it also compared to the FTSE All-Share REIT Index - which had yield of 3.4% - and the FTSE All-Share Index yield of 3.6%.
It saw a 1.8% improvement in rental income to £69.8m for the year, with EPRA earnings per share excluding deferred tax falling slightly to 3.42p from 3.43p.
That equated to a dividend cover of 93%, which was expected to grow as cash was invested and asset management initiatives were delivered, the board explained.
On the investment front, UK Commercial Property Trust reported a 9.1% increase in its portfolio valuation to £1.4bn as at 31 December.
It made £74m of investment during the year, including future funding commitments, generating a blended index-linked yield on cost of 5.4%, and increasing its exposure to RPI-indexed and fixed uplifts to approximately 15%.
Further acquisitions that would be accretive to dividend cover and earnings were targeted, with £109m available for investment through £59m of uncommitted cash resources and an undrawn £50m revolving credit facility.
The board said further progress made post year-end, with the sale of three Shrewsbury shopping centres for approximately £51m - ahead of book valuation - reducing its exposure to the retail sector.
Looking at its leasing activity, the company said £8.4m of annual income was secured after rent free periods and incentives, through 30 new leases and 38 lease renewals and rent reviews.
Its vacancy rate rose to 7.6% from 3.7%, which was also slightly higher than the benchmark rate of 7.0%, following a number of anticipated take-backs of space, with almost 75% in the favoured industrial sector affording an opportunity to increase income and capital values according to the board.
A total of 99% of rent wa collected within 21 days, which the trust said underlined the continued strength of its tenant base.
Portfolio yield stood at 4.5%, with a reversionary yield of 5.6% highlighting the reversionary nature of the portfolio and scope for future earnings growth.
Progress was made on the trust's real estate investment trust conversion as well, the board said, having received an irrevocable undertaking from its largest shareholder Phoenix Life to support REIT conversion.
As a result, a circular would be issued to shareholders, with the intention being to convert to a REIT, subject to shareholder approval, on 1 July.
"UK Commercial Property Trust saw a continuation of the positive momentum generated in 2016," said chairman Andrew Wilson.
"Our portfolio delivered above benchmark returns for the second year running which led to healthy NAV, share price and earnings returns.
"Looking forward, we expect our successful asset management initiatives will help improve dividend cover and unlock the income reversion in the portfolio and, as a result, the prospect for enhancing the income return to shareholders is positive."
Will Fulton, fund manager at the trust's investment manager Standard Life Investment, added that the company outperformed its benchmark for the second year running, reflecting the success of its asset management initiatives and its above-benchmark exposure to the strong performing industrial sector.
"The anticipated increase in our void rate represents an opportunity as 75% of this vacancy is in our favoured industrial/logistics sector where leasing momentum is strong and the prospects for income growth, and potentially capital growth, are good," Fulton said.
"Overall we maintain our belief that the company remains well positioned with a strong balance sheet that offers capacity to make further acquisitions, a well-diversified portfolio, low gearing and emerging letting opportunities."