UK Commercial Property reported a year-end net asset value of £1.1bn in its final results on Friday, representing a negative total net asset value return in the year of -0.9%, as valuations came under pressure amid the Covid-19 pandemic.
The FTSE 250 real estate investment trust noted that over the longer term, it had delivered a 10-year net asset value total return of 85.6%, compared to the Association of Investment Companies (AIC) peer group’s 32.4%.
It reported EPRA earnings per share of 2.71p for the year ended 31 December, down from 3.50p year-on-year, as earnings were impacted by bad debt provisions and sales made in the year, resulting in reduced income.
The company’s total share price return was negative at -19.7%, swinging from a positive return of 11.3% in 2019, as the share prices of most diversified real estate investment trusts fell due to negative sentiment associated with the coronavirus crisis.
As at year-end on 31 December, the company’s discount to the last published net asset value was 16.7%, which the board said was in line with other diversified REITs.
The company said its net gearing was low at 6.4%, compared to 14.7% a year earlier, which it said remained one of the lowest in its peer group and the wider REIT sector, with the AIC sector average standing at 31%.
Its financial resources stood at £218m at year-end, up from £130m year-on-year, which was further boosted by sales in the first quarter of 2021, resulting in it having £276m to invest into its portfolio and enhance earnings.
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In order to comply with the REIT rules, the board announced that shareholders would also receive a further interim dividend for 2020 of 0.531p, which would be paid on 21 May to shareholders on the register as at 7 May.
Looking at its portfolio, UK Commercial Property said it produced a positive total return of 1.1% for the year, down from 1.4% in the prior year but still “significantly outperforming” the -0.9% from the MSCI benchmark, as its portfolio weightings provided a tail wind to relative performance.
Rent collection stood at 83% for the year, compared to the 77% it reported at the half-year and 97% for the whole of 2019, as rent collection rates continued to increase as the year progressed.
It made £74m of acquisitions during 2020, with funding of two student accommodation assets in Exeter and Edinburgh as well as the acquisition of an Asda store in Torquay.
The board said those assets would generate secure income as it built a “modern economy portfolio”.
UK Commercial Propety’s occupancy rate improved to 93.5% from 92.1% over the year, despite the pandemic, as successful letting activity – particularly at XDock 77 in Lutterworth – resulted in higher occupancy levels.
The board said that also compared favourably to the MSCI benchmark occupancy rate of 92.6%.
Its industrial weighting was 58%, compared to the benchmark of 30%, and its retail weighting stood at 17%, compared to the benchmark of 25%.
The board said the company’s portfolio was “well-aligned” to an industrial sector that was forecast to outperform, and underweight to the retail sector as a result of several sales in the year.
“A key focus over the past year has been to work in partnership with our tenants to find mutually acceptable solutions to rent collection and I am pleased that UKCM, with its strong focus on environmental, social and governance (ESG) matters, has managed to do this with our occupiers across the portfolio,” said chairman Ken McCullagh.
“We have maintained dividend payments and we see potential for dividend growth in the short to medium term.
“There has also been good progress in selling assets in line with our strategy, further and selectively reducing retail exposure, and investing in assets fit for a diversified modern economy portfolio with an intentionally strong weighting to the industrial and logistics market.”
McCullagh said the last year had resulted in “profound changes” to the way businesses operate, and how individuals live their lives.
“Although there is much speculation over the future of the office sector, for example, as businesses adjust to hybrid working practices, UKCM is in a strong position and the success of the vaccine rollout thus far should provide confidence that businesses can reopen and rebuild.
“The portfolio that has been put in place over the last few years has enabled the company to weather the current difficult situation and emerge in a position of relative strength to create additional value in the future.”
At 0902 BST, shares in UK Commercial Property REIT were down 0.55% at 75.68p.
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