UKCM reports robust second quarter amid challenging market

UK Commercial Property REIT (UKCM) reported robust growth and stability in its £1.26bn portfolio of UK real estate in a second-quarter update on Tuesday.

The FTSE 250 real estate investment trust said it observed a 0.6% uptick in its net asset value in the quarter, while the portfolio's capital value saw a similar 0.6% rise to £1.26bn, outperforming the MSCI UK Monthly Property Index, which registered a 0.4% decline over the same period.

Its unaudited net asset value per share grew to 81.1p from 80.6p in March, delivering a quarterly total return of 1.7%.

UKCM highlighted an enhanced balance sheet, with a gearing of 15.6%, while around 88% of its debt was at a fixed rate, with the company successfully maintaining its covenants.

The firm sold a 186,455 square foot distribution unit in Wembley for £74m in the period, generating a net initial yield of 3.49%.

It said the proceeds from the sale largely went towards repaying its revolving credit facility, bolstering the balance sheet.

On the earnings front, the company reported 6% growth in its underlying EPRA earnings per share, to 0.86p.

However, an accounting adjustment connected to the restructuring of two Cineworld leases reduced EPRA earnings to 0.64p per share.

That move ensured that Cineworld remained a tenant, keeping the units operational and revenue-generating, the board noted.

UKCM said it was offering a 0.85p per share dividend for the second quarter, scheduled for payment on 31 August.

The underlying cover for the period stood at 102%, although a one-time non-cash accounting adjustment brought the cover down to 75% for the quarter.

Finally, the company boasted impressive rent collection of 99%, while it maintained high portfolio occupancy, standing at 96%.

“These results for the second quarter of the year point to another robust performance for UK Commercial Property REIT,” said chair Peter Pereira Gray.

“A further valuation increase follows that seen in the first three months of the year, together with continued positive leasing momentum, so highlighting the benefits of the company’s diversified and active management strategy.

“As a result, I am pleased that in my first report to shareholders that we are able to show a small increase in net asset value and underlying earnings.”

Pereira Gray said that, while uncertainty surrounding future inflation and interest rates remained, there was a “cautious but increasing feeling” that the worst of the market valuation declines were over.

“Our team continues to drive value and income through the successful asset management of the company’s high-quality portfolio and we look forward to this continuing into the second half.”

Reporting by Josh White for Sharecast.com.