7th Nov 2022 10:19
(Alliance News) - UK Commercial Property REIT Ltd on Monday said net asset value in the third quarter fell as NAV total return turned negative.
Net asset value in the third quarter that ended September 30 fell 10% to 101.5 pence per share from 112.9p at June 30. NAV total return turned to a negative 7.9% from a positive 2.3% in the second quarter. Compared to a year ago, NAV was up 7.4% from 94.5p.
"Since we last reported, and as widely anticipated, the economic environment has become more challenging. The rise in interest rates has resulted in weakening yields, which have, in turn, put downwards pressure on valuations. We have continued to focus on our strategy that we have put in place over the past few years to proactively manage our portfolio towards high quality assets in sectors that are supported by structural drivers and societal changes, that positions us well for the future," said Chair Ken McCullagh.
The commercial property investment trust declared a quarterly dividend of 0.85p, maintained from the second quarter and up 32% from 0.644p a year ago.
Looking ahead, the company said the office sector is experiencing headwinds due to a weaker economic environment.
"Historically, office occupational demand has been closely correlated with gross domestic product growth and, given the poor economic outlook, office take up levels are expected to fall," it explained.
However, UK Commercial expects inflation to fall and anticipates for the Bank of England in to start reversing monetary policy in late 2023 "in a bid to pull the economy out of recession".
More positively, the company noted supply/demand dynamics: "From an occupational perspective, the sector continues to benefit from positive supply/demand dynamics and the UK vacancy rate remains near historic lows. Limited new development and robust demand should allow for rental value growth in the prime end of the sector, but at more normalised levels. Further capital value declines are to be expected in the sector, but the medium to long term sector fundamentals remain well balanced."
The firm emphasised the importance of environmental, social & corporate governance for occupiers and investors, saying that integration of ESG into investment decision-making "is paramount to ensuring assets are future fit and ready for a recovery in real estate performance," especially over the medium-term.
"Our assets remain well placed to deliver income growth and security, as evidenced by the continued high occupancy our portfolio enjoys and we have continued during the quarter to sign tenants at above passing rents and/or rental value as vacancy or lease events arise. I take further comfort from the fact that our balance sheet remains lowly levered, with over three quarters of our debt at fixed rates and continues to be comfortably within the banking covenants, and undrawn debt that provides us with flexibility," said Chair McCullagh.
UK Commercial Property shares were 0.3% higher at 62.11 pence each in London on Monday morning.
By Tom Budszus; [email protected]
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