Half-yearly Report

20 August 2014 UK Commercial Property Trust Limited ("UKCPT" or the "Company") Half Year Results UK Commercial Property Trust Limited (LSE: UKCM), the largest UK focused,Guernsey based, commercial property trust, announces its Interim results forthe half year ended 30 June 2014. Financial Highlights * NAV per share of 78.1p (31 December 2013: 73.1p), a rise of 6.8% mainly due to a 6.0% like-for-like increase in the capital value of the property portfolio, which is now £1.1billion; * NAV total return of 10.1% in the six month period to 30 June 2014, ahead of the IPD benchmark (8.3%) and the FTSE All-Share Index (1.6%) and in-line with the FTSE REITs Index (10.2%); * Strong share price performance with a total return of 9.0% in the period resulting in the Company's shares continuing to trade at a premium toNAV (4.5%); * Consistent longer term outperformance with 5 year share price total return ahead of the IPD benchmark; * Issue of 40,755,022 treasury shares raising proceeds of £32 million which has been used for acquisitions; * Gross gearing of 19.1% continues to be the lowest in the Company's peer group; * Attractive dividend yield of 4.5%, underpinned by quality portfolio of diversified properties and above that of the FTSE REIT Index (3.3%) and the FTSE All-Share Index (3.3%). Property Highlights * Purchase of Regent Circus, Swindon for £40.5 million in August 2014, increasing the Company's exposure in its favoured leisure sector and generating an equivalent yield of 5.3% from a strong tenant base that is 94% pre-let; * Good progress made at Aberdeen Gateway, the Company's pre-let industrial development in Aberdeen, with two properties due to be complete by end of August and the third unit due to be completed in December generating, after rent free periods, an additional annual income of £2.9 million; * Successful asset management activity in the period generating valuation increases and an additional £1.8 million of annualised income during the first six months of the year including: - Securing a change of use from offices to residential over the Company'sSt.James's holding at No. 6 Arlington Street, London; - Letting the former Comet unit at Junction 27, Birstall, Leeds, generating £450,000 per annum after rent free periods, improving the tenant mix andextending the unexpired lease term of the asset; - Entering into a contractual commitment with a new tenant at The Parade,Swindon which will create a new anchor store within the shopping centre duringthe Spring of 2015; - New lettings at The Rotunda, Kingston upon Thames and Kensington High Street,London securing £355,000 per annum after rent free periods for the Company overthe next 15 years; * A void rate of 3.7% at 30 June 2014 compared to a benchmark figure of 7.5% plus strong rent collection rate of 99% after 28 days, affirming the prime nature of the Company's portfolio and testament to successful asset management activity. Commenting on the results, Christopher Hill, Chairman of UKCPT, said: "During the first half of 2014 your Company produced another strongperformance, delivering a 10.1% NAV total return which was ahead of the IPDbenchmark and driven primarily by strong like-for-like capital growth. Ourdecision to re-base the dividend in February and the premium at which ourshares have continued to trade against NAV, have enabled the Company to issueequity for the first time since 2010. This provided the Investment Manager withresources which have already been deployed to enhance the portfolio thoughselective acquisitions, in line with the Company's strategy to acquire primeassets in income orientated sectors where the potential exists for both incomeand capital growth. "The UK is currently experiencing a sustained recovery coupled with improvingbusiness confidence that is now resulting in the expansion of most sectors ofthe economy and has resulted in considerable yield compression over the last 12months. We believe this trend will continue throughout 2014 and increasinglyextend beyond London, playing to the strong weighting of the Company'sportfolio to the UK regions. These market factors, combined with the strongfinancial footing the Company now enjoys and the ability of the InvestmentManager to identify and purchase prime assets, mean that the Company is in anexcellent position to continue to grow and deliver positive returns for itsshareholders." Robert Boag, Senior Investment Director at Ignis Asset Management (UKCPT'sInvestment Manager), added: "So far, 2014 has witnessed a continued strengthening of the Company'sportfolio and our successful strategy application and asset management skillsacross the portfolio have been rewarded. The change in dividend policy willoffer us greater flexibility in achieving our portfolio strategy and provides astrong platform for us to continue to pursue income accretive asset managementinitiatives and acquisitions, which we're confident we can deliver in thisimproving market. However, the key to outperformance remains the carefulmanagement of portfolio income and discipline on capital expenditure. Combinedwith focused acquisitions, this will help us provide investors with a real andsustainable return over the medium term." For further information: Ignis Investment Services Limited: 0141 222 8000Robert Boag/Graeme McDonald FTI Consulting: 020 3727 1000Richard Sunderland/Claire Turvey/Clare [email protected] PERFORMANCE SUMMARY Capital Values & 30 June 2014 31 December % Change 2013 Total assets less 1,201,832 1,111,924 8.1current liabilities(excl Bank Loan andSwap) (£'000) Net asset value per 78.10 73.10 6.8share (p) Ordinary Share Price 81.60 77.00 6.0(p) Premium to net asset 4.5 5.3 -value (%) Gearing (%): Gross* 19.1 20.7 - Net** 12.0 14.5 - Total Return % 6 months 1 year 3 years 5 years NAV*** 10.1 21.3 25.3 68.9 Share Price*** 9.0 13.9 22.4 71.2 Investment Property 8.3 16.3 26.6 71.1Databank (IPD)Balanced Monthly &Quarterly FundsBenchmark FTSE Real Estate 10.2 23.9 34.7 128.7Investment TrustsIndex FTSE All-Share Index 1.6 13.1 29.2 96.7 Earnings & Dividends 30 June 2014 30 June 2013 Dividends declared 2.2325 2.625per ordinary share(p) Dividend Yield (%)*** 4.5 6.9* IPD Benchmark Yield 5.6 6.2(%) FTSE All-Share Index 3.3 3.5Yield (%) FTSE Real Estate 3.3 3.7Investment TrustsIndex Yield (%) European Public Real Estate Association ("EPRA") NAV at 30 June 2014 (excludingswap liabilities) - 78.6p (31 Dec 2013 - 73.7p) * Calculated as gross borrowings (excl. SWAP valuation) divided by total assetsless current liabilities (excl borrowingsand swaps). ** Calculated as net borrowings (gross borrowings less cash excl swapvaluations) divided by total assets less current liabilities and cash (exclswaps). *** Assumes re-investment of dividends excluding transaction costs. **** Based on an annual dividend of 3.68p. Sources: IgnisFund Managers Limited, Investment Property Databank (IPD) Chairman's Statement Chairman's Statement I am pleased to report that your Company continued to deliver strongperformance in the first half of 2014. The Company delivered a Net Asset Value ("NAV") total return of 10.1% for thesix months to 30 June 2014, ahead of the IPD benchmark total return. Thisperformance was driven by strong capital growth in the portfolio of 6% on alike-for-like basis and has resulted in the portfolio now being valued at over£1.1billion. The Company's share price total return was 9.0% over the sameperiod. The decision to re-base the dividend in February of this year and the continuedpremium at which the Company's shares trade to the NAV, enabled the Company toissue equity for the first time since 2010. This provided the InvestmentManager with resources which have already been deployed to enhance theportfolio through selective acquisitions, in line with the Company's strategyto acquire prime assets in income orientated sectors where the potential existsfor both income and capital growth. Economic Background The UK's economic recovery continued to gather momentum in H1 2014 with mostcommentators now forecasting GDP growth for the whole year to exceed 3%.Encouragingly, the increase in output has been generated across all majorsectors with services, production (including manufacturing) and constructionall continuing to expand. The revival in business investment should also ensurethat the momentum of the current upturn proves sustainable. There remainsconcern, however, about the modest rises in wage growth, which continues to lagbehind inflation, and about some of the regional imbalances within the UK,particularly in terms of house price growth and job creation. The Bank ofEngland is well aware of these issues and the anticipated increase in interestrates is expected to occur gradually. Commercial Property Market The UK commercial property market delivered a high level of investmentperformance over the first half of 2014 as investors continued to target anasset class that remains very much in favour. The IPD Benchmark generated atotal return of 8.3% in this period, whereas the FTSE All-Share Index reporteda total return of 1.6%, with 10-year Gilts providing 4.5%. Property performancewas driven by yield compression and, to a lesser extent, rental growth whichpushed valuations higher. One theme to highlight over the period was that,whilst London and the core South East markets continued to be the bestperforming locations, the broader UK market is now contributing to theimpressive returns that commercial property is producing. Significant Property Transactions In the 2013 Annual Report, I made reference to the financing of an industrialpre-let development at the Aberdeen Gateway Business Park of up to £48.3million. I am pleased to report that the development at the two sites,where we have an aggregate £17.9million forward commitment to purchase, is welladvanced and is expected to complete by the end of Q3 2014. The forward fundingelement for the largest site, Site A, is also on target and should be completedas anticipated in December 2014. Upon completion, these assets will enhance theincome generating ability of the Company and should also offer the potentialfor capital growth, as Aberdeen has proved one of the best performing UKproperty markets across the short, medium and longer terms. Following the period end, the Company exchanged contracts for the purchase ofRegent Circus in Swindon for a price of £40.48million. This newly completed97,000 sq.ft. leisure and supermarket scheme is 94% pre-let to tenants withgood covenants and provides an equivalent yield of 5.3% with fixed uplifts onthe leisure income plus an average lease length of 20 years. This purchaseincreases the Company's weighting in leisure, one of our favoured sectors, andis in line with our investment strategy as outlined above. Over the last 18 months, including the purchases above, the Company hasacquired assets in excess of £100million, demonstrating the InvestmentManager's ability to identify and acquire prime assets to enhance futurereturns for shareholders, even in a particularly aggressive market environment.Whilst competition will remain fierce for quality assets, the InvestmentManager will continue to evaluate the market and identify assets that suit theCompany's portfolio strategy while undertaking an orderly disposal of assetsthat do not fit into this approach. Borrowing As at 30 June 2014, the Company's gross gearing was 19.1%, comfortably thelowest in the Company's peer group and with an attractive blended interest rateof 3.85% based on current margins. The Company also had cash resources of £97.4million at that date which will be used to finance Regent Circus with theremainder largelyallocated to the Aberdeen Gateway commitment referred toabove. The £80million facility with Lloyds expires in June 2015 and the Board and theInvestment Manager are currently considering options in relation to thisfacility. Dividends The Company declared and paid the following dividends during the period: Payment Date (2014) Dividend per share (p) 4th interim for prior period Feb 1.3125 1st interim May 0.9200 Total 2.2325 A second interim dividend of 0.92p was declared on 16 July 2014 and is payableon 29 August 2014. On 4 February 2014, the Company announced a revised dividend policy, rebasingthe dividend to a more sustainable level of 0.92p per quarter. This reviseddividend policy will help underpin the portfolio strategy and facilitatefurther investment in assets such as Regent Circus. Based on the new dividendlevel and the period end share price, the yield on the Company's shares is anattractive 4.5%, underpinned by a prime portfolio of commercial property andcomparing favourably with other asset classes and quoted property companies. Treasury Share Issuance The Company issued 40,755,022 shares held in treasury in May 2014 raising £32million, which has been used to finance in part the purchase of Regent Circusand the ongoing commitments at Aberdeen Gateway, further demonstrating theability of the Investment Manager to invest in an efficient manner. This was anencouraging development and is the first issue of equity since 2010. Havingadjusted the dividend to a sustainable level, the Company now has theflexibility to consider a wider selection of NAV accretive propertyacquisitions financed from a greater range of options. Investment Manager On 26 March 2014, Phoenix Group Holdings announced that it had agreed termswith Standard Life plc for the sale of Ignis Asset Management ("Ignis"). Thepurchase was completed on 1 July following FCA approval. The Board announcedthat it had consented to the change of control of Ignis following assurancesreceived from Standard Life regarding the retention of the Company's managementand administration team to ensure continuity for its ongoing success. Alternative Investment Fund Managers Limited Directive ("AIFMD") The Company entered into a new Investment Management Agreement with Ignis on 18July 2014. This appointed Ignis as the Alternative Investment Fund Manager ofthe Company, meaning that shareholders will receive the full protection offeredunder AIFMD. In addition, the fee payable to the manager will be reduced to0.65% of total assets. Board Governance As recommended by the AIC Code of Corporate Governance and the UK CorporateGovernance Code, I am pleased to announce the Board has appointed Mr AndrewWilson as the Senior Independent Director. Outlook The UK is currently experiencing a sustained recovery coupled with improvingbusiness confidence that is now resulting in the expansion of most sectors ofthe economy. With business investment also increasing, the economy shouldcontinue to grow in the second half of 2014 and beyond. However, in a globaleconomy, there are always potential risks and the current unrest in the Ukraineand the Middle East is a disturbing reminder of this. Closer to home, the scaleand extent of interest rate rises is a balancing act for the Bank of England,which needs to time the tightening of policy without damaging the prospects forelements of the population with high levels of debt but uncertain prospects forsignificant income growth. The UK property market has now seen considerable yield compression over thelast twelve months with a resultant boost to capital values. This trend willcontinue throughout 2014 and increasingly extend beyond London. This will be ofgreat benefit to the Company's portfolio, which has a strong presence in the UKregions. The portfolio will also be boosted by its holdings in targeted sectorsthat are now delivering strong investment performance including retailwarehousing and leisure. These market factors, combined with the strong financial footing the Companyenjoys following the dividend rebasing and the ability of the InvestmentManager to identify and purchase prime assets, means that the Company is in anexcellent position to continue to grow and deliver positive returns for itsshareholders. Christopher M.W. Hill Chairman20 August 2014 Manager's Review For the half year ended 30 June 2014 Economic Review The UK economy continues to maintain momentum with annualised GDP growthstanding at 3.1% to the end of June 2014 and GDP now ahead of its peak beforethe last recession. Further confidence can be gained from the increasingcontribution that business investment makes to this growth, overtakinghousehold spending for the first time in two years and providing further signsof the ongoing rebalancing of the economy. The continued revival in businessinvestment supports the perception of the strength and sustainability of thecurrent upturn but key risks and imbalances in the economy remain. Whilst thestrengthening of sterling has been a corollary of the improving economy, it hasadversely impacted on UK exports and any substantial expansion to the economyfrom Eurozone trade is unlikely in the short term as the Eurozone continues tostruggle with financial austerity and a weakened financial system. In the UK, while the increase in house prices at a national level has beensignificant, it has masked a divergent regional picture where strongperformance in London has boosted the national average and raised fears of ahousing bubble in the capital. The unemployment rate fell further from 7.2% to6.8%, although again this figure masks the degree of under employment,self-employment and low paying jobs, all of which undermine wage growth. Thisincreasing self-employed workforce has to date failed to make any impact on theslack in productivity and for that reason the Bank of England has recentlyreinforced its view that increases in interest rates will be gradual andmoderate. Commercial Property Commercial property recorded an All Property total return of 8.3% over theperiod. This figure was driven by a combination of a relatively steady incomereturn of 2.8% plus a capital return of 5.4%, continuing the capital valueappreciation seen over the second half of 2013. All property rental valuegrowth remained modest but positive over the period (0.6%), with growth in theoffice and industrial sectors off-setting mild rental value decline in theretail sector. Over the period positive total returns were recorded across all the mainsectors with the office and industrial sectors significantly outperforming theretail sector, driven by capital growth based on yield compression. Capitalgrowth is no longer confined to London, with improvement in capital values nowbeing seen across a broader range of markets: South East offices, industrialsand retail warehouses are all continuing to produce superior levels of growth.The divergence in performance between prime and secondary assets continues toreduce across most market segments. Year to date, the commercial property market has witnessed £23.5billion ofinvestment compared to £20.6billion for the same period in 2013 according toProperty Data. Property continues to be the focus for many investors and UKInstitutions have been the biggest net investors into the market over the pastyear. Whilst investment in London is high on an absolute and relative measure,with £10.3billion invested in Q2, mainly in office and still dominated byoverseas investors, there has been a growing shift on investors' focus intoregional investment over the last six months with £5billion invested in thatarea in the second quarter. Portfolio Performance The table below sets out the components of total return of the Company andbenchmark in each sector for the six month period to 30 June 2014. Total Return Income Return Capital Growth Fund Benchmark Fund Benchmark Fund Benchmark % % % % % % Industrial 10.4 10.4 3.2 3.1 7.1 7.1 Office 11.0 10.4 3.0 2.5 7.8 7.6 Retail 7.4 6.5 3.1 2.8 4.1 3.6 Other Commercial 10.9 6.5 3.0 2.6 7.7 3.8(incl Leisure) Total 9.1 8.3 3.1 2.8 5.8 5.4 Source: IPD (assumes reinvestment of income in capital gain/loss) As has been the case for some years, the Company's strong income profileprovides a stable and reliable element of the portfolio return, recording a3.1% contribution over the period. However, following on from the last sixmonths of 2013, the portfolio also delivered strong capital performance in theperiod, increasing 6% on a like-for-like basis and now valued at £1,122million. This resulted in a portfolio total return of 9.1% which comparesfavourably to the IPD benchmark total return of 8.3%. One encouraging area tohighlight is the positive performance of the Company's retail portfolio, whichis beginning to generate above benchmark returns for the first time in a numberof years. Longer term measures also show the strength of the Company's portfolio, withthe fund ranked in the 38th percentile over five years. Industrial The Company`s strategy to increase its exposure to the industrial sector overthe last couple of years has been rewarded with an improvement in overallreturns from this sector during the period. With a total return of 10.4%, theCompany`s industrial portfolio was one of the major contributors to performanceover the first half of the year and this improvement in value will absorb theacquisition costs of the three properties that will be acquired under forwardcommitment and funding contracts this year on the Aberdeen Gateway site. Generally, the market continues to recognise the strong income characteristicsof the industrial sector and, with a scarcity of stock, investment demand,particularly for London and South East investments, remains strong. This hasbenefited the Company's South East industrials which performed particularlywell during the period, aided by successful asset management at DolphinIndustrial Estate in Sunbury, further details of which are provided in theasset management section. The prime characteristics of the Company`s industrial portfolio of long averagelease length, low voids and strong covenant base, which are also reflected inthe Company`s acquisition in Aberdeen, should support continued goodperformance from this element of the Company's portfolio for the foreseeablefuture. In addition, there are opportunities through asset management toimprove income and value. Office Whilst the rental growth in the office sector continues to provide the greatestdivergence across regions and quality, with London continuing to dominate, thelast six months has witnessed a definite increase in investment demand forregional offices. This is particularly true in the case of UK institutions,many of whom have been attracted by the higher initial yield available whencompared to the ultra-competitive Central London market. Given the prime nature of the Company`s regional office portfolio, which is100% let, the Company has benefited from this improving investment market, withcapital values rising sharply in the Company's regional office locations andreturns being amplified by the strong income characteristics of thissub-sector. Overall returns for the regional office portfolio for the periodwere 9.7% compared to the benchmark of 8.3%. Following the repositioning of the Company's South East office portfolio as aresult of the sale of Charter Place, Uxbridge and Raynes Park, Bushey Road lastyear (both buildings characterised by voids and large capital expenditurerequirements), strong performance has been delivered from the Company'sholdings in the office sector in the period with total returns of 11.0% againstthe benchmark of 10.4%. In Central London, investment demand from overseas investors and UKInstitutions linked to strong rental growth prospects, particularly in the Sohosub-market where almost 75% of the portfolio is located, continue to increasevalues in the portfolio. Rental income is also expected to improve further as aresult of some key lease events over the next 12-18 months. Retail The Company`s high street shops and retail warehouses witnessed strongincreases in capital values over the six months at 6.3% and 4.7% respectively.Shopping centres also improved in value over the first half of the year albeitmore marginally at 0.7%. Overall, while retail generated the weakest totalreturns of 7.4%, it is encouraging that the returns are above benchmark (6.5%)and all retail sub-sectors are providing positive returns. Market sentiment and investor appetite, particularly from overseas investors,UK institutions and REITs, have improved over the past six months at the primeand good secondary end of the market. While there have been some positivesignals from the retail occupational market with greater engagement fromoccupiers, this is a capital driven phenomenon which is not based solely onproperty fundamentals, as rental growth in all but the best locations is stillsubdued. As such, this market is where risk still remains for the uninformedinvestor. The prime quality of the Company's retail warehouse portfolio, linked tospecific asset management activity at Junction 27, Leeds, assisted performance.Additionally, the Company's Central London high street retail holdings onKensington High Street and Kings Road, delivered good performance, thanks inpart to successful asset management activity. The ongoing strategy for the Company's shopping centres is to maintain and,where possible, improve the net operating income for each centre, which shouldenable these assets to add value in improving markets. Leisure Investment demand within the leisure sector strengthened during the first halfof the year, driving up capital values of the Company`s single leisure asset,The Rotunda, Kingston upon Thames, by 7.7%. Combined with an income return of3.0%, this produced the largest total return for the portfolio over the halfyear at 10.9% against the benchmark of 6.5%. This sector remains very popularwith investors and also with both new and established occupiers, many of whomwill enter into long leases often incorporating RPI rental increases. Income The annualised contracted rent of the portfolio as at 30 June 2014 was £68.4million, a slight reduction from the £68.5 million as at 31 December 2013. Successful asset management initiatives coupled with new lettings, rent reviewsettlements and lease engineering, secured £1.8million of added income over thefirst half of the year. Reductions in income came from lease expiries whereoccupiers vacated, break options that were exercised and retail tenantadministrations (albeit at a much reduced level), all of which reduced incomeby £1.9million p.a. Investment Activity In line with the strategy to increase exposure to the industrial sector, theCompany completed the purchase of 265,000 sq. ft. of business space at AberdeenGateway Business Park, Aberdeen on forward commitment and funding contracts inJanuary. Construction of the three buildings is well advanced and the programmeremains on budget and on schedule. All conditions in the contract agreementsare expected to be satisfied by December when, after allowing for a shortperiod of rent free periods, £3.0million in annual rent will be added to theCompany's income stream. Under the terms of the purchase, the total commitmentwill not exceed £48.3million and will generate an initial yield of 6.0%. In August 2014 the Company exchanged contracts to acquire Regent Circus,Swindon, a new, purpose built supermarket and cinema anchored family orientatedleisure scheme for £40.48million. On completion, the development will be let onlong leases with an average lease length of 20 years to occupiers with a soundcovenant base, including Morrisons and Cineworld, generating £2.1million p.a.after rent free periods. There were no sales during the period. Asset Management Activity Strong asset management skills remain an important feature of the Company`sinvestment management team. This characteristic, allied to the prime nature andsound property fundamentals of many of the Company`s properties, resulted in anumber of lettings and re-gear initiatives that improved income by £1.8millionin the period and added value across the portfolio in an improving market. Within the Company's leisure asset, The Rotunda, Kingston upon Thames, a newletting to Five Guys Burgers & Fries Ltd was progressed following the demise ofthe former tenant. The introduction of Five Guys into The Rotunda has proven agreat success securing a base rent of £155,000 p.a., rising to at least £193,500 p.a. at the first rent review in five years. The new lease is for a 20year term and Five Guys has undertaken significant investment in the propertyas part of itsfit out. On Kensington High Street, London, having engineered vacant possession of theformer Rohan unit, the Company secured Yo! Sushi under a 20 year lease at arent of £200,000 p.a. The introduction of this increasingly important A3 usehas improved tenant mix and will provide more choice for shoppers. During the first half of the year the Company finalised contracts with BettaLiving and Multi York to take occupation of the former Comet store at Junction27 in Leeds. Both occupiers entered into 15 year leases, with 5 yearly rentreviews and a combined rent of £450,000 p.a. Following sub division works,tenant mix, income and average weighted unexpired lease lengths at the propertywere all improved. Within one of the Company's regional office holdings at Colmore Row, Birminghama lease renewal completed, securing occupation and maintaining income at levelsin excess of estimated rental value over a longer period of time. Evidence of our asset management capability was further demonstrated at DolphinIndustrial Estate, Sunbury where letting activity and lease re-gears resultedin additional income, longer lease lengths and improvements to the propertyfabric. This has provided a platform for improved capital value with higheroccupancy levels and has secured long term tenant occupation within the estate. The quality of the underlying property portfolio and the emerging evidence ofimproving rental levels in selected locations are demonstrated with the healthyrent review uplifts achieved at The Rotunda, Kingston upon Thames and at theOcado Distribution facility in Hatfield. Across the portfolio, 13 rent reviewswere settled during the half year providing an additional rent of £195,000 p.a. At the Pride Hill Centre, Shrewsbury, the relocation of HMV facilitated theintroduction of the value retailer Poundworld to the centre. This improved thenet operating income by over £40,000 p.a. and increased the average weightedunexpired lease length to 6 years and 3 months. We continue to liaise with Shropshire Council and other relevant parties on theNew Riverside proposals. Our principal aim is, however, to rebuild the incomefrom the holding over the short to medium term, with a continued focus on leaseexpiries, to ensure that income is protected and maintained. We remainconfident in the many qualities of Shrewsbury, particularly as the widereconomy and consumer spending improves. Voids and Rent Collection Improving market sentiment and successful asset management initiatives ensuredthat the Company`s void position decreased over the period. As at 30 June 2014,voids, as percentage of ERV, stood at 3.7% compared to 4.4% on 31 December2013. Adjusting for tenant failure through administrations, the void rateincreases to 4.3% compared to 6.2% as at 31 December 2013. Both of thesemeasures are below the benchmark void rate of 7.5%. There are clear signs that the occupier markets, across all sectors, areimproving. Further evidence of the Company`s strong covenant base can be foundin the average rent collection efficiency over the past 12 months which showsthat 99% has been collected within 28 days. Market Outlook and Fund Strategy The investment outlook appears to be positive, characterised by an improvingeconomic climate which is increasingly recognised as being robust and durable.Allied to this is a greater level of investor confidence and improving debtconditions which has helped to form the foundation for continued improvement inreturns across prime and many secondary markets. Competition for limited investment opportunities has driven yields lower withmany investors reassessing the implied risk premium underlying investmentpurchases as market conditions improve. Ignis`s current forecast for all property total returns in 2014 stands at16.0%, with the three-year annualised forecast for all property total returnsat 10.7% p.a. These forecasts anticipate capital growth to be front-loaded asthe impact of yield compression is expected to be greatest in 2014. The currentrate of yield compression, coupled with the scale of money coming into themarket, means the 2014 total return figure could potentially be even higherthan the current expectation. Offices are expected to deliver the highest performance of the broad sectors,followed by leisure and then industrial and retail, with the latter two sectorsdelivering similar levels of performance over the medium term. The superiorreturns of offices (Ignis forecasts 13.5% p.a. for 2014-2016) are no longersolely a Central London feature although we anticipate this segment to remainamong the top performing markets driven by substantial rental value growth.Thesector is also boosted by opportunities in some of the major Outer London,South East and wider UK markets at the present time. Investor confidence inthese markets is boosted by improving occupational market characteristics,limited development pipelines and severe shortage of investment product. Thekey issue for many regional city markets will be liquidity. The leisure sector is increasingly becoming a core element of a number ofinvestor strategies as it offers diversification amongst other keycharacteristics such as long leases, strong national covenants and a stable, ifnot reversionary, rent with, in many cases, a degree of fixed uplifts/indexation. With a number of new and existing leisure operators in expansionarymode, the sector can offer above average real rental growth in selectedlocations and, for all these reasons, it remains a sector favoured by theCompany. Ignis forecasts 10.7% p.a. total return for the sector in 2014-2016. Industrial markets are forecast to deliver total returns of 9.9% p.a. over2014-2016. Whilst the sector retains a clear yield premium over the widermarket, its magnitude has reduced substantially over the course of the lastyear. The increased interest in the sector, together with the weight of capitaland improving occupational picture, is now creating a funding market for"Design and Build" and general speculative development in the best locations,with UK institutions at the forefront. Distribution warehouses remain firmly infavour with a wide range of investors. The evolution of retail property markets persists as online penetrationcontinues in its various forms. Deals on high streets will continue to befocused on London, towns with a wealthy catchment and regional centres. Someinvestors, often aided by improved debt lending, are moving up the risk curveby targeting the better located shopping centres/retail warehouses, in somecases with vacant units. Ignis forecasts 9.6% p.a. total return for the retailsector for 2014-2016. Commercial property is likely to remain in favour across a wide range ofinvestors and markets which move beyond or away from fundamental drivers willoffer opportunities for both buying and selling. The major risk remains thatthe weight of money brings forward the investment performance that the assetclass can sustain over the medium term and, as a consequence, pricing mayincrease to levels in certain sectors and locations that are beyond thefundamental drivers of value. The Company is alive to this risk and to theopportunities that this presents. In terms of acquisitions, it will maintain adisciplined approach, focusing on assets which offer long term sustainablereturns to complement the already strong and diversified portfolio. Combined with focused acquisitions, the key to out-performance remains thecareful management of portfolio income and discipline on capital expenditure inorder to help provide investors with a real return that is sustainable over themedium term. The recent change in dividend policy offers greater flexibility in realisingthe Company's portfolio strategy, providing a strong platform to pursue incomeaccretive asset management initiatives and acquisitions which can be achievedin this improving market. Robert BoagSenior Investment Director20 August 2014 Half Yearly Condensed Consolidated Income Statement For the half year ended 30 June 2014 Notes Half year Half year For year ended 30 ended 30 ended 31 June 2014 June 2013 December (unaudited) (unaudited) 2013 £'000 £'000 (audited) £'000 Income Rental income 35,567 35,768 72,191 Gains/ (losses) on investment 2 61,032 (5,415) 48,395properties Interest revenue receivable 175 249 491 Total income 96,774 30,602 121,077 Expenditure Investment management fee 8 (4,043) (3,670) (7,456) Direct operating expenses of let (1,396) (2,131) (4,693)property Valuation and other professional (1,077) (988) (1,986)fees Directors fees 8 (99) (96) (183) Administration fees 8 (85) (83) (168) Other expenses (117) (1,057) (1,290) Total expenditure (6,817) (8,025) (15,776) Net operating profitbefore 89,957 22,577 105,301finance costs Net finance costs Finance costs (4,576) (4,579) (9,229) Net profit from ordinary 85,381 17,998 96,072activities before taxation Taxation on profit on ordinary - - -activities Net profitfor the period 85,381 17,998 96,072 Other comprehensive income: Gain arising on effective 11 1,253 5,351 9,715portion of interest rate swap Net comprehensive gainfor the 86,634 23,349 105,787period Earnings per share (p) 3 7.07p 1.50p 8.02p Half Yearly Condensed Consolidated Balance Sheet As at 30 June 2014 Notes 30 June 2014 30 June 31 December (unaudited) 2013 2013 £'000 (unaudited) (audited) £'000 £'000 Non-current assets 2 1,115,853 1,019,741 1,042,728Investment properties 1,115,853 1,019,741 1,042,728 Current assets Trade and other 9,449 7,760 8,902receivables Cash and cash equivalents 97,400 59,600 80,734 106,849 67,360 89,636 Total assets 1,222,702 1,087,101 1,132,364 Current liabilities Trade and other payables (20,870) (22,009) (20,440) Interest rate swaps 11 (4,111) (4,579) (4,438) Bank loan (79,952) - - Long term liabilities Bank loans (148,778) (229,064) (229,252) Interest rate swaps 11 (1,555) (6,704) (2,481) Total liabilities (255,266) (262,356) (256,611) Net assets 967,436 824,745 875,753 Represented by: Share capital 489,961 482,703 482,703 Treasury shares (421) (25,264) (25,264) Special distributable 597,366 607,235 600,069reserve Capital reserve (113,804) (228,646) (174,836) Interest rate swap reserve (5,666) (11,283) (6,919) Revenue reserve - - - Equity Shareholders' funds 967,436 824,745 875,753 Net asset value per share 6 78.1p 68.9p 73.1p Half Yearly Condensed Consolidated Statement of Changes in Equity For the half year ended 30 June 2014 Special Interest Share Treasury distributable Capital Revenue rate swap capital shares reserve reserve reserve reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Half year ended 30June 2014(unaudited) At 1 January 2014 482,703 (25,264) 600,069 (174,836) - (6,919) 875,753 Issue of treasury 7,258 24,843 - - (321) - 31,780shares Net profit for the - - - - 85,381 - 85,381period Other comprehensive - - - - - 1,253 1,253income Dividends paid - - - - (26,731) - (26,731) Transfer in respect - - - 61,032 (61,032) - -of gains oninvestmentproperties Transfer from - - (2,703) - 2,703 - -specialdistributablereserve At 30 June 2014 489,961 (421) 597,366 (113,804) - (5,666) 967,436 Half year ended 30June 2013(unaudited) At 1 January 2013 482,703 (25,264) 615,252 (223,231) - (16,634) 832,826 Net profit for the - - - - 17,998 - 17,998period Other comprehensive - - - - - 5,351 5,351income Dividends paid - - - - (31,430) - (31,430) Transfer in respect - - - (5,415) 5,415 - -of losses oninvestmentproperties Transfer from - - (8,017) - 8,017 - -specialdistributablereserve At 30 June 2013 482,703 (25,264) 607,235 (228,646) - (11,283) 824,745 For the year ended31 December 2013(audited) At 1 January 2013 482,703 (25,264) 615,252 (223,231) - (16,634) 832,826 Net profit for the - - - - 96,072 - 96,072year Other comprehensive - - - - - 9,715 9,715income Dividends paid - - - - (62,860) - (62,860) Transfer in respect - - - 48,395 (48,395) - -of gains oninvestmentproperties Transfer from - - (15,183) - 15,183 - -specialdistributablereserve At 31 December 2013 482,703 (25,264) 600,069 (174,836) - (6,919) 875,753 Half Yearly Condensed Consolidated Cash Flow Statement For the half year ended 30 June 2014 Half year ended Half year For year 30 June 2014 ended 30 ended 31 (unaudited) June 2014 December £'000 (unaudited) 2013 £'000 (audited) £'000Cash flows from operating activities Net operating profit for the period 85,381 17,998 96,072before taxation Adjustments for: (Gains)/losses on investment properties (61,032) 5,415 (48,395) (Increase)/decrease in operating trade (547) 264 (878)and other receivables Decrease in operating trade and other (255) (342) (1,908)payables Net finance costs 4,576 4,579 9,229 Net cash inflow from operating 28,123 27,914 54,120activities Cash flows from investing activities Purchase of investment properties (10,479) (18,648) (18,648) Sale of investment properties - 10,450 44,200 Capital expenditure (1,614) (1,426) (4,353) Net cash (outflow)/inflow from (12,093) (9,624) 21,199investing activities Cash flows from financing activities Net proceeds form issue of treasury 31,780 - -shares Dividends paid (26,731) (31,430) (62,860) Bank loan interest paid (2,106) (2,041) (4,156) Payments under interest rate swap (2,307) (2,281) (4,631)arrangement Net cash inflow/(outflow) from 636 (35,752) (71,647)financing activities Net increase/(decrease) in cash and 16,666 (17,462) 3,672cash equivalents Cash balance brought forward 80,734 77,062 77,062 Closing cash and cash equivalents 97,400 59,600 80,734 Represented by: Cash at Bank 21,920 23,214 21,639 Short term deposits - 20,212 20,301 Money market funds 75,480 16,174 38,794 97,400 59,600 80,734 Notes to the Accounts For the half year ended 30 June 2014 1. The condensed consolidated financial statements have been prepared inaccordance with International Financial Reporting Standard (`IFRS') IAS 34`Interim Financial Reporting' and, except as described below, the accountingpolicies set out in the statutory accounts of the Group for the year ended 31December 2013. The condensed consolidated financial statements do not includeall of the information required for a complete set of IFRS financial statementsand should be read in conjunction with the consolidated financial statements ofthe Group for the year ended 31 December 2013, which were prepared under fullIFRS requirements. 2. Investment properties Freehold and leasehold properties Half year ended 30 June 2014 £'000 Opening valuation 1,042,728 Purchases at cost 10,479 Sale proceeds - Capital expenditure 1,614 Loss on revaluation to fair value 61,032 Fair value at 30 June 2014 1,115,853 The market value provided by CBRE Limited at the period end was £1,122,375,000however an adjustment has been made for lease incentives of £6,522,000 that arealready accounted for as an asset. 3. The earnings per Ordinary Share are based on the net profit for the period of £85,381,000 (30 June 2013: £17,998,000) and 1,208,004,134 (30 June 2013: 1,197,348,858) Ordinary Shares, being the weighted average number of shares in issue during the period. 4. Earnings for the period to 30 June 2014 should not be taken as a guide to the results for the year to 31 December 2014. 5. As at 30 June 2014 the total number of shares in issue is 1,238,103,880 (30 June 2013: 1,197,348,858). 6. The net asset value per ordinary share is based on net assets of £ 967,436,000 (30 June 2013: £824,745,000) and 1,238,103,880 (2013: 1,197,348,858) ordinary shares. 7. Dividends Period to 30 June 2014 Rate £'000 (pence) Dividend for the period 1 October 2013 to31 December 2013, paid 28 February 2014 1.3125 15,715 Dividend for the period 1 January 2014 to31 March 2014, paid 31 May 2014 0.92 11,016 26,731 A dividend of 0.92p per share for the period 1 April 2014 to 30 June 2014 ispayable on 29 August 2014. Under International Financial Reporting Standards, these unaudited financialstatements do not reflect this dividend. 8. No Director has an interest in any transactions which are, or were, unusual in their nature or significance to the Group. The Directors of the Company received fees for their services totaling £99,000 (30 June 2013: £96,000) for the six months ended 30 June 2014, none of which was payable at the period end (30 June 2013: Nil). Ignis Investment Services Limited received fees for its services as InvestmentManagers. The total charge to the Income Statement during the period for thesefees was £4,128,000 (30 June 2013: £3,753,000) of which £85,000 wasadministration fees (30 June 2013: £83,000). £2,117,000 (30 June 2013: £1,878,000) of this total charge remained payable at the period end. 9. Financial instruments and investment properties Fair values The fair value of financial assets and liabilities is not materially differentfrom the carrying value in the annual financial statements. Fair value hierarchy The following table shows an analysis of the fair values of investmentproperties recognised in the balance sheet by level of the fair valuehierarchy: 30 June 2014 Level 1 Level 2 Level 3 Total fair value £'000 £'000 £'000 £'000 Investment properties - - 1,115,853 1,115,853 The lowest level of input are the underlying yields on each property which isan input not based on observable market data. 30 June 2014 Level 1 Level 2 Level 3 Total fair value £'000 £'000 £'000 £'000 Bank loans - 229,698 - 229,698 The lowest level of input is the interest rate payable on each borrowing whichis a directly observable input. The following table shows an analysis of the fair values of financialinstruments recognised in the balance sheet by level of the fair valuehierarchy: 30 June 2014 Level 1 Level 2 Level 3 Total fair value £'000 £'000 £'000 £'000 Interest rate swap - (5,666) - (5,666) The lowest level of input is the three month LIBOR yield curve which is adirectly observable input. There were no transfers between levels of the fair value hierarchy during thesix months ended 30 June 2014. Explanation of the fair value hierarchy: Level 1 - Quoted prices (unadjusted) in active markets for identical assets orliabilities that the entity can access at the measurement date. Level 2 - Use of a model with inputs (other than quoted prices included inlevel 1) that are directly or indirectly observable market data. Level 3 - Use of a model with inputs that are not based on observable marketdata. The fair value of investment properties is calculated using unobservable inputsas described in the annual report and accounts for the year ended 31 December2013. Sensitivity of measurement to variance of significant unobservable inputs: A decrease in the estimated annual rent will decrease the fair value. An increase in the discount rates and the capitalisation rates will decreasethe fair value. There are interrelationships between these rates as they are partiallydetermined by the market rate conditions. The fair value of the derivative interest rate swap contract is estimated bydiscounting expected future cash flows usingcurrent market interest rates andyield curves over the remaining term of the instrument. The fair value of the bank loans are estimated by discounting expected futurecash flows using the current interest ratesapplicable to each loan. 10. The Group has entered into a forward funding commitment and two forward commitments to purchase three pre-let assets at Aberdeen Gateway Business Park for a total commitment of up to £48.3 million. Under the forward funding commitment consideration is payable in instalments as construction progresses. Consideration for the two assets purchased under forward commitment agreements is payable on completion. As at 15 August 2014, a total of £19.5 million has been paid in relation to these commitments. 11. Financing The Company has fully utilised all of the £80 million facility in place withLloyds Banking Group plc which expires in June 2015 and hence is included incurrent liabilities. The Company has in place interest rate swaps with Lloyds Banking Group plctotalling £80 million. The fair value liability in respect of these interestrate swaps as at 30 June 2014 is £1,413,000 (June 2013: £3,013,000). The Company has fully utilised all of the £150 million facility in place withBarclays Bank plc which expires in May 2018. The Company has in place interest rate swaps with Barclays Bank plc totalling £150 million. The fair value liability in respect of these interest rate swapsas at 30 June 2014 is £4,253,000 (June 2013: £8,270,000). 12. The Group results consolidate those of the Company, UK Commercial Property Holdings Limited, UK Commercial Property GP Limited, UKCPT Limited Partnership, UK Commercial Property Nominee Limited, UK Commercial Property Estates Holdings Limited and UK Commercial Property Estates Limited. The Company owns 100% of the issued share capital of UK Commercial PropertyHoldings Limited, a company incorporated in Guernsey whose principal businessis that of an investment and property company. The Company owns 100% of the issued share capital of UK Commercial Property GPLimited, a company incorporated in Guernsey whose principal business is that ofan investment and property company. UKCPT Limited Partnership is a Guernsey limited partnership, whose principalbusiness is that of an investment and property entity. UK Commercial PropertyHoldings Limited and UK Commercial Property GP Limited, have a partnershipinterest of 99% and 1% respectively in this limited partnership. UK CommercialProperty GP Limited is the general partner and UK Commercial Property HoldingsLimited is a limited partner of this partnership. The Company owns 100% of the issued share capital of UK Commercial PropertyNominee Limited, a company incorporated in Guernsey whose principal business isthat of a nominee company. The Company owns 100% of the issued share capital of UK Commercial PropertyEstates Holdings Limited, (formerly known as SCP Group Limited). This Companyis incorporated in Guernsey whose principal business is that of a holdingcompany. UK Commercial Property Estates Holdings Limited owns 100% of theissued share capital of UK Commercial Property Estates Limited, a companyincorporated in Guernsey whose principal business is that of an investment andproperty company The Half Yearly Financial Report will be available in due course at theCompany's website address, www.ukcpt.co.uk. Principal Risks and Uncertainties The Company's assets consist of direct investments in UK commercial property.Its principal risks are therefore related to the UK commercial property marketin general, but also the particular circumstances of the properties in whichit is invested and their tenants. Other risks faced by the Company includeeconomic, strategic, regulatory, management and control, financial and operational.These risks, and the way in which they are mitigated and managed, are describedin more detail under the heading Principal Risks and Uncertainties within theReport of the Directors in the Company's Annual Report for the year ended 31December 2013. At the end of the period, there was a change of control of theInvestment Manager resulting from the acquisition of Ignis Asset ManagementLimited by Standard Life Investments (Holdings) Limited. Following detaileddiscussions between the Company's directors and representatives of StandardLife Investments, the Board consented to this change of control, having receivedassurances regarding the retention of the team involved in the management andadministration of the Company. The continuity which this provides mitigates therisk associated with the change of control. Other than this, the Company'sprincipal risks and uncertainties have not changed materially since the date ofthat report and are not expected to change materially for the remaining sixmonths of the Company's financial year. Statement of Directors' Responsibilities in Respect of the Half Yearly Financial Report to 30 June 2014 We confirm that to the best of our knowledge: • The condensed set of half yearly financial statements have been prepared inaccordance with IAS 34 "Interim Financial Reporting", and give a true and fairview of the assets, liabilities, financial position and return of the Company. • The half yearly Management Report includes a fair value review of theinformation required by: (a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication ofimportant events that have occurred during the first six months of thefinancial year and their impact on the condensed set of financial statementsand a description of the principalrisks and uncertainties for the remaining sixmonths of the year; and (b) DTR4.2.8R of the Disclosure and Transparency Rules, being relatedpartytransactions that have taken place in the first six months of the currentfinancial year and that have materially affected the financial position orperformance of the company during that period; and any changes in the relatedparty transactions described in the last Annual Report that could do so. On behalf of the BoardChristopher M.W. HillChairman 20 August 2014

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