UK COMMERCIAL PROPERTY REIT
ANNUAL REPORT & ACCOUNTS
for the year ended 31 December 2021
ukcpreit.com
01
Contents
02
Company Summary
Strategic Report
04
Financial Review and Key
Performance Indicators
06
Performance Summary
08
Chair’s Statement
12
Investment Manager Review
22
Environmental, Social
& Governance (ESG)
26
Taskforce for Climate-Related
Financial Disclosures
29
Property Portfolio & Analysis
32
Strategic Overview
Governance
48
Board of Directors and
Management Team
50
Report of Directors
55
Corporate Governance Report
58
Audit Committee Report
61
Directors’ Remuneration Report
63
Directors’ Responsibility Statement
Independent Auditor’s Report
and Financial Statements
65
Independent Auditor’s Report
to the Members of UK Commercial
Property REIT Limited
72
Consolidated Statement of
Comprehensive Income
73
Consolidated Balance Sheet
74
Consolidated Statement of
Changes in Equity
75
Consolidated Cash Flow Statement
76
Notes to the Accounts
97
EPRA Performance Measures
(unaudited)
Environmental, Social, and Governance
101
ESG Performance (unaudited)
Additional Information
108
Notice of Annual General Meeting
110
Shareholder Information
115
Corporate Information
116
Glossary and Alternative
Performance Measures
CONTENTS
1
BOARD & MANAGEMENT
The Company has a Board of five experienced
Non-Executive Directors who have significant
expertise in property, accounting, risk and tax
(see page 48–49 for further details). UKCM is
managed by abrdn, a top 20 global real estate
manager that manages over 1,300 properties
in 23 countries.
Visit our website at:
ukcpreit.com to learn more
OBJECTIVE
This objective is achieved by:
• Constructing a portfolio that is diversified
across the four main commercial property sectors
– Industrial, Offices, Retail and Alternatives.
• Investing in assets with a strong earnings and
income focus.
• Delivering value through a proactive approach
to acquisitions, sales and asset management.
• Selectively developing or funding developments,
mostly pre-let.
• Employing modest levels of gearing.
• Considering Environmental, Social and
Governance factors as integral parts of the
investment process.
ABOUT US
a listed Real Estate Investment Trust (REIT) with a
net asset value of £1.3 billion as at 31 December 2021.
UKCM is one of the largest diversified REITs in the
UK and is a component of the FTSE 350 index made
up of the largest 350 companies with a primary
listing on the London Stock Exchange.
COMPANY SUMMARY
An overview
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt about the action you should take, you are recommended to seek your own independent financial
advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under
the Financial Services and Markets Act 2000 if you are in the United Kingdom or, if not, from another appropriately authorised
financial adviser. If you have sold or otherwise transferred all your ordinary shares in UK Commercial Property REIT Limited ,
please forward this document, together with the accompanying documents, immediately to the purchaser or transferee, or to
the stockbroker, bank or agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.
Industrial Offices Retail
Alternatives
£1.3bn
3502006
Launched in FTSE
Diversified portfolio
Net Asset Value
as at 31 December 2021
5
Board members
231,300
abrdn manage
properties countries
in
2 UKCP REIT Annual Report & Accounts
ukcpreit.com
£1.6bn
(2020: £1.3bn)
UKCM IS ONE OF THE UK’S
LARGEST, DIVERSIFIED REITS
(all numbers as at
31 December 2021)
Average value
of properties
Average value of properties
is calculated by dividing the
property valuation provided by
the Property Valuer by the number
of properties stated below.
Total assets
Tenancies
Properties
213
(2020: 183)
40
(2020: 36)
(2020: £33.5m)
£38.4m
3
IFRS EARNINGS PER SHARE
IFRS Earnings per Share of 18.18p (2020:
−0.79p) following the strong capital
gains achieved on the portfolio.
NET ASSET VALUE
NAV of £1.3 billion as at 31 December
2021 (2020: £1.1 billion) representing
a NAV total return* in the year of
21.5% (2020: –0.9%) as valuations
recovered strongly in the sectors
where the Company is strongly
positioned. Over the longer term
(10 years) the Company has delivered
a NAV total return of 114.9% (2020:
85.6%) compared to the Association
of Investment Companies (“AIC”)
peer group of 54.6% (2020: 32.4%).
* Alternative Performance Measures (see page 6 and glossary on pages 116–117 for further details)
INCREASING LEVERAGE
Gearing* of 13.5% (2020: 6.4%)
following net acquisitions in the year,
with additional resources available
to increase gearing levels further.
EPRA EARNINGS PER SHARE
EPRA Earnings per Share of 2.65p*
(2020: 2.71p) as earnings were impacted
by the timing of transactions with rent
reduced through strategic sales in late
2020 / early 2021 and reinvestment
during the final third of 2021.
2021 FINANCIAL REVIEW AND KEY PERFORMANCE INDICATORS
£1.3bn
WELL-POSITIONED PORTFOLIO
Industrial weighting of 63% (Benchmark:
34%). Portfolio strategy continues to be
implemented with the portfolio well aligned
to sectors which are expected to outperform.
63%
SHARE PRICE TOTAL RETURN
A total return of 12.5%* (2020: –19.7%)
as the share prices of diversified REITs
improved during the year.
12.5%
FURTHER RESOURCES
AVAILABLE
£88 million* at the year-end (2020:
£218 million) to invest into the portfolio
and enhance earnings, reflecting the
undrawn revolving credit facilities net
of development commitments.
£88m
2021
18.18p
2020
−0.79p
2020
6.4%
2021
13.5%
2021
2.65p
2020
2.71p
4 UKCP REIT Annual Report & Accounts
ukcpreit.com
PORTFOLIO TOTAL RETURN*
Portfolio produced a total return of
21.4% (2020: 1.1%), significantly
outperforming the 16.8% (2020: –0.9%)
from the MSCI benchmark as the
Company’s portfolio positioning
provided continued outperformance.
* Alternative Performance Measures (see page 6 and glossary on pages 116–117 for further details)
OCCUPANCY RATE
Occupancy rate of 97.9% (2020:
93.5%), with voids a third of the prior year
level and the portfolio has a stable income
expiry profile. Also compares favourably
to the MSCI benchmark occupancy rate
of 92.3% (2020: 92.6%).
2021 FINANCIAL REVIEW AND KEY PERFORMANCE INDICATORS
EPC BY ERV
75% (2020: 66%) of the property portfolio’s
Estimated Rental Value (“ERV”) has an
Energy Performance Certificate (“EPC”)
rating of A, B or C, where subject to the
Minimum Energy Efficiency Standards.
21.4%
RENT COLLECTION*
Rent collection of 97% in 2021 (compared
to 83% for 2020) as rent collection rates
normalise to pre-COVID-19 levels.
ACQUISITIONS
£180 million (2020: £74m) of acquisitions
that are accretive and will generate
secure income.
97%£180m
UKCM
97.9%
Benchmark
92.3%
NET ZERO CARBON TARGET
for all emissions.
2040
NET ZERO CARBON TARGET
for landlord operational emissions.
2030
2020
66%
2021
75%
5
PERFORMANCE SUMMARY
31 December
2021
31 December
2020
%
Change
CAPITAL VALUES AND GEARING
Total assets less current liabilities (excl bank loan) £’000
1,573,554 1,324,825 18.8%
IFRS Net asset value (£’000)
1,325,228 1,126,976 17.6%
Net asset value per share (p)
102.0 86.7 17.6%
Ordinary Share Price (p)
74.7 69.0 8.3%
Discount to net asset value (%)
(26.8) (20.4) n/a
Gearing (%)*
13.5 6.4 n/a
1 year
% return
3 year
% return
5 year
% return
TOTAL RETURN
NAV†
21.5 20.6 41.5
Share price†
12.5 0.6 7.8
UKCM Direct Portfolio
21.4 24.4 47.9
MSCI Benchmark
16.8 17.7 38.8
FTSE Real Estate Investment Trusts Index
29.4 41.8 39.3
FTSE All-Share Index
18.3 27.2 30.2
31 December
2021
31 December
2020
EARNINGS AND DIVIDENDS
Net profit/(loss) for the year £’000
236,233 (10,282)
EPRA Earnings per share (p)
2.65 2.71
IFRS Earnings per share (p)
18.18 (0.79)
Dividends paid per ordinary share (p)
2.923 2.3
Dividend Yield (%)#
3.9 3.3
MSCI Benchmark Yield (%)
4.1 4.7
FTSE Real Estate Investment Trusts Index Yield (%)
2.6 3.1
FTSE All-Share Index Yield (%)
3.1 3.4
ONGOING CHARGES AND VACANCY RATE
As a % of average net assets including direct property costs
1.3 1.5
As a % of average net assets excluding direct property costs
0.8 0.8
Vacancy rate (%)
2.1 6.5
* Calculated, under AIC guidance, as gross borrowings less cash divided by portfolio value.
See alternative performance measures on page 116 for further details.
† Assumes re-investment of dividends excluding transaction costs.
#
Based on dividend paid in 2021 of 2.923p and the share price at 31 December 2021.
Alternative Performance Measures are defined in the glossary on pages 116 and 117, and include: Discount to net asset value,
Gearing, NAV and Share price total returns, EPRA Earnings per share, Dividend yield, Ongoing charges and Vacancy rate.
Sources: abrdn, MSCI
6 UKCP REIT Annual Report & Accounts
ukcpreit.com
Chair’s Statement
7
CHAIR’S STATEMENT
Ken McCullagh
Chair
Dear Shareholder,
UKCM delivered a NAV total return of 21.5% for the
year and once again outperformed the benchmark
as we carefully managed the portfolio throughout
the pandemic, further strengthened the Company’s
balance sheet and continued disposing of early
stage risk assets. Importantly, we also deployed the
Company’s remaining cash, investing in a number
of significant strategic acquisitions that are well
aligned to the fundamentals of the UK economy.
The Company has also announced a further
increase in its dividend to reflect the Board’s
optimism about the outlook for the business.
The economic recovery has created stark
differences in the UK commercial real estate
market. It has been well documented that the
industrial sector is performing well, a sector in
which UKCM has positioned itself strongly over
the past few years. However structural splits are
prominent within the other property sectors with,
for example, the positive performance of retail
warehousing versus the challenges faced by many
shopping centres being a clear case in point.
It is within these other sectors that investment has to
be more discerning, and we believe that the existing
portfolio is well-positioned against this context.
As we head into the year with a feeling of cautious
optimism, we remain alert to the challenges that
remain. The spectre of COVID-19 still looms large,
despite the continued easing of many restrictions,
and the effects of the pandemic – not just economic,
but personal, social and political – will be with us
for years to come. That said, the position in
which we find ourselves is significantly improved
from that of a year ago, and that gives cause for
confidence as we move forward. We are also
witnessing the harrowing scenes from the war in
the Ukraine. Apart from the human tragedy and
upheaval which is unfolding, the effect on energy
costs and higher commodity prices will increase
inflationary pressure for some time to come.
Portfolio Activity
As stated in our Interim Report, the Company has
a clear portfolio strategy of reducing specific retail
exposure and realising profits on properties where
successful asset management initiatives have been
completed, while reinvesting in assets that will
provide attractive but secure levels of income.
During 2021, the Company sold £74 million of
property, disposing of its final high street retail
exposure as well as of Kew Retail Park, the latter at
a price which reflected the residential opportunity
presented on this site. UKCM also took the
opportunity to sell two offices – Hartshead House,
Sheffield and Network House, Hemel Hempstead, due
to concerns around tenant covenant, and to remove
the largest void that existed within the portfolio.
8 UKCP REIT Annual Report & Accounts
ukcpreit.com
“UKCM delivered a NAV total return
of 21.5% for the year and once again
outperformed the benchmark.”
FROM THE CHAIR
Using the proceeds generated, together with
existing available resources, the Company
has committed £216 million through five
acquisitions which were completed during the
year. The market is becoming increasingly
competitive in a narrower range of asset classes
but the Company has been able to source deals
off-market as well as creating value through
forward-funding development acquisitions.
At the year end, the Company has three
ongoing developments; two student residential
developments in Exeter and Edinburgh, as well
as an industrial development near Gatwick.
All are expected to be completed in the second
half of 2022. These assets have been accretive
to the performance of the Company and are
expected to provide sustainable income streams
for the years ahead.
Further details on all investment transactions and
significant lettings are given in the Investment
Manager Review.
Portfolio and Corporate Performance
UKCM has continued to outperform against its MSCI
UK Balanced Portfolios Quarterly Index benchmark
across all time periods.
For 2021, the Company’s portfolio total return
significantly outperformed the benchmark of
16.8%. This performance was driven by the strategic
positioning of the portfolio, which is well aligned
to those parts of the economy that are supported by
strong structural drivers. UKCM has a 63.4% holding
in the industrial sector against the benchmark of
33.9%, a sector where returns have been particularly
strong. The Company has also grown its holdings in
retail warehousing to 9.9% which has also delivered
strong returns in 2021 and is expected to be a top
performer in the medium term. Further details on
the Company’s portfolio performance are given in
the Investment Manager Review.
The strength of the portfolio performance was the
main driver behind the 21.5% NAV total return
for the period. The share price return, taking into
account dividends paid over the period, was 12.5%.
The Board also monitors the discount at which the
Company’s shares trade versus their net asset value,
which increased from 20.4% at the end of December
2020 to 26.8% at 31 December 2021. Whilst noting
our Q4 2021 NAV performance was our strongest in
the year, the Board are actively considering options
to narrow the discount.
Over the longer term, the Company has
outperformed the AIC peer group on both a NAV
and share price total return basis, delivering 114.9%
and 75.1% respectively over ten years, compared to
the 54.6% and 40.9% returns from the peer group.
Financial Resources
UKCM has built up a strong balance sheet, with a
NAV as at 31 December of £1.3 billion and gearing
growing to 13.5% though it still remains one of the
lowest geared companies in the AIC peer group and
the wider REIT sector. At the year end, the Company
had fully invested its free cash but still had available
resources of £88 million due to the £100 million
which remains undrawn of its low cost, flexible
revolving credit facility and will allow UKCM to
grow its gearing levels further.
Through its Investment Manager, the Company is
always looking at transaction opportunities in order
to deploy these resources. However, acquisitions
must be aligned to the portfolio strategy as we look
to invest our available funds carefully.
The Company continues to be comfortably within
the covenants on its three debt facilities, and has
more than £462 million of unencumbered assets
which provide further significant headroom and
flexibility with respect to the Company’s covenants
and overall gearing strategy.
63.4
%
Industrial
14.3
%
Offices
12.1
%
Retail
10.2
%
Alternatives
Portfolio Weighting
9
CHAIR’S STATEMENT
Continued
Aura, Axiom & Integra
Precision Park, Leamington Spa
Central Square
Newcastle upon Tyne
Rent Collection
The Board has taken its role as a responsible
landlord very seriously throughout the pandemic
and is pleased that we are now seeing the
positive outcomes from working with our tenants.
During 2020, and continuing into 2021, tenant
requests for rental assistance were considered
on a case-by-case basis, and also with a view
to securing a future benefit for the Company.
As a result, UKCM has put in place a number of rent
deferrals and monthly lease payment structures
for tenants which were designed to assist both the
tenant and the Company, with a number of these
leading to lease renegotiations, creating value
through securing longer lease commitments in
return for short-term rent incentives/support.
The Board is pleased that, by the end of 2021,
rent collection levels were starting to normalise
and returning to levels of 97% for the four quarters
of 2021, in line with pre-pandemic numbers.
The Company has a bad debt provision of
£5.3 million as at 31 December 2021, having
undertaken a prudent review of its arrears,
but will pursue collection of all arrears by
continuing to work closely with its tenants.
10 UKCP REIT Annual Report & Accounts
ukcpreit.com
Trafford Retail Park
Manchester
Dividends
The Board remains cognisant that the payment
of an attractive, sustainable dividend is of
primary importance to many shareholders.
In our 2020 Annual Report, we stated that there
was the potential for progressive dividend growth
as we deployed our available resources and the
impact of COVID-19 began to stabilise.
We have increased the dividend from the 0.46p per
share paid in February 2021 to 0.644p per share
from Q1 2021, before announcing a further increase
to 0.75p per paid in February 2022, representing
a 63% increase over the period. Additionally,
we paid out a top-up dividend in respect of 2020
of £6.9 million. This increase is against a backdrop
of 111% dividend cover, 91% when including the
impact of the top-up dividend.
The Board considers the new dividend level of
0.75p per share to be sustainable but with the
aim to grow as earnings increase as the Company
deploys its remaining capital and we start to see
the completion of ongoing developments within
the portfolio.
Environmental, Social and Governance (“ESG”)
ESG is embedded within the processes of
UKCM and underpins every Board discussion
and decision.
As highlighted on rent collection, we have
engaged with tenants and sought to balance their
circumstances with those of the Company in order
to secure long-term, mutually beneficial outcomes.
The Company has announced two significant
targets as part of its Net Zero Carbon Strategy
following a bottom-up asset-level review across
the entire portfolio. By 2030, we aim to achieve Net
Zero Carbon for landlord operational emissions and
extend this to all emissions by 2040. These targets
are in advance of the UK Government’s target of
2050 but we are committed to setting a target which
we consider to be both challenging and achievable,
and we look forward to providing progress updates
against these targets going forward.
Investment Management Fee
The Board notes the Investment Manager’s
continued commitment of resources to the
Company, particularly as seen throughout the
pandemic. It is particularly appreciative, therefore,
to have negotiated a reduction in the investment
management fee. From 1 April 2022, the annual
fee charged to the Company will be reduced from
a rate of 0.60% of Total Assets up to £1.75 billion,
to 0.525% of Total Assets. The rate of 0.475%
remains unchanged for Total Assets above
£1.75 billion. In addition, the Company will not
be charged for fees on excessive cash balances.
Board Composition
During the year, Robert Fowlds and Sandra Platts
retired from their roles as Non-Executive Directors
having served the Company for three and eight
years respectively. During this time, they made
an invaluable contribution to the Board and both
leave with our sincere thanks and best wishes
for the future.
As part of our continuing Board succession
programme, we were delighted that Fionnuala Hogan
joined the Board as a Non-Executive Director in
August 2021. Fionnuala brings over 25 years’
experience of corporate advisory, investment
and financing, with a particular emphasis on
commercial real estate and innovation, and we
are very pleased to welcome her to the Company.
Fionnuala’s wealth of knowledge and range of key
skills have already proven to be a valuable addition
to the Board.
I have now served just over nine years on
the Board and would be due to retire this year.
The Board however, as outlined in the Corporate
Governance Report on page 55, have asked me to
continue in my role as Chair for a limited time,
which I have agreed to subject to my election at
the AGM, while it considers and completes its
succession planning. This more flexible approach
to my tenure as Chair will help manage the
Company’s succession plans in the short term
and achieve a sensible balance between continuity
and reinvigoration in compliance with the AIC
Code for investment companies.
Outlook
2022 has begun with a successful COVID-19 vaccine
booster programme, and an ongoing easing of
restrictions necessary to navigate the pandemic.
At the same time, the situation in Ukraine, the
ongoing pandemic and the spectre of inflation and
Brexit, present additional layers of uncertainty.
It is expected that the divergence in UK commercial
property performance will be prevalent both across
and within the property sectors. The extremely
strong capital growth achieved by industrials is
unlikely to continue at the same level, but total
returns are expected to remain robust for the year
ahead. The bifurcation within the office market is
expected to deepen over the course of 2022 with
a clear distinction between the best, with strong
ESG credentials, and the rest. Retail performance
is showing signs of improvement, but this will be
driven by retail warehouse assets, particularly
discount-led schemes.
The expected UK commercial property trends
show UKCM to be in an excellent position, with its
significant holdings in the sectors, and sub-sectors,
that are expected to remain amongst the best
performing. The Company has further available
resources, with scope to increase gearing and a
strong pipeline of developments which are due to
complete in 2022 and enhance earnings further.
Overall, the Company is strongly positioned with
its clear investment strategy delivering a well-
structured portfolio and solid financial footing
as we aim to increase earnings, drive shareholder
value and enhance UKCM’s status as one of the UK’s
largest diversified REITs.
Ken McCullagh
Chair
13 April 2022
11
INVESTMENT MANAGER REVIEW
2021 Review
2021 was a year once again characterised by the
COVID-19 pandemic, but the key theme for the
year was recovery. As the year progressed and
the vaccine roll out continued apace, economic
positivity returned, despite temporary periods
of hiatus with the emergence of the Delta
variant, and then the Omicron variant towards
the end of the year. However, the economy
did recover and, by November 2021, UK GDP
was above the level seen pre-pandemic.
Overall, the UK economy grew by 7.5% over
the course of the year.
The UK real estate market also recovered in
2021, with a total return of 16.5% according to
the MSCI Quarterly Index (this is different from
the Company’s benchmark which is the MSCI
UK Balanced Portfolios Quarterly Property
Index benchmark), a level of performance not
seen since 2014. Transaction volumes reached
£73.9 billion over the course of the year, which
was 37% ahead of 2019 (prior to the outbreak
of the pandemic). Indeed, the fourth quarter of
2021 was the strongest quarter since the same
period in 2019. However, this recovery was
highly polarised and the spread between the
best and worst performing sectors is now at the
highest level on record.
The industrial and logistics sector again
produced the best performance, achieving total
returns of 36.4%, whereas shopping centres
achieved a total return of –5.2% and was the
worst performing sector over the course of 2021.
The office sector continued to underperform,
achieving 5.3% total return as structural
sector concerns persist. However, best in class
office assets continued to generate positive
sentiment, particularly with overseas investors.
Cross-border capital remained a dominant force
in the UK market and accounted for 58% of all
investment in the UK market during the year.
Following a poor year in 2020, the FTSE UK
REIT index returned to positive territory and
recorded a strong total return of 28.9% in 2021.
This outperformed the FTSE UK All-Share
Index, which recorded a total return of 18.3%,
demonstrating that the UK real estate market
remains an attractive investment destination.
Following a significant sell off in September 2021,
UK REITs broadly recovered and finished the
year at, or close to, all-time highs. The hierarchy
of favoured sectors again remains broadly the
same, with the industrial and logistics sector
leading the way. However, overall sentiment
was positive for all sectors towards the end of
the year, with the exception of secondary offices
with which there are broad structural concerns.
New capital raising has predominantly been tilted
towards the industrial sector and, increasingly,
the alternatives sector. Environmental, Social
& Governance (“ESG”) issues continued to grow
in prominence in investor and occupier decision-
making and this trend will no doubt continue.
Within the UK real estate market, retail continues
to be the sector most negatively affected by the
pandemic, as restrictions and changing consumer
habits have accelerated the pace of structural
change already present prior to the outbreak.
However, whilst high street and discretionary
based retailers have struggled, retail warehouse
assets showed a significant recovery in the latter
half of the year. Polarisation within sectors is
evident elsewhere, including within the office
sector. As occupiers and investors have become
more mindful of ESG considerations, their focus
has increasingly narrowed on best-in-class
assets and, as a result, we have seen demand for
secondary accommodation weaken. While we are
hopefully now coming to the end of the pandemic,
it is likely we will be living with the structural
changes it has expedited for many years to come.
Review by Sector
21.5%
NAV TOTAL RETURN
In 2021
Will Fulton
Lead Manager
12 UKCP REIT Annual Report & Accounts
ukcpreit.com
Office
The office sector delivered a total return of 5.3% to
December 2021 according to the MSCI Quarterly
Index, an improvement on the –1.7% recorded in
2020. However, office capital values were relatively
stagnant over the course of 2021, with growth of
just 1.3%. The most profound fall occurred in the
North East office market, with capital values falling
by –3.6%. Once again, the performance of the office
market was significantly impacted by the COVID-19
pandemic. As restrictions eased over the course of
2021, occupiers had begun returning to workplaces.
However, the outbreak of the Omicron variant
and the subsequent reintroduction of working
from home guidance has further emphasised the
pressure which the sector faces.
The rise of hybrid working has led occupiers to
revaluate their office accommodation requirements
and, whilst vacancy rates did begin to show signs
of stabilisation, levels of occupation remain far
below pre-pandemic levels. Central London
availability by Q3 2021 remained 64% higher than
the 10-year average, at 25.2m sq ft versus the
10-year average of 15.4m sq ft, although take up
in Central London did recover with 7.4m sq ft let
in the year to November 2021. This was 54% above
the annual total for 2020, but down 22% on the
long-term average. However, polarisation within
the sector is becoming ever more apparent as
occupier focus narrows on best-in-class assets
with strong ESG and wellbeing credentials.
Second hand availability in Central London
has almost doubled from pre-pandemic levels
and in Q3 2021 accounted for nearly 75% of total
office supply. As a result, we expect this trend to
drive an increasing wedge between rental value
growth for the best, and the rest with investor
appetite following a similar pattern, and those
assets not meeting current occupational demand
at risk of significant value erosion.
Retail
After a number of years of poor performance,
the retail sector showed some signs of recovery
in 2021 despite continued structural headwinds.
However, we believe this to be primarily driven by
market factors and a product of the market cycle,
rather than sector-specific confidence. As a result,
performance was highly polarised within the sector.
As was expected, those assets deemed as essential
retail use showed strong performance over
the year, whereas discretionary retailers and
those susceptible to greater online penetration,
once again struggled against the backdrop of
the pandemic. Whilst retail warehouse assets
underwent a strong recovery, particularly in the
second half of the year, recording a total return
of 21.9% for retail parks, shopping centres
continued to drag on the sector and provided
a total return of –5.2% in 2021.
High street shops also showed continued poor
performance as retailers struggled with ongoing
restrictions and a consumer shift to e-commerce.
Capital values for retail assets within Central
London fell by 5.8%, continuing the trend seen in
2020. The reintroduction of restrictions towards the
end of the year also put further pressure on high
streets causing another fall in footfall.
Supermarkets, however, once again provided
a robust performance due to an increase in
consumer spending and their relative insulation
from online shopping. Supermarkets provided a
total return of 15.7%, predominantly driven by yield
compression, as investors were attracted by secure,
index linked, long income.
Consumer habits have changed over the course
of the pandemic and it is clear from footfall data
that many now prefer to visit units which provide
‘drive to convenience’ and perceived safety from
COVID-19. As a result, investor attention also
turned to retail warehouse accommodation, with
those assets led by discount or DIY operators of
principal interest. In response, yields within this
sector have moved in between 150-250bps during
2021. However, schemes with significant exposure
to fashion-led retailers have generated less interest
as occupational concerns remain. From an
occupational perspective, the situation remains
fragile as government support is withdrawn
and the risk of further retailer defaults remains
elevated. With the rate of inflation also expected
to continue to rise in 2022, there is likely to be
pressure on consumer disposable income in the
short/medium term, further impacting on retailer
trading performance, particularly for luxury/
discretionary goods and services. As a result, the
prospect for rental growth across the sector is
considered remote. Moving forward, the sector is
likely to remain highly polarised but overall retail
sector performance is anticipated to improve when
compared to 2021 as shopping centres and high
street retail stabilise.
Kerri Hunter
Interim Lead Manager
13
Integra, Precision Park,
Leamington Spa
INVESTMENT MANAGER REVIEW
Continued
Industrial
Once again, the industrial and logistics market
retained its position as the best performing UK
commercial real estate sector. The sector delivered
a total return of 36.4%, which compares to an all
property total return over the same period of 16.5%.
Sentiment remained extremely positive over the
course of the year as investors were attracted by
a strong supply-demand imbalance and subsequent
rental value growth across the sector. This is most
keenly felt in supply constrained locations such
as London, which remained the best performing
market, with total return for London industrial
achieving 43.1% over the year. As investors have
sought to buy into the sector, transactional
volumes totalled £20.8 billion, the highest level
ever recorded and 117% higher than the total
transacted in 2020. As a result, transactions
involving the sector accounted for 28.3% of total
UK real estate investment activity.
From an occupational perspective, demand for
accommodation remains extremely high, with take
up in 2021 totalling over 55m sq ft, another all-time
record. Distribution and online retailers continue to
dominate take up and, with the UK wide vacancy rate
now below 2.0%, the market fundamentals remain
supportive for continued strong rental value growth.
Moving forward, rental value growth is likely to be
the predominant driver of returns as further yield
compression, which has been the key driver over
the course of 2021, is unsustainable and particularly
so in the prime sector of the market. Yields moved
in between 50-125bps during 2021 across the sector,
and prime London estates are now commanding
yields of around 3.0%. Sentiment remains very
strong for the industrial and logistics market
and the sector is well placed structurally to see
continued robust growth.
Alternatives
The UK real estate alternative sector, or “Other
Property” as it is categorised by MSCI, represents
real estate which falls outside the traditional
‘Retail’, ‘Office’ or ‘Industrial’ definitions. Investor
interest in the alternatives sector has increased
and a total of £22.3 billion was recorded to have
transacted over the course of 2021, which was
up 34.3% on 2020 and 39.9% above the 10-year
average. Total return within this sector was 9.2%
which, whilst below the all property total return of
16.5%, was a significant improvement on the total
return achieved in 2020 of –5.3%. The reasons for
this are largely as a result of ongoing restrictions
and a change in consumer habits as a result of the
COVID-19 pandemic.
The leisure and hotel sectors, which form a large
component of the “other property” sector within
the MSCI sample, suffered at the beginning of 2020
due to strict government restrictions, with many
operators not reopening until Q2 at the earliest.
However, over the remainder of the year the
sectors underwent gradual recovery and regional
hotels in particular experienced record bookings,
as international travel restrictions boosted the
demand for domestically driven ‘staycations’.
As a result, total returns in the hotel and leisure
sectors for 2021 were 7.7% and 7.8% respectively.
Healthcare also finished the year in a strong
position and recorded a total return of 9.5%.
Investor appetite for the Build to Rent (BTR)
residential sector also continued its strong
trajectory and a record of £4.1 billion was invested
into the sector over the course of 2021, beating the
previous record of £3.5 billion achieved in 2020.
The Purpose Built Student Accommodation (PBSA)
sector also performed well in 2021, despite a muted
start to the year. Large platform deals have placed
further downward pressure on yields, with those
assets with index linked leases now commanding
yields of 3.0% according to CBRE. However,
performance is polarised, with those assets serving
the UK’s top universities best placed to outperform.
Moving forward, the ‘alternatives’ sector is likely
to become more ‘mainstream’ as it grows in
prominence in investor thinking due to continued
resilient performance.
Market Outlook
It is clear that we have entered 2022 in a period
of uncertainty, as geopolitical concerns weigh
on the global economy. Whilst it appears we have
now passed the worst of the COVID-19 pandemic,
the outbreak of conflict in Ukraine in February 2022
has sent shockwaves throughout the world. Whilst
the conflict has not materially altered our outlook
for UK real estate in 2022, new considerations have
emerged as a result. The initial impacts on UK
commercial real estate of the Russian invasion of
Ukraine, and the subsequent sanctions placed on
the Russian economy, are expected to be negligible,
primarily as a result of Russian capital having little
exposure to UK commercial real estate. This should
mean there is a limited impact on market liquidity
and a low risk of depressed asset values as a result.
In fact, due to increased volatility in other financial
markets, UK real estate may benefit due to being
viewed as a ‘safe haven’ investment destination.
However, the Ukraine conflict is likely to have wider
consequences and the position of UK real estate
must be set in the context of the macroeconomic
environment. Prior to the outbreak of conflict,
the year was already likely to be dominated by
concerns over inflation and subsequent changes
to monetary policy, and the conflict has skewed
risks to the upside. The rate of inflation reached
6.2% in February and is likely to continue to grow
throughout the first half of 2022, before peaking at
around 8% as rising energy prices and supply chain
issues take hold.
14 UKCP REIT Annual Report & Accounts
ukcpreit.com
We forecast that the UK CPI rate for 2022 will
be roughly 6.2%, illustrating that inflationary
pressures are likely to moderate in the latter
half of the year, but remain significantly above
the Bank of England’s target rate. There are also
significant risks that inflation could remain
higher for a more prolonged period of time,
particularly as the war in Ukraine, and sanction
measures on the Russian economy, impact on
pricing in the energy sector and on key raw
materials. The high inflation environment is
likely to have an effect on households across
the UK and we expect consumer sentiment and
real wage growth to suffer as a result; however,
a build-up in household savings over the course
of the previous two years will help to cushion
this impact. That said, the distribution of these
savings tends to be very heavily skewed towards
high income households, with increased pressure
on low income households possibly translating to
weakening overall consumer consumption.
In response to these inflationary factors,
the Bank of England increased the base rate to
0.75% in March 2022 and is expected to continue
tightening monetary policy over the course of
the year, with the base rate expected to reach
1.25% by the end of 2022. The base rate is then
expected to peak at 1.75% in 2023, but there is an
elevated risk that this could surprise the upside
and peak above 2.00%. Although low in a historical
context, base rates and the feed through to the bond
market has the potential to act as a natural cap
on any further yield compression, particularly for
the lower yielding areas of the real estate market.
Despite this, a healthy margin between bonds
and real estate will be maintained, and we believe
investors will continue to view UK real estate as an
attractive investment destination, but will become
more selective when approaching investment
decisions at both the sector and asset level.
There are sectors which are more negatively
exposed to the cost-push inflation we are
experiencing in the UK at present, in particular
the retail sector, given the increasing squeeze
on household disposable incomes. There is also
evidence to suggest that material cost inflation
in the UK is resulting in the delay of some
development projects. This could be viewed
as negative, but for some sectors this may be
beneficial. In the industrial and logistics sector,
for example, national vacancy is approximately
3% and project delays are likely to stifle any supply
response, supporting continued rental growth.
Hanger Lane
London
In general, UK commercial real estate has a much
looser link with inflation and a much stronger
correlation with economic growth. Although we
are experiencing elevated levels of inflation at
present as a result of cost-push factors, we do
expect inflation to subside from April 2022
onwards, but remain significantly above the
target rate.
Prior to the Russian invasion of Ukraine, GDP
growth was forecast to be closer to 4.4% in 2022 but
we now expect the rate of economic growth to slow
to 3.8% for the year. This leads to the possibility that
we face an environment of weakening economic
growth at a time when inflation is running
considerably above target. Such an environment
is likely to impact more heavily on, particularly,
the office and retail sectors as a result of depressed
job growth and falling disposable incomes.
As such, the bifurcation of the office sector is
likely to become more pronounced. Demand for
prime assets should remain robust but weaken
for secondary accommodation. Those office
assets not deemed to be “future fit” are likely to
see limited occupational and investor demand as
ESG considerations become ever more prominent
in investor decision making. The industrial and
logistics market is anticipated to remain robust in
2022 but unlikely to match the extremely strong
performance achieved over the course of 2021.
The prospect of further yield compression,
particularly on prime assets, is limited and
rental growth is expected to be the main driver of
performance in this sector. Demand continues
to outstrip supply and, although there has been
a pickup in supply in the sector, increasing land
values, a shortage of suitable development sites,
and increasing build costs mean there are no signs
of a correction in the short term.
We still expect the recovery in the retail sector
to continue, primarily driven by market factors
rather than sector specific confidence. Demand
will remain focused on discount and food-led
retail warehouse schemes whilst the occupational
market will continue to be heavily impacted by the
pandemic-induced change in consumer habits and
the continued growth of e-commerce. As discussed,
the impact of inflation on household disposable
incomes is also likely to weigh heavily on the
retail sector, and particularly on discretionary-
based retailers, throughout the course of 2022
and the prospect of rental value growth remains
remote. The alternatives sector will build on strong
transactional volumes achieved in 2021 and will
grow more prominent in investor focus. We expect
the hotel sector to recover over the course of 2022
as restrictions ease. The PBSA and Build-to-Rent
residential sectors should also continue their
positive momentum.
Overall, we expect a positive year for UK real
estate but the spread in performance seen in 2021
is unlikely to be repeated and sector performance
will begin to converge in 2022, predominantly as
a result of where we are in the UK real estate cycle.
Geopolitical events, inflationary and base rate
pressures are likely to weigh and, as a result,
more care will be required when assessing any
investment decisions in the year ahead.
15
INVESTMENT MANAGER REVIEW
Continued
Portfolio Performance
During the reporting period the Company’s
portfolio delivered strong outperformance
against its benchmark with a total return of
21.4% versus 16.8% for its MSCI benchmark,
predominantly attributable to the Company’s
overweight industrial position.
Since inception and over one, three and five
years, the Company’s portfolio has also
outperformed its MSCI benchmark.
The adjacent table sets out the components of
these returns for the year to 31 December 2021
with all valuations undertaken by the Company’s
external valuer, CBRE Limited.
Industrial
A key driver of the portfolio’s outperformance over
the last 12 months was its structural overweight
position towards the industrial sector which was,
again, the strongest performing sector of the
market, continuing a theme we have witnessed
as we have built up this portfolio over the last few
years. The portfolio has a 63% exposure to the
industrial sector at the end of Q4 2021, comparing
favourably to 34% for the benchmark. The portfolio
industrial weighing has increased over the period
from 58% at the end of Q4 2020.
The industrial assets delivered a strong performance of
31.7% over 2021 albeit this was behind the benchmark
return of 36.4%. This was primarily due to lower
capital growth in the portfolio than the benchmark.
The largest contributor to portfolio performance
over the year was the Dolphin Industrial Estate
in Sunbury-on-Thames which delivered a total
return of 40.8% and saw capital growth of 36.5%.
All of the top five assets by weighted contribution
to portfolio performance were industrial assets.
In addition to Dolphin Industrial Estate, the others
were the multi-let industrial estate at Ventura Park,
Radlett, Hannah Close Neasden, which is let to
Amazon, XDock 377 at Magna Park, Lutterworth let
to Armstrong Logistics and the Ocado distribution
unit in Hatfield.
Office
The Company’s office portfolio had a disappointing
year delivering a total return of –4.2% compared
to the benchmark return of 6.0%. Although the
income return was significantly ahead of the
benchmark, this was offset by a capital decline
of 9.0%. Three of the largest detractors to the
wider portfolio performance were office buildings
which reflects CBRE’s prudent approach, as
our valuers, where income is at risk. This is
particularly illustrated in the performance of
The White Building, a Grade A office in Reading,
where a significant proportion of income was
potentially at risk due to tenant break options
and the capital value declined by 11% as the
valuer penalised this short income. In reality
we have not seen the majority of break options
exercised and we would expect to see some of
this capital loss recovered. The other two assets
within the bottom five performers in 2021 were
9 Colmore Row, Birmingham and Central Square,
Newcastle. Given the shift in occupier demands
which has been accelerated by the COVID-19
pandemic, all the office assets are subject to a
detailed review against strict criteria to ensure
they are future-proofed. Furthermore, there is
an expectation that high-quality regional office
assets will benefit from changing working habits.
The Company sold Network House in Hemel
Hempstead within the period. The asset was
not of sufficient quality to justify the necessary
capital expenditure to relet it and once the tenant
had vacated the asset was the largest void in
the portfolio. We disposed of the property for
residential redevelopment, finishing the year
with a low exposure of 14% to the office sector,
compared to 27% in the benchmark.
Retail
Performance of the Company’s retail portfolio,
which made up 12% of the total by value at the year
end, significantly outperformed the benchmark
delivering a total return of 24.3% while the
benchmark was 11.7%.
This reflects the composition of the Company’s
retail portfolio being bulky goods and discount-led
retail warehouses and supermarkets. These assets
have proven to be resilient during the COVID-19
pandemic and have attracted very strong investor
attention leading to yield compression.
The strong performance of the retail warehouse
sector is reflected in the returns generated at the
Company’s two retail parks held throughout the
period being Junction 27, Leeds and St George’s
Retail Park, Leicester, which generated returns
of 36.4% and 42.8% respectively. Both have
been subject to significant asset management
and now have the attractive fundamentals investors
are focussed upon, namely strong locations,
rents rebased to the current market level and
robust tenants fit for their catchment. These same
characteristics can be applied to the newly acquired
Trafford Retail Park in Manchester which saw an
11% capital uplift from purchase in September to
31 December 2021.
UKCM has no shopping centres and no pure high
street retail exposure.
Alternatives
The Company’s alternative sector assets delivered
a positive total return of 3.2%. This was behind
the benchmark return of 8.4% but showed a
recovery from the strongly negative returns of 2020
reflecting the stabilisation of the sector and the
reopening of the economy.
The alternatives portfolio is dominated by three
cinema-anchored leisure schemes – The Rotunda in
Kingston, Cineworld in Glasgow and Regent Circus
in Swindon. These assets have been largely out of
favour with investors but the stabilisation of the
sector has translated into improved rent collection
rates within the portfolio.
The Company’s 10% weighting to the sector is
forecast to increase with the completion of two
student housing schemes being developed in Exeter
and Edinburgh, which are both due to complete in
time for the new academic term in August 2022.
Total Capital Growth
UKCM
16.8% 12.0%
Benchmark
Weighting % Total Return Income Return Capital Growth
Fund
%
Benchmark
%
UKCM
%
Benchmark
%
UKCM
%
Benchmark
%
Industrial
63.4% 31.7 36.4 3.5 3.9 27.3 31.4
Office
14.3% -4.2 6.0 5.3 3.8 –9.0 2.1
Retail
12.1% 24.3 11.7 6.0 5.7 17.4 5.7
Alternatives
10.2% 3.2 8.4 3.0 4.1 0.1 4.2
Total
100.0% 21.4 16.8 4.0 4.3 16.8 12.0
Source: MSCI UK Balanced Portfolios Quarterly Property Index
MSCI calculation note: Multi-period capital growth and income return may not sum perfectly to total return due to the cross
product that occurs as income is assumed to be reinvested on a monthly basis and is subject to capital value change.
16 UKCP REIT Annual Report & Accounts
ukcpreit.com
The Rotunda
Kingston upon Thames
Investment Activity
The year saw strong activity in relation to
transactions, selling out of risk assets and recycling
into accretive assets. Taking care to invest only
in compelling and accretive opportunities the
majority of sales took place in the first third of the
year and, the majority of purchases occurred in the
final third. Four sales totalling £74m completed and
five purchases completed, committing a total of
£216 million.
Sales
In February, Hartshead House, an office building
let entirely to Capita on the fringes of Sheffield City
Centre, was sold to Arella Property Holding Limited
for £17 million in line with its valuation. The sale
reflected our concerns over the durability of the
income stream as well as the potential for long-term
disruption in many parts of the office sector as a
result of COVID-19.
The most significant disposal of the year was the
sale in March of Kew Retail Park in Richmond
for £41 million to a leading London residential
developer. Securing an unconditional sale at this
level represented an excellent exit opportunity
from the 4.7 acres the Company owned out of the
complete 10-acre Retail Park.
The Company’s element comprised 61,765 sq ft of
gross lettable area across five units which were let
at the time on short leases to a range of tenants
including Boots, Sports Direct, Gap and TK Maxx.
For some time, given its location and neighbouring
residential use, despite any formal planning
consent, this asset had been valued with an eye
to its underlying residential conversion value
and therefore provided a very low income return.
The Company would not undertake a development
of this scale and nature itself and therefore sought
to maximise value through a sale to a credible
purchaser. The price agreed was marginally behind
its latest valuation at the time but well ahead of its
value for retail warehouse use and at a strong level
in the context of the residential market.
Shortly after, in April, the Company sold its last
pure high street retail asset at 140–146 King’s Road,
London, for £9.9 million in line with its valuation.
Predominantly let to French Connection, a tenant
that had experienced issues in its performance
which we believed were likely to increase and,
exacerbated by COVID-19, it presented significant
risk of income disruption. This, coupled with the
potential for non-accretive capital expenditure
alongside our pessimistic outlook for the high street
fashion sector, led us to sell.
Finally, in September, Network House, Hemel
Hempstead, a standalone and vacant office
pavilion, was sold for £6.3 million taking advantage
of interest for residential development and
significantly reducing the Company’s overall
vacancy rate.
Purchases
The five acquisitions completed over the year
were varied by sector, income and risk profile and
show a blended net initial yield of 5.0%.
As reported last year, we exchanged on the
purchase of a site in Edinburgh, which completed
in January, and entered into a development
funding agreement to create a 230-bed purpose
built student accommodation scheme. The property,
is very well-located for both Edinburgh and Napier
Universities and is on track for completion ahead of
the 2022/2023 academic year.
At the end of September, we purchased Trafford
Retail Park in Manchester for £33 million at a net
initial yield of 6.9%. It is strategically located,
close to the Trafford Centre and a motorway
junction. The park is anchored by a robust line
up of food and discount anchored retailers and
extends to 142,000 sq ft, providing good critical
mass. It is let at rebased, sustainable rents and is
therefore well-placed for growth.
Through the funding of a development known
as Sussex Junction, close to Gatwick airport, the
Company is creating three well-specified units
totalling 107,000 sq ft with strong ESG credentials,
adding to its heavy industrial exposure at an
attractive yield, compared to that of an up-
and-let investment. Following the pre-letting
of two units to CGG Services, a global leader in
geoscience technology, the site was purchased
in early November and the development is due
for completion in Q3 2022. When fully let, the
investment is expected to yield over 5.0%.
The £35 million purchase of an office on Hanger
Lane, London completed at the end of November.
It is a 2.8-acre site prominently situated in an
area designated as a Strategic Industrial Location,
close to Park Royal, one of Europe’s largest urban
industrial areas. The medium term business
plan is to redevelop the site to create high quality
industrial product but, in the meantime, the
Company benefits from a robust and growing
income stream by virtue of a 10-year lease of the
existing 98,000 sq ft office building let to Kantar,
a global data consulting company. It currently
yields 5.1% and is subject to a five year rent
review linked to CPI.
In December, we purchased a multi-faceted
investment with a life sciences and technology
focus in Leamington Spa. It comprises two
refurbished distribution warehouses totalling
380,000 sq ft, let to The Secretary of State for the
Department of Health and Social Care and Iron
Mountain plc. A 65,000 sq ft refurbished office
building is let to Tata Consulting Services Limited
and a global social network provider while the
asset also comprises an oven-ready development
site with planning consent for 68,000 sq ft of
flexible industrial accommodation. The income-
producing industrial and office properties are
delivering a net initial yield of 4.3% and the
development of the new units is underway,
with an expected development yield of 4.8%.
17
INVESTMENT MANAGER REVIEW
Continued
Asset Management Activity
The reopening of the economy and return to
strong growth has been reflected in our rent
collection rates which are approaching normalised
pre-COVID-19 levels and have improved on a
quarter-by-quarter basis throughout the year.
A summary of rent collection for the year to
31 December 2021, as at 28 February 2022, is
provided below and includes those tenants who
have paid, by agreement, on a monthly basis:
March 2021
95%
June 2021
96%
September 2021
98%
December 2021
98%
TOTAL
97%
Additionally, significant progress has been made
on collecting arrears incurred in previous quarters.
Within last year’s report and accounts up to
31 December 2020 we reported a rent collection
rate of 83% for the year. This 2020 figure has since
increased to 94%. We continue to engage proactively
with tenants which have incurred rental arrears.
The average weighted unexpired lease term of
the portfolio has decreased slightly to 8.3 years
compared to 9.0 years at 31 December 2020.
This compares to the benchmark unexpired term
of 9.3 years. At 31st December 2021, 26% of portfolio
income was subject to either index linked rental
uplifts or fixed increases.
The following asset management activity, grouped
by sector with percentage occupancy shown as
at 31 December 2021, represents a summary of
noteworthy transactions:
Industrial / Logistics Distribution
97% occupied
Ventura Park, Radlett
A flurry of leasing activity in the first quarter
of the year produced five lettings which secured
£2.45 million of annual rent in aggregate,
4.4% ahead of the combined units Estimated
Rental Value (“ERV”). In detail, Unit 7 and Unit B
have been let to an existing global occupier on the
park on two year leases at a rent of £1,234,000 per
annum. Unit A, 34,502 sq ft, was let to GL Events
at a new rent of £373,000 per annum, secured for
a five-year term certain with a nine-month lease
incentive given as reduced rent for a two-year
period. Unit 6A has been let to Stand & Deliver,
a subsidiary company of an existing occupier,
Forward Trucking Services Limited, for a 10-year
term certain at a rent of £480,879 per annum.
A lease incentive of 10 months’ rent free was
granted on this 44,734 sq ft unit. Unit E has been
let to Planners Services & Sundries on a 10-year
lease at a rent of £357,400 per annum.
In early summer, as part of its ongoing ESG
initiatives, the Company welcomed several
hundred new tenants to the park in the form of
bees. Two bee hives were installed and in addition
to their positive environmental impact, honey
produced will be sold to raise funds for charity.
Newton’s Court, Dartford
In the first quarter a new five-year lease was
agreed with MedDeX Solutions Limited at Unit 2,
Newton’s Court, Dartford at a rent of £165,000 per
annum, 2% ahead of the ERV of the unit. And then
in the final quarter of the year, a letting of the
6,643 sq ft Unit 7 to Dartford & Gravesham NHS
Trust Unit completed. The NHS Trust committed to
a 10-year term with a break option at year five at
a rent of £84,111 per annum.
Dolphin Trading Estate, Sunbury-on-Thames
Several significant deals completed in quarter
four at Dolphin Industrial Estate, the Company’s
multi-let industrial estate in Sunbury-on-Thames.
Trans Global Freight Management Limited let
10,000 sq ft at Unit A2 on a new 5-year lease at a
rent of £140,000 per annum, ahead of the unit’s
ERV. At the same time Trans Global extended its
existing lease over Units D1/2 (63,900 sq ft) on a
coterminous basis with Unit A2 securing an annual
rent of £704,000 until the new lease expiry in
October 2026. The rent over Units D1/2 is subject to
review in June 2023.
Howard Tenens Limited extended its lease over the
49,000 sq ft Unit B on a new 10-year lease, subject
to a break option in year five, ahead of ERV at a rent
of £628,702 per annum.
Unit C1 was relet to Goldstar Heathrow following
the insolvency of the previous tenant. No void
period occurred between the old and new tenant
and Goldstar have signed a 10-year lease, subject
to a break option in Year 5, at a rent of £306,733 per
annum for the 21,000 sq ft unit.
Office
98% occupied
9 Colmore Row, Birmingham
The Company has a relatively low exposure to the
office sector. In the first quarter, the completion
of new cycle and shower facilities at this building
helped facilitate a new 10-year lease to be signed
with Clarke Wilmott. The lease covers the entire
4,222 sq ft 7th floor at a rate of £26.50 psf, with a
five year break option and a £150,000 landlord
capital contribution to complete fit out.
Network House, Hemel Hempstead
As mentioned under the section on sales, the
successful disposal of the Company’s 68,300 sq ft
vacant office in Hemel Hempstead, Network
House, removed what would otherwise have
been a difficult vacancy allowing proceeds to be
productively reallocated.
.
Retail & Leisure
Retail 99% occupied / Leisure 98% occupied
Encouraging progress was made over the year
on both the leisure and retail elements of the
portfolio. Focused on the first half of the year,
but continuing into the second, the Company had
a string of successes securing new tenants to its
large-format leisure properties reflecting growing
optimism of sustained recovery in the sector.
This momentum moved into the retail park portion
of the Company’s portfolio in the second half of the
year with multiple accretive new lettings reflecting
the positioning of assets primarily in non-fashion
and convenience-led segments of the market.
Regent Circus, Swindon
In the second quarter of the year a significant
letting was secured to Boom Battle Bars, a specialist
operator in competitive socialising. The 15,000 sq ft
letting will see units 4, 5, 7 & 8 let on a new 15-year
lease at an annual rent of £150,000 per annum in
line with the units’ combined ERV. In addition,
Unit 3 was let to DSM Holdings Limited t/a Korean
BBQ on a new 15-year lease. The restaurant extends
to approximately 3,500 sq ft and the agreed rental
equates to an average rent of £45,000 per annum
over the first five years of the lease.
Moving into the third quarter, Unit 1 was let to
pizza restaurant Dough & Co on a 15-year lease at
an annual rent of £75,000 per annum ahead of the
unit’s ERV.
As a result of this significant leasing activity the
asset was 99% let by the final quarter of the year.
The Rotunda, Kingston upon Thames
In the second quarter the Company secured a new
restaurant tenant for Unit 6 at the Rotunda signing
Aegon Limited, trading as Kung Fu, on a 10-year
lease at a base rent of £80,000 per annum, ahead of
ERV, with a 10% turnover top up.
St George’s Retail Park, Leicester
Next entered into a new five-year lease over Unit 3
in the third quarter agreeing a turnover based rent
which is expected to provide the Company with
approximately £150,000 of annual rent. The store,
a Next clearance outlet, will further improve the
Park’s tenant mix and is expected to drive footfall.
Two new 10-year leases were signed in the fourth
quarter. The first, which is subject to break options,
was agreed to One Below, a discount retailer, over
unit 8A at a rent of £100,000 per annum, exceeding
the unit’s ERV by over 5%. An Agreement for Lease
was also exchanged over Unit 11 with Belron UK
Limited, trading as Autoglass, at a rent of £52,000
per annum, again in excess of the unit’s ERV.
18 UKCP REIT Annual Report & Accounts
ukcpreit.com
Trafford Retail Park, Manchester
Shortly after purchase in September the Company
completed a new 15-year lease with fast food
operator Five Guys over a former Carphone
Warehouse unit at an annual rent of £66,000 per
annum. The restaurant will significantly enhance
the already strong F&B offering this asset provides.
Junction 27 Retail Park, Leeds
In the final quarter of the year a new 10-year lease
was agreed with existing tenant Currys Group
Limited at a new rent of £806,440 per annum,
more than 30% ahead of ERV. Currys is a key
anchor tenant at this property, as well as its largest
tenant by contracted rent, and its unbroken 10-year
lease commitment reflects the retail park’s strength
and its importance to this valuable anchor.
Environmental, Social and Governance (ESG)
Whilst real estate investment provides valuable
economic benefits and returns for investors it has –
by its nature – the potential to affect environmental
and social outcomes, both positively and negatively.
The Company adopts the Investment Manager’s
expansive policy and approach to integrating ESG in
all areas of its investment process, and this has been
used as the basis for establishing the Company’s ESG
objectives. Both the Investment Manager and Board
view ESG as a fundamental part of their business.
Given the significance, and at times quite technical
content of ESG and its application, we have dedicated
a separate section of our report to the topic which
follows. This covers our commitments and process
in detail together with some interesting practical
examples of the application of our ESG principles.
Perhaps most significant is our response to climate
change with our twin new commitments to achieve
Net Zero Carbon following work completed in 2021:
2030 – Achieve Net Zero Carbon across all
portfolio emissions under the control of the
Company as landlord.
2040 – Achieve Net Zero Carbon across all
portfolio emissions – both those controlled by
the Company as landlord and all the emissions
of its tenants and embodied carbon from
development activity.
Further details of our Net Zero Carbon Strategy can
be found on page 24.
It is also worth noting that Energy Performance
Certificates (EPCs), which each property receives,
form a powerful regulatory stick by which
government can encourage the UK property
industry to decarbonise. Draft legislation applying
to England and Wales indicates that by 2027 all
property must have an EPC of class A, B, or C and
A or B by 2030. The legislation and rating scale in
Scotland is different and there are currently no
similar minimum standards based on EPC rating.
Currently 75% of the Company’s portfolio by ERV
in England (it does not own in Wales) attracts an
A, B, or C rating and, whilst a good figure today,
it is one which we, and the Board, keep under
constant review to ensure we are on track to
comply with the expected legislation. This statistic
is anticipated to grow through the completion of
the Company’s developments in Exeter, Sussex
Junction and Leamington Spa which are all being
delivered throughout 2022 and to a high energy-
efficiency standard, as well as through other ongoing
refurbishment projects within the portfolio.
Gilmore Place
Edinburgh
Hannah Close
London
19
Portfolio Strategy
Following significant reshaping over the last
few years, the Company has a high conviction
portfolio, heavily weighted to the industrial sector
and underweight to the retail sector, in particular
shopping centres and traditional high street,
where the exposure is nil. Due to the extreme
polarisation between the sectors in recent years,
this portfolio positioning has been very beneficial
to performance.
The bulk of the portfolio comprises a solid
bedrock of assets with strong fundamentals,
durable income streams and a low risk profile.
This affords us the ability to purchase assets that
have opportunities for the team to add value
through active management and development,
to help drive superior returns. The Company
has available funds for further investment via
its low-cost Revolving Credit Facility and will
target a basket of assets with a range of income
and risk profiles across sectors that are accretive
and complementary to the existing portfolio.
We anticipate that purchases will be opportunity
led although they are likely to emerge from within
the recovering hotel sector, discount and food-led
retail warehousing and best-in-class offices.
Looking forward we expect the divergence in
returns to narrow and, whilst we intend to
maintain a strong weighting to the industrial
sector, the focus of new investment will be in
other areas of the market that are benefitting from
the structural changes seen in the economy and
society. We do, however, expect to continue to see
polarisation within the sectors, much of which
is being accelerated by the COVID-19 pandemic.
A recent example of this is the considerable
change in fortunes of retail warehousing, which
saw significant yield compression last year,
although not uniformly across the sector. We are
attracted to those parks in strong locations with
rebased rents, let to convenience and discount-
led retailers, most of whom were open during
lockdowns and are trading profitably, thereby
delivering sustainable income streams.
Whilst the office sector is in a state of flux due to
the changing ways in which businesses occupy
buildings, bringing uncertainty over the impact
on the various occupational markets, we see
opportunity to invest in best-in-class offices with
strong ESG and wellness credentials, as well as good
technological capability. We believe that occupiers
will be very discerning in their choice of building
and demand will be focused on a very narrow area
of the market, where high-quality product is scarce
and the prospects for rental growth strong. In light
of these changes, the Company is also rigorously
reviewing its own office holdings to ensure they
meet, or could economically meet, these high
standards. If they cannot, we are likely to exit them
alongside the small number of assets we consider
pose risk to future performance or are at an optimal
point in their life cycle to crystallise profits.
Given the increased demand from both occupiers
and investors for the biomedical industry, which
was further fuelled by the pandemic, we may seek
to add to our life sciences exposure where we can
do so in a manner that is prudent and accretive to
the portfolio. We are seeing opportunities in the
regions as well as the leading markets of Oxford,
Cambridge and London.
With UK real estate becoming more operational,
we are keen to continue to partner with reputable
and experienced operators to widen the universe of
investments available to us in the alternative sector,
particularly student accommodation and hotels.
In the operational space we can obtain enhanced
returns versus traditional leasing models and
have taken exposure through our student housing
developments. We expect to grow this exposure in
the short to medium term.
In tandem with execution of our ESG strategy,
the key priorities within the current portfolio
are to continue to grow income and to generate
capital outperformance. At the end of 2021
the portfolio had a void rate of only 2.1% and
so, in addition to letting the limited vacancy,
the focus for income growth is on capturing the
reversionary potential of the portfolio and to
target future rental improvements.
This is particularly the case for the Company’s
industrial assets given that we believe there is
limited scope for further yield compression across
the sector in aggregate and that future returns will
be driven by rental growth.
We believe the industrial sector is best placed in
the current inflationary environment as we have
seen rental growth significantly outstrip inflation
in strong locations. Alongside this, 26% of the
portfolio’s income benefits from index-linked or
fixed rental increases.
There are several opportunities being explored
across the portfolio where asset management
should drive outperformance, such as the
development of the site acquired within Precision
Park, Leamington Spa, which has consent for
68,000 sq ft of industrial space. At the end of
the year the Company was also underway on
three developments – student housing projects
in Edinburgh and Exeter, and an industrial
development at Sussex Junction, Bolney, south of
Gatwick. We believe that selective development of
high-quality real estate, which is well placed in its
market, offers the opportunity for the Company
to access best-in-class real estate whilst offering
returns in excess of those received from standing
investments. We will therefore continue to explore
further such development opportunities.
The Company has invested the majority of its
available funds over the last year and expects to
utilise the remainder of its revolving bank facility
to invest in accretive assets. Gearing is amongst
the lowest in the context of the Company’s peers.
We believe that the Company’s well-let portfolio of
scale, heavily weighted towards performing sectors,
and with good share liquidity, should have a broad
reaching appeal and is well placed to continue
delivering strong performance with good potential
for future earnings growth.
Will Fulton & Kerri Hunter
abrdn
13 April 2022
INVESTMENT MANAGER REVIEW
Continued
KEY STRATEGIC GOALS
EMBEDDED ESG STRATEGY
Use debt facility to purchase accretive assets
Target basket of assets with range of investment
characteristics and a variety of income and risk profiles
Lot size £30m–150m
Exit risk assets
Potential to profit–take through selected sales
Grow income
Generate outperformance
Review quality of office assets
PURCHASE DISPOSAL PROTECT & CREATE VALUE
20 UKCP REIT Annual Report & Accounts
ukcpreit.com
XDock 377, Magna Park,
Lutterworth
21
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
THEME COMMITMENT CURRENT STATUS NEXT STEPS
Carbon reduction and
energy efficiency
Net Zero Carbon Carbon baseline established. Target Net Zero
Carbon in 2030 for landlord emissions and
2040 for all portfolio emissions.
Fully embed Net Zero Carbon across asset
management, acquisition and development/
refurbishment processes.
Improve tenant energy
data coverage
25% data coverage in 2021 Seek to increase to at least 50% in 2022 through
targeted engagement with key occupiers and
‘smart meter’ roll out.
Maximise solar
PV capacity
Numerous feasibility studies and surveys
completed and key target assets identified.
Renewables included within refurbishments
and development projects where feasible.
Deliver on Company projects and continue
dialogue with tenants for occupied buildings.
EPC legislation –
plan for minimum
B rating by 2030
Detailed portfolio review has been completed
and every asset has a plotted course to
compliance.
Make asset-level interventions at appropriate
lease events.
Resilience and physical
climate risk
Undertake scenario
analysis to better
understand future risk
Study of all standing assets completed
Q1 22 to establish value at risk under RCP8.5
climate scenario.
Review asset-level results in detail and
define appropriate next steps to improve
climate resilience.
Land and water
contamination
Maintain low
contamination risk
The environmental status of properties is
reviewed as part of acquisition. Due diligence
and records are maintained on current portfolio.
Continue to review environmental information
as part of acquisition due diligence.
Value to society
Implement house
methodology and report
on progress by June 2022
Work is in progress to test and refine our
methodology for social value based on the
ESG Impact Dial. We now expect results to be
available by H2 2022.
Review results and define actions to improve
social value generated by the portfolio
Approach to ESG
The Company adopts the Investment Manager’s
policy and approach to integrating ESG and this has
been used as the basis for establishing the Company’s
ESG objectives. The Investment Manager and Board
view ESG as a fundamental part of their business.
Whilst real estate investment provides valuable
economic benefits and returns for investors it has –
by its nature – the potential to affect environmental
and social outcomes, both positively and negatively.
The Investment Manager’s approach is underpinned
by the following three over-arching principles:
Transparency, Integrity and Reporting: being
transparent in the ways in which we communicate
and discuss the strategy, approach and
performance with investors and stakeholders.
Capability and Collaboration: drawing together
and harnessing the capabilities and insights of
platforms, with those of our investment, supply
chain and industry partners.
Investment Process and Asset Management:
integrating ESG into decision-making,
governance, underwriting decisions and asset
management approach. This includes the
identification and management of material ESG
risks and opportunities across the portfolio.
A key element of the Investment Manager’s
approach is the employment of its ESG Impact
Dial which is a proprietary research framework
supporting investment strategies and asset
management. Four major themes have been
identified and provide the basis of the Dial
– Environment & Climate, Governance &
Engagement, Demographics and Technology &
Infrastructure. Together with the Dial’s scoring
system, assessing each asset based on its ESG
characteristics across 21 indicators, these provide
a framework against which the Company can set
its ESG objectives and monitor progress over time,
as well as guiding the assessment of materiality.
Of particular focus is responding to climate change,
both in terms of resilience to climate impacts
and in reducing emissions from the Company’s
activities. The Company has recently announced
its pathway to achieving Net Zero Carbon following
work completed in 2021:
2030: achieve Net Zero Carbon across all portfolio
landlord emissions (Scope 1 & 2)
2040: achieve Net Zero Carbon across all portfolio
emissions (Scope 1, 2 & 3).
Scopes 1 and 2 cover emissions that directly
result from the landlord’s activities where there is
operational control, either through the purchase
and consumption of energy or refrigerant losses.
Scope 3 emissions are those that occur in our
supply chains and downstream leased assets
(tenant spaces) over which we have a degree of
influence but limited control.
The Company’s strategy for achieving Net Zero
Carbon is fully detailed under the heading,
Net Zero Carbon – Energy efficiency and
decarbonisation, on page 24.
22 UKCP REIT Annual Report & Accounts
ukcpreit.com
for landlord
operational
emissions.
NET ZERO CARBON TARGET
2040
for all emissions.
2030
ESG Commitments
Within the Company’s ‘Dialling up the Integration
of ESG’ paper published in 2020 a number of key
commitments were outlined. These fall under four
broad themes which form the basis for our actions
at portfolio level. The four themes are:
Carbon reduction and energy efficiency
Reliance and physical climate risk
Land and water contamination
Value to society
The preceding table presents an update on progress
against these commitments and ongoing activities.
EPC Legislation
Each property receives an Energy Property
Certificate (EPC) ranging from A to G. Draft
legislation applying to England and Wales indicates
that by 2027 all properties must have an EPC of
class A, B, or C and A or B by 2030. Currently
75% of the Company’s portfolio by ERV in England
(it does not own in Wales) attracts an A, B, or C
rating and, whilst a good figure today, it is one
which we and the Board keep under constant
review to ensure we are on track to complying
with the expected legislation. The percentage of
portfolio ERV in England with an EPC of A-C is
anticipated to grow through the completion of the
Company’s developments in Exeter, Bolney and
Leamington Spa, which are all being delivered
throughout 2022 and to a high energy-efficiency
standard, as well as through other ongoing
refurbishment projects within the portfolio.
CASE STUDIES
CREATING BENEFITS FOR
THE COMMUNITY
The White Building, Reading
We recognise the importance of
maximising the impact of communal
space within our multi-let assets
and identified the opportunity to
create a garden within the roof
terrace of The White Building in
Reading. Working with JLL and our
landscaping contractor, the Tenant
Community Garden was launched
in 2021 to support habitat creation,
biodiversity, carbon sequestration
and other social benefits. We sought
to give our tenants the opportunity
to spend some time away from their
desk during their lunch or free time
and to tend to their own personal
garden on the roof terrace with an aim
to improving their mental health and
general wellbeing. The tenants were
encouraged to grow organic vegetables
for their own consumption or to be
donated to a local charity, to grow
bee-friendly plants and to fertilise soil
with grounds from the coffee machine.
The project was extremely well
received by the tenants and will be
repeated in 2022.
A number of other biodiversity
focussed initiatives have been
completed throughout 2021 as we
seek to make a positive impact
through the portfolio. These include
the installation of beehives at our
multi-let industrial estate at Ventura
Park, Radlett and installing bird boxes
and ‘bug hotels’ at our retail park at
Junction 27, Leeds.
IMPROVING ENERGY
EFFICIENCY
Unit 12, Dartford
In June 2021 the 71,000 sq ft Unit 12
at Newton’s Court, Dartford, fell
vacant. The unit had been occupied
as a headquarters building for a
banana ripening firm since the 1990s
and, as a result, the property had
many bespoke fixtures and fittings
requiring removal or upgrading.
We therefore budgeted for a full
refurbishment of the unit with a total
net investment of £2.6 million.
As part of the refurbishment a number
of ESG considerations have been
included within the specification –
installing a new energy-efficient air
conditioning system, replacing lights
with LED fittings, increasing the
roof thermal insulation by over-
cladding it entirely and installing
a new ventilation system with heat
recovery. We are also installing photo-
voltaic (PV) solar panels on the roof.
The works completed in late February
2022 and the unit has achieved an
EPC of A, an improvement from the
previous C rating. The refurbishment,
incorporating ESG improvements,
has enhanced our leasing rental
expectations and with marketing
underway the building is generating
strong occupier interest.
23
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
EPRA Sustainability Best Practice
Recommendations Guidelines
We have adopted the 2017 EPRA Sustainability Best
Practice Recommendations Guidelines (sBPR) to
inform the scope of indicators we report against
and reported against all EPRA sBPR indicators
that are material to the Company. We also report
additional data not required by the EPRA sBPR
where we believe it to be relevant, for example like-
for-like greenhouse gas emissions.
A full outline of the scope of reporting and
materiality review in relation to EPRA sBPR
indicators is included on pages 101–107 which also
provides disclosures required under Streamlined
Energy and Carbon Reporting (SECR).
Operational Sustainability Performance
Summary
Processes are in place to ensure operational
sustainability performance is monitored and
actions are implemented to drive continual
improvement. The effect of COVID-19 on occupancy
has had an impact on energy consumption and
greenhouse gas emissions. It is unfortunately not
possible to fully disaggregate this impact from
improvement measures undertaken at assets and
the performance figures for 2020 and 2021 should
be viewed in this context.
Like-for-like landlord-obtained electricity
consumption reduced year-on-year across the
Company’s assets by 8%. An increase at offices
due to increased occupancy in 2021 was offset by
lower landlord consumption for vacant industrial
units. Landlord gas consumption increased due to
an increase at office assets. This resulted in a 7%
increase in like-for-like greenhouse gas emissions
associated with landlord-procured energy.
However, on an absolute basis, emissions from
landlord-procured energy and refrigerants reduced
by 10% in 2021.
Full details of performance against material EPRA
sBPR indicators are included in on pages 101–107.
2021 GRESB Assessment
The Company has submitted data to GRESB
(formerly the Global Real Estate Sustainability
Benchmark) since 2014. It is the leading global
sustainability benchmark for real estate vehicles.
In its 2021 assessment the Company was rated second
in its peer group, achieving a score of 73 and a three-
star rating, an improvement on the two-star rating
and overall score of 67, which were received in 2020.
Net Zero Carbon – Energy efficiency and
decarbonisation
In 2021, COP26 served to further reinforce the
need for the rapid decarbonisation of the global
economy. The real estate sector has made some
progress to date but the pace must accelerate
from here.
The Company has an active approach to managing
carbon emissions across the portfolio and has been
implementing energy efficiency improvements
and targeting renewable energy projects for several
years. In 2021 we undertook work to establish
the operational carbon footprint baseline of the
portfolio and model our pathway to Net Zero.
This involved benchmarking the performance
of each asset, modelling our future footprint
including embodied and operational carbon and
identifying the types of measures necessary to fully
decarbonise the portfolio.
Net Zero Strategy
Our Net Zero Principles
Although the goal may seem clear, definitions
and standards on Net Zero and the policy mix
to support it remain immature. In this context
we have established several key principles that
underpin our strategy to ensure it has integrity,
robustness and delivers value:
Practical:
Asset-level action: focusing on energy efficiency
and renewables is our priority to ensure
compliance with energy performance regulations.
Our analysis shows that meeting proposed future
Energy Performance Certificate standards is a
sensible stepping stone towards Net Zero. This
improves the quality of assets for occupiers and
reduces exposure to regulatory and market risk.
Timing: we aim to align improvements with
existing plant replacement cycles and planned
refurbishment activities wherever possible.
This ensures functional equipment is not replaced
well ahead of its end-of-life unless necessary
which in turn reduces cost and embodied carbon.
Realistic:
Targets: long-term targets must be stretching
but deliverable and complimented by near-term
targets and actions.
Policy support: to fully decarbonise before 2050
the wider real estate sector requires a supportive
policy mix to incentivise action and level the
playing field.
Collaborative:
Occupiers: we recognise that Net Zero will not be
achieved in isolation. We will work closely with
occupiers on this journey, many of whom have
their own decarbonisation strategies covering
their leased space. Many of the Company’s
top 10 tenants have made their own Net Zero
commitments already and our interests are
aligned on this issue.
Suppliers: we will work with the Company’s
suppliers including property managers and
consultants in order that everyone is clear on
their role in achieving Net Zero.
Measurable:
Clear key performance indicators at the asset
and portfolio level.
Health & Safety Policy
Alongside these environmental principles the
Company has a health & safety policy which
demonstrates commitment to providing safe
and secure buildings that promote a healthy
working environment and a customer experience
that supports a healthy lifestyle. The Company,
through the Investment Manager and Managing
Agent, manages and controls health & safety risks
as systematically as any other critical business
activity using technologically advanced systems
and environmentally protective materials and
equipment. By achieving a high standard of health
& safety performance, the Company aims to earn
the confidence and trust of tenants, customers,
employees, shareholders and society at large.
Bribery & Ethical Policy
It is the Company’s Policy to prohibit and expressly
forbid the offering, giving or receiving of a bribe in
any circumstances. This includes those instances
where it may be perceived that a payment, given or
received, may be a bribe. The Company has adopted
this Anti-Bribery and Corruption Policy to ensure
robust compliance with The UK Bribery Act 2010.
The Company has made relevant enquiries of its
Investment Manager and has received assurances that
appropriate anti-bribery and corruption policies have
been formulated and communicated to its employees.
In addition the Board has adopted an ethical policy
which highlights the need for ethical considerations
to be considered in the acquisition and management
of both new and existing properties.
24 UKCP REIT Annual Report & Accounts
ukcpreit.com
NEAR–TERM (TO 2030) LONG–TERM (2030–2050)
Targets
Achieve net zero emissions for Scope 1 and 2 by 2030.
Managing carbon intensity across all scopes in line with
the long-term target.
Net zero across all emission scopes by 2040
Context
The 2030 targets are a sensible stepping stone towards
long-term decarbonisation. In the near term our
activities are focused on occupier engagement and
compliance with energy performance regulations which
will mean significant investment in energy efficiency,
heat decarbonisation and renewable energy.
We anticipate our actions to decarbonise heat before
2030 will mean the company has very low Scope 1
emissions at this date.
Buildings in the UK will have to fully decarbonise by 2050 through energy
efficiency and the decarbonisation of heat and electricity. We will aim to reach our
long term target through these measures with as little use of offsets as possible.
We believe that setting our long term-target for 2040 is ambitious yet pragmatic.
This date also aligns with that chosen by several of our largest occupiers.
We will keep our long term target under review as policy measures and market
drivers become clearer in the coming years.
Near-term
delivery actions
STANDING PORTFOLIO:
Increase coverage of tenant energy data through improved engagement, lease agreements and smart metering.
Build improved understanding of tenant decarbonisation strategies and extent of tenant renewable energy procurement.
Implement low-carbon refurbishments to ensure regulatory compliance focussing on energy efficiency and heat decarbonisation and start to
quantify embodied carbon.
Continue to implement solar PV projects and establish power purchase agreements with occupiers.
ACQUISITIONS AND DEVELOPMENTS:
Benchmark assets pre-acquisition, understand costs and build decarbonisation into asset management plan from the start of ownership.
Direct development and development fundings to be designed to whole life net zero principles.
Measurement
indicators
% data coverage
Absolute portfolio emissions (tCO
2
e)
Energy and emissions intensity (kwh/m
2
, year; kg CO
2
e/m
2
/year)
Installed solar capacity (MWp)
Embodied carbon of development projects
Our baseline
Our operational carbon footprint for 2019 is shown
in the adjacent pie chart. We have used 2019 as
a baseline for our work as it was unaffected by
changes in occupancy due to COVID-19. This shows
a total operational footprint of 29,451 tonnes of
carbon dioxide equivalent (Co
2
e). Of this, 9% is
associated with Scope 1 and 2 emissions that are
in the direct control of the Company and 91% is
Scope 3 emissions from tenant-procured energy.
For 2019 we had actual energy consumption data for
20% of the portfolio by floor area with representative
industry standard benchmarks used to estimate
the rest. Based on these assumptions for 2019 the
energy intensity at the portfolio level was 274kWh/m²
and the operational emissions intensity was
46 kgCO
2
e/m² across Scopes 1, 2 and 3. These will be
key metrics as we progress with our delivery strategy.
Landlord Gas (7.5%) Scope 1
Landlord Electricity (1.5%) Scope 2
Tenant Gas (40%) Scope 3
Tenant Electricity (51%) Scope 3
Landlord Waste (<0.1%) Scope 3
Landlord Water (<0.1%) Scope 3
11,708
15,006
2,230
464
Our delivery strategy
Operational carbon footprint
Note: Landlord Waste (17 tCO
2
e) and
Landlord Water (26tCO
2
e) are included in the
total but too small to be visible in the chart).
25
Taskforce for Climate-Related Financial
Disclosures (TCFD)
TCFD was established to provide a standardised
way to disclose and assess climate-related risks
and opportunities. Recommendations are
structured around four key topics: Governance,
Strategy, Risk Management and Metrics & Targets.
The Company is committed to implementing the
recommendations of the TCFD to provide investors
with information on climate risks and opportunities
that are relevant to the business.
TCFD covers risks and opportunities associated
with two overarching categories of climate risk;
transition and physical:
Transition risks are those that relate to an asset,
portfolio or company’s ability to decarbonise.
An entity can be exposed to risks as a result of
carbon pricing, regulation, technological change
and shifts in demand related to the transition.
Physical risks are those that relate to an asset’s
vulnerability to factors such as increasing
temperatures and extreme weather events
as a result of climate change. Exposure to
physical risks may result in, for example, direct
damage to assets, rising insurance costs or supply
chain disruption.
There is still significant uncertainty and
methodological immaturity in assessing climate
risks and opportunities and there is not yet a
widely-recognised net zero standard. Nonetheless,
we have progressed already with work to model the
implications of decarbonising the portfolio in line
with a 1.5°C scenario and undertaken analysis to
understand potential future physical climate risks.
This is the first year that the Company is reporting
against TCFD recommendations and we expect our
disclosures to evolve over time as methodologies
improve and our work develops further.
TASKFORCE FOR CLIMATE-RELATED
FINANCIAL DISCLOSURES
TCFD RECOMMENDATION COMPANY APPROACH
FURTHER
INFORMATION
Governance
Board oversight of
climate-related
risks and opportunities
The Board consider climate-related risks and opportunities alongside all other Company risks which fall
under the remit of the Risk Committee.
Risk Management
section on
pages 34–41.
Management’s role in
assessing and managing
climate-related risks and
opportunities
At an operational level, the Manager is responsible for integrating consideration of climate risks and
opportunities into the investment and asset management process. The Manager reports a number of KPIs
to the Board on a quarterly and annual basis.
The Company’s
approach is set out in
the Environmental,
Social & Governance
(ESG) section on
pages 22–25.
Strategy
Climate-related risks
and opportunities
the organisation has
identified over the short,
medium, and long term
As part of our investment and asset management process we consider climate-related risks and opportunities over
a range of timescales. A summary of our initial assessment over the short, medium and long term is as follows.
In the short term (0–5 years) we anticipate regulations affecting the energy performance and emissions of buildings
to tighten to align more closely with Government targets for economy-wide decarbonisation. Whilst this will
provide clarity of direction to the sector, it is likely to increase development and refurbishment costs and will start
to affect valuations. However, these trends will also create opportunities to benefit from shifting occupier and
investor demand for low-carbon, future-fit assets.
Over the medium term (5–15 years) these trends will continue and we expect regulations and market sentiment
to further drive energy efficiency and decarbonisation. We anticipate significant technological change in this
period particularly in relation to heat pump solutions which will improve the technical and financial feasibility of
decarbonising heat in buildings.
Over the long term (15+ years) we are likely to see climate-related extreme weather events increase in frequency and
severity which may impact built environment assets depending on their location and characteristics.
The impact of climate-
related risks and
opportunities on the
organisation’s businesses,
strategy, and financial
planning where material
The Board recognises that climate change will affect the built environment, both through decarbonisation and
increased physical risks. The trends summarised above are therefore expected to affect the Company’s strategy
and operations in the coming years.
Alongside our net zero planning, a detailed exercise has been completed by the Manager to assess the portfolio’s
compliance with anticipated Minimum Energy Efficiency Standards legislation to ensure assets are capable of
compliance and that any necessary interventions can be appraised and included with the individual asset plans.
We have also recently completed an assessment of value at risk as a result of physical climate risks under the RCP8.5
climate scenario which implies a 4.3° C temperature rise by 2100. Initial results are described on page 27.
The EPC profile
of the Company’s
properties is set out
on page 107.
26 UKCP REIT Annual Report & Accounts
ukcpreit.com
TCFD RECOMMENDATION COMPANY APPROACH
FURTHER
INFORMATION
Strategy (continued)
The resilience of the
organisation’s strategy,
taking into consideration
different climate-related
scenarios, including a 2°C
or lower scenario
We have set out our long term aim to be a net zero Company by 2040 with an interim target for
operational emissions within our direct control by 2030. We will track progress against our long term aim
using interim energy and emissions intensity targets at the portfolio and asset levels.
Our work to establish a net zero pathway for the company is informed by industry benchmarks including
the Carbon Risk Real Estate Monitor (CRREM) 1.5°C Paris-aligned emissions trajectories. As part of this
work we have identified high-level cost estimates for transitioning assets to net zero. We consider that the
portfolio and Company strategy is well-positioned to decarbonise in line with this trajectory assuming
national energy and climate policy is also supportive of this goal.
We will continue to engage with industry bodies such as the Better Building Partnership to standardise
net zero definitions across the industry. We recognise that we cannot act in isolation and that achieving
this level of decarbonisation will require supportive climate policy and the cooperation of our occupiers
and suppliers.
Our recent work on understanding value at risk as a result of physical climate risk has highlighted the
importance of considering changes in wind speeds and flood risk over time as well as the implications of
rising temperatures on cooling loads. Our initial assessment of these results is that in general under the
RCP8.5 scenario, physical climate risks do not become material until after 2040 and that most potential
cost is associated with additional cooling demand due to rising temperatures. We consider that our
existing portfolio and Company strategy is resilient to physical climate risks in the short to medium term.
We will however keep this under regular review as methodologies for physical risk assessment improve.
Our delivery
strategy is set out on
page 25.
Risk Management
The Company’s
processes for identifying
and assessing
climate-related risks
Climate-related risks and opportunities are considered and assessed by the Company Risk Committee. Risk Management
section on pages
34–41.
Metrics and Targets
The metrics used by the
organisation to assess
climate-related risks
and opportunities in line
with its strategy and risk
management process
We disclose our emissions in line with EPRA Sustainability Best Practices Recommendations. As part of our
decarbonisation strategy we will track progress against our long-term aim using interim energy and emissions
intensity targets at the portfolio and asset levels.
Data on emissions
is set out on pages
101–106.
Scope 1, Scope 2 and,
if appropriate, Scope 3
greenhouse gas (GHG)
emissions and the
related risks
We disclose our emissions in line with EPRA Sustainability Best Practices Recommendations (see pages 101–107).
This covers Scope 1 and 2 emissions associated with landlord-procured energy as well as Scope 3 emissions
from energy sub-metered to occupiers. Our 2019 baseline emissions including tenant consumption (actual and
estimated) is presented on page 25. We have used 2019 data as a baseline for our measurements as this is prior to
any disruption to measurement caused by the COVID-19 pandemic.
Data on emissions
is set out on pages
101–106.
The targets used by
the organisation to
manage climate-related
risks and opportunities
and performance
against targets
We have set out our long term aim to be a net zero Company by 2040 with an interim target for operational
emissions within our direct control by 2030.
Our delivery
strategy is set out on
page 25.
27
Craven House,
London
ukcpreit.com
28 UKCP REIT Annual Report & Accounts
PORTFOLIO SPLIT BY GEOGRAPHY
South East 35.8%
London 16.1%
West Midlands 14.2%
East Midlands 8.9%
South West 8.1%
Scotland 7.3%
North East 3.7%
Yorks and Humber 3.5%
North West 2.4%
2021 PORTFOLIO & ANALYSIS
(all figures as at 31 December 2021)
No. 6
CINEWORLD ESTATES LIMITED
Alternatives
3.1% of contracted rent
MSCI risk band: Medium High
No. 10
PALLETFORCE LIMITED
Industrial
2.3% of contracted rent
MSCI risk band: Low/Medium
No. 9
DALATA CARDIFF LIMITED
Alternatives
2.5% of contracted rent
MSCI risk band: Maximum
No. 8
B & Q PLC
Retail Warehouse
3.0% of contracted rent
MSCI risk band: Low
No. 7
KANTAR
Office
3.0% of contracted rent
MSCI risk band: Low
No. 1
OCADO RETAIL LIMITED
Industrial
5.1% of contracted rent
MSCI risk band: Low
No. 5
TOTAL E&P UK LIMITED
Industrial
3.4% of contracted rent
MSCI risk band: Low/Medium
No. 4
AMAZON UK SERVICES LIMITED
Industrial
4.4% of contracted rent
MSCI risk band: Negligible
No. 3
WARNER BROS LIMITED
Industrial
4.6% of contracted rent
MSCI risk band: Negligible
No. 2
PUBLIC SECTOR
Industrial & Office
5.0% of contracted rent
MSCI risk band: Negligible
TOP 10 TENANTS BY RENT
SECTOR SPLIT V BENCHMARK
UKCM
63.4%
MSCI
33.9%
Industrial
MSCI
26.7%
UKCM
14.3%
Offices
MSCI
17.0%
Alternatives
UKCM
10.2%
MSCI
22.4%
Retail
UKCM
12.1%
UKCM Benchmark
0–1 yr
8.2%
10.8%
1–2 yrs
5.4%
8.8%
2–3yrs
7.8%
8.8%
3–5 yrs
19.1%
16.0%
5–10yrs
26.3%
20.4%
10–15 yrs
21.4%
9.1%
>15 yrs
11.8%
26.1%
LEASE EXPIRY PROFILE
PORTFOLIO SPLIT BY SUB SECTOR
Industrials — South East & London 38.7%
Industrials — Rest of UK 24.7%
Retail Warehouses 11.1%
Alternatives 10.2%
Offices — Rest of UK 7.1%
Offices — Rest of South East 5.3%
Offices — West End 1.9%
Retails — South East 1.0%
29
LONDON
2021 PORTFOLIO & ANALYSIS
as at 31 December 2021
2
22
3
23
6
7
24
16
32
30
28
17
38
34
10
12
8
4
9
11
35
20
14
18
5
26
21
1
29
19
37
33
13
15
36
39
25
31
40
30 UKCP REIT Annual Report & Accounts
ukcpreit.com
PROPERTY Tenure Sector Principal Tenant Value Range
1 Ventura Park, Radlett
Freehold Industrial Warner Bros Studios Limited
Over £70m
(representing 36%
of the portfolio
capital value)
2 Dolphin Estate, Sunbury-on-Thames
Freehold Industrial Trans Global Freight Management Ltd
3 Hannah Close, London, NW10
Leasehold Industrial Amazon UK Services Limited
4 Ocado Distribution Unit, Hatfield Business Area, Hatfield
Freehold Industrial Ocado Ltd
5 Newton’s Court, Dartford
Freehold Industrial Veerstyle Limited
6 XDock 377, Magna Park, Lutterworth
Leasehold Industrial Armstrong Logistics Limited
£40m–£70m
(representing 19%
of the portfolio
capital value)
7 Emerald Park East, Emersons Green, Bristol
Freehold Industrial Knorr-Bremse Systems Ltd
8 Junction 27 Retail Park, Birstall, Leeds
Freehold Retail Warehouse Barker & Stonehouse Ltd
9 The White Building, Reading
Freehold Office Barracuda Networks Ltd
10 The Rotunda, Kingston upon Thames
Freehold Alternatives Odeon Cinemas Ltd
11 Centrum 260, Burton upon Trent
Freehold Industrial Palletforce plc
12 Axiom, Precision Park, Leamington Spa
Freehold Industrial Public Sector
£20m–£40m
(representing 35%
of the portfolio
capital value)
13 Hanger Lane, London
Freehold Office Kantar UK Ltd
14 Maldron Hotel, Newcastle
Leasehold Alternatives Dalata Group plc
15 Trafford Retail Park, Manchester
Freehold Retail Warehouse Dunelm (Soft Furnishings Limited)
16 B&Q, Roneo Corner, Romford
Freehold Retail Warehouse B & Q Plc
17 Gatwick Gate Industrial Estate, Crawley
Freehold Industrial International Logistics Group Ltd
18 Total, Aberdeen Gateway, Aberdeen
Freehold Industrial Total E&P UK Ltd
19 Craven House, Fouberts Place, London, W1
Freehold Office Molinaire Ltd
20 Dalewood Road, Newcastle-under-Lyme
Freehold Industrial TK Maxx Ltd
21 Tetron Point, Swadlincote
Freehold Industrial Clipper Logistics Plc
22 St Georges Retail Park, Leicester
Freehold Retail Warehouse Aldi Stores Limited
23 Cineworld Complex, Glasgow
Freehold Alternatives Cineworld
24 81/85 George Street, Edinburgh
Freehold Office Clydesdale Bank plc
25 Integra, Precision Park, Leamington Spa
Freehold Industrial Iron Mountain (UK) plc
26 Colmore Court, 9 Colmore Row, Birmingham
Leasehold Office BNP Paribas
27 Whittle Road, Stoke-on-Trent
Freehold Industrial Bestway Pharmacy NDC Limited
28 Aura, Precision Park, Leamington Spa
Freehold Office Tata Technologies Europe Limited
29 Regent Circus, Swindon
Freehold Alternatives WM Morrison Supermarkets Plc
30 Central Square Offices, Forth Street, Newcastle upon Tyne
Freehold Office Ove Arup & Partners
£0m–£20m
(representing 10%
of the portfolio
capital value)
31 Interlink Way West, Bardon
Freehold Industrial Roca Ltd
32 No 2 Temple Quay, Bristol
Freehold Office Public Sector
33 Asda, Torquay
Freehold High St, Retail Asda Stores Limited
34 14–22 West Street, Marlow
Freehold High St, Retail Sainsbury’s Supermarket Ltd
35 Cannock Watling Street
Freehold Industrial Rhenus Logistics Limited
36 University of Edinburgh Student Accommodation – Funding
Freehold Alternatives Under Development
37 University of Exeter Student Accommodation – Funding
Freehold Alternatives Under Development
38 Tetra, Aberdeen Gateway, Aberdeen
Freehold Industrial Tetra Technologies UK Ltd
39 Sussex Junction, Bolney – Funding
Freehold Industrial Under Development
40 Development Site, Precision Park, Leamington Spa – Funding
Freehold Industrial Under Development
Overall number of properties 40
Total number of tenancies 213
Total average property value £38.4 million
Total floor area 8,043,000 sq ft
Freehold/Leasehold (leases over 100 years) 85%/15%
Industrial Offices Retail Alternatives
31
STRATEGIC OVERVIEW
Investment Strategy
The Group’s investment strategy, and purpose, is
set out in its investment objective and policy below.
It should be considered in conjunction with the
Chair’s Statement and the Investment Manager
Review which both give a more in depth review
of performance and future strategy.
The Group’s investment objective is to provide
ordinary shareholders with an attractive level of
income, together with the potential for capital and
income growth from investing in a diversified UK
commercial property portfolio.
Investment Policy
The Company focuses on identifying and acquiring
institutional-grade, income-producing assets and
looks to identify assets that benefit from wider
infrastructure improvements delivered by others
where possible. The Company also recognises
that the experience of tenants is paramount and
hence the Investment Manager works closely
with tenants to understand their needs through
regular communication and visits to properties.
Where required, and in consultation with tenants,
the Company refurbishes and manages the owned
assets to improve the tenants’ experience with
the aim being to generate greater tenant retention
and hence lower voids, higher rental values and
stronger returns.
In addition, members of the Board visit properties
and where appropriate engage with tenants directly
which enables the Board to have an enhanced
understanding of each property and the tenants’
requirements. Further details of how the Company
engages with all its stakeholders is set out in the
Stakeholder Engagement section of the Annual
Report encompassing section 172 of the UK
Companies Act 2006 on page 44.
On 18 April 2019, shareholders voted in favour of
an amendment to the investment policy to provide
the Investment Manager with the flexibility to
invest across a wider spectrum of commercial
property assets such as healthcare, car parks and
the commercially-managed private rental sector.
The Group’s investment policy as approved on
18 April 2019 is as follows:
“Investment risks to the Group are managed by
investing in a diversified portfolio of freehold
and long leasehold UK commercial properties.
The Group invests in income producing assets
across the commercial property sectors including
industrial, offices, retail and other alternative
commercial property sector assets. The Group has
not set any maximum geographic exposures within
the UK nor any maximum weighting limits in any
of the principal property sectors. No single property
shall, however, exceed at the time of acquisition
15 per cent of the gross assets of the Group.
The Group is currently permitted to invest up to
15 per cent of its total assets in indirect property funds
including in other listed investment companies.
The Group is permitted to invest cash, held by it for
working capital purposes and awaiting investment,
in cash deposits, gilts and money market funds.”
Although not part of the Company’s formal
investment policy, the Board intends to limit the
Company’s investment into alternative sectors to
35 per cent of the gross assets of the Group at the
time of acquisition.
Tetron Point, Swadlincote
Whittle Road
Stoke-on-Trent Trent
The Company’s current gearing policy, as approved
by shareholders, is as follows: “Gearing, calculated
as borrowings as a percentage of the Group’s gross
assets, may not exceed 65 per cent. The Board
intends that borrowings of the Group at the time
of draw down will not exceed 25 per cent of the
total assets of the Group. The Board receives
recommendations on gearing levels from the
Investment Manager and is responsible for setting
the gearing range within which the Investment
Manager may operate”.
The Group restructured its debt facilities in February
2019 which increased the weighted average maturity
of the Group’s debt profile, lowered the cost and
increased the debt available while still maintaining
the 25 per cent debt cap referred to above.
The Group’s performance in meeting its objective
is measured against key performance indicators as
set out on page 33. A review of the Group’s returns
during the year, the position of the Group at the
end of the year, and the outlook for the coming
year is contained in the Chair’s Statement and the
Investment Manager Review.
The Board of Directors is responsible for the
overall stewardship of the Company, including
investment and dividend policies, corporate
strategy, corporate governance, and risk
management. Biographical details of the Directors,
all of whom are non-executive, can be found on
pages 48–49 and indicate their range of property,
investment, commercial, professional, financial
and governance experience. The Company has
no executive Directors or employees.
32 UKCP REIT Annual Report & Accounts
ukcpreit.com
The White Building
Reading
Management of Assets and Shareholder Value
The Board has contractually delegated the
management of the investment portfolio and
other services to Aberdeen Standard Fund
Managers Limited.
The Group invests in properties which the Investment
Manager believes will generate a combination of long-
term growth in income and capital for shareholders.
Investment decisions are based on analysis of, amongst
other things, prospects for future capital growth,
sector and geographic prospects, tenant covenant
strength, lease length and initial yield. In the year
to 31 December 2021, the Group generated net cash
outflows of £80.6 million (2020: net cash inflows of
£73.8 million) following the deployment of capital
to acquire investment properties. The net profit for
2021 of £236.2 million contrasted against a net loss of
£10.3 million for 2020, reflecting the recovery of the
UK commercial real estate sector in sectors where the
Company is well positioned. Revenue profits were
£34.5 million for the year ended 31 December 2021,
broadly in line with £35.2 million for the 2020.
Investment risks are spread through investing
in a range of geographical areas and sectors,
and through letting properties to low risk tenants.
A list of all the properties held as at 31 December
2021 is contained on page 31 and further analysis
can be found in the Investment Manager Review.
At each Board meeting, the Board receives a
detailed portfolio, financial, risk and shareholder
presentation from the Investment Manager together
with a comprehensive analysis of the performance
of the portfolio during the reporting period.
The Board and the Investment Manager recognise
the importance of managing the premium/discount
of share price to net asset value in enhancing
shareholder value. One aspect of this involves
appropriate communication to gauge investor
sentiment. The Investment Manager meets with
current and potential new shareholders, and with
stockbroking analysts who cover the investment
company sector, on a regular basis. In addition,
communication of quarterly portfolio information
is provided through the Company’s website,
ukcpreit.com, and the Company also utilises a
public relations agency to enhance its profile
among investors. In addition the Chair of the
Board meets key shareholders on an annual basis.
Key Performance Indicators/Alternative
Performance Measures
The Company’s benchmark is the MSCI UK
Balanced Portfolios Quarterly Index. This
benchmark incorporates all monthly and quarterly
valued property funds and the Board believes this is
the most appropriate measure to compare against
the performance of a quarterly valued property
investment company with a diversified portfolio.
The Board uses a number of performance measures
to assess the Company’s success in meeting its
objectives. The key performance indicators/
alternative performance measures are as follows:
Net asset value and share price total return
against a peer group of similar companies
Portfolio performance against the MSCI
benchmark and other selected comparators
Premium/(Discount) of share price to net
asset value
Earnings, dividend cover and dividend yield
Ongoing charges
Given the structure of the Company and
the Company’s knowledge of its underlying
shareholder base, it is believed the above measures
are the most appropriate for shareholders to
determine the performance of the Company.
These indicators for the year ended 31 December
2021 are set out on pages 4–6. In addition, the Board
considers specific property KPIs such as void rates,
rent collection levels and weighted average lease
length on a regular basis.
33
Risk Management
In accordance with the UK Corporate Governance
Code and FRC Guidance, the Board has established
procedures to identify and manage risk, to oversee
the internal control framework and to determine
the nature and extent of the principal risks the
Company is willing to take in order to achieve its
long-term strategic objectives.
The Board recognises its responsibility to carry out
a robust assessment of the Company’s principal
risks and emerging risks. Principal risks are
defined as those that could result in events or
circumstances that might threaten the Company’s
business model, future performance, solvency
or liquidity and reputation. Emerging risks are
those that have not yet occurred but are at an early
stage of development or are current risks that are
expected to increase in significance and become
more fundamental in the future.
The Board has appointed a Risk Committee
to ensure that proper consideration of risk is
undertaken in all aspects of the Company’s
business on a regular basis. The Risk Committee
meets quarterly and comprises all members of the
Board and is chaired by Margaret Littlejohns.
Its duties include the assessment of the Company’s
risk appetite and the regular review of principal and
emerging risks, seeking assurance that these risks
are appropriately rated and that effective mitigating
controls are in place, where possible.
Risks are identified and weighted according to
their potential impact on the Company and to their
likelihood of occurrence. The impact is evaluated
in terms of the effect on the Company’s business,
finances and reputation, the three of which are
usually interlinked. Each identified risk is assessed
twice: first as a “gross risk” before taking into
consideration any mitigating controls and secondly
as a residual or “net risk” after reviewing the
safeguards in place to manage and reduce either
the severity of its impact or the probability of its
event. The Risk Committee uses a detailed Risk
Matrix to prioritise the individual risks, allocating
scores of 1 to 5 to each risk for both the likelihood
of its occurrence (ranging from very unlikely to
almost certain) and the severity of its impact
(ranging from minimal to highly significant). The
combined scores for both the gross risks and net
risks are then colour coded, applying a traffic light
system of green, amber and red to emphasise those
posing the greatest threats to the Company. Those
with the highest gross rating in terms of impact are
highlighted as top risks within the matrix and are
defined here as principal risks.
The Risk Committee, with the help of the
Investment Manager’s extensive research
resources and market intelligence, surveys the
full risk landscape of the Company in order to
identify increasing and emerging risks to which
the Company may be exposed in the future.
In particular, the Risk Committee questions
which parts of the Company’s business may
be vulnerable to disruption, including but not
limited to the business models of its key tenants
and its outsourced third party suppliers. The
Risk Committee not only reviews the existing
portfolio of investments but also ensures that risk is
considered in the case of each property acquisition
and disposal.
The Risk Committee works closely with the Audit
Committee to examine the effectiveness of the risk
management systems and internal control systems
upon which the Company relies to reduce risk. This
monitoring covers all material controls, including
financial, operational and compliance controls.
All risks and mitigating measures are reviewed
by the Risk Committee at least quarterly, and any
significant changes to the Risk Matrix are presented
to the Board.
STRATEGIC OVERVIEW
Continued
Margaret Littlejohns
Chair of Risk Committee
34 UKCP REIT Annual Report & Accounts
ukcpreit.com
LOW RISK MEDIUM RISK HIGH RISK
LOW RISK MEDIUM RISK HIGH RISK
REDUCTION OF GROSS RISK TO NET RISK THROUGH MITIGATING CONTROLS
GROSS
NET RISK
Widening discount and continuation vote
STRATEGIC RISKS
INVESTMENT AND ASSET
MANAGEMENT RISKS
FINANCIAL RISKS
OPERATIONAL RISKS
REGULATORY RISKS
STAKEHOLDER
ENGAGEMENT RISKS
GROSS
Macroeconomic
NET RISK
GROSS
Health & safety
NET RISK
GROSS
Environmental
NET RISK
GROSS
GearingNET RISK
GROSS
Liquidity
NET RISK
GROSS
Credit risk of tenantsNET RISK
GROSS
Service providers
NET RISK
GROSS
Accounting & valuation NET RISK
GROSS
Regulatory changeNET RISK
GROSS
Communication
NET RISK
B
K
J
I
H
C
G
F
A
D
E
Principal Risks
The Company’s assets consist of direct investments
in UK commercial property. Its risks are therefore
principally related to the commercial property
market in general and also to each specific property
in the portfolio. Risks to the Company fall broadly
under the following six categories:
Strategy Risk:
A
Management may fail to execute a clear corporate
strategy successfully and the strategic objectives
and performance of the fund, both absolute and
relative, may become unattractive or irrelevant to
its investors.
Investment & Asset Management Risk:
B C
Ill-judged property investment decisions and
associated redevelopment and refurbishment
may lead to health and safety dangers and
environmental issues, including climate change,
and ultimately to poor investment returns.
Financial Risk:
D E F G
Macro-economic changes (e.g. levels of GDP,
employment, inflation and interest rate
movements), political changes (e.g. new legislation
and regulation), structural changes (e.g. disruptive
technology, demographics) or global events
(e.g. pandemics, wars, terrorist attacks, oil
price disruption) can all impact the commercial
property market, both its capital value and income
generation, its liquidity and access to finance and
the underlying businesses of its tenants. This risk
encompasses real estate market risk, interest rate
risk, liquidity risk and credit risk, all of which are
covered in more detail in note 18 to the accounts.
Operations Risk:
H I
Poor service and inadequate control processes
at the Company’s outsourced suppliers may lead
to disruption, error and fraud, and increasingly,
cyberattacks. The Company’s key service providers
are the Investment Manager, the Company
Secretary, the Managing Agent, the Valuer and
the Registrar and are assessed at least annually
through the Management Engagement Committee,
or more often during times of stress.
Regulation Risk:
J
Failure to comply with applicable regulation
and legislation could lead to financial penalties
and withdrawal of necessary permissions by
governing authorities. Changes to existing
regulations could also result in suboptimal
performance of the Company.
Stakeholder Engagement Risk:
K
Failure to communicate effectively and consistently
with the Company’s key stakeholders, in particular
shareholders and tenants, could prevent the
Company from understanding and responding to
their needs and concerns.
PRINCIPAL RISKS
35
A
STRATEGIC RISKS:
WIDENING DISCOUNT AND CONTINUATION VOTE
Risks & Impact
The Company’s strategic objectives and performance, both absolute and
relative, could become unattractive to investors leading to a widening of
the share price’s discount to net asset value, and potentially a continuation
vote. An inappropriate investment strategy could lead to an erosion of
shareholder value. This could include poor decisions on purchases and
sales, sector allocation, tenant selection, levels of borrowing or inadequate
consideration of ESG etc.
Mitigation
The Company’s strategy and objectives are regularly reviewed by the
Board to ensure they remain appropriate, effective and sustainable.
The Board receives regular presentations from research analysts on
both the general economy but also the property market in particular
to identify structural shifts and threats, so the Board can adapt the
Company’s strategy if necessary.
The NAV and share price are constantly monitored and regular
analyses of the Company’s performance are reviewed by the Board
and compared with the Company’s benchmark and its peer group.
Cash flow projections are prepared by the Investment Manager and
reviewed at least quarterly by the Board.
Regular contact is maintained with shareholders and the
Company’s broker.
Commentary
COVID-19 caused considerable market uncertainty and declining property
values and revenues, in those sectors most severely impacted by the
pandemic, namely certain parts of retail, leisure and hospitality. However,
the MSCI All Property Quarterly index performance has improved
considerably from a negative return of –0.9% in 2020 to deliver 16.8% in
2021. This resulted in a significant increase in the Company’s net asset value
of 17.6% but a widening of its discount from 20.4% to 26.8% at year end.
The number of transactions effected in the property market overall were
limited in the year by social distancing restrictions and general market
uncertainty and disruption. Nonetheless, the Company continued to
execute its investment strategy with £180 million of purchases and
£74 million of sales in 2021.
The property market has become even more polarised as a result of
COVID-19 with increased demand for property in the industrial sector,
particularly distribution and warehousing and with an oversupply of
retail premises. This trend supports the Company’s evolving strategy of
investment in “future fit” properties in the modern economy that can adapt
and benefit from these current structural shifts in society.
Shareholders overwhelmingly supported the Company’s periodic
continuation vote held in March 2020, with the next periodic continuation
vote scheduled to be held in 2027 and seven yearly thereafter.
In addition, a continuation vote will be required if, after 18 March 2022
(being the second anniversary of the Company’s most recent continuation
vote), the shares trade at a discount of over 5 per cent for a continuous
period of 90 dealing days or more.
Change
NET RISK: MEDIUM — NO SIGNIFICANT CHANGE IN RISK BUT TRENDING UP
The severity and duration of the direct impact of COVID-19 on the global
economy, followed by the Russian invasion of Ukraine, are unclear.
The after-effects on the UK real estate sector and hence the Company’s
ongoing strategy still remain uncertain.
See page 54 for details of the current discount control policy.
Emerging Risks
Emerging risks have been identified by the Risk Committee
through a process of evaluating relatively new risks that
have emerged and increased materially in the year, and
subsequently, or through market intelligence are expected
to grow significantly and impact the Company. Any such
emerging risks are likely to cause disruption to the business
model. If ignored, they could impact the Company’s financial
performance and prospects. Alternatively, if recognised, they
could provide opportunities for transformation.
COVID-19
COVID-19, identified in 2020 as the overarching emerging
risk, has now fully emerged in the form of a global pandemic
causing significant loss of life and global economic disruption.
While remarkable progress has been made in developing
and rolling out effective vaccinations, offering the prospect
of a return to more normal times, there is still considerable
uncertainty about the repercussions of evolving variants
of the virus and potential setbacks on the road to recovery.
The emerging risk is now COVID-19’s legacy such as the
resulting economic damage and possible permanent
structural changes to the way that we work, live and consume.
Labour, energy and material shortages, manufacturing and
transportation difficulties and supply chain disruptions have
all fuelled inflation and concerns about its future persistence
and strength have increased.
COVID-19 has affected to differing degrees all areas of risk to
which the Company is exposed, but particularly those relating
to strategic risk, macroeconomic risk, credit risk and accounting
and valuation risk. COVID-19’s impact and the Company’s
response are provided in more detail in the Commentary section
of each of the following risk descriptions (pages 36 to 41).
Geopolitical Conflict
Russia’s recent invasion of Ukraine and the subsequent
refugee crisis has sent shockwaves through the world and
challenged the assumptions about the stability of the post
1945 world order and Russia’s territorial ambitions. The
sanctions imposed in response to Russia’s aggression are likely
to increase energy costs and further disrupt international
trade and supply chains, already under strain from COVID-19,
thereby adding to inflationary pressures and market volatility.
Technology
Technology is changing the processes and habits of businesses
and consumers which in turn is impacting occupiers’ future
requirements for property and leading to greater disparity in
the performance of different property sectors. The decline of
physical retailing and the increase in online shopping has been
further accelerated by social distancing measures in response
to COVID-19. This has created challenging conditions for
many traditional retailers and their landlords, with increased
tenant defaults, reduced rents and empty buildings in this
sector. In addition, the increased use of video conferencing
by businesses may facilitate a more permanent shift to home
working and could also redefine the need for office space
in the future. Robotics and automation are also altering the
specifications for industrial buildings.
The principal risks, including their impact and the actions taken
by the Company to mitigate them, are provided on pages 36–41.
The Changes to Risk (Increased, Decreased or No Change) all
relate to any material change from the reporting provided in the
2020 Annual report that was finalised in April 2021.
STRATEGIC OVERVIEW
Continued
36 UKCP REIT Annual Report & Accounts
ukcpreit.com
B
INVESTMENT AND ASSET MANAGEMENT RISKS:
HEALTH & SAFETY
Risks & Impact
The Company could fail to identify, mitigate or manage major Health
& Safety issues potentially leading to injury, loss of life, litigation and the
ensuing financial & reputational damage.
Mitigation
Health & Safety checks are included as a key part of due diligence for
any new property acquisition.
For existing multi-tenancy properties, the Group’s Managing Agent
(Jones Lang LaSalle) is responsible for managing and monitoring Health
& Safety matters of each building.
The Investment Manager monitors on an ongoing basis all identified
Health & Safety issues with strict deadlines for resolution by the
Managing Agent.
The Investment Manager also engages S2 Partnership Limited who
provide an independent Health & Safety review and fire risk assessment
of all multi-let properties on an annual basis.
The Risk Committee reviews the Company’s Health & Safety
performance quarterly.
Commentary
COVID-19 increased focus on the safety and wellbeing of employees, tenants
and their customers within the Company’s buildings.
The Investment Manager worked closely with the Managing Agent to
ensure that each multi-let property operated securely, following advice
and complying with all the government restrictions relating to COVID-19.
New procedures were introduced to ensure that tenants and their customers
could return safely to the Company’s multi-let buildings when permitted.
All annual independent H&S audits due in 2021 were completed by
S2 Partnership Ltd with minimal interruption and delays.
No other major Health & Safety issues were noted in the year.
Change
NET RISK: MEDIUM — NO SIGNIFICANT CHANGE IN RISK
See page 24 for further information on the Group’s Health & Safety policy.
C
INVESTMENT AND ASSET MANAGEMENT RISKS:
ENVIRONMENTAL
Risks & Impact
Properties could be negatively impacted by an extreme environmental event
(e.g. flooding) or the Company’s own asset management activities could create
environmental damage. Climate change could accelerate more quickly than
anticipated, leading to legislative changes. Failure by the Company to achieve
existing or future environmental targets could adversely affect the Company’s
reputation, resulting in penalties and increased costs and ultimately in a
reduction in the value of assets that are less energy efficient. Access to capital
could be restricted: investors might avoid shareholdings in companies that
do not meet their environmental expectations and banks could limit funding
only to borrowers who fulfil pre-set environmental criteria.
Mitigation
The Company considers its impact on the environment and its local
communities in all its activities and works in partnership with its key
stakeholder groups – investors, occupiers, suppliers and communities
– to ensure that all parties share responsibility to achieve a more
sustainable property performance.
In-depth research is undertaken on each property at acquisition with
a detailed environmental survey.
The Investment Manager employs its own proprietary research
framework, the ESG Impact Dial, which assesses 4 major forces:
Environment & Climate, Governance & Engagement, Demographics
& Technology and Infrastructure.
Experienced advisers on environmental, social and governance matters
are also consulted both internally at the Investment Manager and
externally where required.
The Investment Manager has adopted a thorough environmental policy
which is applied to all properties within the portfolio.
EPC rating benchmarks have been set to ensure compliance with
Minimum Energy Efficiency Standards (MEES).
Commentary
The Company has recently set a net zero carbon target of 2040 for
all carbon emissions, including tenants’ own emissions and also
those embedded in the fabric and construction of buildings.
An interim target of 2030 has also been set to reach net zero for
all landlord generated emissions.
The Company has submitted to the Global Real Estate Sustainability
Benchmark (“GRESB”) since 2015. It has been recognised as a top
performer in ESG coming second in the GRESB UK Diversified (listed)
peer group. It was awarded an ‘A’ score for Public Disclosure by GRESB
against a peer group average of B and received an EPRA “Gold” rating
for European Sustainability Best Practice Recommendations in 2021.
A full review of EPC ratings across the Group’s portfolio has been
undertaken and a strategy put in place to ensure compliance with all
the deadlines for increasingly strict standards between now and 2030.
Three units are currently rated as below standard and these are being
actively assessed and addressed.
A number of asset management initiatives are underway to consider the
feasibility of installing solar panels at some of the Company’s properties.
Change
NET RISK: MEDIUM — NO SIGNIFICANT CHANGE IN RISK BUT TRENDING UP
The rapid emergence of COVID-19 as an unanticipated global disaster
has concentrated attention more acutely on other imminent dangers such
as climate change and the need for urgent response. Tenants and
shareholders now have greater expectations of their landlords to address
environmental issues and to set measurable targets and to report progress
against them regularly.
The 2021 Annual Report now includes a dedicated section for ESG on
pages 22–25 and also Taskforce for Climate-Related Financial Disclosures
on pages 26–27.
37
E
FINANCIAL RISKS:
GEARING
Risks & Impact
An inappropriate level of gearing, magnifying investment losses in
a declining market, could result in breaches of loan covenants and
threaten the Company’s liquidity and solvency. An inability to secure
adequate borrowing with appropriate tenor and competitive rates could
also negatively impact the Company.
Mitigation
Gearing is restricted to a maximum of 25% of gross assets. This low gearing
limit means that the Company should, barring exceptional circumstances,
have adequate resources to service and repay its debt.
The Company’s diversified, prime UK commercial property portfolio,
underpinned by its strong tenant base, should provide sufficient value and
income in a challenging market to meet the Company’s future liabilities.
The Company’s relatively modest level of gearing attracts competitive terms
and interest rates from lenders for the Company’s loan facilities.
The Investment Manager has relationships with multiple funders and wide
access to different sources of funding on both a fixed and variable basis.
Financial modelling is undertaken and stress tested annually as part of
Company’s viability assessment, whenever new debt facilities are being
considered and whenever unusual events occur.
Loan covenants are continually monitored and reported to the Board
at least quarterly and also reviewed as part of the disposal process of any
secured property.
Commentary
COVID-19’s disruption on the property market, with declining capital values
in some business segments and reduced rental income, increased the risk in
general of potential loan covenant breaches and refinancing risk for some
property companies with short-term debt.
At year end the Group had two fully drawn fixed rate facilities totalling
£200 million with different expiry dates (April 2027 & February 2031).
The Group had also drawn down £50 million of its £150 million revolving
credit facility, which is on a floating rate basis, and provides flexibility to
make timely acquisitions when opportunities arise. Together, the drawn
down facilities had a weighted maturity profile of 6.2 years, and an overall
blended interest of 2.68% per annum.
At year end, gearing was 13.5%, relatively low for its peer group.
During COVID-19, the Group’s bank covenants have been regularly monitored
and stress tested under different value and revenue scenarios. There is
considerable headroom before any loan covenants would be breached.
Over £462 million of property remains unencumbered, providing
additional cushion if needed.
The Company benefits from good long-term relationships with supportive
lenders and has engaged in constructive dialogue with them during this period.
Change
NET RISK: LOW — DECREASED RISK
The Group has increased gearing levels to 13.5% which is still relatively
low against its peers and has scope to increase further with an additional
£100 million of undrawn revolving credit facility.
Improved rent collection and recovering asset valuations provide significant
headroom on loan covenants and minimise the possibility of loan breaches.
The Company’s level of gearing is low and there is a comfortable cushion of
unpledged property should current valuations fall.
See further details on risk in note 18 to the accounts on pages 90–94.
STRATEGIC OVERVIEW
Continued
D
FINANCIAL RISKS:
MACROECONOMIC
Risks & Impact
Macroeconomic changes (e.g. levels of GDP, employment, inflation, interest rate
movements), political changes (e.g. Brexit, new legislation), structural changes (e.g. new
technology, demographics) or global events (pandemics, wars, terrorist attacks, oil price
disruption) could negatively impact commercial property values and the underlying
businesses of tenants (market risk and credit risk). This may be reflected in a decline in the
share price, Net Asset Value per share and earnings per share of the Company. Falls in the
value of investments could also result in breaches of loan covenants and solvency issues.
Mitigation
The abrdn Research team takes into account macroeconomic conditions when
collating property forecasts. This research is fed into the Investment Manager’s
decisions on purchases and sales and sector allocations.
The portfolio is UK based and diversified across a number of different sectors
and regions of the UK and also has a wide and diverse tenant base to reduce any
risk concentration where possible.
There is a wide range of lease expiry dates within the portfolio in order to
minimise concentrated re-letting risk.
The Company is lowly geared with a 25% limit on overall gearing.
The Company has limited exposure to speculative development and is
generally only undertaken on a forward funded and pre-let basis.
Rigorous portfolio reviews are undertaken by the Investment Manager and
presented to the Board on a regular basis.
Annual asset plans are developed for each property, ensuring that inherent
value can be realised through active asset management.
Individual investment decisions are subject to robust risk versus return evaluation
and approval. Each potential investment is scrutinised and rigorously assessed,
taking into account location, legal title, local market dynamics, physical and
environmental conditions and the quality and soundness of the projected income stream.
Every building has comprehensive insurance to cover both the property itself
and injury to associated third parties.
Commentary
The outlook for the UK economy and the UK real estate market is still uncertain.
Although the economy started to rebound in 2021 following the effective roll-out of
a vaccine programme in the UK, it is still difficult to predict the extent of any lasting
economic damage, particularly if further variants of the virus emerge in the future.
Concerns over more persistent inflation have increased due to continued labour,
supplies and energy shortages caused by the disruption of COVID-19. This may
affect consumer demand and corporate profit margins and investment. Interest
rate rises are more likely if inflation is no longer considered transitory.
The unprovoked Russian invasion of Ukraine in February 2022 has now
introduced further uncertainty and instability into the global economy, increasing
inflationary pressures and creating more turbulence in the financial markets.
The Bank of England and UK government have continued to provide significant
monetary and fiscal stimulus to insulate the economy which grew by 7.5% over
the year, above the levels seen prior to the pandemic. Our investment manager’s
forecast for UK GDP growth for 2022 is lower, initially at 4.4% reduced to 3.8%
following the Russian invasion of Ukraine.
Portfolio continues to be diversified with investments in the four main commercial
property sectors and across a number of geographical regions, but now with a much
higher weighting to the industrial sector, particularly logistics and distribution,
which has benefitted from the pandemic and outperformed the other sectors.
213 tenancies at the year end with top ten tenants accounting for 36.4% of
contracted rental income. Although consumer facing businesses suffered,
particularly from the intermittent “lockdowns” imposed by government,
rent collection rates had begun to normalise by Q4 2021.
Gearing of 13.5% at year end.
Occupancy rate of 97.9% at year end.
Change
NET RISK: MEDIUM — NO SIGNIFICANT CHANGE IN RISK BUT TRENDING UP
The roll-out of the COVID-19 vaccine programme has given cause for economic
optimism but the Company remains vigilant against likely future strains of the virus.
In response to its invasion of Ukraine, significant sanctions have been imposed on
Russia, as punishment and to deter future acts of aggression and isolate it globally.
These are likely to have far reaching repercussions on the global economy as sources
of energy become more restricted and the international transportation of goods
and materials suffer disruption in unexpected ways.
The UK has formally withdrawn from the EU, and some of the political and economic
uncertainty has been removed. However, much of the detail relating to the terms of
trade, particularly in the service industries, still has to be finalised and the full impact
of Brexit on the economy and on the UK commercial property market is still unclear.
See further details on risk in note 18 to the accounts on pages 90-93.
38 UKCP REIT Annual Report & Accounts
ukcpreit.com
F
FINANCIAL RISKS:
LIQUIDITY
Risks & Impact
The Company may be unable to dispose of property assets in order to meet its
financial commitments or obtain funds when required for asset acquisition
or payment of expenses or dividends. Investments in property are generally
illiquid, in that they may be difficult to sell quickly and may have to be sold at
a discount to the recorded valuation.
The Company’s shares could become illiquid due to lack of investor demand,
market events or regulatory intervention and the Company’s shareholders
may be unable to sell their shares due to lack of liquidity in the market.
Mitigation
The Company has a diversified portfolio of good quality, marketable properties.
After allowing for capital commitments on ongoing developments, the
Company has significant capital resources at year end of £88 million due to
the undrawn £100 million of its revolving credit facility. The closed ended
structure of the Company ensures that it is not a forced seller of assets.
The Company is listed on the London Stock Exchange and a component
of the FTSE 350 Index made up of the largest 350 companies in the UK
by market capitalisation.
Financial commitments are limited by the Company’s relatively low
level of gearing.
Liquidity risk is managed on an ongoing basis by the Investment Manager
and reviewed at least quarterly by the Board.
Cash is placed in liquid deposits and accounts with a high credit rating.
Commentary
Real estate market liquidity has decreased as a result of COVID-19
but nonetheless the Company implemented its investment strategy
by completing four sales and five purchases during 2021.
Having a closed-ended structure, the Company was better able to
withstand market movements as it is not subject to investor redemptions
and forced property disposals.
All financial commitments were comfortably met during the year.
£1.8m shares on average were traded daily in 2021 highlighting the
ongoing liquidity of the Company’s shares.
Shareholders are able to sell their shares in a highly regulated and
liquid secondary market.
Change
NET RISK: LOW — NO SIGNIFICANT CHANGE IN RISK
See further details on risk in note 18 to the accounts on pages 90–94.
G
FINANCIAL RISKS:
CREDIT RISK OF TENANTS
Risks & Impact
Income might be adversely affected by macroeconomic factors. Financial
difficulties could cause tenants to default on their rents and could lead to
vacant properties. This might result in falling dividend cover for the Company
and potential dividend cuts.
Mitigation
Dividend cover is forecast and considered at each Board meeting.
The property portfolio has a balanced mix of tenants and reflects diversity
across business sectors, limiting reliance on a single tenant or industry.
The Group has 213 tenants, with the top 10 tenants representing 36.4% of the
Company’s contracted rental income, and no single tenant accounting for
more than 5.1%.
Rigorous due diligence is undertaken on all prospective tenants and their
financial performance continues to be monitored during their lease.
Rent collection from tenants is closely monitored so that early warning
signs can be detected.
Contingency plans are put in place where tenants with financial difficulties
have been identified.
Board approval is necessary for any material lettings.
Commentary
As anticipated, COVID-19’s intermittent lockdowns have affected some tenants’
ability to pay their rent. In particular, retail and leisure have been severely
impacted by COVID-19, but some businesses in other sectors have also suffered
depending on their business models, customers, workforce and suppliers.
For the four key rent invoicing dates for quarterly payment in advance in
2021 (March, June, Sept, Dec 2020) 97% of rent had been collected by the end
of February 2022.
The Investment Manager has engaged closely with all tenants to understand
better their financial positions and where possible has responded to requests
for rental assistance. This has resulted in some rent deferrals, monthly
payment plans and, in some instances, commercial regear arrangements
with rent-free periods in return for longer leases.
Retail sector continues to be of concern with further administrations in
this sector in the last 12 months and more likely to follow the longer the
pandemic continues.
Ongoing reduction in Company’s retail holdings which now represent
12% of the portfolio at the year end.
The Company has a bad debt provision of £5.3m for ultimate non-payment
of rent by some tenants but still continues its concerted efforts to recover
outstanding amounts due.
Reflecting the net acquisitions undertaken by the Company, improving rent
collection rates and reduced market uncertainty, dividends were increased
twice during the year with 0.46p per share paid for Q4 2020 and 0.75p
announced for Q4 2021.
Change
NET RISK: MEDIUM — NO SIGNIFICANT CHANGE IN RISK
Rent collection has improved from the levels experienced in 2020 and
continues to rise as the economy opens up again as the Company starts to
see a normalisation of collection rates. Although further tenant defaults
may occur, if new lockdowns are imposed and as a result of international
sanctions linked to the Ukraine conflict, the Company has already made
prudent provisioning for bad debts.
See further details on risk in note 18 to the accounts on pages 90–94.
39
I
OPERATIONAL RISKS:
ACCOUNTING & VALUATION
Risks & Impact
Accounting records and financial statements could be incorrect or incomplete
or fail to comply with current accounting standards. In particular property
valuations, income and expenses could be calculated and recorded
inaccurately. Limited transactions in the property market could hinder price
discovery and could result in out of date valuations.
Mitigation
All properties within the portfolio are independently valued by CBRE
Limited on a quarterly basis and their year-end valuations recorded in the
Company’s accounts. This is a rigorous assessment process to which the
Investment Manager also contributes information.
CBRE, the independent valuer, is required to carry out a physical inspection
of each property at least annually.
The Property Valuation Committee reviews thoroughly each quarter this
independent valuation process.
Accounting control and reconciliation processes are in place at the
Investment Manager. These are subject to regular independent assessment
for their suitability and operating effectiveness by an external auditor.
Financial statements are subject to a year end audit by Deloitte LLP.
Commentary
The Managing Agent (JLL) took over responsibility for the collection of
rent and service charges in 2020. This process is operating smoothly and
a high level of communication and collaboration between both parties
has continued during 2021.
While there has been an increasing number of property transactions
completed during 2021, there are certain subsegments of the leisure
market where there is limited liquidity and a lack of sufficient evidence
of current pricing which can make asset valuations more difficult.
Change
NET RISK: MEDIUM — NO SIGNIFICANT CHANGE IN RISK
See further details on valuations in note 1(h) on page 77 and note 10 to the
accounts on pages 83–86.
STRATEGIC OVERVIEW
Continued
H
OPERATIONAL RISKS:
SERVICE PROVIDERS
Risks & Impact
Poor performance and/or inadequate procedures at key service providers
i.e. Investment Manager, Company Secretary, Managing Agent, Registrar,
could lead to errors, fraud and non-compliance with their contractual
agreements and/or with relevant legislation. Failings in their data
management processes and disaster recovery and business continuity
plans, including cyber security safeguards, could lead to financial loss and
business disruption for the Company.
Mitigation
The Company has a strong control culture that is also reflected in its
partnerships with suppliers.
All investment decisions are subject to a formal approval process with
specified authority limits.
All third party service providers are carefully selected for their expertise,
reputation and financial standing. Service level agreements are negotiated
with all material suppliers and regularly monitored to ensure that pre-
agreed standards are met.
Suppliers’ business continuity and disaster recovery plans, including
safeguards against cyber-crime, are also regularly examined.
The Management Engagement Committee (“MEC”) formally reviews
all key service providers once a year and whenever necessary during
times of stress.
Assurance reports on internal controls (ISAE 3402 reports) for both
the Investment Manager and the Managing Agent are received and
reviewed annually.
Commentary
Key service providers put their business continuity plans into practice
quickly during the pandemic and adapted successfully to working remotely
from their business premises.
The Investment Manager updated the Board on a regular basis on its own
contingency arrangements and has demonstrated its operational resilience
throughout.
The Investment Manager has also monitored regularly the ability of other
key service providers to conduct their business effectively. Service quality
has been maintained despite the restrictions and no material issues of
concern have been raised.
Key service providers are on heightened alert of cyber attacks following
Russia’s invasion of Ukraine and are monitoring intelligence updates of
potential threats and strengthening their cyber security defences if needed.
Section 172 statement in the accounts (pages 45–47) provides details on the
Company’s collegial approach to stakeholders. No material issues noted
from the reviews of service providers in the year.
Key service providers have not changed during 2021.
Change
NET RISK: MEDIUM — NO SIGNIFICANT CHANGE IN RISK
See further details on pages 46–47.
40 UKCP REIT Annual Report & Accounts
ukcpreit.com
J
REGULATORY RISKS:
REGULATORY CHANGE
Risks & Impact
The Company could fail to comply with existing legislation or adapt to
new or future regulation. In particular, the Company could fail to comply
with REIT legislation and ultimately lose its REIT status, thereby incurring
substantial tax penalties and reducing the amounts available for distribution
to shareholders. Other key relevant legislation and regulations also include
the Stock Exchange Listing Rules, Guernsey Company Law and Guernsey
Registry requirements.
Increased regulation and legislation concerning the environment is likely
as the climate continues to change. This could lead to increased compliance
costs for the Company and a revaluation of its less energy efficient assets if
they become less attractive to investors and tenants.
Mitigation
The Board receives regular updates on relevant regulatory changes
from its professional advisors.
The highest corporate governance standards are required from all key
service providers and their reputation and performance are reviewed
at least annually by the Management Engagement Committee.
The Company has appointed experienced external tax advisors to
advise on tax compliance matters.
Processes have been put in place to ensure ongoing compliance with
REIT rules following the Company’s conversion to a REIT on 1 July 2018.
The Board reviews quarterly a REIT dashboard confirming compliance
with REIT regulations.
The Company engages specialist consultants to advise on
environmental matters as part of acquisition due diligence and
when considering significant redevelopment work. Consultants are
also engaged to monitor environmental credentials throughout the
ownership of each property.
Commentary
The Property Income Distributions (PIDs) announced for 2021 are
in compliance with REIT rules.
The government’s ongoing withdrawal of forfeiture in favour of
commercial property tenants during the pandemic may have
encouraged a small minority of tenants to withhold rent and avoid
engagement with the Investment Manager. This is scheduled to cease
in March 2022 however the vast majority of tenants continued
to pay rent or agreed rent concessions.
Change
NET RISK: MEDIUM — NO SIGNIFICANT CHANGE IN RISK
—
K
STAKEHOLDER ENGAGEMENT RISKS:
COMMUNICATION
Risks & Impact
A communication breakdown with key stakeholders, particularly shareholders
and tenants, could prevent the Company from understanding and responding
to their needs and concerns. When required to fulfil certain reporting
requirements, the Company could fail to communicate with regulatory
authorities about its major shareholders. As a result the Company could
potentially suffer financial penalties and reputational damage.
Mitigation
A high degree of engagement is maintained with both shareholders
and tenants.
The Investment Manager regularly meets with shareholders and
periodically, the Chair of the Board also meets key shareholders.
Quarterly Board reports include detailed shareholder analysis, written and
verbal reports from JP Morgan Cazenove, the Company’s Corporate Broker,
and feedback from shareholder and analyst meetings where appropriate.
The Investment Manager works closely with tenants to understand better
their needs and to remodel and refurbish buildings to fit their evolving
requirements. This helps to reduce the risk of vacant properties.
The Company receives professional advice on its reporting obligations
regarding major shareholders to ensure that it complies with regulations.
Commentary
Communication with all stakeholders has increased considerably as
a result of COVID-19 and has been a priority for the Company.
Although many meetings with shareholders and analysts could not
be held face-to-face, extensive use was made of virtual meetings and
presentations to ensure clear messaging of strategy and to provide
accurate and timely updates
The continuation vote was overwhelmingly passed by proxy votes in
March 2020.
Investment Managers have continued to visit properties when possible
to engage with tenants.
As restrictions are lifted the Board of Directors will begin to visit
properties again, as part of a rolling programme to visit all properties
over a four-year period.
Section 172 report highlights the collaborative nature of interaction
between the Company and its key stakeholders.
Change
NET RISK: LOW — NO SIGNIFICANT CHANGE IN RISK.
See further details on pages 46–47.
41
Maldron Hotel
Newcastle
STRATEGIC OVERVIEW
Continued
42 UKCP REIT Annual Report & Accounts
ukcpreit.com
Viability Statement
The Board considers viability as part of its ongoing programme of
monitoring risk and also has considered this in light of the ongoing
COVID-19 pandemic and heightening geopolitical risk. The Board
continues to consider five years to be a reasonable time horizon over
which to review the continuing viability of the Company.
The Board also considers viability over the longer term, in particular
to key points outside this time frame, such as the due dates for the
repayment of long-term debt. In addition, the Board considers viability
in relation to continuation votes. A periodic continuation vote held
in March 2020 was passed with the next one scheduled for 2027 and
seven yearly thereafter. In addition, under the discount control policy
of the Company, a continuation vote may be required if the Company’s
shares trade at a discount of over 5% for a continuous period of 90 dealing
days or more, beginning after the date of the second anniversary of the
Company’s most recent continuation vote. The second anniversary
of the most recent continuation vote is 18 March 2022. Further details
on this are set out on page 54 of the Report of the Directors. This specific
risk is assessed in light of the Company’s most recent continuation vote
which was passed with 99.9% of shareholders voting for continuation
based on a 76% turnout. In addition, feedback from shareholders in the
last 12 months has not given rise to any concerns over future continuation
votes should they arise.
The Board has considered the nature of the Group’s assets and liabilities
and associated cash flows both in a normal environment and also
in relation to the current environment as impacted by COVID-19 and the
emerging geopolitical risks. The Board has determined that five years
is a reasonable timescale over which the performance of the Group can
be forecast with a material degree of accuracy and so is an appropriate
period over which to consider the Company’s viability.
The Board has also carried out a robust assessment of the principal
and emerging risks faced by the Group, as detailed on pages 34–41.
The main risks which the Board considers will affect the business
model, future performance, solvency, and liquidity, are tenant failure
leading to a fall in dividend cover, macroeconomic uncertainty and
ongoing discounts leading to continuation votes. These risks along
with other reported risks have also been considered in relation to the
COVID-19 pandemic and geopolitical landscape. The Board takes any
potential risks to the ongoing success of the Group, and its ability
to perform very seriously and works hard to ensure that risks are
consistent with the Group’s risk appetite at all times.
In assessing the Group’s viability, the Board has carried out thorough
reviews of the following:
Detailed NAV, cash resources and income forecasts, prepared by the
Company’s Investment Manager, for a five year period under both
normal and stressed conditions;
The Group’s ability to pay its operational expenses, bank interest,
tax and dividends over a five year period;
Future debt repayment dates and debt covenants, in particular
those in relation to LTV and interest cover;
Demand for the Company’s shares and levels of premium or discount
at which the shares trade to NAV;
Views of shareholders;
The valuation and liquidity of the Group’s property portfolio,
the Investment Manager’s portfolio strategy for the future and the
market outlook and;
The potential for a further continuation vote in 2022 should the
Company’s discount remain at over 5% for 90 business days
following the second anniversary of the previous continuation
vote (18 March 2020).
Despite the uncertainty in the UK regarding both the COVID-19
pandemic and also the impact of international conflict, the Board
has a reasonable expectation, based on the information at the time of
writing, that the Group will be able to continue in operation and meet
its liabilities as they fall due over the next five years. This assessment is
based on the results of the reviews mentioned above and also the support
of shareholders for the Company’s continuation.
43
OUR STAKEHOLDERS’ INTERESTS
Based on interactions with stakeholders, we consider
the following interests to be particularly salient:
Shareholders
Attractive and sustainable level of income,
earnings and dividends
Potential for capital and income growth
Diversification of portfolio
Execution of investment objective
Responsible capital allocation and
dividend policy
Value for money – low ongoing charges
Liquidity in the Company’s shares
Investment Manager
Productive working relationship with
the Board
Clear and sustainable investment
objective and policy
Collaboration with all stakeholders
Tenants
Positive working relationship with the
Board and the Investment Manager
Sustainable buildings — remodelled and
refurbished to meet their requirements
A focus on the community, health & safety
and the environment
Service Providers
Productive working relationship with the Company
Strong internal controls
Collaboration
Debt Providers
Responsible portfolio management
Compliance with loan covenants
Environment and Community
Sustainable investment policy
Community engagement and
socio-economic benefit
A focus on consumption, emissions
and resource efficiency
Board’s Obligations under Section 172
of the Companies Act
This section explains how the Directors have
promoted the success of the Company for the
benefit of its members as a whole during the
financial year to 31 December 2021, taking
into account the likely long term consequences
of decisions, the need to foster relationships
with all stakeholders and the impact of the
Company’s operations on the environment,
in accordance with the provisions of the AIC
Code on Corporate Governance.
The Role of the REIT Board
The Company is a REIT and has no executive
directors or employees and is governed by the
Board of Directors. The Board considers the main
stakeholders in the Company are Shareholders,
the Investment Manager, Tenants, Service
Providers, Debt Providers and the Environment
and the Community. The Board maintains that
the Company should foster a culture where all
of the Company’s stakeholders are treated fairly
and with respect. The Board also recognises the
importance of acting fairly between stakeholders,
which is a key consideration in the Board’s
decision-making process. The Board also considers
relations with stakeholders very seriously and
has cited Stakeholder Engagement as one of the
Company’s principal risks. The mitigating actions
to address the Stakeholder Engagement risk are set
out on page 41.
The Board, which comprises five independent
Non-Executive Directors, whose skills, experience
and diversity are set out on pages 48 and 49,
retains responsibility for taking all decisions
relating to the Group’s investment objective
and policy, dividend policy, gearing, corporate
governance and strategy.
The Board delegates management functions to the
Investment Manager and, either directly or through
the Investment Manager, the Company employs
key suppliers to provide services in relation to
property management, health & safety, valuation,
legal and tax requirements, auditing, depositary
obligations and share registration, amongst others.
The Board regularly reviews the performance of
the Investment Manager, and its other service
providers, to ensure they manage the Company
and its stakeholders effectively and that their
continued appointment is, over the long-term,
in the best interests of the shareholders as a whole.
The Board seeks to maintain a constructive
working relationship with its stakeholders and
prides itself on its transparent and collegiate
culture. The Board operates in a manner which
is supportive, yet challenging, of the Investment
Manager and its other service providers, with the
goal of overseeing the Company’s activities on
behalf of all stakeholders.
As set out in the Board of Directors’ Report, the
Board reviews its performance annually to ensure
it is meeting its obligations to stakeholders.
The evaluation helps the Board to determine
whether they have sufficiently discharged their
duties and responsibilities over the course of the
financial year. Engagement with key stakeholders
is considered formally as part of the annual
evaluation process.
Shareholders
Investment manager
Tenants
Service providers
Debt providers
Environment and Community
THE COMPANY
STAKEHOLDER ENGAGEMENT
44 UKCP REIT Annual Report & Accounts
ukcpreit.com
Ocado Distribution Unit,
Hatfield
45
Centrum 260
Burton upon Trent
The Board considers its stakeholders at every Board
meeting and receives feedback on the Investment
Manager’s interactions with the Company’s
Shareholders, tenants and service providers.
The Board also engages directly with its stakeholders.
Shareholders
Shareholders are key stakeholders and the Board
places great importance on communication with
them. The Board’s primary focus is to promote the
long-term success of the Company for the benefit
of its shareholders as a whole. The Board oversees
the delivery of the investment objective, policy and
strategy, as agreed by the Company’s Shareholders.
The Board welcomes all shareholders’ views and
aims to act fairly between all shareholders.
The Investment Manager and Company’s Broker
regularly meet with shareholders, and prospective
shareholders, to discuss Company initiatives
and seek feedback. The views of shareholders are
discussed by the Board at every Board meeting, and
action taken to address any shareholder concerns.
The Investment Manager provides regular updates
to shareholders and the market through the Annual
Report, Interim Report, Quarterly Net Asset Value
announcements and Company Factsheets.
The Chair meets with key shareholders at least
annually, and other Directors are available to meet
shareholders as required. This allows the Board to
hear feedback directly from Shareholders. During the
financial year to 31 December 2021, the Investment
Manager, undertook several virtual meetings with
large shareholders to provide reports on the progress
of the Company and receive feedback, which was
then provided to the full Board. Shareholders are also
invited to vote on the continuation of the Company
at regular intervals and the Board encourages
shareholders to participate in this vote.
HOW WE ENGAGE WITH
OUR STAKEHOLDERS
The Annual General Meeting (AGM) of the
Company and also the annual and interim results
presentations provide a forum, both formal and
informal, for shareholders to meet and discuss
issues with the Directors and Investment Manager
of the Company. The Board encourages as many
shareholders as possible to attend the Company’s
AGM to engage directly with the Board.
The AGM will be held on Thursday, 16 June 2022.
The Board encourages all shareholders to lodge
their proxy votes in advance of the AGM.
Investment Manager
The Chair’s Statement and Investment Manager’s
Review on pages 8–20 detail the key investment
decisions taken during the year and subsequently.
The Investment Manager has continued to
manage the Company’s assets in accordance with
the mandate provided by shareholders, with the
oversight of the Board. The Company regularly
reviews its performance against its investment
strategy by reference to its rolling five-year business
plan to ensure it remains fit for purpose. The Board
undertakes an annual strategy meeting to test itself
and ensure the Company is positioned well for the
future delivery of its objective for its stakeholders.
The Board receives presentations from the
Investment Manager at every Board meeting to
help it to exercise effective oversight of the
Investment Manager and the Company’s Strategy.
The Board formally reviews the performance of
the Investment Manager at least annually.
Tenants
Prior to COVID-19, Board members regularly visited
properties and, where appropriate, engaged with
tenants directly to enhance their understanding
of each property and the tenants’ requirements.
Following the outbreak of COVID-19 Directors were
unable to visit any properties given the COVID-19
travel restrictions but will resume visits now.
The day-to-day management of the portfolio and
tenant interaction is delegated to the Investment
Manager. The Investment Manager takes a
proactive approach to its relationship with tenants,
working closely alongside them to understand
their needs through regular communication,
visits to properties and collaboration on projects.
The Investment Manager reports on its engagement
with tenants at every Board meeting.
The Company’s Investment Manager has worked
closely with tenants to understand their needs
during the pandemic. The Board firmly believes
that by helping tenants now and building better
relationships, the Company will have better
occupancy over future months and years, which
will in turn benefit the Company’s cash flow.
Service Providers
The Board seeks to maintain constructive
relationships with the Company’s suppliers
either directly or through the Investment
Manager with regular communications
and meetings. On behalf of the Company’s
Shareholders, the Management Engagement
Committee conducts annual reviews of the
Company’s Service Providers and their respective
fees to ensure they are performing in line with
Board expectations and provide value for money.
The Investment Manager is responsible for the
prompt settlement of supplier invoices and the
Investment Manager have a dedicated Accounts
Payable team and monitor the payment statistics
of the managing agent, JLL, throughout the year.
Debt Providers
The Company maintains a positive working
relationship with its debt providers, Barclays
Bank plc and Barings Real Estate Advisers, and
provides regular updates on business activity and
compliance with its loan covenants. The Company
has an overall flexible debt profile to allow it to
move quickly to take advantage of any attractive
opportunities that may occur in the present
uncertain economic environment.
46 UKCP REIT Annual Report & Accounts
ukcpreit.com
Environment and Community
The Board and the Investment Manager are
committed to investing in a responsible manner.
There are a number of geopolitical, technological,
social and demographic trends underway in
the developed world that can, and do, influence
real estate investments – many of these changes
fall under the umbrella of the Environment and
Community, or ESG, considerations. As a result,
the Investment Manager fully integrates ESG
factors into its investment decision-making and
governance process.
The Board has adopted the Investment Manager’s
ESG Policy and associated operational procedures
and is committed to environmental management in
all phases of the investment process. The Company
aims to invest responsibly, to achieve environmental
and social benefits alongside returns. By integrating
ESG factors into the investment process, the
Company aims to maximise the performance of the
assets and minimise exposure to risk. Please see our
disclosures in the ESG section on pages 22–25 and
within the Taskforce for Climate-Related Financial
Disclosures on pages 26 and 27 and the EPRA
Financial and Sustainability Reporting starting on
page 97, for more information on the Company’s
approach to ESG, including examples
of Community Engagement during 2021.
Specific examples of stakeholder
consideration during 2021
While the importance of giving due consideration
to the Company’s stakeholders is not new, and
is considered during every Board decision, the
Board were particularly mindful of stakeholder
considerations during the following strategic
decisions undertaken during the financial year
to 31 December 2021.
Payment of the Company’s Dividend
The Company continued to pay interim dividends
during the height of the pandemic, despite the
economic impact of COVID-19. As set out in the
Chair’s Statement on page 10 and 11, the Company,
as a responsible landlord, has worked closely with
tenants where they faced clear financial difficulties.
The benefits of this are now being seen, with rent
collection rates normalising, and the Board have
taken this into account when announcing two
dividend increases this year in recognition of the
importance placed by investors upon income.
Examples of Tenant Interaction During 2021
Throughout the COVID-19 pandemic the Company
offered support to many of its tenants to assist
them through this period of sustained disruption.
However as the economy has reopened and
conditions have normalised our interactions
have refocused around mutually beneficial
commercial opportunities. At two of our large
leisure assets The Rotunda, Kingston, and Regent
Circus, Swindon, the Company contributes towards
the cost of a marketing company, Bewonder,
to promote tenant services via social media and
the assets’ own websites to drive footfall at the
properties and maximise tenant revenue.
Bewonder hold regular meetings with local
representatives of the tenants as well as discussions
with their respective head offices to agree where
we can support our tenants and where appropriate
to offer direct support from the Company. A recent
example is a promotion agreed with Cineworld
at Regent Circus, Swindon, to promote recovery
of their business which was severely impacted by
government lockdown restrictions. We have agreed
that customers attending the cinema will be able
to claim free car parking within the Landlord’s
otherwise paid car park during their visit after
validating their parking ticket within the cinema.
Approval of Strategic Report
As set out above, the Board considers the long term
consequences of its decisions on its stakeholders to
ensure the long-term sustainability of the Company.
The Strategic Report of the Company comprises
the following on pages 4–47 Financial and
Portfolio Highlights, Performance Summary,
Chair’s Statement, Investment Manager
Review, Environmental, Social & Governance
(ESG), Taskforce for Climate-Related Financial
Disclosures, Property Portfolio & Analysis
and Strategic Overview incorporating the risk
management and stakeholder overview section.
The Strategic Report was approved by the Board
on 13 April 2022.
Ken McCullagh
Director
Ventura Park
Radlett
47
BOARD OF DIRECTORS AND MANAGEMENT TEAM
Ken McCullagh, Chair of the Board,
is a resident of Ireland. Since 2000, he has
been Chief Executive Officer of LNC Property
Group, a private real estate investment
company which held and managed €500 million
of assets, and is also a Principal in the Pearl
Residential Equity Fund. Previously,
he worked as a Director and Partner of
Corporate Finance for RSM Farrell Grant
Sparks, Chartered Accountants, and was
also a Financial Controller of Gunne Estate
Agents (now CBRE) in Dublin. He is a Fellow
of the Institute of Chartered Accountants
of Ireland. Mr McCullagh was appointed to
the Board in February 2013 and, prior to his
appointment as Chair on 1 January 2020,
was Senior Independent Director and Chair
of the Audit Committee.
Contribution: The Board, through the
Nomination and Remuneration Committee,
has reviewed the contribution of Ken
McCullagh in light of his proposed re-election
at the forthcoming AGM and has concluded
that he continues to chair the Company
effectively, fostering a collaborative spirit
between the Board and Investment Manager
while ensuring that meetings remain focused
on the key areas of stakeholder relevance.
Fionnuala Hogan, Chair of the Management
Engagement Committee and Nomination
and Remuneration Committee, is a resident
of the UK. Ms Hogan’s wide-ranging
background encompasses more than 25 years’
experience of investment, corporate advisory,
entrepreneurship and financing across various
sectors including real estate, technology and
the creative industries. Previous senior roles
include at Kleinwort Benson, KPMG, enba group
and most recently, Hypo Real Estate, where she
spent 10 years, including as Joint Head of Global
Workout. Ms Hogan currently heads early-stage
venture investing at Goldacre Ventures, an early
stage VC, and is creator and Head of Relab, an
ecosystem of entrepreneurs, corporates and
investors focused on scaling innovation in the
built world. Ms Hogan is a member of the Growth
Advisory Board for IMI plc, and a Trustee of East
London Dance and of Brixton House. She was
previously a Trustee of the Southbank Centre
and of Tomorrow’s Warriors. Ms Hogan was
appointed to the Board on 5 August 2021.
Contribution: The Board, through the Nomination
and Remuneration Committee, has reviewed
the contribution of Fionnuala Hogan since her
appointment in light of her proposed election at
the forthcoming AGM and has concluded that
she provides significant investment insight to the
Board and knowledge of the real estate sector.
Will Fulton, Lead Manager, graduated from the
University of Aberdeen in 1987 with a degree in
Land Economy when he joined Standard Life,
becoming a member of the Royal Institution
of Chartered Surveyors in 1990. Throughout
his 30-year career, he has held a variety of
commercial real estate positions gaining multi-
disciplinary experience spanning investment,
valuation, asset management, debt facility
management, development and investor
relations both in the UK and across continental
Europe. Prior to managing UKCM, he oversaw
a team managing the £2.3 billion Standard Life
Heritage With Profits Real Estate Fund.
Kerri Hunter, Interim Lead Manager, graduated
from the University of Paisley with a BSc in
Land Economics and is a member of the Royal
Institution of Chartered Surveyors. Ms Hunter
began her 25 year career as a general practice
surveyor and joined Scottish Widows Investment
Partnership in 2003, following four years at Royal
London Asset Management (formerly Scottish
Life Assurance Company). During her time
with Scottish Widows Investment Partnership,
Aberdeen Asset Management and abrdn,
Ms Hunter has gained extensive commercial
real estate experience in both investment and
development working as a Deputy Fund Manager
of the £3.4 billion SWIP Property Trust for seven
years, becoming a Fund Manager in 2014. Before
moving onto UKCM, Ms Hunter was managing
three funds on behalf of Lloyds Banking Group,
totalling £3.8 billion.
BOARD OF DIRECTORS
MANAGEMENT TEAM
Will Fulton
Michael Ayre, Chair of the Audit Committee,
is a resident of Guernsey. He joined BDO Reads,
a Guernsey chartered accountancy practice,
from the London office of Touche Ross in
February 1987, progressing to his appointment
as a tax partner in 1991. Subsequent to the
purchase of the fiduciary, investment and
taxation divisions of BDO Reads by Banque
Generale du Luxembourg in 1999, Mr Ayre
was appointed in 2003 as the Group Managing
Director of its successor, Fortis Guernsey –
a position he held until 2009. He continued
to work for its successor business, Intertrust,
until June 2019. In addition, until its sale in
July 2019, he was a director of ABN Amro
(Channel Islands) Limited. Mr Ayre is a fellow
of the Association of Chartered Certified
Accountants and is also a member of the
Chartered Institute of Taxation. Mr Ayre was
appointed to the Board in February 2016, and
from 1 January 2020 is Chair of the Audit
Committee, previously being Chair of the
Property Valuation Committee.
Contribution: The Board, through the
Nomination and Remuneration Committee,
has reviewed the contribution of Michael
Ayre in light of his proposed re-election at the
forthcoming AGM and has concluded that he
has chaired the Audit Committee effectively
during the challenges arising from COVID-19.
Kerri Hunter
48 UKCP REIT Annual Report & Accounts
ukcpreit.com
Margaret Littlejohns, Chair of the Risk Committee
and Senior Non-Executive Independent Director, is
a resident of the UK. Ms Littlejohns has 18 years’
experience with Citigroup in investment and
commercial banking, with specific expertise in
risk management (both market and credit risk).
Between 2004 and 2006, following an MBA at
Imperial College, she co-founded two start-up
ventures providing self storage facilities in the
Midlands, and acted as Finance Director until the
businesses were successfully sold to a regional
self storage chain in 2016. She is also Chair of
Foresight VCT plc. Previous appointments
include Chair of Henderson High Income Trust
plc and Non-Executive Director of JPMorgan
Mid Cap Investment Trust plc. Ms Littlejohns
was appointed to the Board on 1 January 2018.
Contribution: The Board, through the
Nomination and Remuneration Committee,
has reviewed the contribution of Margaret
Littlejohns in light of her proposed re-election
at the forthcoming AGM and has concluded
that she has chaired the Risk Committee
effectively and continues to provide significant
risk management insight to Board discussions
as well as investment trust expertise.
Chris Fry, Chair of the Property Valuation
Committee, is a resident of the UK. Mr Fry
is a Chartered Surveyor with more than
20 years’ experience in real estate investment
management. He is currently Chief Executive
Officer of Kingsbridge Estates, a privately
owned property company, investing and
developing across the South of England.
Prior to this he worked with LaSalle Investment
Management as a Senior Fund Manager for
13 years (2005-2018), ultimately responsible
for over £3 billion of assets under management
and for Schroders plc as a Fund Manager
(2000–2005). Mr Fry joined the Board on
1 January 2020, and is Chair of the Property
Valuation Committee.
Contribution: The Board, through the
Nomination and Remuneration Committee,
has reviewed the contribution of Chris Fry
in light of his proposed re-election at the
forthcoming AGM and has concluded that
he continues to provide significant property
and investment insight to the Board as
well as effectively chairing the Property
Valuation Committee.
Gregg Carswell graduated from the
University of Edinburgh in 2002 with
a degree in Business Studies and Accounting
and joined Chiene + Tait, Chartered
Accountants in 2002 where he qualified
as a Chartered Accountant in 2005, and
remained until 2008. Mr Carswell worked as
a Group Accountant and Finance Manager
for a private investment company, focusing
on real estate, before moving to Scottish
Widows Investment Partnership in 2012
before its acquisition by Aberdeen Asset
Management and subsequent merger to
become abrdn. He has worked on UKCM
since June 2021.
The Directors, all of whom are non-
executive and are independent of the
Investment Manager, are responsible for
the determination of the investment policy
of the Group and its overall supervision.
Jamie Horton has a BA in History from the
University of Strathclyde and graduated
from the University of Aberdeen in 2008
with an MSc in Property. He began his career
at JLL in Glasgow working in the Capital
Markets and Office Agency departments
before being appointed an Associate
Director with DTZ in the Capital Markets
team advising clients on purchases, sales
and developments. Mr Horton joined abrdn
in 2014 to work as a Portfolio Manager on
UKCM, managing a mixed portfolio of assets
throughout the UK, as well as undertaking
acquisitions and disposals on behalf of the
company. In 2018, Mr Horton was seconded
to the abrdn Paris office to act as Deputy
Fund Manager on the European Property
Growth Fund, a €900m pan-European
mandate. On returning to the UK in 2019,
Mr Horton was appointed Deputy Fund
Manager on the Nottinghamshire County
Council Pension Fund and latterly HIFML, a
UK open-ended balanced Fund, whilst offering
support on a further pan-European mandate,
the German Heritage With Profits Fund.
Jamie Horton
Gregg Carswell
Diversity Number %
Male 3
60%
Female 2
40%
49
REPORT OF DIRECTORS
The Directors present the report and accounts
of UK Commercial Property REIT Limited, (“the
Company”) for the year ended 31 December 2021.
Results and Dividends
The Group generated an IFRS profit of £236.2 million
(2020: loss of £10.3 million) in the year equating
to an earnings per share of 18.18p (2020: –0.79p).
The Company had cash at the year end of
£42.1 million (2020: £122.7 million). The Group
paid out dividends totalling £38.0 million (2020:
£29.9 million) in the year.
The Company has paid interim dividends in the
year ended 31 December 2021 as follows:
Payment date Rate per
share (p)
Fourth interim
for prior period
February 2021 0.460
Fifth interim for
prior period
May 2021 0.531
First interim
May 2021 0.644
Second interim
August 2021 0.644
Third interim
November 2021 0.644
TOTAL
2.923
Fionnuala Hogan,
Chair of the Management Engagement Committee
and Nomination and Remuneration Committee
On 3 February 2022 the Company declared a
fourth interim dividend of 0.75p per ordinary
share with an ex-dividend date of 11 February
2022, which was paid on 25 February 2022.
Principal Activity and Status
The Company is a Guernsey company and
during the year carried on business as a property
investment company. The Group migrated tax
residence to the UK and elected to be treated
as a UK REIT with effect from 1 July 2018.
The principal activity and status of the Company’s
subsidiaries is set out in note 11 on page 86.
Strategy
The Company’s purpose, objective and strategy is
set out in detail in the Strategic Report on page 32.
50 UKCP REIT Annual Report & Accounts
ukcpreit.com
These entities were acquired as part of the
transaction to purchase the Leamington Spa
properties and the intention is to transfer the assets
within the Group and dissolve these entities. The
Directors of these entities are based in Luxembourg.
The Company maintains an appropriate level
of insurance in respect of Directors’ & Officers’
liabilities in relation to work undertaken on behalf
of the Company and all its subsidiaries. In addition,
individual Directors may, at the expense of the
Company, seek independent professional advice
on any matter that concerns them in the furtherance
of their duties.
As recommended by the AIC Code on Corporate
Governance the Company’s policy is for all Directors
to retire and offer themselves for election at the
AGM immediately following their appointment
and for re-election annually thereafter. Accordingly,
the whole Board, with the exception of Ms Fionnuala
Hogan, will retire and offer themselves for re-election
at the AGM. Ms Fionnuala Hogan, having been
appointed by the Board on 1 August 2021 and being
eligible, will stand for election by shareholders at the
forthcoming AGM.
The Board, through the Nomination and
Remuneration Committee, has carried out an
evaluation of the performance of the Board,
the Committees and the individual Directors.
Led by the Chair of the Nomination and Remuneration
Committee, this review sought to identify whether
the Board demonstrates sufficient collective skill
and expertise, independence and knowledge of the
Company and whether each Director exhibits the
commitment required for the Company to achieve
its objective. The evaluation, which was a desk-based
review using online questionnaires, concluded that
the performance of the Board and Committees and
the individual Directors continues to be effective
with each Director making a positive contribution to
the performance and long-term sustainable success
of the Company. No changes to Board composition
were recommended. The action points arising
from the review have been addressed and, where
appropriate, revised policies have been adopted.
Based on the results of the evaluation of the
performance of the individual Directors, and their
individual skills and expertise, as reflected in their
biographies on pages 48–49, and contribution to the
long-term success of the Company, the re-election,
or election, of all the Directors who are being put
forward is recommended to shareholders at the
2022 AGM. The Board last engaged and met with
an external consultant, Boardroom Review Limited,
to undertake an external evaluation in March 2020.
Alternative Investment Fund Manager (“AIFM”)
The Company’s AIFM is Aberdeen Standard Fund
Managers Limited.
Depositary
Up to 23 October 2021, Citibank Europe Plc were
appointed as Depositary in accordance with the
requirements of AIFMD. On 23 October 2021, the
contract was novated to Citibank UK Limited.
This novation arose as a result of UK regulatory
changes brought about by the UK’s decision to leave
the European Union.
Date of Appointment Shares as at
31 December 2021
Shares as at
31 December 2020
Chris Fry
January 2020 46,445* 46,445*
Fionnuala Hogan
August 2021 — n/a
Ken McCullagh
February 2013 80,000 80,000
Margaret Littlejohns
January 2018 40,000 40,000
Michael Ayre (held jointly with Mrs Ayre)
February 2016 92,000 42,000
Robert Fowlds retired 5 August 2021
April 2018 n/a 50,000
Sandra Platts retired 31 December 2021
December 2013 — —
Listing Requirements
Throughout the period the Company complied
(and intends to continue to comply) with the
conditions applicable to property investment
companies set out in the Listing Rules.
Share Capital
The issued share capital at 31 December 2021
consisted of 1,299,412,465 ordinary shares of
25p each. At 31 March 2022 the issued share
capital was unchanged. Each ordinary share of the
Company carries one vote at general meetings of the
Company. Save for the provision of the articles of
association, there are no restrictions on the transfer
of ordinary shares in the Company other than
certain restrictions which may from time to time be
imposed by law (for example, insider trading law).
Directors
The Directors who held office during the period
and their interests in the ordinary shares of the
Company as at 31 December 2021 are shown in
the audited table above.
The Directors are also Directors of UK Commercial
Property Holdings Limited, UK Commercial Property
Estates Holdings Limited, UK Commercial Property
Estates Limited and UK Commercial Property
Finance Holdings Limited which are all wholly owned
Guernsey-domiciled subsidiary undertakings.
The Group also wholly owns Duke Distribution
Centres S.a.r.l. and Duke Offices and Development
S.a.r.l. both of which are Luxembourg resident entities.
Including an indirect interest over 6,445 shares held through
a pension fund over which Mr Fry has discretion.
Between 31 December 2021 and 31 March 2022, Mr McCullagh
has bought an additional 30,000 shares, Mr Fry an additional
35,219 shares and Ms Hogan 26,207 shares.
2021
Fionnuala Hogan appointed
as a Director
51
REPORT OF DIRECTORS
Continued
Substantial Interests in Share Capital
At 31 December 2021 the above entities had a holding
of 3% or more of the Company’s share capital.
Phoenix Group is the largest specialist consolidator
of heritage life assurance funds in Europe.
On launch the Company was managed by Ignis
Investment Services Limited (“Ignis”), a subsidiary
of Phoenix. The Company’s initial property
portfolio was purchased from the Phoenix Group
in exchange for shares in the Company, resulting
in the Phoenix Group holding approximately
71 per cent of the issued share capital of the
Company through its subsidiaries. The Phoenix
Group shareholding is held via a number of with
profits funds which are closed to new investment
and hence are in run-off over the medium to long
term. Since launch the Phoenix Group has therefore
been reducing its shareholding in the Company.
On 24 February 2016 the Phoenix Group notified
the Company that, following the sale by the
Phoenix Group of interests in the Company, the
Phoenix Concert Group’s holding in the Company
had fallen below 50 per cent.
The Phoenix Group shareholding in the Company
is held through Phoenix Life Assurance Limited
(“PLAL”) and four special purpose vehicles all
of which own under 10% and all of which are
subsidiaries of Phoenix Life Limited (“PLL”).
The holding is managed on an arms-length
basis and by a separate team within abrdn to the
team who manage the Company. There is also
a shareholder agreement between the Company
and PLL and PLAL which provides that PLL and
PLAL and their associates will not take any action
which would be detrimental to the general body
of shareholders.
As at 31 March 2022, the shareholdings of PLL and
PLAL remain the same. Investec Wealth Limited is
now 11.3%, Saunderson House 4.7% and BlackRock
4.3%. Baillie Gifford & Co Ltd now hold below 3.0%.
There are no new holders of 3.0% or more.
The Takeover Code
In previous years, following the sale of abrdn’s
insurance business to the Phoenix Group, in order
to undertake share buybacks, a waiver from the
Takeover Panel was required as the Investment
Manager was deemed to be part of the Phoenix
concert party under Rule 27 of the Takeover Code.
On 22 July 2020, the Phoenix Group completed
the acquisition of the ReAsssure Group.
The increased size of the Phoenix Group resulted
in the Investment Manager of UKCM no longer
being part of the Phoenix concert party and hence
no waiver is now required to be sought from the
takeover panel should the Company wish
to undertake share buybacks.
Going Concern
The Company’s business activities, together with
the factors likely to affect its future development,
performance and financial position are set out in
the Strategic Overview on pages 32–47. In addition,
note 18 to the financial statements includes the
Company’s objectives, policies and processes for:
managing its capital, its financial risk management
objectives, details of its financial instruments, and
its exposure to credit risk and liquidity risk. At both
the Company and Group levels comprehensive
going concern assessments have been performed.
The Board has followed the Financial Reporting
Council’s ‘Guidance on Risk Management, Internal
Control and Related Financial and Business
Reporting 2014’ when performing their going
concern assessments and also considered the AIC
Code on Corporate Governance.
Specific consideration to the likelihood of a
continuation vote in 2022 is considered in the
viability section on page 43.
SHARE CAPITAL AT 31 DECEMBER 2021
Phoenix Life Limited (PLL)
Number of ordinary shares held
438,289,679
% Held
33.7
Phoenix Life Assurance Limited (PLAL)
Number of ordinary shares held
125,483,786
% Held
9.7
Investec Wealth Limited
Number of ordinary shares held
142,068,464
% Held
10.9
52 UKCP REIT Annual Report & Accounts
ukcpreit.com
The assessments performed include review of
the valuation and liquidity of investments as
at the balance sheet date and forecasts of NAV,
cash resources and income under both normal
and stressed conditions.
Having thoroughly considered the going concern
assessment, the Board recognise that there is
undoubtedly an increase in risk in relation to the
economy and outlook for property arising from
the COVID-19 pandemic and geopolitical conflict.
However, based on the information available to
the Directors, the Board do not believe there is
significant doubt about the Company and Group’s
ability to continue as a going concern over the next
12 months from the date of the annual report.
The Directors have a reasonable expectation that
the Company and Group will be able to continue
in operational existence and to have adequate
resources to meet its liabilities as they fall due
over the next 12 months. Therefore, the
Board continues to adopt the going concern
basis of accounting when preparing the annual
financial statements.
Non-Mainstream Pooled Investments
The Company currently conducts its affairs so
that the shares issued by the Company can be
recommended by IFAs to ordinary retail investors
in accordance with the FCA’s rules in relation to
non-mainstream investment products, and intends
to continue to do so for the foreseeable future.
The shares are excluded from the FCA’s restrictions
which apply to non-mainstream investment
products because the Company has UK REIT status.
Annual General Meeting
At the AGM, to be held on 16 June 2022, the
following resolutions will be proposed:
Dividend policy
It is the Directors’ intention, in line with the
Company’s investment objective, to pay an
attractive level of dividend income to shareholders
on a quarterly basis. The Directors intend to set the
level of dividend after taking into account the long-
term income return of the Property Portfolio, the
diversity and covenant strength of the tenants and
the length of the leases of the Properties as well as
solvency of the Company.
Dividends on the ordinary shares are expected to
be paid in four instalments quarterly in respect of
each financial year in February, May, August and
November. All dividends will be in the form of
property income distribution, ordinary dividends
or a mixture of both and paid as interim dividends.
Resolution 2, which is an ordinary resolution,
seeks approval of the Company’s dividend policy to
continue to pay four quarterly interim dividends with
the ability to pay further interim dividends should
the need arise i.e. to comply with the REIT rules.
Disapplication of Pre-emption Rights
Resolution 12 gives the Directors, for the period
until the conclusion of the AGM in 2023 or,
if earlier, on the expiry of 15 months from the
passing of resolution 12, the necessary authority
either to allot securities or sell shares held in
treasury, otherwise than to existing shareholders
on a pro-rata basis, up to an aggregate nominal
amount of £32,485,312. This is equivalent to
approximately 10 per cent of the issued ordinary
share capital of the Company as at 31 March 2022.
There are no shares currently held in treasury.
The Directors will allot new shares pursuant to this
authority only if they believe it is advantageous to
the Company’s shareholders to do so and the issue
price of new shares will be at a premium to the
latest published net asset value per share.
BlackRock
Number of ordinary shares held
58,774,814
% Held
4.5
Baillie Gifford & Co Ltd
Number of ordinary shares held
55,522,348
% Held
4.3
Saunderson House
Number of ordinary shares held
63,566,404
% Held
4.9
53
Directors’ Authority to Buy Back Shares
The current authority of the Board granted to it by
shareholders at the 2021 AGM to buy back shares
in the Company expires at the end of the AGM to
be held in 2022. The Board intends to renew such
authority to buy back shares up to 14.99 per cent of
the number of ordinary shares in issue. This special
resolution (resolution 13), if approved, will enable
the Company to buy back up to 194,781,928 shares
based on the current number of shares in issue
(excluding any treasury shares). Any buy back of
ordinary shares will be made subject to Guernsey
law and within guidelines established from time
to time by the Board, which will take into account
the income and cashflow requirements of the
Company, and the making and timing of any buy
backs will be at the absolute discretion of the Board.
Purchases of ordinary shares will only be made
through the market for cash at prices below the
prevailing published net asset value of an ordinary
share (as last calculated, adjusted downwards
for the amount of any dividend declared by the
Company upon the shares going ex-dividend),
where the Directors believe such purchases will
enhance shareholder value. Such purchases will
also only be made in accordance with the rules of
the UK Listing Authority which provide that the
price to be paid must not be more than the higher
of (i) five per cent above the average of the middle
market quotations for the ordinary shares for the
five business days before the purchase is made and
(ii) the higher of the last independent trade and the
highest current independent bid on the London
Stock Exchange. The minimum price (exclusive of
expenses) that may be paid is 25p a share.
The Company may retain any shares bought back
as treasury shares for future re-issue, or transfer,
or may cancel any such shares. During the period
when the Company holds shares as treasury shares,
the rights and obligations in respect of those shares
may not be exercised or enforced by or against the
Company. The maximum number of shares that
can be held as treasury shares by the Company is
10 per cent of the aggregate nominal value of all
issued ordinary shares. Ordinary shares held as
treasury shares will only be re-issued, or transferred
at prices which are not less than the published net
asset value of an ordinary share.
It is the intention of Directors that the share buy back
authority may be used to purchase ordinary shares
in the Company, (subject to the income and cash
flow requirements of the Company) if the level of
discount represents an opportunity that will generate
risk-adjusted returns in excess of that, which could
be achieved by investing in real estate opportunities
at a particular time.
The discount control policy of the Company
provides that in the event that the share price
discount to prevailing published NAV (as last
calculated, adjusted downwards for the amount
of any dividend declared by the Company upon
REPORT OF DIRECTORS
Continued
the shares going ex-dividend) is more than five
per cent for 90 dealing days or more, following the
second anniversary of the Company’s most recent
continuation vote, the Directors will convene an
Extraordinary General Meeting (“EGM”) to be
held within three months to consider an ordinary
resolution for the continuation of the Company.
If this continuation resolution is not passed, the
Directors will convene a further EGM to be held
within six months of the first EGM to consider the
winding up of the Company or a reconstruction
of the Company which offers all shareholders the
opportunity to realise their investment. If any such
continuation resolution is passed, this discount
policy, save in respect of share buy backs, would not
apply for a period of two years thereafter. The last
continuation vote was held on 18 March 2020.
Auditors
Deloitte LLP has expressed its willingness to
continue in office as the Company’s auditor and
a resolution proposing its re-appointment will be
put to the AGM.
So far as each of the Directors is aware, there is no
relevant audit information of which the Company’s
auditor is unaware, and each has taken all the
steps he/she ought to have taken as a Director to
make himself/herself aware of any relevant audit
information and to establish that the Company’s
auditor is aware of that information.
Recommendations
The Directors believe that the resolutions to be
proposed at the AGM are in the best interests of
the Company and its shareholders as a whole, and
recommend that shareholders vote in favour of the
resolutions, as the Directors intend to do in respect
of all their own beneficial shareholdings.
Statement Regarding the Annual Report
and Accounts
Following a detailed review of the Annual Report
and Accounts by the Audit Committee, full details
of which can be found in the Audit Committee
Report, the Board consider that when taken as
a whole, it is fair, balanced and understandable
and provides the transparency necessary for
shareholders to assess the Company’s position
and performance, business model and strategy.
The Board welcomes views from shareholders
and company analysts on the Annual Report &
Accounts and, where practical, will incorporate
any suggestions that will improve the document.
Shareholders are invited to correspond directly
with the Board at:
commercial.property@abrdn.com
Approved by the Board on 13 April 2022.
Ken McCullagh
Director
Dolphin Estate
Sunbury-on-Thames
54 UKCP REIT Annual Report & Accounts
ukcpreit.com
CORPORATE GOVERNANCE REPORT
Introduction
The Company is committed to high standards of
corporate governance. The Board has considered
the Principles and Provisions of the AIC Code on
Corporate Governance (AIC Code). The AIC Code
addresses the Principles and Provisions set out in
the UK Corporate Governance Code (the UK Code),
as well as setting out additional provisions on issues
that are of specific relevance to the Company.
The Board considers that reporting against the
Principles and Provisions of the AIC Code, which has
been endorsed by the Financial Reporting Council
and the Guernsey Financial Services Commission
provides more relevant information to shareholders.
The Company has complied with all recommendations
of the AIC Code, and also the relevant provisions of
the UK Code except as set out below:
Interaction with the workforce (provisions 2, 5 and 6);
The role and responsibility of the Chief Executive
(provisions 9 and 14);
Previous experience of the Chair of a Remuneration
Committee (provision 32); and
Executive Directors’ remuneration (provisions
33 and 36 to 40).
The Board considers these provisions are not
relevant to the position of the Company, being
an externally managed investment company.
In particular, all of the Company’s day-to-day
management and administrative functions
are outsourced to third parties. As a result, the
Company has no Executive Directors, employees
or internal operations. The Company has therefore
not reported further in respect of these provisions.
The AIC Code is available on the AIC website
(www.theaic.co.uk). It includes an explanation
of how the AIC Code adapts the Principles and
Provisions set out in the UK Code to make them
relevant for investment companies.
The Board
The Board consists solely of Non-Executive Directors.
Mr Ken McCullagh is the Chair of the Board and
Ms Littlejohns is the Senior Independent Director.
All Directors are considered by the Board to be
independent, with any potential conflicts considered
at each Board meeting with reference to the AIC Code.
The Board’s policy on tenure is that continuity and
experience are considered to add significantly to the
strength of the Board. The Board also takes the view
that independence is not necessarily compromised
by length of tenure on the Board. However, in
compliance with the provisions of the AIC Code,
it is expected that Directors will serve in accordance
with the time limits laid down by the AIC Code.
It is the policy of the Board that the Chair of the
Company ordinarily should retire once he or she
has served as a Director for nine years in line with the
current best practice of the AIC code. In the light of
Mr McCullagh having served nine years on the Board,
the Independent Directors, excluding the Chair,
have reviewed the Company’s policy on the tenure of
the Chair, to consider if it would be appropriate to ask
the Chair to continue to serve for a limited period.
The Independent Directors considered the
independence of the Chair from the Manager
and concluded that, notwithstanding the length
of tenure, he remains independent of the Manager
in character and judgement.
In forming this conclusion, the Independent
Directors were able to draw on the Chair’s
demonstrable track record overseeing the affairs
of the Company through a number of significant
investment cycles, including the current COVID-19
pandemic which started immediately after his
appointment as Chair of the Company.
The Independent Directors also considered the
importance of maintaining continuity and ‘board
memory’ and observed that, in addition to the
changes in the Board in the last 12 months with the
retirement of two directors, there have been changes
within the Manager at senior levels. The Chair has
also overseen the negotiation of a reduction in the
management fee, effective from 1st April 2022.
The Chair’s experience and in-depth knowledge of
the Company is extremely beneficial to the Directors,
shareholders and all stakeholders alike.
Therefore, the Independent Directors proposed that
Mr McCullagh will continue as Chair following the
forthcoming AGM.
The Board however are conscious of succession
planning which is regularly reviewed and will seek
to identify a suitable Chair to succeed Mr McCullagh
in line with additional board appointments.
New Directors follow an induction process,
including input from the Investment Manager,
Company Secretary and Corporate Broker,
on joining the Board and all Directors receive
other relevant training as necessary.
A management agreement between the Company
and its Investment Manager sets out the matters over
which the Investment Manager has authority and the
limits beyond which Board approval must be sought.
All other matters, including strategy, investment and
dividend policies, gearing, and corporate governance
procedures, are reserved for the approval of the
Board of Directors. The Board currently meets at
least quarterly and receives full information on
the Company’s investment performance, assets,
liabilities and other relevant information in advance
of Board meetings. In addition the Board has many
ad hoc meetings and an annual strategy day.
Board Committees
The Board has appointed five committees to
cover specific operations: Audit Committee,
Management Engagement Committee, Nomination
and Remuneration Committee, Property Valuation
Committee and Risk Committee. Copies of the terms
of reference of each committee are available on the
Company’s website (www.ukcpreit.com), or upon
request from the Company. The Board performs a
detailed analysis of the various parts of the business
through the Committees and receives reports from
the Committee Chairs highlighting matters requiring
the Board’s further attention or noting.
Audit Committee
Information regarding the composition,
responsibilities and activities of the Audit
Committee is set out in the Audit Committee
Report on pages 58–60.
Management Engagement Committee
The Management Engagement Committee
comprises all independent Directors of the
Company and is chaired by Ms Fionnuala Hogan.
The Management Engagement Committee met
once in 2021. The purpose of the Committee is
to review the terms of the agreements with the
Investment Manager and the Company’s other
service providers.
The Management Engagement Committee has
considered the investment performance of the
Company and the capability, culture and resources
of the Investment Manager to deliver satisfactory
investment performance. It also considered the
length of the notice period of the investment
management contract and the fees payable to
the Investment Manager, comparing these points
against a number of comparators, together with
the standard of the other services provided.
Following this review, it is the Directors’ opinion
that the continuing appointment of the Investment
Manager on the revised terms outlined in note 4
of the accounts is in the interests of shareholders
as a whole due to the strength and quality of the
management team, performance achieved and the
Investment Manager’s commitment to the sector.
A summary of the current contract between the
Company and Aberdeen Standard Fund Managers
Limited in respect of management services
provided is given in note 4 to the accounts.
The Management Engagement Committee has
also conducted reviews of the Company’s other
key service providers, rating each provider on
their understanding of the Group’s aims and
strategy, market awareness, quality of staff, cost
effectiveness, reporting and regulatory compliance.
The evaluation is shared and discussed with the
individual supplier and an overall rating applied
to the service of the provider in the year. Where
appropriate, the Investment Manager has provided
input. The performance of the Company’s other
service providers, and the terms on which they
are engaged, continues to be satisfactory with no
changes to any providers proposed.
55
CORPORATE GOVERNANCE REPORT
Nomination and Remuneration Committee
The Nomination and Remuneration Committee
comprises all Directors and is chaired by
Ms Fionnuala Hogan. The Nomination and
Remuneration Committee believes that, given
the size of Board, it is appropriate for all Directors
to serve as members of the Nomination and
Remuneration Committee.
The Nomination and Remuneration Committee
considers appointments of new Directors,
undertaking a thorough and open process involving,
where appropriate, professional recruitment
consultants and committee interviews with
candidates whose skills have been identified as
complementary to the existing Board. In respect
of the appointment of Ms Fionnuala Hogan,
who was appointed as an independent Non-
Executive Director on 5 August 2021, the Board
used the services of an external search consultant,
Tyzack Partners. Tyzack Partners is independent
of the Company and Board of Directors.
The Board and Committee are supportive of the
debate around the recommendations of the
Davies Report on Women on Boards, the
Hampton Alexander Review and the Parker
Review on ethnic diversity and recognise the
benefits of diversity in its broadest sense and
the value this brings to the Company in terms
of skills, knowledge and experience.
Women make up 40% of the Company’s Board
composition. As the Company has no employees,
it does not maintain a formal policy on diversity
and inclusion and has therefore not reported
further in respect of gender representation within
the Company.
Consideration of Directors’ fees and remuneration
policy is also undertaken by the Nomination
and Remuneration Committee where the fees
are compared against a number of different
comparators. The Committee also undertakes the
annual Board and Director evaluation process.
The Nomination and Remuneration Committee
met three times during the year to consider Board
succession and the level of Directors’ fees.
Property Valuation Committee
The Property Valuation Committee comprises
all of the Directors and is chaired by Mr Chris Fry.
The Chair prepares a report to the Committee that
ties in with the quarterly NAV announcements
and members of the Committee meet CBRE,
the independent valuer to the Company, and
representatives of the Investment Manager at least
twice a year and report back to the Board on the
process for arriving at independent valuations and
on any issues that arise in relation to this process.
The Committee also reviews various indicators of the
ongoing performance of the commercial property
market such as sector yield sheets and reviewing the
performance of the property portfolio against the
MSCI benchmark and other comparable companies.
In addition a process has been put in place to ensure
all the property assets will have been visited by
a Committee member over a four year period and
planning is underway to recommence this process
now restrictions have been lifted.
Risk Committee
The Risk Committee comprises all of the Directors
and is chaired by Ms Margaret Littlejohns.
The Board established the Risk Committee,
which meets quarterly, to ensure that proper
consideration of risk is undertaken in all aspects
of the Company’s business on a regular basis.
The duties of the Risk Committee include the
consideration of matters relating to the risk profile
of the Company, including an assessment of risk
appetite, risk tolerance and risk strategy, and the
regular review of principal and emerging risks,
seeking assurance that these risks are appropriately
rated and ensuring that appropriate risk mitigation
is in place. This is done via a risk matrix that the
Committee reviews on a quarterly basis which
identifies the gross risks relating to the Group,
considers how the risk has been addressed and
mitigated and then considers what the net risk
is post mitigation. Further details are shown on
pages 34–41 of the report. The Risk Committee also
reviews the Investment Manager’s risk processes
related to health and safety, and ensures that health
and safety risks applying to property acquisitions
are fully considered.
Board
of Directors
Audit
Committee
Management
Engagement
Committee
Nomination and
Remuneration
Committee
Property Valuation
Committee
Risk
Committee
Held Attended Held Attended Held Attended Held Attended Held Attended Held Attended
Michael Ayre
4 4 4 4 1 1 3 3 4 4 4 4
Ken McCullagh
4 4 4 4 1 1 3 3 4 4 4 4
Sandra Platts
4 4 4 4 1 1 3 3 4 4 4 4
Margaret Littlejohns
4 4 4 4 1 1 3 3 4 4 4 4
Robert Fowlds
2 2 2 2 - - 2 2 2 2 2 2
Chris Fry
4 4 4 3 1 1 3 3 4 4 4 4
Fionnuala Hogan
2 2 2 2 1 1 1 1 2 2 2 2
56 UKCP REIT Annual Report & Accounts
ukcpreit.com
Directors Meeting Attendance Summary
The table on the prior page sets out the number of
Board and Committee meetings all held during the
year and the number attended by each Director.
The Board has met in between scheduled quarterly
Board meetings to address ad hoc matters as they
have arisen. All meetings were held in the UK and
for the past 12 months were held both virtually and
in person.
Internal Controls
The Board is responsible for the Company’s
system of internal control and for reviewing its
effectiveness. The Board has therefore established
an ongoing process designed to meet the particular
needs of the Company in managing the risks to
which it is exposed, consistent with the guidance
in the Financial Reporting Council publication
‘Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting’.
The process is based principally on the Investment
Manager’s existing risk-based approach to internal
control whereby a risk matrix is created that
identifies the key functions carried out by the
Investment Manager and other service providers,
the individual activities undertaken within those
functions, the risks associated with each activity
and the controls employed to minimise those
risks. A residual risk rating is then applied.
The risk matrix is regularly updated and the
Risk Committee is provided with regular reports
highlighting all material changes to the risk
ratings and confirmation of the action which has
been, or is being, taken. Further detail on the
Group’s risk management processes are detailed
on pages 90–94. In addition, consideration of
ISAE 3402 and similar reports issued by the
Investment Manager, and other service providers
where applicable, are considered. The Board also
receives quarterly updates from both the Risk and
Compliance and Internal Audit departments of
the Investment Manager on areas that specifically
affect the Company.
Internal control procedures have been in place
throughout the period and up to the date of approval
of this Report, and the Board is satisfied with their
effectiveness up to the date of approval of this Report.
These procedures are designed to manage rather
than eliminate risk and, by their nature, can only
provide reasonable, but not absolute, assurance
against material misstatement or loss. At each
Board meeting, the Board monitors the investment
performance of the Company in comparison to its
stated objective and against comparable companies.
The Board also reviews the Company’s activities
since the previous Board meeting to ensure that
the Investment Manager adheres to the agreed
investment policy and approved investment
guidelines and, if necessary, approves changes to
such policy and guidelines.
In addition, at each Board meeting, the Board receives
reports from the Company Secretary in respect of
compliance matters and duties performed on behalf
of the Company including conflicts of interest.
The Company’s AIFM is Aberdeen Standard Fund
Managers Limited and its Depositary is Citibank
UK Limited. The Depositary’s responsibilities
include cash monitoring, safekeeping of the
Company’s financial instruments and monitoring
the Company’s compliance with investment limits
and leverage requirements.
The AIFM has a permanent risk management function
to ensure that effective risk management policies and
procedures are in place to monitor compliance with
risk limits. The AIFM has a risk policy which covers
the risks associated with the management of the
portfolio and the adequacy and appropriateness of
this policy is reviewed at least annually.
The Board has reviewed the need for an internal
audit function. The Board has decided that the
systems and procedures employed by the Investment
Manager and the Company Secretary, including both
their internal audit functions and the work carried
out by the Company’s external auditors, provide
sufficient assurance that a sound system of internal
control, which safeguards shareholders’ investments
and the Company’s assets, is maintained.
An internal audit function specific to the Company is
therefore considered unnecessary.
Relations with Shareholders
The Directors place a great deal of importance on
communication with shareholders. Shareholders
and investors may obtain up-to-date information
on the Company through the Investment Manager’s
freephone information service and the Company’s
website (ukcpreit.com). The Company responds
to communications from shareholders on a wide
range of issues.
The Board’s policy is to communicate directly
with shareholders and their representative bodies
without the involvement of abrdn in situations
where direct communication is required and
usually a representative from the Board meets with
major shareholders on an annual basis in order to
gauge their views.
In addition to the formal AGM, the Board
seeks regular engagement with the Company’s
major shareholders through roadshow meetings
undertaken in conjunction with the Investment
Manager and Broker, as well as private meetings,
in order to understand their views on governance
and performance against the Company’s
investment objective and investment policy.
The results of these meetings are formally reported
back to the Board at the regular quarterly Board
meetings and discussed.
Approved by the Board on 13 April 2022.
Ken McCullagh
Director
57
Composition
The Audit Committee is chaired by Mr Michael
Ayre and comprises all Directors except the Chair
of the Board. Mr Ken McCullagh is not a member
of the Committee, but, as Chair of the Company,
he has a standing invitation to attend meetings
and typically attends each Audit Committee as an
observer. The members of the Audit Committee are
each independent and free from any relationship
that would interfere with their impartial judgement
in carrying out the Committee’s responsibilities, as
set out in terms of reference which are available on
the Company’s website. The Committee is satisfied
that at least one of the Committee’s members has
recent and relevant financial experience.
Responsibilities
The terms of reference of the Audit Committee are
reviewed and re-assessed for their adequacy on an
annual basis. In accordance with those terms of
reference, the Audit Committee:
Reviews and monitors the internal control systems
and risk management systems including review
of non-financial risks and the Manager’s policy
on information security on which the Company is
reliant. The Directors’ statement on the Company’s
internal controls and risk management is set out in
the Directors’ Report;
Considers whether there is a need for the Company
to have its own internal audit function;
Monitors the integrity of the half-yearly and annual
financial statements of the Company by reviewing,
and challenging where necessary, the actions and
judgements of the Manager;
Reviews, and reports to the Board on, the significant
financial reporting issues and judgements made
in connection with the preparation of the
Company’s financial statements, interim reports,
announcements and related formal statements;
Reviews the content of the Annual Report and
financial statements and makes recommendations
to the Board on whether, taken as a whole, it is
fair, balanced and understandable and provides
the information necessary for shareholders to
assess the Company’s position and performance,
business model and strategy;
Meets with the auditor to review the proposed audit
programme of work and the findings of the auditor.
The Directors also use this as an opportunity to
assess the effectiveness of the audit process;
Meets in private with the auditor, without any
representatives of the Manager being present;
Develops and implements a policy on the
engagement of the auditor to supply non-audit
services. There were no non-audit fees (2020: £Nil)
paid to the auditor during the year under review;
Reviews a statement from the Manager detailing
the arrangements in place within abrdn whereby
staff may, in confidence, escalate concerns about
possible improprieties in matters of financial
reporting or other matters;
Makes recommendations in relation to the
appointment of the auditor and to approve the
remuneration and terms of engagement of the
auditor; and
Monitors and reviews the auditor’s independence,
objectivity, effectiveness, resources and
qualification.
AUDIT COMMITTEE REPORT
Michael Ayre
Chair of Audit Committee
58 UKCP REIT Annual Report & Accounts
ukcpreit.com
The Audit Committee is also the channel through
which the auditor reports to the Board of Directors.
It meets at least three times a year and addresses all
of the requirements placed on audit committees by
the AIC Code. The Audit Committee considers any
matters which the auditor wishes to communicate
to the Audit Committee and, through them, to the
Board of Directors. This provides a forum for the
external auditor to give their views about significant
qualitative aspects of the Company’s accounting
practices and to draw to the attention of the Audit
Committee any significant differences that they
encountered during the audit, any substantial
uncorrected misstatements, any disagreements with
management and any other matters which they felt
it appropriate to raise. The auditor attends at least
two Audit Committee Meetings per year and meets
with the Audit Committee Members in private too.
Significant Issues
At a planning meeting of the audit held with the
auditor, the scope and timing of the audit was agreed
and it was confirmed that the Directors had no
knowledge of any fraud within the Company. It was
agreed that the significant issues in the audit should
be the valuations of the properties and the accuracy
of the Company’s income recognition. Set out below
is how the Committee considered these issues
during its review of the financial statements.
Valuation of Properties:
How was the issue addressed?
The valuation of properties is undertaken in
accordance with the accounting policy disclosed
in note 1(h) to the accounts. The process adopted
in the valuation of the portfolio and the valuations
themselves are considered by the Property
Valuation Committee, representatives of which
met the external valuer, along with the Investment
Manager, as part of the year end valuation process.
The Chair of the Property Valuation Committee
reported to the Audit Committee in March 2022
and indicated that the following issues were
discussed in the meeting with the external valuers:
Market review and outlook;
The level of yields on properties within the portfolio;
Letting activity within the portfolio;
Rental value and void changes; and
Comparable evidence relating to the valuation
of the properties.
Particular focus was given to the underlying yields
applied to a number of the properties and whether
they appropriately reflected the comparable
evidence, letting activity and the property market
as a whole. Following this meeting and subsequent
discussions with the Investment Manager, a value
of £1,537,450,000 was agreed as the valuation
of the property portfolio as at 31 December 2021.
The Audit Committee considered the report by
the Chair of the Property Valuation Committee
along with a summary of the valuation and its key
movements by the Investment Manager and agreed
that this valuation was appropriate for the financial
statements and that a robust process of analysis
had been followed. In terms of existence of the
properties, the Committee noted the procedures
that the Investment Manager has in place to ensure
correct approval and title to all properties held,
which include any property investment transaction
documentation having to be approved and signed
by the Board irrespective of its value and the
obligations on the Company’s solicitors to ensure
good and marketable title. In addition, as part of
the external audit, the Committee sought assurance
from the auditor prior to sign off of the financial
statements that the confirmation of all titles has
been included as part of the audit work undertaken.
Recognition of Rental Income:
How was the issue addressed?
The recognition of rental income is undertaken in
accordance with the accounting policy disclosed in
note 1(e) to the accounts. The Committee considered
the processes and controls the Investment Manager
has in place to ensure the completeness and
accuracy of income. These include data input
checks, rent demand reconciliations and rent arrear
reconciliations. In addition, the Committee also
considered the various reports provided by the
Investment Manager and reviewed on a quarterly
basis during the year which included the following:
Portfolio yield summaries;
Movement in annualised contracted rent;
Quarterly income changes with details of lease
activity in the quarter;
Rent collection percentages;
Rental arrears; and
Detailed quarterly financial reporting detailing
the main reason for revenue movements in
the quarter.
The Audit Committee concluded that, given the
controls and reporting in place throughout the year,
the rental income number included in the financial
statements of £58,307,000 was appropriate.
Provision for Bad Debts
How was the issue addressed?
As a result of COVID-19, rent collection levels
have been below what has historically been
collected. The provision for bad debts (effectively
unpaid rent and service charge), and referred to
under International Accounting Standards as the
provision for expected credit losses, has reduced
in the year but only after the formal write-off of
specific debts in the period. The Committee has
reviewed the processes in place at the Investment
Manger to identify and quantify this number,
which involves a thorough process of reviewing
every tenant that has rent outstanding. The Board
also receives regular updates on rent collection,
outstanding debtors and the related provision
for bad debts. The Audit Committee concluded
that, given the controls and reporting in place
throughout the year, the provision for bad debts
number included in the financial statements
of £5,327,000 was appropriate as is the trade
receivables figure of £15,090,000.
59
Review of Auditor
The objectivity of the auditor is reviewed by the
Audit Committee, which also considers the terms
under which the external auditor is appointed to
perform non-audit services. The objectivity and
independence of the auditor is safeguarded by
obtaining assurances from the auditor that adequate
policies and procedures exist within its firm to
ensure the firm and its staff are independent of the
Company by reason of family, finance, employment,
investment and business relationships (other than
in the normal course of the business) and enforcing
a policy concerning the provision of non-audit
services by the auditor which governs the types of
work which are excluded. The Audit Committee
reviews the scope and results of the audit including
the following areas:
Quality of audit work including ability to resolve
issues in a timely manner;
Working relationship with the Committee and
Investment Manager;
Suitably qualified personnel involved in the
audit; and
Effectiveness and the independence and
objectivity of the auditors, with particular regard
to non-audit fees.
The performance and effectiveness of the auditors
in relation to the above points were considered
through a formal evaluation template completed
by the Committee and the Investment Manager.
The Audit Committee considers that it received all
necessary information from the Company’s service
providers as well as from the external auditor in
order for it to compile the necessary disclosures.
The Committee noted the full co-operation of
all parties in producing the Annual Report and
no difficulties or disagreements were observed.
Following the completion of the audit, the Audit
Committee and Board followed a systematic
approach to evaluate the auditor and the
effectiveness of the audit process and found
this to be satisfactory.
Details of the amounts paid to Deloitte LLP during
the year for audit fees is set out in note 5 to the
accounts. The Company has complied with the
provisions of The Statutory Audit Services for
Large Companies Market Investigation (Mandatory
Use of Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014.
Following a tender process in 2015, Deloitte LLP
was first appointed as the Company’s independent
auditor by shareholders at the AGM held on 15 June
2016 for the year ended 31 December 2016. The next
audit tender of the Company is due to take place
by 2025 in compliance with the EU regulations and
FRC Guidance on audit tenders.
In accordance with present professional guidelines,
the Senior Statutory Auditor from Deloitte has
rotated after a period of five years, with John Clacy
replaced by Siobhan Durcan for the 2021 audit.
The Committee notes the increase in fees charged
by Deloitte LLP during the year, a trend that is
being seen across the industry. The Committee
will continue to monitor the progression of the
fees charged to ensure they are in line with the
peer group and represent value for money.
In relation to non-audit fees, these amounted
in aggregate to £Nil (2020: £Nil) for the year
ended 31 December 2021. Where any non-audit
fee is expected to exceed £25,000, the Company
operates a policy under which specific prior
approval must be given by the Committee.
The continued appointment of Deloitte LLP
as independent auditor for the year ending
31 December 2022 will be subject to approval
by shareholders. A resolution proposing the
re-appointment of Deloitte LLP will be put to
shareholders at the AGM to be held on 16 June 2022.
Recommendation to the Board
Following its review of the Annual Report & Accounts
for the year ended 31 December 2021, the Audit
Committee has advised the Board that it considers
that the Annual Report & Accounts, taken as a whole,
is fair, balanced and understandable, and provides
the information necessary for shareholders and
other users to assess the Company’s position and
performance, business model and strategy.
The Audit Committee is able to give this advice
on the basis that it has carefully scrutinised
the Annual Report & Accounts document,
which is prepared by the Investment Manager
and subsequently subject to external audit,
specifically focusing on the significant issues
detailed in this Report. In its consideration of the
document, the members of the Audit Committee
put themselves in the position of a shareholder
and considered carefully whether the comments
made are consistent with their view of the overall
performance of the Company during the period
under consideration. Specifically, consideration
has been given to the Financial and Property
Highlights section to ensure that the points raised
in this have been selected so as to give a fair
picture of the Company’s position and that the
performance data in the document has not been
selected so as to give a misleadingly optimistic
view of the Company. The Audit Committee has
also critically reviewed the Investment Manager’s
report to ensure that the comments made in this
are consistent with their knowledge of the
Company and with the figures in the accounts.
As with any Company, there are some elements
in the accounts that are inevitably more complex
than others and the Audit Committee has been at
pains to have these expressed in clear language so
as to make them as understandable as possible.
Michael Ayre
Chair of the Audit Committee
13 April 2022
AUDIT COMMITTEE REPORT
Continued
60 UKCP REIT Annual Report & Accounts
ukcpreit.com
The Remuneration Report
This Remuneration Report comprises two parts:
Remuneration Policy, which is subject to a
binding shareholder vote every three years; and
An annual report on the implementation of
remuneration, which provides information on
how the policy has been applied during the year
and which will be subject to an advisory vote on
the level of remuneration paid during the year
as set out in the Implementation Report.
Remuneration Policy
This part of the Remuneration Report provides
details of the Company’s Remuneration Policy
for Directors of the Company. This policy takes
into consideration the principles of the AIC Code
on Corporate Governance. As the Company has
no employees and the Board is comprised wholly
of Non-Executive Directors and given the size
and nature of the Company, the Board has not
established a separate Remuneration Committee.
Consideration of Directors’ fees and remuneration
policy is undertaken by the Nomination and
Remuneration Committee.
The Directors are non-executive and their fees are
set within the limits of the Company’s Articles of
Association which limit the aggregate fees payable
to the Board of Directors per annum. The level of cap
may be increased by shareholder resolution from
time to time. Subject to this overall limit, the Board’s
policy is that the remuneration of Non-Executive
Directors should reflect the nature of their duties,
responsibilities and the value of their time spent and
be fair and comparable to that of other comparable
vehicles that are similar in size, have a similar capital
structure and have a similar investment objective.
There have been no changes to the policy during
the period of this Report nor are there any
proposals for change in the foreseeable future.
No shareholder views were sought in setting the
remuneration policy although any comments
received from shareholders are considered.
Fees are annually reviewed against comparable
vehicles and if considered appropriate, increased
accordingly. Following a review of the Board of
Directors’ remuneration which took into account
the nature of their duties, responsibilities and the
value of their time spent, as well as a review of other
comparable vehicles that are similar in size, it was
agreed that no changes to the fees would be made
for the year ending 31 December 2022. Directors are
entitled to the following fees during the year to
31 December 2022, subject to a further review in
June 2022.
Appointment
The Company only intends to appoint Non-
Executive Directors.
All the Directors are non-executive appointed
under the terms of Letters of Appointment.
Directors must retire and be subject to election at
the first AGM after their appointment, and
re-election annually thereafter.
New appointments to the Board will be placed
on the fee applicable to all Directors at the time
of appointment (currently £44,500).
No incentive or introductory fees will be paid to
encourage a Directorship.
The Directors are not eligible for bonuses,
pension benefits, share options, long-term
incentive schemes or other benefits.
The Company indemnifies its Directors for all
costs, charges, losses, expenses and liabilities
which may be incurred in the discharge of duties.
Performance, Service Contracts,
Compensation and Loss of Office
The Directors’ remuneration is not subject to
any performance related fee.
No Director has a service contract.
No Director was interested in contracts with the
Company during the period or subsequently.
The terms of appointment provide that a Director
may be removed without notice.
Compensation will not be due upon leaving office.
No Director is entitled to any other monetary
payment or any assets of the Company.
Directors’ and Officers’ liability insurance cover is
maintained by the Company on behalf of the
Directors.
The Remuneration Policy stated across was approved
by shareholders at the 2019 AGM. There have been
no changes to the Policy since then, and an ordinary
resolution in this regard will be proposed at the
AGM in 2022.
DIRECTORS’ REMUNERATION REPORT
2022
£
2021
£
Chair
70,000 70,000
Chair of
Audit Committee
52,500 52,500
Chair of
Risk Committee
46,000 46,000
Chair of Management
Engagement Committee
46,000 46,000
Chair of Property
Valuation Committee
46,000 46,000
Director
44,500 44,500
61
Fees Payable (audited)
The total fee payable to each Director who served
during the present and previous financial year of
the Company is shown in the following table.
The fees of Sandra Platts, who retired as a Director
on 31 December 2021, were paid to Altair Guernsey
Limited, a Director services business based in the
Channel Islands of which she is a Director.
2021 2020
% change in
directors fees
Ken McCullagh
70,000 55,250 26.7
Michael Ayre
52,500 44,625 17.6
Robert Fowlds
Retired 5 August 2021
26,556 37,825 –29.8
Christopher Fry
46,000 39,100 17.6
Margaret Littlejohns
46,000 39,100 17.6
Sandra Platts
46,000 39,100 17.6
Fionnuala Hogan
Appointed 5 August 2021
18,063 — n/a
Directors National
Insurance and expenses
20,106 17,226 —
Total 325,225 272,226
—
From 1 April 2020 to 31 December 2020, the Board
of Directors agreed to reduce their Directors’ fees
by 20% as the economic impact of COVID-19 was
experienced by stakeholders and tenants.
DIRECTORS’ REMUNERATION REPORT
Continued
Implementation Report
Aggregate Fees
Article 79 of the Company’s Articles of Association
currently limits the aggregate fees payable to the
Board of Directors to a total of £400,000 per annum
as approved by the Company’s shareholders at the
AGM in 2019. Details of fee levels are set out on
page 61.
Company Performance
Although the Company has appointed Aberdeen
Standard Fund Mangers Limited as an external
investment manager pursuant to the terms of the
investment management agreement set out in
note 4 to the accounts, the Board is responsible for
the Company’s investment strategy and performance.
The above graph compares the total return
(assuming all dividends are reinvested) to ordinary
shareholders compared with the total return on
the Company’s MSCI benchmark over a five-year
period to 31 December 2021 (rebased to 100 at
31 December 2016).
60
70
110
1
30
1
20
150
2016 2017 2018 2019 20212020
1
40
100
90
80
TOTAL RETURN INDEX %
Source: MSCI, abrdn
Fees are pro-rated where a change or appointment
takes place during a financial year.
The following table shows the actual expenditure
during the year in relation to Directors’
remuneration and shareholder distributions.
Year to 31
December 2021
Year to 31
December 2020
Aggregate
Directors’
Remuneration
£325,225 £272,226
Aggregate
Shareholder
Distributions
£37,981,826 £29,886,488
REMUNERATION REPORT 2021
99.99%
Shareholder votes in favour
The graphic above shows the results in respect
of the resolution to approve the Directors’
Remuneration Report at the AGM in June 2021.
Directors’ Interests in the Company
The Directors are not required to have a
shareholding in the Company. The audited
Directors’ interests in the share capital of the
Company are shown in the Report of the Directors
on page 51. Approved by the Board on 13 April 2022.
Ken McCullagh
Director
13 April 2022
MSCI benchmark
UKCM share price total return
62 UKCP REIT Annual Report & Accounts
ukcpreit.com
The Directors are responsible for preparing the
Annual Report and the Group financial statements
in accordance with applicable Guernsey law and
those International Financial Reporting Standards
(“IFRS”) as adopted by the European Union and as
issued by the International Accounting Standards
Board. They are also responsible for ensuring that
the Annual Report includes information required
by the Rules of the UK Listing Authority.
The Directors are required to prepare Group
financial statements for each financial year which
give a true and fair view of the financial position of
the Group and the financial performance and cash
flows of the Group for that period. In preparing
those Group financial statements the Directors are
required to:
Select suitable accounting policies in accordance
with IAS 8: Accounting Policies, Changes in
Accounting Estimates and Errors and then apply
them consistently;
Present information, including accounting
policies, in a manner that provides relevant,
reliable, comparable and understandable
information;
Provide additional disclosures when compliance
with the specific requirements in IFRS is
insufficient to enable users to understand the
impact of particular transactions, other events
and conditions on the Group’s financial position
and financial performance;
State that the Group has complied with IFRS,
subject to any material departures disclosed and
explained in the financial statements; and
Prepare the financial statements on a going
concern basis unless it is inappropriate to
presume that the Group will continue in business.
The Directors are responsible for keeping proper
accounting records which disclose with reasonable
accuracy at any time the financial position of the
Group and enable them to ensure that the Group
financial statements comply with the Companies
(Guernsey) Law 2008. They are also responsible
for safeguarding the assets of the Group and hence
for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are also responsible for ensuring
that the Group complies with the provisions of
the Listing Rules and the Disclosure Rules and
Transparency Rules of the UK Listing Authority
which, with regard to corporate governance,
require the Group to disclose how it has applied
the principles, and complied with the provisions,
of the AIC Code on Corporate Governance
applicable to the Group.
We confirm that to the best of our knowledge:
The Group financial statements, prepared in
accordance with the IFRS, give a true and fair
view of the assets, liabilities, financial position
and profit or loss of the Group and comply with
the Companies Law;
That in the opinion of the Board, the Annual
Report & Accounts taken as a whole, is fair,
balanced and understandable and it provides
the information necessary to assess the Group’s
position and performance, business model and
strategy; and
The Strategic Report includes a fair review
of the progression and performance of the
business and the position of the Group together
with a description of the principal risks and
uncertainties that it faces.
On behalf of the Board
Ken McCullagh
Director
13 April 2022
DIRECTORS’ RESPONSIBILITY STATEMENT
63
Independent
Auditor’s Report and
Financial Statements
64 UKCP REIT Annual Report & Accounts
ukcpreit.com
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF UK COMMERCIAL
PROPERTY REIT LIMITED
In our opinion the financial statements of UK Commercial Property REIT Limited
(the ‘parent company’) and its subsidiaries (the ‘Group’):
give a true and fair view of the state of the Group’s affairs as at 31 December 2021
and of its profit for the year then ended;
have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted
by the European Union and IFRSs as issued by the International Accounting Standards Board (IASB); and
have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements which comprise:
the consolidated statement of comprehensive income;
the consolidated balance sheet;
the consolidated statement of changes in equity;
the consolidated cash flow statement; and
the related notes 1 to 21.
The financial reporting framework that has been applied in their preparation
is applicable law and IFRSs as adopted by the European Union.
OPINION
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
BASIS FOR OPINION
We conducted our audit in accordance with
International Standards on Auditing (UK)
(ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in
the auditor’s responsibilities for the audit of the
financial statements section of our report.
We are independent of the Group in accordance
with the ethical requirements that are relevant
to our audit of the financial statements in the
UK, including the Financial Reporting Council’s
(the ‘FRC’s’) Ethical Standard as applied to
listed public interest entities, and we have
fulfilled our other ethical responsibilities in
accordance with these requirements. We confirm
that we have not provided any non-audit services
prohibited by the FRC’s Ethical Standard to the
Group or the parent company.
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide
a basis for our opinion.
65
Key audit matters
The key audit matters that we identified in the current year were:
Investment property valuation; and
Recoverability of rental income receivable.
Within this report, key audit matters are identified as follows:
! Newly identified ↑ Increased level of risk ←→ Similar level of risk ↓ Decreased level of risk
Materiality
The materiality that we used for the Group financial statements in the current year was £13.2m
which was determined on the basis of 1% of Net Asset Value.
Scoping
All audit work for the Group was performed directly by the Group engagement team. All of the Group’s
subsidiaries are registered as Guernsey companies and are subject to full scope audits.
Significant changes
in our approach
There were no significant changes in our approach in the current year.
SUMMARY OF OUR AUDIT APPROACH
CONCLUSIONS RELATING TO GOING CONCERN
Going concern
In auditing the financial statements, we have concluded that
the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s
and parent company’s ability to continue to adopt the going
concern basis of accounting included:
Challenged management’s assessment of going concern and
the assumptions, including income, expenditure and cash
forecasts, used in their 12 month and 5 year forecast models;
Evaluated the maturity of group debt and the effect of
repayment dates on the going concern assumption and
the longer term viability of the Group;
Performed fair value and income sensitivity analysis,
which we compared to management stress testing results;
Reviewed banking covenants to assess compliance as at
the balance sheet date; and
Reviewed the financial statements disclosures and
assessed whether the going concern assessment is
appropriately disclosed.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt
on the group’s and parent company’s ability to continue as
a going concern for a period of at least twelve months from
when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied
the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the
directors’ statement in the financial statements about
whether the directors considered it appropriate to adopt
the going concern basis of accounting.
Our responsibilities and the responsibilities of the
directors with respect to going concern are described in
the relevant sections of this report.
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF UK COMMERCIAL
PROPERTY REIT LIMITED
Continued
66 UKCP REIT Annual Report & Accounts
ukcpreit.com
Key audit matters
Key audit matters are those matters that, in our
professional judgement, were of most significance
in our audit of the financial statements of the
current period and include the most significant
assessed risks of material misstatement (whether
or not due to fraud) that we identified.
These matters included those which had the
greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and
directing the efforts of the engagement team.
These matters were addressed in the context of
our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
Key audit matter description
Valuation of investment properties is the key driver
of the Group’s net asset value. Valuations are
inherently complex and require significant
judgement and estimation around the key inputs
and assumptions. We have pinpointed that the
main judgements are around equivalent yields
and estimated market rent, in particular in certain
property sectors most impacted by COVID-19, and
thus this was the focus of our key audit matter.
Valuation of the investment property is the most
judgmental area of the financial statements and
therefore the most susceptible to fraudulent
manipulation. Given the level of judgement involved,
we have determined that there was a potential for
fraud through possible manipulation of this balance.
Management’s valuation is based on the external
valuation provided by CBRE Limited, chartered
surveyors. The valuation of the investment
property portfolio at 31 December 2021 amounted
to £1,508m (2020: £1,173m).
Refer to notes 1(b), 1(h) of Accounting policies on
pages 76–77 and note 10 on pages 83–86 of the Notes
to the Financial Statements. Also refer to the Audit
Committee Report pages 58–60.
How the scope of our audit responded
to the key audit matter
We performed the following:
Obtained an understanding of the relevant controls
in relation to the valuation process;
Evaluated the competence, capability and
objectivity of the external valuer in order to obtain
an understanding of the work of that expert;
With the involvement of our real estate specialists
we challenged the external valuer on their valuation
process and assumptions, performance of the
portfolio, significant assumptions and significant
judgements, by benchmarking the valuation
assumptions, in particular the equivalent yields
and estimated market rates, to relevant market
evidence including specific property transactions
and other external data;
Performed audit procedures to assess the integrity
of information provided to the external valuer,
including testing on a sample basis back to
underlying lease agreements; and
Reviewed the financial statements disclosures and
assessed whether the significant judgements and
estimations are appropriately disclosed.
Key observations
We concluded that the
fair value of the Group’s
investment property
valuation as determined by
management is appropriate.
Investment property valuations (←→)
67
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF UK COMMERCIAL
PROPERTY REIT LIMITED
Continued
Key audit matter description
As a result of COVID-19, rent collection levels are
below what has historically been collected and this has
resulted in an increase in the bad debt provision.
There is a risk that the Group’s revenue has not been
recognised correctly due to inadequate impairment
of the rental income receivable. The impact of the
COVID-19 pandemic and associated lockdowns and
social restrictions on certain tenants may result in
rental payments no longer being made due to cash
flow difficulties. We therefore identified a key audit
matter in relation to the recoverability of rental income
and the impairment assessment on rental income
receivable for the Group as at the reporting date.
Given the high level of judgement and estimation
uncertainty involved, we have determined there is the
potential for management bias.
Management perform a bottom up process of reviewing
every tenant that has rent outstanding to identify and
quantify the provision related to bad debts due from
rental debtors. The provision for bad debts included
in the financial statements at 31 December 2021 is
£5.33m (2020: £5.74m).
Refer to notes 1(b), 1(m) of Accounting policies on
pages 76–77 and note 12 on pages 86–87 of the Notes to
the Financial Statements. Also refer to the Audit
Committee Report pages 58-60.
How the scope of our audit responded
to the key audit matter
We performed the following:
Obtained an understanding of the management’s
processes and obtained an understanding of
relevant controls relating to the recoverability of
rental income;
Tested the considerations used by management to
recalculate the rent receivable amount and assess the
provisions applied;
Assessed the ageing of income accrued and tested
the recoverability for a sample of balances with
regard to cash received after the balance sheet date;
To address the ongoing risks around recoverability,
reviewed the Group’s Expected Credit Loss
workings, which should correspond to the assessed
recoverability of accrued rental income recognised
at year end, and assessed whether these align to
IFRS 9; and
Assessed whether any critical judgement or
sources of estimation uncertainty were applied and
appropriately disclosed.
Key observations
We concluded that the
bad debt provision as
determined by management
is appropriate.
Recoverability of rental income receivable
68 UKCP REIT Annual Report & Accounts
ukcpreit.com
NAV £1,325 million
Audit Committee reporting threshold £0.7 million
Group materiality £13.2 million
Performance materiality
We set performance materiality at a level lower
than materiality to reduce the probability that,
in aggregate, uncorrected and undetected
misstatements exceed the materiality for the
financial statements as a whole. Group performance
materiality was set at 60% of Group materiality
for the 2021 audit (2020: 60%). In determining
performance materiality, we considered the
following factors:
A. The impact of COVID-19 on the Group’s operations
in the year and on the wider real estate sector;
B. The fact that we have not identified any significant
changes in business structure; and
C. Our experience from previous audits has indicated
a low number of corrected and uncorrected
misstatements identified in prior periods.
Error reporting threshold
We agreed with the Audit Committee that we would
report to the Committee all audit differences in
excess of £0.7m (2020: £0.6m), as well as differences
below that threshold that, in our view, warranted
reporting on qualitative grounds. We also report to
the Audit Committee on disclosure matters that we
identified when assessing the overall presentation
of the financial statements.
AN OVERVIEW OF THE SCOPE
OF OUR AUDIT
Scoping
The Group consists of the Company UK Commercial
Property REIT Limited and its subsidiaries, which
are all registered in Guernsey. Our Group audit was
scoped by obtaining an understanding of the Group
and its environment, including internal controls,
and assessing the risks of material misstatement at
the Group level. The Group is audited by one audit
team, led by the Senior Statutory Auditor. The audit
is performed centrally, as the books and records
for each entity within the Group are maintained at
head office. All of the Group’s subsidiaries that are
registered as Guernsey companies are subject to
full scope audits. We also tested the consolidation
process and carried out analytical procedures
to confirm our conclusion that there were no
significant risks of material misstatement of the
aggregated financial information.
Our consideration of the control environment
As part of our risk assessment, we assessed the
control environment in place at the Investment
Manager to the extent relevant to our audit.
As part of this we relied upon the controls report
of the Investment Manager and adopted a controls
reliance approach with respect to the processing
and review of rental income.
Our consideration of the control environment
In planning our audit, we have considered the
potential impact of climate change on the Group’s
business and its financial statements. The Group
continues to develop its assessment of the potential
impacts of environmental, social and governance
(“ESG”) related risks, including climate change,
as outlined on pages 22–27. As a part of our audit,
we held discussions to understand the process of
identifying climate-related risks, the determination
of mitigating actions and the impact on the Group’s
financial statements. We performed our own
qualitative risk assessment of the potential impact
of climate change on the Group’s account balances
and classes of transactions and did not identify any
additional risks of material misstatement.
OUR APPLICATION OF MATERIALITY
Materiality
We define materiality as the magnitude of
misstatement in the financial statements that
makes it probable that the economic decisions of
a reasonably knowledgeable person would be
changed or influenced. We use materiality both
in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we
determined materiality for the financial statements
as a whole as follows:
Group materiality
£13.2 million (2020: £11.3 million)
Basis for determining materiality
1% of the Net Asset Value, in line with prior year.
Rationale for the benchmark applied
Net Assets is the key balance considered by
the users of the financial statements which is
consistent with the market approach for such
entities. Net Assets was selected as investors are
seeking capital appreciation in addition to dividend
streams and the net asset value per share is an
important indicator of performance to investors.
In addition to net assets, we consider EPRA
Adjusted Profit After Tax as a critical performance
measure for the Group and a measure which is
widely used within the Real Estate industry.
We applied a lower level materiality of £1.7m
(2020: £1.8m), which equates to 5% (2020: 5%) of
that measure for testing all balances impacting
that measure.
69
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF UK COMMERCIAL
PROPERTY REIT LIMITED
Continued
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’
responsibilities statement, the directors are
responsible for the preparation of the financial
statements and for being satisfied that they give a
true and fair view, and for such internal control as
the directors determine is necessary to enable the
preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors
are responsible for assessing the Group’s ability
to continue as a going concern, disclosing as
applicable, matters related to going concern and
using the going concern basis of accounting unless
the directors either intend to liquidate the Group or
to cease operations, or have no realistic alternative
but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE
AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance
about whether the financial statements as a whole
are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error
and are considered material if, individually or in
the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the
audit of the financial statements is located on the
FRC’s website at:
www.frc.org.uk/auditorsresponsibilities
This description forms part of our auditor’s report.
EXTENT TO WHICH THE AUDIT WAS
CONSIDERED CAPABLE OF DETECTING
IRREGULARITIES, INCLUDING FRAUD
Irregularities, including fraud, are instances of
non-compliance with laws and regulations. We
design procedures in line with our responsibilities,
outlined above, to detect material misstatements in
respect of irregularities, including fraud. The extent
to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
Identifying and assessing potential risks
related to irregularities
In identifying and assessing risks of material
misstatement in respect of irregularities, including
fraud and non-compliance with laws and
regulations, we considered the following:
The nature of the industry and sector, control
environment and business performance including
the design of the company’s remuneration
policies, key drivers for directors’ remuneration,
bonus levels and performance targets;
Results of our enquiries of management and the
audit committee about their own identification
and assessment of the risks of irregularities;
Any matters we identified having obtained and
reviewed the Group’s documentation of their
policies and procedures relating to:
• Identifying, evaluating and complying with laws
and regulations and whether they were aware of
any instances of non-compliance;
• Detecting and responding to the risks of fraud
and whether they have knowledge of any actual,
suspected or alleged fraud;
• The internal controls established to mitigate risks of
fraud or non-compliance with laws and regulations;
The matters discussed among the audit
engagement team and relevant internal specialists,
including tax and valuation specialists, regarding
how and where fraud might occur in the financial
statements and any potential indicators of fraud.
As a result of these procedures, we considered
the opportunities and incentives that may exist
within the organisation for fraud and identified the
greatest potential for fraud in the following areas:
Investment property valuation and recoverability
of rental income receivable. In common with all
audits under ISAs (UK), we are also required to
perform specific procedures to respond to the risk
of management override.
We also obtained an understanding of the legal
and regulatory frameworks that the Group
operates in, focusing on provisions of those laws
and regulations that had a direct effect on the
determination of material amounts and disclosures
in the financial statements. The key laws and
regulations we considered in this context included
the Companies (Guernsey) Law, 2008 and the
Listing Rules.
In addition, we considered provisions of other laws
and regulations that do not have a direct effect
on the financial statements but compliance with
which may be fundamental to the Group’s ability
to operate or to avoid a material penalty. This
included compliance with the REIT regime rules.
The other information comprises the information
included in the annual report, other than the
financial statements and our auditor’s report
thereon. The directors are responsible for the other
information contained within the annual report.
Our opinion on the financial statements does not
cover the other information and we do not express
any form of assurance conclusion thereon.
Our responsibility is to read the other information
and, in doing so, consider whether the other
information is materially inconsistent with the
financial statements or our knowledge obtained
in the course of the audit, or otherwise appears
to be materially misstated.
If we identify such material inconsistencies
or apparent material misstatements, we are
required to determine whether this gives rise
to a material misstatement in the financial
statements themselves. If, based on the work
we have performed, we conclude that there is
a material misstatement of this other information,
we are required to report that fact.
We have nothing to report in this regard.
OTHER INFORMATION
70 UKCP REIT Annual Report & Accounts
ukcpreit.com
Audit response to risks identified
As a result of performing the above, we identified
investment property valuation and recoverability
of rental income receivable as key audit matters
related to the potential risk of fraud. The key audit
matters section of our report explains the matters
in more detail and also describes the specific
procedures we performed in response to those
key audit matters.
In addition to the above, our procedures to respond
to risks identified included the following:
Reviewing the financial statement disclosures and
testing to supporting documentation to assess
compliance with provisions of relevant laws and
regulations described as having a direct effect on
the financial statements;
Enquiring of management, the audit committee
and external legal counsel concerning actual and
potential litigation and claims;
Performing analytical procedures to identify
any unusual or unexpected relationships that
may indicate risks of material misstatement
due to fraud;
Reading minutes of meetings of those charged
with governance; and
In addressing the risk of fraud through
management override of controls, testing
the appropriateness of journal entries and other
adjustments; assessing whether the judgements
made in making accounting estimates are
indicative of a potential bias; and evaluating
the business rationale of any significant
transactions that are unusual or outside the
normal course of business.
We also communicated relevant identified laws
and regulations and potential fraud risks to all
engagement team members including internal
specialists, and remained alert to any indications
of fraud or non-compliance with laws and
regulations throughout the audit.
REPORT ON OTHER LEGAL AND
REGULATORY REQUIREMENTS
OPINION ON OTHER MATTER
PRESCRIBED BY OUR
ENGAGEMENT LETTER
In our opinion the part of the Directors’
Remuneration Report to be audited has been
properly prepared in accordance with the
provisions of the UK Companies Act 2006 as
if that Act had applied to the company.
CORPORATE GOVERNANCE
STATEMENT
The Listing Rules require us to review the directors’
statement in relation to going concern, longer-term
viability and that part of the Corporate Governance
Statement relating to the Group’s compliance with
the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit,
we have concluded that each of the following
elements of the Corporate Governance Statement is
materially consistent with the financial statements
and our knowledge obtained during the audit:
The directors’ statement with regards to
the appropriateness of adopting the going
concern basis of accounting and any material
uncertainties identified set out on page 52;
The directors’ explanation as to its assessment of
the Group’s prospects, the period this assessment
covers and why the period is appropriate set out
on page 43;
The directors’ statement on fair, balanced and
understandable set out on page 54;
The board’s confirmation that it has carried out
a robust assessment of the emerging and principal
risks set out on page 56;
The section of the annual report that describes the
review of effectiveness of risk management and
internal control systems set out on pages 57; and
The section describing the work of the audit
committee set out on pages 58–60.
MATTERS ON WHICH WE ARE
REQUIRED TO REPORT BY EXCEPTION
Adequacy of explanations received and
accounting records
Under the Companies (Guernsey) Law,
2008 we are required to report to you if,
in our opinion:
We have not received all the information and
explanations we require for our audit; or
Proper accounting records have not been
kept by the parent company; or
The financial statements are not in
agreement with the accounting records.
We have nothing to report in respect of
these matters.
OTHER MATTERS WHICH WE ARE
REQUIRED TO ADDRESS
Auditor tenure
Following the recommendation of the audit
committee, we were appointed by the board of
directors on 16 August 2016 to audit the financial
statements for the year ending 31 December 2016
and subsequent financial periods. The period of
total uninterrupted engagement including previous
renewals and reappointments of the firm is six
years, covering the years ending 31 December 2016
to 31 December 2021.
Consistency of the Audit Report with the
additional report to the Audit Committee
Our audit opinion is consistent with the additional
report to the Audit Committee we are required to
provide in accordance with ISAs (UK).
USE OF OUR REPORT
This report is made solely to the company’s
members, as a body, in accordance with Section
262 of the Companies (Guernsey) Law, 2008.
Our audit work has been undertaken so that we
might state to the company’s members those
matters we are required to state to them in an
auditor’s report and/or those matters we have
expressly agreed to report to them on in our
engagement letter and for no other purpose.
To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other
than the company and the company’s members
as a body, for our audit work, for this report, or for
the opinions we have formed.
As required by the Financial Conduct Authority
(FCA) Disclosure Guidance and Transparency Rule
(DTR) 4.1.14R, these financial statements form
part of the European Single Electronic Format
(ESEF) prepared Annual Financial Report filed on
the National Storage Mechanism of the UK FCA in
accordance with the ESEF Regulatory Technical
Standard ((‘ESEF RTS’). This auditor’s report
provides no assurance over whether the annual
financial report has been prepared using the single
electronic format specified in the ESEF RTS.
Siobhan Durcan
Senior Statutory Auditor
For and on behalf of Deloitte LLP
Recognised Auditor,
St Peter Port, Guernsey
13 April 2022
71
Notes
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
REVENUE
Rental income
2 58,307 64, 656
Impairment reversal/(loss) on trade receivables
Service charge income
3 6, 063 6,500
Gains/(losses) on investment properties
10 201, 753 (45 , 485 )
Interest income
Total income 266 ,651 21,123
EXPENDITURE
Investment management fee
4 (8,500 ) (8, 063 )
Direct property expenses
5 (5,343 ) (4, 845 )
Service charge expenses
5 (6, 063 ) (6,500 )
Other expenses
5 (3,229 ) (3,800 )
Total expenditure (23,135 ) (23,208 )
Operating profit/(loss) before finance costs 243,5 16 (2,085 )
FINANCE COSTS
Finance costs
6 (7 ,283 ) (8,197 )
Operating profit/(loss) after finance costs 236 ,233 (10,282 )
Net profit/(loss) from ordinary activities before taxation
Taxation on profit/(loss) on ordinary activities
7 — —
Net profit/(loss) for the year 236 ,233 (10,282 )
Total comprehensive income/(deficit) for the year 236 ,233 (10,282 )
Basic and diluted earnings per share
9
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
For the year ended 31 December 2021
All of the profit and total comprehensive income for the year
is attributable to the owners of the Company. All items in the
above statement derive from continuing operations.
Additional EPRA performance measures are on pages 97–99.
The accompanying notes are an integral part of this statement.
72 UKCP REIT Annual Report & Accounts
ukcpreit.com
Notes
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
NON-CURRENT ASSETS
Investment properties
10 1,508,368 1,172,812
CURRENT ASSETS
Investment properties held for sale
10 — 10, 000
Trade and other receivables
12 50 , 763 47 , 432
Cash and cash equivalents
Total assets 1,601,252 1,352,986
CURRENT LIABILITIES
Trade and other payables
13 (27 ,698 ) (28,161 )
(27 ,698 ) (28,16 1 )
NON-CURRENT LIABILITIES
Bank loan
14 (248,326 ) (197 ,849 )
Total liabilities (27 6,024 ) (226 ,010 )
Net assets 1,325,22 8 1,126 ,97 6
REPRESENTED BY
Share capital
15 539 ,872 539 ,872
Special distributable reserve
Capital reserve
Revenue reserve
Equity shareholders’ funds 1,325,22 8 1,126 ,97 6
Net asset value per share
16
CONSOLIDATED
BALANCE SHEET
As at 31 December 2021
The accompanying notes are an integral part of this statement.
Company Registration Number: 45387
Ken McCullagh
Director
The accounts on pages 72–95 were approved and authorised for issue by the
Board of Directors on 13 April 2022 and signed on its behalf by:
73
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
For the year ended 31 December 2021
Notes
Share
Capital
£’000
Special
Distributable
Reserve
£’000
Capital
Reserve
£’000
Revenue
Reserve
£’000
Equity
Shareholders’
Funds
£’000
At 1 January 2021
Total comprehensive income
Dividends paid
8 — — — (37 ,981 ) (37 , 981 )
Transfer in respect of gains on investment property
10 — — 201, 753 (201,753 ) —
Transfer from special distributable reserve
As 31 December 2021
Notes
Share
Capital
£’000
Special
Distributable
Reserve
£’000
Capital
Reserve
£’000
Revenue
Reserve
£’000
Equity
Shareholders’
Funds
£’000
At 1 January 2020
Total comprehensive income
Dividends paid
8 — — — (29 ,886 ) (29 ,886 )
Transfer in respect of losses on investment property
10 — — (45, 485 ) 45, 485 —
Transfer from special distributable reserve
As 31 December 2020 539 ,872 572,392 14 ,712
For the year ended 31 December 2020
The accompanying notes are an integral part of this statement.
74 UKCP REIT Annual Report & Accounts
ukcpreit.com
CONSOLIDATED
CASH FLOW STATEMENT
For the year ended 31 December 2021
Notes
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit/(loss) for the year before taxation
Adjustments for:
(Gains)/losses on investment properties
10 (201, 753 ) 45 , 485
Movement in lease incentives
10 (5,877 ) (4,805 )
Movement in provision for bad debts
12 412 (4, 784 )
Decrease/(increase) in operating trade and other receivables
(Decrease)/increase in operating trade and other payables
(464 ) 5,321
Finance costs
6 7 ,283 8,197
Cash generated by operations
Tax paid
Net cash inflow from operating activities 37 ,968 31,25 7
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment properties
10 (179 ,861 ) (24, 669 )
Sale of investment properties
Capital expenditure
10 (18,077 ) (3,570 )
Net cash (outflow)/inflow from investing activities (123,75 7 ) 129 ,955
CASH FLOWS FROM FINANCING ACTIVITIES
Facility fee charges from bank financing
(1, 020 ) (864 )
Dividends paid
8 (37 ,981 ) (29 ,886 )
Bank loan drawndown/(repaid)
14 50, 000 (50 , 000 )
Bank loan interest paid
(5,831 ) (6, 704 )
Net cash inflow/(outflow) from financing activities 5,168 (87 ,454 )
Net (decrease)/increase in cash and cash equivalents (80,621 ) 7 3,758
Opening cash and cash equivalents 122,742 48 ,984
Closing cash and cash equivalents 42,121 122,742
REPRESENTED BY
Cash at bank
Money market funds
The accompanying notes are an integral part of this statement.
75
1. ACCOUNTING POLICIES
A summary of the principal
accounting policies, all of
which have been applied
consistently throughout the
year, is set out below.
(a) Basis of Accounting
The consolidated accounts have been prepared in
accordance with International Financial Reporting
Standards issued by the International Accounting
Standards Board (the IASB), interpretations issued
by the IFRS Interpretations Committee that remain
in effect, and to the extent that they have been
adopted by the European Union, applicable legal
and regulatory requirements of Guernsey law
and the Listing Rules of the UK Listing Authority.
The audited Consolidated Financial Statements of
the Group have been prepared under the historical
cost convention as modified by the measurement
of investment property. The consolidated financial
statements are presented in pound sterling.
The Directors have considered the basis of
preparation of the accounts and believe that it is
still appropriate for the accounts to be prepared on
the going concern basis.
(b) Significant Accounting Judgements,
Estimates and Assumptions
The preparation of the Group’s financial statements
requires management to make judgements,
estimates and assumptions that affect the amounts
recognised in the financial statements. However,
uncertainty about these judgements, assumptions
and estimates could result in outcomes that could
require a material adjustment to the carrying
amount of the asset or liability affected in the
future. In applying the Group’s accounting policies,
there were no critical accounting judgements.
Key estimation uncertainties
Fair value of investment properties: Investment
property is stated at fair value as at the balance
sheet date as set out in note 1(h) and note 10 to
these accounts.
The determination of the fair value of investment
properties requires the use of estimates such as
future cash flows from the assets and unobservable
inputs such as capitalisation rates. The estimate
of future cash flows includes consideration of the
repair and condition of the property, lease terms,
future lease events, as well as other relevant factors
for the particular asset. These estimates are based
on local market conditions existing at the balance
sheet date.
Provision for bad debts are also a key estimation
uncertainty. These are measured with reference to
amounts included as income at the year end but
not yet collected. In assessing whether the credit
risk of an asset takes into account qualitative and
quantitative reasonable and supportable forward-
looking information.
Due to the impact of COVID-19 on collection
rates there remains a high assessed credit risk,
albeit rent collection rates were beginning
to normalise at the end of the reporting period.
Each individual rental income debtor is reviewed
to assess whether it is believed there is a probability
of default and expected credit loss given the
knowledge and intelligence of the individual
tenant and an appropriate provision made. Further
analysis with respect to the bad debt provision has
been set out in note 12 to these accounts.
(c) Basis of Consolidation
The consolidated accounts comprise the accounts
of the Company and its subsidiaries drawn up to
31 December each year. Subsidiaries are consolidated
from the date on which control is transferred to the
Group and cease to be consolidated from the date
on which control is transferred out of the Group.
The Jersey Property Unit Trusts (“JPUTS”) are all
controlled via voting rights and hence those entities
are consolidated.
(d) Functional and Presentation Currency
Items included in the financial statements of
the Group are measured using the currency of
the primary economic environment in which
the Company and its subsidiaries operate
(“the functional currency”) which is pounds
sterling. The financial statements are also
presented in pounds sterling. All figures in the
financial statements are rounded to the nearest
thousand unless otherwise stated.
(e) Revenue Recognition
Rental income, excluding VAT, arising from
operating leases (including those containing
stepped and fixed rent increases) is accounted for
in the Consolidated Statement of Comprehensive
Income on a straight line basis over the lease term.
Lease premiums paid and rent-free periods granted,
are recognised as assets and are amortised over the
non-cancellable lease term.
IFRS 15 requires the Group to determine whether it
is a principal or an agent when goods or services are
transferred to a customer. An entity is a principal
if the entity controls the promised good or service
before the entity transfers the goods or services to
a customer.
An entity is an agent if the entity’s performance
obligation is to arrange for the provision of goods
and services by another party. Any leases entered
into between the Group and a tenant require the
Partnership to provide ancillary services to the
tenant such as maintenance works etc, therefore
these service charge obligations belong to the
Group. However, to meet this obligation the Group
appoints a Managing Agent, Jones Lang Lasalle
Inc “JLL” and directs it to fulfil the obligation on
its behalf. The contract between the Group and the
Managing Agent creates both a right to services and
the ability to direct those services. This is a clear
indication that the Group operates as a principal
and the Managing Agent operates as an agent.
Therefore it is necessary to recognise the gross
service charge revenue and expenditure billed to
tenants as opposed to recognising the net amount.
Interest income is accounted on an accruals basis
and included in operating profit.
(f) Expenses
Expenses are accounted for on an accruals
basis. The Group’s investment management and
administration fees, finance costs and all other
expenses are charged through the Consolidated
Statement of Comprehensive Income.
(g) Taxation
Current income tax assets and liabilities are
measured at the amount expected to be recovered
from or paid to taxation authorities. The tax rates
and tax laws used to compute the amount are
those that are enacted or substantively enacted
by the reporting date.
Current income tax relating to items recognised
directly in equity is recognised in equity and not
in profit or loss. Positions taken in tax returns
with respect to situations in which applicable
tax regulations are subject to interpretation are
periodically evaluated and provisions established
where appropriate.
Deferred income tax is provided using the liability
method on all temporary differences at the
reporting date between the tax bases of assets and
liabilities and their carrying amounts for financial
reporting purposes. Deferred income tax assets
are recognised only to the extent that it is probable
that taxable profit will be available against which
deductible temporary differences, carried forward
tax credits or tax losses can be utilised.
The amount of deferred tax provided is based on
the expected manner of realisation or settlement
of the carrying amount of assets and liabilities.
In determining the expected manner of realisation
of an asset the Directors consider that the Group
will recover the value of investment property
through sale. Deferred income tax relating to
items recognised directly in equity is recognised
in equity and not in profit or loss.
NOTES TO THE ACCOUNTS
76 UKCP REIT Annual Report & Accounts
ukcpreit.com
(h) Investment Properties
Investment properties are initially recognised at
cost, being the fair value of consideration given,
including transaction costs associated with the
investment property. Any subsequent capital
expenditure incurred in improving investment
properties is capitalised in the period during
which the expenditure is incurred and included
within the book cost of the property.
After initial recognition, investment properties are
measured at fair value, with the movement in fair
value recognised in the Consolidated Statement
of Comprehensive Income and transferred to the
Capital Reserve. Fair value is based on the external
valuation provided by CBRE Limited, chartered
surveyors, at the Balance Sheet date. The assessed
fair value is reduced by the carrying amount of any
accrued income resulting from the spreading of
lease incentives and/or minimum lease payments.
On derecognition, gains and losses on disposals
of investment properties are recognised in
the Statement of Comprehensive Income and
transferred to the Capital Reserve.
Recognition and derecognition occurs when
the significant risks and rewards of ownership
of the properties have transferred between
a willing buyer and a willing seller.
Investment property is transferred to current assets
held for sale when it is expected that the carrying
amount will be recovered principally through sale
rather than from continuing use. For this to be the
case, the property must be available for immediate
sale in its present condition, subject only to terms
that are usual and customary for sales of such
property and its sale must be highly probable.
The Group has entered into forward funding
agreements with third party developers in respect
of certain properties. Under these agreements
the Group will make payments to the developer
as construction progresses. The value of these
payments is assessed and certified by an expert.
Investment properties are recognised for
accounting purposes upon completion of contract.
Properties purchased under forward funding
contracts are recognised at certified value to date.
Management considers each property transaction
separately, with an assessment carried out to
determine whether the transaction represents
an asset acquisition or business combination.
In making its judgement on whether the acquisition
of property through the purchase of a corporate
vehicle represents an asset acquisition or business
combination, management consider whether the
integrated set of assets and activities acquired
contain both input and processes along with the
ability to create outputs.
(i) Operating Lease Contracts
The Group has entered into commercial property
leases on its investment property portfolio.
The Group as lessor
When the Group acts as a lessor, it determines
at lease commencement whether each lease is
a finance lease or an operating lease. The Group
has assessed all leases where it acts as a lessor,
based on an evaluation of the terms and conditions
of the arrangements, and has determined that
the Group retains all the significant risks and
rewards of ownership of these properties therefore,
the leases are accounted for as operating leases.
Where the Group does not retain all the significant
risks and rewards of ownership these leases would
be classified as finance leases.
Initial direct costs incurred in negotiating and
arranging an operating lease are added to the
carrying amount of the leased asset and recognised
as an expense on a straight-line basis over the
lease term.
The Group as intermediate lessor
When the Group is an intermediate lessor, it
accounts for its interest in the head lease and the
sub-lease separately. The Group has assessed all
leases where it acts as an intermediate lessor, based
on an evaluation of the terms and conditions of the
arrangements, and has identified that all head leases
have low value at the lease commencement date.
The Group has elected not to recognise right-of-use
assets and lease liabilities for leases of low-value
assets. The Group classifies the sub-leases as
operating leases and accounts for the lease payments
on a straight-line basis over the lease terms.
(j) Share Issue Expenses
Incremental external costs directly attributable to
the issue of shares that would otherwise have been
avoided are written off to capital reserves.
(k) Segmental Reporting
The Directors are of the opinion that the Group
is engaged in a single segment of business being
property investment in the United Kingdom.
The Directors are of the opinion that the four
property sectors analysed throughout the financial
statements constitute this single segment, and
are not separate operating segments as defined
by IFRS 8 Operating Segments.
(l) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash
in hand, demand deposits, and other short-term
highly liquid investments readily convertible
within three months or less to known amounts
of cash and subject to insignificant risk of changes
in value. Cash invested in the abrdn global liquidity
fund can be accessed on the same business day.
(m) Trade and Other Receivables
Trade receivables are recognised initially at their
transaction price unless they contain a significant
financing component, when they are recognised
at fair value. Trade receivables are subsequently
measured at amortised cost using the effective
interest method.
Other receivables are initially recognised at fair
value plus any directly attributable transaction
costs and subsequently measured at amortised cost
using the effective interest method.
The Group applies the IFRS 9 simplified approach
to measuring expected credit losses which uses
a lifetime expected loss allowance for all trade
receivables and contract assets.
The Group considers a financial asset to be in
default when the borrower is unlikely to pay its
credit obligations to the Group in full. The Group
writes off trade receivables when there is no
reasonable expectation of recovery.
A provision for impairment of trade receivables,
principally in relation to rent and service charge
billings, is established where the Property Manager
has indicated concerns over the recoverability of
arrears based upon their individual assessment
of all outstanding balances which incorporates
forward looking information. Given this detailed
approach, a collective assessment methodology
applying a provision matrix to determine expected
credit losses is not used. The amount of the provision
is recognised in the Statement of Financial Position
and any changes in provision recognised in the
Statement of Comprehensive Income.
77
(n) Trade and Other Payables
Rental income received in advance represents the
pro-rated rental income invoiced before the year
end that relates to the period post the year end.
VAT payable is the difference between output
and input VAT at the year end. Other payables
are accounted for on an accruals basis and include
amounts which are due for settlement by the Group
as at the year end and are generally carried at the
original invoice amount. An estimate is made for
any services incurred at the year end but for which
no invoice has been received.
(o) Reserves
Share Capital
This represents the proceeds from issuing
ordinary shares.
Special Distributable Reserve
The special reserve is a distributable reserve to be
used for all purposes permitted under Guernsey
law, including the buyback of shares and the
payment of dividends. Dividends can be paid from
all of the below listed reserves.
Capital Reserve
The following are accounted for in this reserve:
Gains and losses on the disposal of investment
properties;
Increases and decreases in the fair value of
investment properties held at the year end.
Revenue Reserve
Any surplus arising from the net profit on ordinary
activities after taxation and payment of dividends
is taken to this reserve, with any deficit charged to
the special distributable reserve.
Treasury Share Reserve
This represents the cost of shares bought back by
the Company and held in Treasury. The balance
within this reserve is currently nil.
(p) Interest-bearing Borrowings
All bank loans and borrowings are initially
recognised at cost, being the fair value of the
consideration received net of arrangement
costs associated with the borrowing. After
initial recognition, all interest-bearing loans
and borrowings are subsequently measured at
amortised cost. Amortised cost is calculated by
taking into account any loan arrangement costs
and any discount or premium on settlement.
On maturity, bank loans are recognised at par,
which is equivalent to amortised cost. Bank loans
redeemed before maturity are recognised at
amortised cost with any charges associated with
early redemptions being taken to the Statement
of Comprehensive Income.
The Group has applied the following amendments
for the first time for their annual reporting period
commencing 1 January 2021:
Interest Rate Benchmark Reform (Phase 2).
Phase 1 of these reforms pertain to hedge
accounting and is not relevant to the Company
which does not have any derivative instruments.
In the current year, the Group adopted the Phase
2 amendments Interest Rate Benchmark Reform –
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4
and IFRS 16. Adopting these amendments enables
the Group to reflect the effects of transitioning
from interbank offered rates (IBOR) to alternative
benchmark interest rates (also referred to as ‘risk
free rates’ or RFRs) without giving rise to accounting
impacts that would not provide useful information
to users of financial statements.
The Group has not restated the prior period.
Instead, the amendments have been applied
retrospectively with any adjustments recognised
in the appropriate components of equity as at
1 January 2021.
The Group amended its contracts that referenced
IBORs prior to the year end and further information
is available in note 14.
Annual Improvements to IFRS
The Group has made no adjustments to its financial
statements in relation to IFRS Standards detailed in
the annual Improvements to IFRS 2018-2020 Cycle
(effective for annual reporting periods beginning
on or after 1 January 2022). The Group will consider
these amendments in due course to see if they will
have any impact on the Group.
NOTES TO THE ACCOUNTS
Continued
78 UKCP REIT Annual Report & Accounts
ukcpreit.com
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Investment management fee
8,500 8,063
4. INVESTMENT MANAGEMENT FEES
The Group’s Investment Manager is Aberdeen Standard
Fund Managers Limited.
The Investment Manager received an aggregate annual
fee from the Group at an annual rate of 0.60 (2020: 0.60)
per cent of the Total Assets.
From 1 April 2022, the Investment Manager will
receive an annual fee from the Group at a revised rate
of 0.525 per cent on Total Assets up to £1.75 billion,
excluding any cash held over £50 million. The fee rate
for Total Assets over £1.75 billion, adjusted for the
£50 million cash tier, will remain at 0.475 per cent.
In 2021, the Company paid the Investment Manager
£396,000 (2020: £240,000) for marketing services
which is included in other expenses. The Investment
Management agreement is terminable by either of the
parties to it on 12 months’ notice.
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Rental income
58,307 64,656
2. RENTAL INCOME
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Service charge income
6,063 6,500
3. SERVICE CHARGE INCOME
Service charges on rented properties are
detailed in note 5.
Service charge expenses, are recharged to tenants.
The service charge paid by the Group in respect of
void units was £0.7 million (2020: £0.8 million) and
is included within note 5 Direct Property Expenses.
79
NOTES TO THE ACCOUNTS
Continued
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Direct property expenses
5,343 4,845
Service charge expenses
6,063 6,500
OTHER EXPENSES
Professional fees (including valuation fees)
2,182 2,919
Directors’ fees and expenses
326 272
Marketing fee
396 240
Administration and company secretarial fees
115 85
Regulatory fees
80 156
Auditor’s remuneration for:
Statutory audit
130 128
Non-audit services
— —
3,229 3,800
5. EXPENSES
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Interest on principal loan amount
5,835 6,952
Facility fees
963 842
Amortisation of loan set up fees
485 403
7,283 8,197
6. FINANCE COSTS
80 UKCP REIT Annual Report & Accounts
ukcpreit.com
The Group migrated tax residence to the UK and elected to be
treated as a UK REIT with effect from 1 July 2018. As a UK REIT,
the income profits of the Group’s UK property rental business are
exempt from corporation tax as are any gains it makes from the
disposal of its properties, provided they are not held for trading or
sold within three years of completion of development. The Group is
otherwise subject to UK corporation tax at the prevailing rate. From
1 April 2023, the rate of UK Corporation Tax will increase to 25%.
As the principal company of the REIT, the Company is required
to distribute at least 90% of the income profits of the Group’s UK
property rental business. There are a number of other conditions
that also are required to be met by the Company and the Group
to maintain REIT tax status. These conditions were met in the
period and the Board intends to conduct the Group’s affairs such
that these conditions continue to be met for the foreseeable future.
Accordingly, deferred tax is no longer recognised on temporary
differences relating to the property rental business or income tax
losses previously built up.
The Company owns five Guernsey tax exempt subsidiaries,
UK Commercial Property Finance Holdings Limited (UKCPFHL),
UK Commercial Property GP Limited (GP), UK Commercial
Property Holdings Limited (UKCPHL), UK Commercial Property
Estates Limited (UKCPEL) and UK Commercial Property Estates
Holdings Limited (UKCPEHL). The GP and UKCPHL are partners
in a Guernsey Limited Partnership (“the Partnership”). UKCPFHL
and UKCPHL own two JPUTS. UKCPEL and UKCPEHL also own two
JPUTS. The Company and its Guernsey subsidiaries have obtained
exempt company status in Guernsey so that they are exempt from
Guernsey taxation on income arising outside Guernsey and bank
interest receivable in Guernsey.
On the 21 December 2021 the Company purchased two Luxembourg
resident companies, Duke Distribution Centres Sarl and Duke
Offices & Developments Sarl. On acquisition these companies
automatically fall within the REIT group exemption, as such there is
no UK corporation tax liabilities associated with these companies.
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
NET PROFIT/(LOSS) FROM ORDINARY ACTIVITIES BEFORE TAX 236,233 (10,282)
UK Corporation tax at a rate of 19 per cent (2020: 19%)
44,884 (1,953)
Effect of:
Capital (gains)/losses on Investment properties not taxable
(38,333) 8,642
UK REIT exemption on net income
(6,551) (6,689)
Total tax charge
— —
7. TAXATION
81
NOTES TO THE ACCOUNTS
Continued
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
DIVIDENDS ON ORDINARY SHARES
Interim dividends paid per ordinary share:
2020 Fourth interim: property income dividend (“PID”) of 0.46p per share paid 26 February 2021
(2019 Fourth interim: PID of 0.506p and Ordinary dividend (“Non-PID”) of 0.414p)
5,977 11,955
2020 Fifth interim: PID of 0.531p per share paid 21 May 2021
(2020 Fifth interim: nil)
6,900 —
2021 First interim: PID of 0.644p paid 28 May 2021
(2020 First interim: PID of 0.46p)
8,368 5,977
2021 Second interim: PID of 0.644p paid 27 August 2021
(2020 Second interim: PID of 0.46p)
8,368 5,977
2021 Third interim: PID of 0.423p and Non-PID of 0.221p paid 26 November 2021
(2020 Third interim: PID of 0.46p)
8,368 5,977
37,981 29,886
A fourth interim, PID of 0.466p, Non-PID of 0.284p was paid on
25 February 2022 to shareholders on the register on 11 February
2022. Although this payment relates to the year ended 31 December
2021, under International Financial Reporting Standards it will be
accounted for in the year ending 31 December 2022.
8. DIVIDENDS
9. BASIC AND DILUTED EARNINGS PER SHARE
As there are no dilutive instruments outstanding, basic and diluted
earnings per share are identical.
Earnings per share are based on the net profit of the year divided by the
weighted average number of Ordinary Shares in issue during the period.
Year ended
31 December 2021
Year ended
31 December 2020
Weighted average number of shares
1,299,412,465 1,299,412,465
Net profit/(Loss) (£)
236,232,720 (10,281,506)
Basic and diluted earnings per share (pence)
18.18 (0.79)
EPRA earnings per share (pence)
1
2.65 2.71
1 A breakdown of the calculation is detailed in the table A.
EPRA Earnings on page 97.
82 UKCP REIT Annual Report & Accounts
ukcpreit.com
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
FREEHOLD AND LEASEHOLD PROPERTIES
Opening valuation
1,182,812 1,358,391
Purchase at cost
179,861 24,669
Capital expenditure
18,077 3,570
Gain/(loss) on revaluation to market value
209,635 (39,187)
Disposals at prior year valuation
(76,140) (159,826)
Lease incentive movement
(5,877) (4,805)
Total fair value at 31 December 1,508,368 1,182,812
Less: reclassified as held for sale — (10,000)
Fair value as at 31 December 1,508,368 1,172,812
GAINS/(LOSSES) ON INVESTMENT PROPERTIES AT FAIR VALUE COMPRISE
Valuation gains/(losses)
209,635 (39,187)
Movement in provision for lease incentives
(5,877) (4,805)
Loss on disposal
(2,005) (1,493)
201,753 (45,485)
LOSS ON INVESTMENT PROPERTIES SOLD
Original cost of investment properties
(76,483) (161,109)
Sale proceeds less sales costs
74,478 158,194
Loss on investment properties sold
(2,005) (2,915)
Recognised in previous periods
(2,285) (8,623)
Recognised in current period
280 5,708
(2,005) (2,915)
Given the objectives of the Group and the nature of its investments,
the Directors believe that the Group has only one asset class, that of
Commercial Property.
CBRE Limited, (the “Property Valuer”) completed a valuation of
Group investment properties as at 31 December 2021 on the basis
of fair value in accordance with the requirements of the Royal
Institution of Chartered Surveyors (RICS) ‘RICS Valuation — Global
Standards 2017 (the ‘Red Book’). For most practical purposes there
would be no difference between Fair Value (as defined in IFRS 13)
and Market Value. The Property Valuer, in valuing the portfolio, is
acting as an ‘External Valuer’, as defined in the Red Book, exercising
independence and objectivity. The Property Valuer’s opinion of
Fair Value has been primarily derived using comparable recent
market transactions in order to determine the price that would be
received to sell an asset in an orderly transaction between market
participants at the valuation date. The fair value of these investment
properties amounted to £1,537,450,000 (2020: £1,206,780,000).
The difference between the fair value and the value per the
consolidated balance sheet at 31 December 2021 consists, in the
main, to accrued income relating to the pre-payment for rent-free
periods recognised over the life of the lease totalling £30,181,000
(2020: £24,304,000) which is separately recorded in the accounts as
a current asset. In addition a balance of £321,000 (2020: £336,000)
has been offset against the lease incentive representing the
reduction in the lease incentive provided for as part of the provision
for bad debts giving a net lease incentive balance of £29,860,000
(2020: £23,968,000). In addition, an accrued development sum of
£778,000 (2020: nil) is recognised in arriving at the total fair value
of £1,508,368,000 (2020: £1,182,812,000).
The Group has entered into leases on its property portfolio
as lessor (See note 20 for further information).
No one property accounts for more than 15 per cent of the
gross assets of the Group.
All leasehold properties have more than 60 years remaining
on the lease term.
There are no restrictions on the realisability of the Group’s
investment properties or on the remittance of income or
proceeds of disposal.
However, the Group’s investments comprise UK commercial
property, which may be difficult to realise.
10. INVESTMENT PROPERTIES
83
NOTES TO THE ACCOUNTS
Continued
The property portfolio’s fair value as at 31 December 2021 has been
prepared adopting the following assumptions:
That, where let, the Estimated Net Annual Rent (after void and rent
free period assumptions) for each property, or part of a property,
reflects the terms of the leases as at the date of valuation. If the
property, or parts thereof, are vacant at the date of valuation, the
rental value reflects the rent the Property Valuer considers would
be obtainable on an open market letting as at the date of valuation.
The Property Valuer has assumed that, where let, all rent reviews are
to be assessed by reference to the estimated rental value calculated
in accordance with the terms of the lease. Also there is the
assumption that all tenants will meet their obligations under their
leases and are responsible for insurance, payment of business rates,
and all repairs, whether directly or by means of a service charge.
The Property Valuer has not made any adjustments to reflect
any liability to taxation that may arise on disposal, nor any costs
associated with disposals incurred by the owner.
The Property Valuer assumes an initial yield in the region of
1.48 to 7.73 per cent, based on market evidence. For the majority
of properties, the Property Valuer assumes a reversionary yield
in the region of 3.11 to 11.70 per cent.
The Property Valuer takes account of deleterious materials
included in the construction of the investment properties in
arriving at its estimate of Fair Value when the Investment
Manager advises of the presence of such materials.
The majority of the leases are on a full repairing basis and as
such the Group is not liable for costs in respect of repairs or
maintenance to its investment properties.
The following disclosure is provided in relation to the adoption
of IFRS 13 Fair Value Measurement. All properties are deemed
Level 3 for the purposes of Fair Value measurement and the
current use of each property is considered the highest and
best use. There have been no transfers from Level 3 in the year.
The Fair Value of completed investment property is determined
using a yield methodology. Under this method, a property’s Fair
Value is estimated using explicit assumptions regarding the benefits
and liabilities of ownership over the asset’s life including an exit
or terminal value. As an accepted method within the income
approach to valuation, this method involves the projection of
a series of cash flows on a real property interest. To this projected
cash flow series, an appropriate, market-derived discount rate
(capitalisation rate) is applied to establish the present value of
the cash inflows associated with the real property.
The duration of the cash flow and the specific timing of inflows
and outflows are determined by events such as rent reviews,
lease renewal and related void or rent-free periods, reletting,
redevelopment, or refurbishment. The appropriate duration is
typically driven by market behaviour that is a characteristic
of the class of property. In the case of investment properties,
periodic cash flow is typically estimated as gross income less
vacancy, non-recoverable expenses, collection losses, lease
incentives, maintenance cost, agent and commission costs and
other operating and management expenses. The series of periodic
net cash inflows, along with an estimate of the terminal value
anticipated at the end of the projection period, is then discounted.
Set out below are the valuation techniques used for each property
sector plus a description and quantification of the key unobservable
inputs relating to each sector. There has been no change in
valuation technique in the year.
Sector
Fair Value at
31 December 2021 (£m)
Valuation techniques Unobservable inputs
Range
(weighted average)
Industrial
960.4 Yield methodology
Annual rent per sq ft
Capitalisation rate
£4 – £19 (£9)
3.0% – 7.0% (3.7%)
Office
215.9 Yield methodology
Annual rent per sq ft
Capitalisation rate
£21 – £51 (£29)
3.4% – 7.3% (5.8%)
Retail
163.7 Yield methodology
Annual rent per sq ft
Capitalisation rate
£11 – £25 (£17)
4.4% – 6.9% (5.5%)
Alternatives
168.4 Yield methodology
Annual rent per sq ft
Capitalisation rate
£0 – £18 (£15)
6.2% – 7.8% (5.5%)
Sector
Fair Value at
31 December 2020 (£m)
Valuation techniques Unobservable inputs
Range
(weighted average)
Industrial
685.4 Yield methodology
Annual rent per sq ft
Capitalisation rate
£5 – £16 (£8)
3.8% – 6.7% (4.8%)
Office
167.7 Yield methodology
Annual rent per sq ft
Capitalisation rate
£16 – £57 (£20)
3.3% – 8.7% (5.3%)
Retail
199.6 Yield methodology
Annual rent per sq ft
Capitalisation rate
£16 – £265 (£27)
3.6% – 7.7% (5.7%)
Alternatives
130.1 Yield methodology
Annual rent per sq ft
Capitalisation rate
£0 – £25 (£15)
5.5% – 6.3% (5.8%)
Fair Value by sector as at 31 December 2021
Fair Value by sector as at 31 December 2020
84 UKCP REIT Annual Report & Accounts
ukcpreit.com
Sector Assumption Movement Effect on valuation
Industrial
Capitalisation rate
+ 50 basis points
− 50 basis points
Decrease £122.3 million
Increase £163.4 million
Office
Capitalisation rate
+ 50 basis points
− 50 basis points
Decrease £20.5 million
Increase £24.8 million
Retail
Capitalisation rate
+ 50 basis points
− 50 basis points
Decrease £15.6 million
Increase £18.8 million
Alternatives
Capitalisation rate
+ 50 basis points
− 50 basis points
Decrease £6.7 million
Increase £7.8 million
Sector Assumption Movement Effect on valuation
Industrial
Capitalisation rate
+ 50 basis points
− 50 basis points
Decrease £73.3 million
Increase £92.7 million
Office
Capitalisation rate
+ 50 basis points
− 50 basis points
Decrease £15.6 million
Increase £19.1 million
Retail
Capitalisation rate
+ 50 basis points
− 50 basis points
Decrease £15.6 million
Increase £18.8 million
Alternatives
Capitalisation rate
+ 50 basis points
− 50 basis points
Decrease £9.4 million
Increase £10.8 million
Sensitivity analysis
The table below presents the sensitivity of the valuation to changes
in the most significant assumptions underlying the valuation of
investment property, which could be caused by a number of factors.
The movement of 50 basis points is based on past observed data.
As at 31 December 2021
As at 31 December 2020
85
Investment property valuation process
The valuations of investment properties are performed quarterly
on the basis of valuation reports prepared by independent and
qualified valuers and reviewed by the Property Valuation
Committee of the Company.
These reports are based on both:
Information provided by the Investment Manager such as
current rents, terms and conditions of lease agreements,
service charges and capital expenditure. This information
is derived from the Investment Manager’s financial and
property management systems and is subject to the Investment
Manager’s overall control environment.
Assumptions and valuation models used by the valuers —
the assumptions are typically market related, such as yields.
These are based on their professional judgment and market
observation.
The information provided to the valuers and the assumptions
and valuation models used by the valuers are reviewed by
the Investment Manager. This includes a review of Fair Value
movements over the period.
Asset held for sale
At the current year end there are no assets categorised as held
for sale. At the prior year end, there was one asset held for sale,
140-145 King’s Road, London. The asset was shown at Fair Value
in the Balance Sheet as a held for sale asset and included within
the investment property table shown in this note.
11. SUBSIDIARY UNDERTAKINGS
The Company owns 100 per cent of the issued share capital of
UK Commercial Property Estates Holdings Limited (UKCPEHL),
a company incorporated in Guernsey whose principal business
is to hold and manage investment properties for rental income.
UKCPEHL Limited owns 100 per cent of the issued share capital of
UK Commercial Property Estates Limited, a company incorporated
in Guernsey whose principal business is to hold and manage
investment properties for rental income. UKCPEHL also owns
100% of Brixton Radlett Property Limited and UK Commercial
Property Estates (Reading) Limited, both are UK companies, whose
principal business is that of an investment and property company.
During the financial year UKCPEHL purchased 100 per cent of the
issued share capital of Duke Distribution Centres Sarl and Duke
Offices & Developments Sarl, both companies are incorporated in
Luxembourg with the principal business being to hold and manage
investment properties for rental income.
The Company owns 100 per cent of the issued ordinary share capital
of UK Commercial Property Finance Holdings Limited (UKCPFHL),
a company incorporated in Guernsey whose principal business
is to hold and manage investment properties for rental income.
UKCPFHL owns 100 per cent of the issued share capital of UK
Commercial Property Nominee Limited, a company incorporated in
Guernsey whose principal business is that of a nominee company.
UKCPFHL owns 100 per cent of the issued ordinary share capital of
UK Commercial Property Holdings Limited (UKCPHL), a company
incorporated in Guernsey whose principal business is to hold and
manage investment properties for rental income.
UKCPT Limited Partnership, (LP), is a Guernsey limited partnership,
whose principal business is to hold and manage investment
properties for rental income. UKCPHL and GP, have a partnership
interest of 99 and 1 per cent respectively in the LP. The GP is the
general partner and UKCPHL is a limited partner of the LP.
In addition, the Group controls four JPUTS namely Junction 27
Retail Unit Trust, St George’s Leicester Unit Trust, Kew Retail Park
Unit Trust and Rotunda Kingston Property Unit Trust. The principal
business of the Unit Trusts is that of investment in property.
As at 31 March 2021, Brixton Radlett Property Limited, UK
Commercial Property Estates (Reading) Limited, the GP, Nominee
and the Limited Partnership were all placed in the hands of
liquidators as part of a solvent liquidation process and the
conclusion of this process is due to conclude in the first half of 2022.
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Trade receivables
15,090 20,634
Lease incentives
30,181 24,304
Other debtors and prepayments
5,492 2,494
50,763 47,432
Provision for bad debts as at 31 December 2020/2019
5,739 955
Movement in the year
(412) 4,784
Provision for bad debts as at 31 December 2021/2020 5,327 5,739
12. TRADE AND OTHER RECEIVABLES
NOTES TO THE ACCOUNTS
Continued
86 UKCP REIT Annual Report & Accounts
ukcpreit.com
13. TRADE AND OTHER PAYABLES
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Rental income received in advance
12,161 13,512
Investment Manager fee payable
2,327 1,993
Other payable
13,210 12,656
27,698 28,161
Other payables include tenant deposits of £2,439,000 (2020: £2,518,000), bank loan interest payments of £1,637,000
(2020: £1,646,000) and transaction cost accruals totalling £4,120,000 (2020: £482,000). The level of accrued transaction
costs reflect the timing of portfolio acquisitions near the end of 2021.
The Group’s payment policy is to ensure settlement of supplier invoices in accordance with stated terms.
Other debtors include tenant deposits of £2,439,000 (2020: £2,518,000) and a net VAT receivable position of
£2,549,000 (2020: VAT payable), a direct result of the VAT refund due on the purchase of Kantar House, London.
All other debtors are due within one year. No other debts past due are impaired in either year.
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Less than 6 months
953 2,725
Between 6 and 12 months
1,403 2,192
Over 12 months
2,971 822
5,327 5,739
The ageing of these receivables is as follows:
87
(i) Barclays Facility
The Group has a £150 million revolving credit facility (“RCF”),
maturing in April 2024, with Barclays Bank plc. Initially this
facility was granted at a margin of 1.70 per cent above LIBOR,
however as part of the interest rate reform guidelines this facility
transitioned to a risk-free rate (RFR), SONIA, interest basis prior
to the financial year end. The RCF was taken out by UKCPEH and
is cancellable at any time. The RCF was initially taken out by
UKCPEL as a £50 million RCF in April 2015 at a margin of 1.50 per
cent above LIBOR and was increased and extended in February
2019. On the 16 December 2021 UKCPEL drew down £50 million
from the facility (2020: a repayment of £50 million was made).
The RCF has a non-utilisation fee of 0.68 per cent per annum
(0.60 per cent per annum prior to February 2019) charged
on the proportion of the RCF not utilised on a pro-rata basis.
As at 31 December 2021, £100 million (2020: £150 million)
remained unutilised. The RCF is secured on the property
portfolio held by UKCPEH. Under bank covenants related
to the RCF, UKCPEH is to ensure that at all times:
The loan to value percentage does not exceed 60 per cent.
Interest cover at the relevant payment date is not less than
175 per cent and projected over the course of the proceeding
12 months is not less than 175 per cent.
UKCPEH met all covenant tests during the year for the RCF.
Transition to SONIA from LIBOR
The London Interbank Offer Rate (LIBOR) was one of the main
interest rate benchmarks used in financial markets to determine
interest rates for financial contracts globally. The low volume
of underlying transactions since the global financial crisis in
2008/2009 made LIBOR unsustainable and as a result, and in
line with announcements from the Financial Conduct Authority
(FCA), 24 of the 35 LIBOR settings ceased from 1 January 2022.
Various risk-free rates are available as an alternative to LIBOR
including the Sterling Overnight Index Average (SONIA) benchmark.
The Directors have taken steps, before the deadline date for
transition, to ensure that any exposure to LIBOR was identified
and actions taken to rebase and redocument any financial contracts
where LIBOR was previously used. This led to minor amendments
to operational processes to cater for this change but there is no
material impact on the assets and liabilities of the Group as a result
of the phasing out of LIBOR.
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Total facilities available
350,000 350,000
Drawn down:
Barclays facility
50,000 —
Barings facility
200,000 200,000
Set up costs incurred
(6,628) (6,628)
Accumulated amortisation of set up costs
4,954 4,477
Total due 248,326 197,849
14. BANK LOAN AND INTEREST RATE SWAPS
Movements in bank loan and interest rates
swaps arising from financing activities
At 1 Jan
2020
£’000
Cash
flows
£’000
Other
changes
£’000
At 31 Dec
2021
£’000
Bank Loan
197,849 50,000 477 248,326
NOTES TO THE ACCOUNTS
Continued
As at 31 December 2021
88 UKCP REIT Annual Report & Accounts
ukcpreit.com
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
SHARE CAPITAL
Opening balance
539,872 539,872
Share capital as at 31 December
539,872 539,872
15. SHARE CAPITAL ACCOUNTS
Number of shares in issue and fully paid at the year end being
1,299,412,465 (2020: 1,299,412,465) of 25p each.
Ordinary shareholders participate in all general meetings of the
Company on the basis of one vote for each share held. The Articles
of Association of the Company allow for an unlimited number
of shares to be issued, subject to restrictions placed by AGM
resolutions. There are no restrictions on the shares in issue.
(ii) Barings Facility
The Group has a £100 million facility, maturing in April 2027,
with Barings Real Estate Advisers, a member of the MassMutual
Financial Services Group. The loan was taken out by UKCFH.
As at 31 December 2021, the facility was fully drawn (31 December
2020: Fully drawn). The bank loan is secured on a portfolio of seven
properties held within UKCFH. Under bank covenants related to the
loan UKCFH is to ensure that at all times:
The loan to value percentage does not exceed 75 per cent.
Interest cover at the relevant payment date and also projected
over the course of the proceeding 12 months is not less than
200 per cent.
UKCFH met all covenant tests during the year for this facility.
Interest is payable by UKCFH at a fixed rate equal to the aggregate
of the equivalent 12-year gilt yield, fixed at the time of drawdown
and a margin. This resulted in a fixed rate of interest payable of
3.03 per cent per annum. There are no interest rate swaps in place
relating to this facility.
The Group took out a second £100 million facility in February
2019, maturing in February 2031, with Barings Real Estate Advisers.
The loan was taken out by UKCFH. As at 31 December 2021, the
facility was fully drawn (31 December 2020: Fully drawn). The
bank loan is secured on a portfolio of seven properties held within
UKCFH. This facility has the same covenant tests as the 2027 facility
outlined above. UKCFH met all covenant tests during the year for
this facility.
Interest is payable by UKCFH at a fixed rate equal to the aggregate
of the equivalent 12 year gilt yield, fixed at the time of drawdown
and a margin. This resulted in a fixed rate of interest payable of
2.72 per cent per annum. There are no interest rate swaps in place
relating to this facility.
In the event that the Barings facilities were repaid in advance
of their maturity date would incur an early repayment charge.
Although the Company has no intention of doing so, as at
31 December 2021, the charge would be £20,509,000.
89
NOTES TO THE ACCOUNTS
Continued
17. RELATED PARTY TRANSACTIONS
No Director has an interest in any transactions which are or were
unusual in their nature or significant to the nature of the Group.
Aberdeen Standard Fund Managers Limited, as the Manager
of the Group from 10 December 2018, previously Standard Life
Investments (Corporate Funds) Limited, received fees for their
services as investment managers. Further details are provided
in note 4. The total management fee charged to the Statement
of Comprehensive Income during the year was £8,500,385 (2020:
£8,062,742) of which £2,326,894 (2020: £1,993,4550) remained
payable at the year end. The Investment Manager also received
£396,000 (£330,000 plus VAT) for marketing services incurred
during the year of which £396,000 (2020: £240,000) remained
payable at the year end.
The Directors of the Company are deemed as key management
personnel and received fees for their services. Further details
are provided in the Directors’ Remuneration Report (unaudited)
on pages 61–62. Total fees for the year were £325,225 (2020:
£272,226) none of which remained payable at the year end
(2020: nil). As a result of COVID-19, Directors reduced their fees
by 20% from 1 April 2020–31 December 2020.
The Group invests in the abrdn Liquidity Fund which is managed by
abrdn. As at 31 December 2021 the Group had invested £19.2 million
in the Fund (2020: £83.1 million). No additional fees are payable to
abrdn as a result of this investment.
18. FINANCIAL INSTRUMENTS AND
INVESTMENT PROPERTIES
The Group’s investment objective is to provide ordinary
shareholders with an attractive level of income together with
the potential for income and capital growth from investing in
a diversified UK commercial property portfolio. Consistent with
that objective, the Group holds UK commercial property
investments. The Group’s financial instruments consist of cash,
receivables and payables that arise directly from its operations and
loan facilities. The main risks arising from the Group’s financial
instruments are credit risk, liquidity risk, market risk and interest
rate risk. The Board reviews and agrees policies for managing its
risk exposure. These policies are summarised below and remained
unchanged during the year.
Fair value hierarchy
The following table shows an analysis of the fair values of
investment properties recognised in the balance sheet by level
of the fair value hierarchy:
Explanation of the fair value hierarchy:
Level 1 Quoted prices (unadjusted) in active markets for
identical assets or liabilities that the entity can
access at the measurement date.
Level 2 Use of a model with inputs (other than quoted prices
included in level 1) that are directly or indirectly
observable market data.
Level 3 Use of a model with inputs that are not based on
observable market data.
Year ended
31 December 2021
Year ended
31 December 2020
Ordinary Shares
1,299,412,465 1,299,412,465
Net assets (£’000)
1,325,228 1,126,976
NAV per share (pence) 102.0 86.7
EPRA Net Tangible Assets per share1
102.0 86.7
16. NET ASSET VALUE PER SHARE
1 A breakdown of the calculation is detailed in the table B.
EPRA Net Tangible Assets on page 98.
90 UKCP REIT Annual Report & Accounts
ukcpreit.com
31 December 2021 Level 1
£’000
Level 2
£’000
Level 3
£’000
Total fair value
£’000
Investment properties
— — 1,537,450 1,537,450
31 December 2020 Level 1
£’000
Level 2
£’000
Level 3
£’000
Total fair value
£’000
Investment properties
— — 1,206,780 1,206,780
The lowest level of input is the underlying yield on each property which is an input not based on observable market data.
The following table shows an analysis of the fair value of bank loans recognised in the balance sheet by level of the fair value hierarchy:
31 December 2021 Level 1
£’000
Level 2
£’000
Level 3
£’000
Total fair value
£’000
Trade and other receivables
— 50,763 — 50,763
Trade and other payables
— 27,698 — 27,698
31 December 2020 Level 1
£’000
Level 2
£’000
Level 3
£’000
Total fair value
£’000
Trade and other receivables
— 47,432 — 47,432
Trade and other payables
— 28,161 — 28,161
31 December 2021 Level 1
£’000
Level 2
£’000
Level 3
£’000
Total fair value
£’000
Bank loans
— 257,486 — 257,486
31 December 2020 Level 1
£’000
Level 2
£’000
Level 3
£’000
Total fair value
£’000
Bank loans
— 220,484 — 220,484
The lowest level of input is the interest rate applicable to each borrowing as at the balance sheet date which is a directly observable input.
The following table shows an analysis of the fair values of financial instruments and trade receivables and payables recognised at amortised
cost in the balance sheet by level of the fair value hierarchy:
The lowest level of input was the three-month LIBOR yield curve, which has now changed to SONIA for 31 December 2021,
both of which are a directly observable input.
91
Financial Assets 2021 3 months
or less
£’000
More than 3 months
but less than one year
£’000
More than
one year
£’000
Total
£’000
Cash
42,121 — — 42,121
Trade receivables
15,090 — — 15,090
Other debtors
5,492 — — 5,492
62,703 — — 62,703
Financial Assets 2020 3 months
or less
£’000
More than 3 months
but less than one year
£’000
More than
one year
£’000
Total
£’000
Cash
122,742 — — 122,742
Trade receivables
20,634 — — 20,634
Other debtors
2,494 — — 2,494
145,870 — — 145,870
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Group.
At the reporting date, the maturity of the Group’s financial assets was:
NOTES TO THE ACCOUNTS
Continued
The carrying amount of trade and other receivables and payables
is equal to their fair value, due to the short-term maturities of
these instruments. Expected maturities are estimated to be the
same as contractual maturities.
The fair value of investment properties is calculated using
unobservable inputs as described in note 10.
The fair value of the bank loans are estimated by discounting
expected future cash flows using the current interest rates
applicable to each loan.
There have been no transfers between levels in the year for
items held at fair value.
Real Estate Risk
The Group has identified the following risks associated with the
real estate portfolio:
The cost of any development schemes may increase if there are
delays in the planning process given the inflationary environment.
The Group uses advisers who are experts in the specific planning
requirements in the scheme’s location in order to reduce the risks
that may arise in the planning process.
A major tenant may become insolvent causing a significant loss
of rental income and a reduction in the value of the associated
property (see also credit risk overleaf). To reduce this risk, the
Group reviews the financial status of all prospective tenants and
decides on the appropriate level of security required via rental
deposits or guarantees;
The exposure of the fair values of the portfolio to market and
occupier fundamentals such as tenants’ financial position.
92 UKCP REIT Annual Report & Accounts
ukcpreit.com
In the event of default by a tenant, the Group will suffer a rental
shortfall and incur additional costs, including legal expenses,
in maintaining, insuring and reletting the property until it is relet.
The Board receives regular reports on concentrations of risk and any
tenants in arrears. The Investment Manager monitors such reports
in order to anticipate and minimise the impact of defaults by tenants
and provides for rent due by tenants that are assessed to be unlikely
to pay through the process set out on page 59.
The Company has a diversified tenant portfolio. The maximum
credit risk from the trade receivables of the Group at 31 December 2021
is £15,090,000 (2020: £20,634,000). The Group holds rental deposits
of £2,439,000 (2020: £2,518,000) as potential collateral against
tenant arrears/defaults. All tenant deposits are in line with market
practice. There is no residual credit risk associated with the financial
assets of the Group. Other than those included in the provision
for bad debts, no financial assets which are due for settlement are
impaired. COVID-19 has impacted the ability of tenants to pay rents
and hence the credit risk associated with trade receivables has
increased during this time. The provision for bad debts is adjusted,
on a tenant-by-tenant basis, to reflect the evolving risk position.
During the year this provision decreased by £0.412 million to
£5.327 million (2020: increased £4.78 million to £5.739 million).
All of the cash is placed with financial institutions with a credit
rating of A or above. £19.2 million (2020: £83.1 million) of the
year end cash balance is held in the abrdn Liquidity Fund, which
is a money market fund and has a triple A rating. Bankruptcy or
insolvency of a financial institution may cause the Group’s ability
to access cash placed on deposit to be delayed or limited. Should
the credit quality or the financial position of the banks currently
employed significantly deteriorate, the Investment Manager would
move the cash holdings to another financial institution subject to
restrictions under the loan facilities.
Fair value of trade and other receivables and payables are materially
equivalent to their amortised cost.
Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty
in realising assets or otherwise raising funds to meet financial
commitments. While commercial properties are not immediately
realisable, the Group has sufficient cash resources to meet liabilities.
The Group’s liquidity risk is managed on an ongoing basis by the
Investment Manager investing in a diversified portfolio of prime
real estate and placing cash in liquid deposits and accounts.
This is monitored on a quarterly basis by the Board. In certain
circumstances, the terms of the Group’s bank loan entitles the
lender to require early repayment, and in such circumstances the
Group’s ability to maintain dividend levels and the net asset value
attributable to the ordinary shares could be adversely affected.
As at 31 December 2021 the cash balance was £42,121,000
(2020: £122,742,000).
At the reporting date, the contractual maturity of the Group’s
liabilities, which are considered to be the same as expected
maturities, are outlined in the table below:
Financial Liabilities 2021 3 months
or less
£’000
More than 3 months
but less than one year
£’000
More than
one year
£’000
Total
£’000
Bank loans
51,438 4,313 236,351 292,102
Other creditors
25,371 — — 25,371
76,809 4,313 236,351 317,473
Financial Liabilities 2020 3 months
or less
£’000
More than 3 months
but less than one year
£’000
More than
one year
£’000
Total
£’000
Bank loans
1,438 4,313 241,400 247,151
Other creditors
26,515 — — 26,515
27,953 4,313 241,400 273,666
The amounts in the table are based on contractual undiscounted payments.
93
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Carrying amount of interest-bearing loans and borrowings
248,326 197,849
External valuation of completed investment property and assets
held for sale (excluding lease incentive adjustment)
1,537,450 1,206,780
Loan-to-value ratio
16.2% 16.4%
The Group’s capital balances are set out on page 73 and are regarded as the Group’s equity and net debt.
Interest rate risk
The cash balance as shown in the Balance Sheet, is its carrying
amount and has a maturity of less than one year.
Interest is receivable on cash at a variable rate ranging from
0.2 per cent to 0.6 per cent at the year end and deposits are
re-priced at intervals of less than one year.
Reflecting current expectations around interest, an increase of 1 per
cent in interest rates as at the reporting date would have increased
the reported profit by £0.42 million (2020: increased the reported
profit by £1.2 million). A decrease of 1 per cent would have reduced
the reported profit £0.42 million (2020: decreased the reported profit
by £1.2 million). The effect on equity is nil (excluding the impact of
a change in retained earnings as a result of a change in net profit).
Interest rate risk arises on the interest payable on the RCF only,
as the interest payable on the other facilities are at fixed rates.
At 31 December 2021, the drawdown on the RCF was £50 million
(2020: Nil) so an increase of 1% on the year-end SONIA rate
would have a £500,000 decrease on the reported profit (2020: Nil).
A decrease of 1% on the year-end SONIA rate would have a £500,000
increase on the reported profit (2020: Nil). Assumptions are based
on the RCF drawdown remaining at £50 million for the full year
(2020: Nil), based on the exposure to interest rates at the reporting
date, and all other variables being constant. During the year,
the Group amended its bank facilities in line with Interest Rate
Benchmark Reform with the RCF now referencing SONIA and
further details are provided in note 1(p).
The other financial assets and liabilities of Group are non-interest
bearing and are therefore not subject to interest rate risk.
Foreign currency risk
There was no foreign currency risk as at 31 December 2021 or
31 December 2020 as assets and liabilities of the Group are
maintained in pounds sterling.
Capital management policies
The Group considers that capital comprises issued ordinary
shares, net of shares held in treasury, and long-term borrowings.
The Group’s capital is deployed in the acquisition and management
of property assets meeting the Group’s investment criteria with
a view to earning returns for shareholders which are typically made
by way of payment of regular dividends. The Group also has a policy
on the buyback of shares which it sets out in the Directors’ Authority
to Buyback Shares section of the Directors’ Report.
The Group’s capital is managed in accordance with its investment
policy which is to hold a diversified property portfolio of freehold
and long leasehold UK commercial properties. The Group invests
in income producing properties. The Group will principally invest
in four commercial property sectors: office, retail, industrial and
alternatives. The Group is permitted to invest up to 15 per cent of its
Total Assets in indirect property funds and other listed investment
companies. The Group is permitted to invest cash, held by it
for working capital purposes and awaiting investments, in cash
deposits, gilts and money market funds.
The Group monitors capital primarily through regular financial
reporting and also through a gearing policy. Gearing is defined
as gross borrowings divided by total assets less current liabilities.
The Group’s gearing policy is set out in the Investment Policy
section of the Report of the Directors. The Group is not subject
to externally imposed regulatory capital requirements but does
have banking covenants which it monitors and reports on
a quarterly basis. Included in these covenants are requirements
to monitor loan to value ratios which is calculated as the
amount of outstanding debt divided by the market value of
the properties secured. The Group’s loan-to-value ratio is shown
below. The Group did not breach any of its loan covenants,
nor did it default on any other of its obligations under its loan
arrangements in the year to 31 December 2021.
NOTES TO THE ACCOUNTS
Continued
94 UKCP REIT Annual Report & Accounts
ukcpreit.com
19. CAPITAL COMMITMENTS
The Group had contracted capital commitments as at 31 December
of £41.8 million in relation to three developments.
The Company has committed to forward fund a new 230-bed
student accommodation development in Edinburgh together with
a student residential development in Exeter. The completion of both
is expected to match the start of the 2022/23 academic year.
The Company also acquired, during 2021, a forward
funding three warehouse unit site known as “Sussex Junction”.
This development is fully underway and completion is expected
towards the end of 2022.
20. LEASE ANALYSIS
The Group leases out its investment properties under operating leases.
The future income under non-cancellable operating leases, based on
the unexpired lease length at the year end was as follows (based on
total rentals):
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Within one year
68,672 51,523
Between one and two years
66,842 57,149
Between two and three years
62,038 53,776
Between three and four years
55,589 49,168
Between four and five years
50,049 43,923
Over five years
316,141 316,534
Total 619,331 572,073
The largest single tenant at the year end accounted for 5.1 per cent (2020: 5.4 per cent) of the annualised rental income at 31 December 2021.
The unoccupied property expressed as a percentage of annualised total rental value was 2.1 per cent (2020: 6.5 per cent) at the year end.
The Group has entered into commercial property leases on its investment property portfolio. These properties, held under operating
leases, are measured under the fair value model as the properties are held to earn rentals. The majority of these non-cancellable leases
have remaining non-cancellable lease terms of between 5 and 15 years. Analysis of the nature of investment properties and leases are
provided in the Property Portfolio & Analysis section on pages 29–31.
21. EVENTS AFTER THE BALANCE SHEET DATE
A fourth interim dividend comprised of, PID of 0.466p and Non-PID
of 0.284p was paid to shareholders on the 25 February 2022.
95
EPRA Performance
Measures
96 UKCP REIT Annual Report & Accounts
ukcpreit.com
EPRA PERFORMANCE MEASURES
Unaudited
In October 2019, EPRA issued new best practice
recommendations (BPR) for financial guidelines
on its definitions of NAV measures: EPRA net
tangible assets (NTA), EPRA net reinvestment
value (NRV) and EPRA net disposal value (NDV).
The rationale behind each of these measures is
set out below. abrdn consider EPRA Net Tangible
Assets (NTA) to be the most relevant NAV measure
for the Group and report this as our primary non-
IFRS NAV measure.
Rationale:
EPRA Net Tangible Assets:
The underlying assumption behind the EPRA Net
Tangible Assets calculation assumes entities buy
and sell assets, thereby crystallising certain levels
of deferred tax liability.
EPRA Net Reinstatement Value:
The objective of the EPRA Net Reinstatement
Value measure is to highlight the value of net
assets on a long-term basis. Assets and liabilities
that are not expected to crystallise in normal
circumstances such as the fair value movements
on financial derivatives and deferred taxes on
property valuation surpluses are therefore excluded.
Since the aim of the metric is to also reflect what
would be needed to recreate the company through
the investment markets based on its current capital
and financing structure, related costs such as real
estate transfer taxes should be included.
EPRA Net Disposal Value:
Shareholders are interested in understanding the
full extent of liabilities and resulting shareholder
value if company assets are sold and/or if liabilities
are not held until maturity. For this purpose, the
EPRA Net Disposal Value provides the reader with
a scenario where deferred tax, financial instruments,
and certain other adjustments are calculated as
to the full extent of their liability, including tax
exposure not reflected in the Balance Sheet, net.
31 December 2021
Total
£’000
31 December 2020
Total
£’000
EPRA earnings
34,480 35,203
EPRA earnings per share (pence per share)
2.65 2.71
EPRA Net Tangible Assets (“NTA”)
1,325,228 1,126,976
EPRA NTA per share
102.0 86.7
EPRA Net Reinstatement Value (“NRV”)
1,429,775 1,209,037
EPRA NRV per share
110.0 93.0
EPRA Net Disposal Value (“NDV”)
1,316,068 1,104,341
EPRA NDV per share
101.3 85.0
EPRA Net Initial Yield
3.5% 4.0%
EPRA topped-up Net Initial Yield
3.8% 4.5%
EPRA Vacancy Rate
2.1% 6.5%
EPRA Cost Ratios – including direct vacancy costs
28.6% 33.2%
EPRA Cost Ratios – excluding direct vacancy costs
23.2% 26.7%
EPRA performance measures: Summary Table
31 December 2021
£’000
31 December 2020
£’000
A. EPRA Earnings
Earnings per IFRS income statement
236,233 (10,282)
Adjustments to calculate EPRA Earnings, exclude:
Net changes in value of investment properties
(203,758) 43,992
Loss on disposal of investment properties
2,005 1,493
EPRA Earnings
34,480 35,203
Basic number of shares
1,299,412 1,299,412
EPRA Earnings per share (pence per share)
2.65 2.71
97
EPRA PERFORMANCE MEASURES
Unaudited
31 December 2021
£’000
31 December 2020
£’000
B. EPRA Net Tangible Assets
IFRS NAV
1,325,228 1,126,976
EPRA NTA
1,325,228 1,126,976
EPRA NTA per share
102.0 86.7
31 December 2021
£’000
31 December 2020
£’000
C. EPRA Net Reinstatement Value
EPRA NTA
1,325,228 1,126,976
Real Estate Transfer Tax and other acquisition costs
104,547 82,061
EPRA NRV
1,429,775 1,209,037
EPRA NRV per share
110.0 93.0
31 December 2021
£’000
31 December 2020
£’000
D. EPRA Net Disposal Value
EPRA NTA
1,325,228 1,126,976
Fair value of debt
(9,160) (22,635)
1,316,068 1,104,341
EPRA NDV per share
101.3 85.0
Fair value of debt per financial statements
257,486 220,484
Carrying value
248,326 197,849
Fair value of debt adjustment
9,160 22,635
31 December 2021
£’000
31 December 2020
£’000
E. EPRA Net Initial Yield and ‘topped up’ NIY disclosure
Investment property — wholly owned
1,537,450 1,206,780
Completed property portfolio
1,537,450 1,206,780
Allowance for estimated purchasers’ costs
104,547 82,061
Gross up completed property portfolio valuation
1,641,997 1,288,841
Annualised cash passing rental income
62,900 56,277
Property outgoings
(4,883) (4,456)
Annualised net rents
58,017 51,821
Add: notional rent expiration of rent free periods or other lease incentives
4,366 6,014
Topped-up net annualised rent
62,383 57,835
EPRA NIY
3.5% 4.0%
EPRA “topped-up” NIY
3.8% 4.5%
98 UKCP REIT Annual Report & Accounts
ukcpreit.com
31 December 2021
£’000
31 December 2020
£’000
H. Property-related CapEx
Acquisitions
179,861 24,669
Development
15,274 1,066
Investment properties:
Incremental lettable space
— —
No incremental lettable space
2,803 2,504
Tenant incentives
2,128 1,815
Other material non-allocated types of expenditure
— —
Total capital expenditure incurred
200,066 30,054
31 December 2021
£’000
31 December 2020
£’000
F. EPRA Cost Ratios
Administrative/Impairment on trade receivables/Property operating
expense lines per IFRS income statement
16,660 21,492
EPRA Costs (including direct vacancy costs)
16,660 21,492
Direct vacancy costs
(3,128) (4,255)
EPRA Costs (excluding direct vacancy costs)
13,532 17,237
Gross Rental income less ground rent costs
58,307 64,656
EPRA Cost Ratio (including direct vacancy costs)*
28.6% 33.2%
EPRA Cost Ratio (excluding direct vacancy costs)*
23.2% 26.7%
* Large decrease predominantly due to the movement in bad debt provisioning and write-offs.
Rental growth
£’000
Portfolio value by sector
£’000
Rental growth
£’000
Portfolio value by sector
£’000
G. Like-for-like rental growth reporting 2021 2021 2020 2020
Sector:
Industrial
6,081 975,020 795 697,075
Offices
4,055 219,100 303 198,325
Retail
2,376 186,225 (425) 158,950
Alternatives
(126) 157,105 373 152,430
Total portfolio value
12,386 1,537,450 1,046 1,206,780
Rental growth figures have been computed based on the movement in estimated rental values from prior to current year-end.
All properties held within the portfolio are located within the UK.
99
Environmental, Social,
and Governance
100 UKCP REIT Annual Report & Accounts
ukcpreit.com
ESG PERFORMANCE
Code Performance measures Review outcome
ENVIRONMENTAL
Elec-Abs Total electricity consumption Material
Elec-LfL Like-for-like total electricity consumption Material
DH&C-Abs
Total district heating & cooling
consumption
Not material – none
of the Company’s
assets are connected to
district energy supplies
DH&C-LfL
Like-for-like total district heating
& cooling consumption
Fuels-Abs Total fuel consumption Material
Fuels-LfL Like-for-like total fuel consumption Material
Energy-Int Building energy intensity Material
GHG-Dir-Abs
Total direct greenhouse gas
(GHG) emissions
Material
GHG-Indir-Abs
Total indirect greenhouse gas
(GHG) emissions
Material
GHG-Int
Greenhouse gas (GHG) emissions intensity
from building energy consumption
Material
Water-Abs Total water consumption Material
Water-LfL Like-for-like total water consumption Material
Water-Int Building water intensity Material
Waste-Abs Total weight of waste by disposal route Material
Waste-LfL
Like-for-like total weight of waste
by disposal route
Material
Cert-Tot
Type and number of sustainably
certified assets
Material
SOCIAL
Diversity-Emp Employee gender diversity
Not material – the
Company does not
have any employees
Diversity-Pay Gender pay ratio
Emp-Training Employee training and development
Emp-Dev Employee performance appraisals
Emp-Turnover New hires and turnover
H&S-Emp Employee health and safety
H&S-Asset Asset health and safety assessments Material
H&S-Comp Asset health and safety compliance Material
Comty-Eng
Community engagement, impact
assessments and development programs
Material – see pages
23 and 107
GOVERNANCE
Gov-Board
Composition of the highest
governance body
Material – see main
body of report
(page 55–57 for
content related to
Governance)
Gov-Selec
Process for nominating and selecting
the highest governance body
Gov-CoI
Process for managing conflicts
of interest
Sustainability Performance
This section details the Company’s sustainability performance using the
EPRA Sustainability Best Practice Recommendations Guidelines (sBPR).
It also meets the requirements for Streamlined Energy and Carbon
Reporting (SECR) under the Companies (Directors’ Report) and Limited
Liability Partnerships (Energy and Carbon Report) Regulations 2018.
Explanatory notes on methodology
Reporting period
Sustainability data in this report covers the calendar years of 2020 and 2021.
Organisational boundary and data coverage
For the purposes of sustainability reporting, we have included single-
let assets within the organisational boundary even though operational
control is limited and we have limited coverage of consumption data
from tenant-managed utility supplies. It was judged that these should
be included to enable the reporting of landlord consumption associated
with any void units at these assets. The coverage numbers in the tables
below therefore appear low due to the inclusion of all of the Company’s
assets in the totals. Where there is no data coverage for a sector (for
example, water consumption for unit shops where there was no landlord
consumption during the period), the sector is excluded from the table
but the number of assets in the sector is included in the total possible
coverage number.
The like-for-like portfolio is determined on the basis of assets that
were held for two full reporting years and were not subject to major
refurbishment or development during that time.
Note that the Company does not employ any staff and does not have
its own premises; these corporate aspects fall within the scope of the
Investment Manager.
Emissions calculation
Emissions are calculated in line with the GHG Protocol using UK
Government location-based conversion factors. Scope 1 emissions
include emissions from gas consumption and f-gas losses where
applicable. Scope 2 emissions are those from landlord consumption
of purchased electricity. Scope 3 emissions are those from electricity
sub-metered to tenants and from the transmission and distribution of
electricity. We collect data from tenants where they purchase their own
energy but this exercise is undertaken later in the year to align with
GRESB reporting. As such, tenant-procured energy is not included in
this section.
Normalisation
Net lettable area (NLA) is used as the denominator for all intensities
reported in this section. This is the most appropriate choice for the
Company’s portfolio as it is the most widely available metric. It enables
year-on-year comparisons within the portfolio to be made.
Renewable energy
Several industrial assets in the portfolio have solar PV installed which
is demised to the tenant including the two recently purchased industrial
units at Precision Park, Leamington Spa. We remain in dialogue with
a number of our tenants around further landlord-led PV schemes.
In the reporting period, all landlord-procured electricity was from 100%
renewable sources. Gas consumed was not from renewable sources.
Auditing and assurance
Our utilities data which feeds into our sustainability reporting is
validated by our Utilities Bureau Consultant and checked by our
Sustainability Consultant. We have not sought third party assurance
for the sustainability data included in this report although this is
something we are considering for future years.
Materiality
We have undertaken a review of materiality against each of the EPRA sBPR
indicators. The table below indicates the outcome of the review.
101
Landlord Electricity
(kWh)
Occupier Electricity
i.e. sub-metered to occupiers (kWh)
Total landlord-obtained
Electricity (kWh)
Landlord-obtained Gas
(kWh)
Energy Intensity
(kWh/m
2
)
Indicator references Elec-LfL Elec-LfL Elec-LfL Fuels-LfL Energy-Int
Sector Coverage
(assets)
2020 2021 Change
(%)
2020 2021 Change
(%)
2020 2021 Change
(%)
2020 2021 Change
(%)
2020 2021 Change
(%)
Industrial,
Business
Parks
5 of 7 283,840 122,318 –57% 262,504 283,526 8% 546,344 405,844 –26% 168,201 30,025 –82% 5.23 3.19 –39%
Industrial,
Distribution
Warehouses
1 of 7 212,489 0 –100%
No sub–metered
consumption
N/A 212,489 0 –00%
No landlord
consumption
N/A 6.0 0.0 –100%
Leisure
2 of 3 570,328 434,944 –24% 2,172 1,913 –12% 572,500 436,857 –24%
No landlord
consumption
N/A 23.1 17.6 –24%
Offices 4 of 6 1,295,795 1,345,238 4% 1,194,459 1,249,227 5% 2,490,254 2,594,465 4% 2,441,201 3,305,301 35% 178.6 213.7 20%
Retail,
Warehouses
2 of 4 150,655 192,821 28%
No sub–metered
consumption
N/A 150,655 192,821 28%
No landlord
consumption
N/A 5.5 7. 1 28%
Hotels 1 of 1 23,570 28,806 22%
No sub–metered
consumption
N/A 23,570 28,806 22%
No landlord
consumption
N/A 2.3 2.8 22%
Totals 15 of 31 2,536,677 2,124,127 –16% 1,459,135 1,534,666 5% 3,995,812 3,658,793 –8% 2,609,402 3,335,326
28%
25.2 26.7 6%
Like-for-like energy consumption
Landlord electricity consumption across like-for-like assets
decreased by 16% in 2021. Alongside energy efficiency
improvements, continued reduced occupancy associated with
COVID-19 in office assets during 2021 has affected consumption.
Despite this, there was a 5% increase in the overall electricity
sub-metred to occupiers, driven primarily by small increases
in sub-metred usage in Business Parks and Offices.
In terms of overall landlord electricity procurement,
the overall 8% decrease in electricity consumption was
attributable to business parks, offices and leisure assets;
albeit partially offset by a 28% increase in landlord procured
electricity at Retail Warehouse assets, which was mainly
driven by the presence of vacant (void) units in 2021.
The overall increase in landlord-obtained gas consumption
in 2021 is due to increased gas use at office assets (particularly
Central Square in Newcastle); albeit this was partially offset by
a reduction in the energy procured by the landlord for vacant
units at Ventura Park.
The increase in gas consumption at Central Square is the
result of COVID-19-driven reconfiguration of the fresh-air
intake system, which required additional heating of colder
air, in turn resulting in increased gas consumption. We have
implemented a number of energy saving initiatives across
the portfolio and identified more for future roll-out as part
of asset five year plans. These include, in both 2020 and 2021,
lighting upgrades, BMS optimisation and plant replacement.
ENVIRONMENTAL INDICATORS
Unaudited
Note: Retail Unit Shops are excluded from the table as there is no like-for-like consumption but are included in the total possible coverage number.
102 UKCP REIT Annual Report & Accounts
ukcpreit.com
Scope 1 Emissions
(tCO
2
)
Scope 2 Emissions
(tCO
2
)
Scope 3 Emissions
(tCO
2
)
Emissions Intensity
Scopes 1, 2 & 3
(kgCO
2
/m
2
)
Indicator references No relevant EPRA indicator
Sector Coverage
(assets)
2020 2021 %
Change
2020 2021 Change
(%)
2020 2021 Change
(%)
2020 2021 Change
(%)
Industrial, Business Parks 5 of 7 31 5 –82% 66 26 –61% 72 68 –6% 1.2 0.7 –41%
Industrial,
Distribution Warehouses
1 of 7
No landlord
consumption
N/A 50
No landlord
consumption
N/A 4
No landlord
consumption
N/A 1.5
No landlord
consumption
N/A
Leisure 2 of 3
No landlord
consumption
N/A 133 92 –31% 12 9 –28% 5.8 4.1 –30%
Offices 4 of 6 449 747 67% 331 314 –5% 328 314 –4% 40 50 24%
Retail, Warehouses 2 of 4
No landlord
consumption
N/A 35 41 17% 3.0 3.6 20% 1.4 1.6 17%
Hotels 1 of 1
No landlord
consumption
N/A 5.5 6.1 11% 0.47 0.54 15% 0.6 0.7 12%
Totals 15 of 31 480 753 57% 615 479 –22% 420 395 –6% 5.8 6.2 7%
Note: Retail Unit Shops are excluded from the table as there is no like-for-like consumption but are included in the total possible coverage number.
Note: Scope 3 also includes emissions associated with transmission and distribution losses for all landlord-procured electricity.
Like-for-like greenhouse gas emissions
Scope 1 greenhouse gas (GHG) emissions increased
by 57% in 2021. This increase was driven primarily
by increase gas consumption and refrigerant
losses at Central Square (as detailed in the like-
for-like energy consumption section on page 102),
alongside small increases in gas consumption
at office assets in general in 2021. This Scope 1
GHG increase was partially offset by reduced
gas consumption associated with reduced vacancy
at Ventura Park.
Scope 2 emissions from landlord electricity
consumption reduced by 22% due to the
combination of a reduction in consumption at
Business Park, Leisure and Office assets, alongside
improvements in the emissions intensity of
grid electricity. Scope 3 emissions from energy
sub-metered to occupiers and grid transmission
and distribution losses reduced by 6%.
103
Absolute energy consumption
Absolute landlord electricity reduced by 28% in
2021 as a result of reduced consumption across
Leisure and Office assets, alongside reduced vacancy
at Business Parks and Distribution Warehouses.
In addition, continued reduced occupancy in 2021
as a result of COVID-19 was a contributing factor to
such decreases.
The variation from like-for-like consumption
is due to the Company’s acquisitions and disposals
during 2020 and 2021. In the reporting period,
all landlord-procured electricity was from 100%
renewable sources. Gas consumed was not from
renewable sources.
ENVIRONMENTAL INDICATORS
Unaudited
Landlord Electricity
(kWh)
Occupier Electricity
i.e. sub-metered to occupiers (kWh)
Total landlord-obtained
Electricity (kWh)
Landlord-obtained Gas
(kWh)
Energy Intensity
(kWh/m
2
)
Indicator references Elec-Abs Elec-Abs Elec-Abs Fuels-Abs Energy-Int
Sector Coverage
2020
(assets)
Coverage
2021
(assets)
2020 2021 Change
(%)
2020 2021 Change
(%)
2020 2021 Change
(%)
2020 2021 Change
(%)
2020 2021 Change
(%)
Industrial,
Business Parks
7 of 9
5 of 7 287,102 122,318
–57%
262,504 283,526
8%
549,606 405,844
–26% 168,201 30,025 –82%
4.0 3.2
–21%
Industrial,
Distribution
Warehouses
1 of 9 0 of 11 212,489
No landlord
consumption
N/A
No sub–metered
consumption
N/A
212,489
No landlord
consumption
N/A
No landlord
consumption
N/A 6.0
No landlord
consumption
N/A
Leisure 2 of 3 2 of 3 570,328 434,944 –24%
2,172 1,913 –12%
572,500 436,857 –24%
No landlord
consumption
N/A 23.1
17.6
–24%
Offices
6 of 9 5 of 10 1,674,551 1,362,264 –19%
1,288,065 1,249,227 –3%
2,962,616 2,611,491 –12%
2,879,743
3,307,625 15% 138.8 155.9 12%
Retail,
Warehouses
4 of 8 2 of 6 188,654 192,821 2%
No sub–metered
consumption
N/A 188,654 192,821 2%
No landlord
consumption
N/A 3.8 7.1 85%
Hotels
1 of 1 1 of 1 23,570 28,806 22%
No sub–metered
consumption
N/A 23,570 28,806 22%
No landlord
consumption
N/A 2.3 2.8 22
Totals
21 of 41 15 of 44 2,956,694 2,141,153 –28% 1,552,741 1,534,666 –1% 4,509,435 3,675,819 –18% 3,047,944 3,337,650 10% 22.2 29.6 33%
Note: Retail Unit Shops and any development projects are excluded from the table as there is no landlord consumption but are included in the total possible coverage number.
104 UKCP REIT Annual Report & Accounts
ukcpreit.com
Absolute and like-for-like waste generation
and treatment
We are responsible for waste management
at a number of multi-let assets. Our Waste
Management Consultant undertakes regular
waste audits and works closely with our
Property Manager to implement interventions
to improve segregation of materials and
ultimately increase recycling rates. In total
across the seven assets for which waste is
managed, 215 tonnes of non-hazardous waste
was generated in 2021, with 56% recovered via
energy from waste, and 44% recycled.
There was no waste sent to landfill. Continued
COVID-19-related occupancy levels in 2021 have
resulted in continued low waste generation
figures. Note that like-for-like and absolute
waste generation is very similar, the only
difference being associated with the sale of a
retail warehouse asset (Great Lodge Retail Park)
in late 2020; for which landlord managed waste
was low in 2020 (2 tonnes).
Sector
Coverage
(assets)
Total Waste
(tonnes)
Waste to Landfill
(tonnes)
Waste Recovered
(tonnes)
Waste Recycled
(tonnes)
Indicator
reference
Waste-LfL
2021 2020 2021 2021 2021 2021
Leisure 2 of 3 118 101 0% 0 47% 47 53% 54
Offices 3 of 6 74 93 0% 0 57% 53 43% 40
Retail, Warehouse 1 of 4 20 21 0% 0 100% 21 0% 0
Totals 6 of 31 212 215 0% 0 56% 121 44% 94
Indicator
reference
Waste-Abs
2020 2021 2020 2021
2021
2021 2021
Leisure 2 of 3
2 of 3
118
101 0% 0 47% 47 53% 54
Offices
3 of 9 3 of 9 74 93 0% 0 57% 53 43% 40
Retail, Warehouse
2 of 6 1 of 7 20 21 0% 0 100% 21 0% 0
Totals
7 of 41 6 of 44 212 215 0% 0 56% 121 44% 94
Absolute Water Consumption
(m
3
)
LfL Water Consumption
(m
3
)
Indicator references Water–Abs; Water–Int Water–LfL; Water–Int
Sector Coverage
2020
(assets)
Coverage
2021
(assets)
2020
(m
3
)
2020
Intensity
(litres/m
2
)
2021
(m
3
)
2021
Intensity
(litres/m
2
)
Change
(%)
Coverage
(assets)
2020
(m
3
)
2020
Intensity
(litres/m
2
)
2021
(m
3
)
2021
Intensity
(litres/m
2
)
Change
(%)
Industrial, Business Parks 2 of 9
2 of 7
765
9 3,598 48 370% 3 of 7 765 7 3,598 35 370%
Leisure 2 of 3 2 of 3 514 21 642 26 25% 2 of 3 514 21 642 26 25%
Offices
6 of 9 5 of 10 11,300 268 10,479 276 –7% 4 of 6 10,007 362 9,990 362 0%
Retail Warehouses
2 of 7 2 of 6 1,166 43 375 14 –68% 2 of 4 1,166 43 375 14 –68%
Totals
12 of 41 11 of 44 12,579 85 15,094 91 20% 11 of 31 12,452 80 14,230 78 14%
Absolute and like-for-like water consumption
Water consumption at like-for-like assets increased
by 14% in 2021 and by 20% across the whole portfolio.
These increases were primarily attributable to water
consumption in vacant units at Newton’s Court in
2021, alongside slight increases in water consumption
at leisure assets; likely associated with increased
use compared with 2020, due to slight relaxation of
COVID-19 related restrictions. Note that data coverage
is lower for water than for energy as it is uncommon
to have landlord meters at assets with no internal
common parts or shared services. It should also be
noted that water consumption data includes estimates
associated with account billing, and will be updated
once actual consumption data becomes available.
105
ENVIRONMENTAL INDICATORS
Unaudited
Scope 1 Emissions
(tCO
2
)
Scope 2 Emissions
(tCO
2
)
Scope 3 Emissions
(tCO
2
)
Emissions Intensity
Scopes 1, 2 & 3 (kgCO
2
/m
2
)
Indicator references GHG-Dir-Abs GHG-Indir-Abs GHG-Indir-Abs GHG-Int
Sector Coverage
2020
(assets)
Coverage
2021
(assets)
2020 2021 Change
(%)
2020 2021 Change
(%)
2020 2021 Change
(%)
2020 2021 Change
(%)
Industrial,
Business Parks
7 of 9 5 of 7 31 5.5
–82%
67 26
–61%
72 68
–6% 1.0 0.7 –24%
Industrial,
Distribution
Warehouses
1 of 9 0 of 11
No landlord
consumption
N/A 50
No landlord
consumption
N/A
4.3
No landlord
consumption
N/A
1.5
No landlord
consumption
N/A
Leisure 2 of 3 2 of 3
No landlord
consumption
N/A 133 92 –31% 12 8.6 –28%
5.8
4.1 –30%
Offices
6 of 9 5 of 10 615 748 22% 390 289 –26% 360 314 –13%
32.4
35.6 10%
Retail,
Warehouses
4 of 8 2 of 6
No landlord
consumption
N/A 44 41 –7% 3.8 3.6 –4%
1.7
1.6 –7%
Hotels
1 of 1 1 of 1
No landlord
consumption
N/A 5.5 6.1 11% 0.5 0.5 15% 0.6 0.7 12%
Totals
21 of 41 15 of 44 646 753 17% 689 455 –34% 452 395 –13%
5.3
6.8 29%
Absolute greenhouse gas emissions
Absolute Scope 1 GHG emissions increased by 17%, driven primarily
by gas consumption and refrigerant losses at Central Square (office),
as mentioned in the like-for-like GHG comparison above. Note that
emissions associated with refrigerants are included in this figure
alongside natural gas. Total Scope 2 and Scope 3 emissions reduced
by 34% and 13% respectively. Overall, emissions associated with
landlord-procured energy and refrigerant losses reduced by 10%.
When considered on an intensity basis an increase is reported due
to the effect of consumption associated with vacant units.
Note: Retail Unit Shops and any developments are excluded from the table as there is no landlord consumption but are included in the total possible coverage number.
Note: Scope 3 also includes emissions associated with transmission and distribution losses for all landlord-procured electricity.
Data Type 2019 2020 2021 % Change 2021 vs 2020
% Change 2021 vs 2019
(base year)
Total Scope 1/2 Emissions (tCO
2
e) 1,603 1,330 1208 –10% –25%
Emissions intensity
(kgCO
2
e/m
2
Net Lettable Area)
4.5 4.0 5.1 30% 13%
Total Landlord Energy Consumption (kWh)
6,861,568 6,004,638 5,478,803 –9% –20%
For the purposes of SECR, total Scope 1 and 2 emissions are
also summarised in the following table. Total Landlord Energy
Consumption (kWh) used to calculate Scope 1 and 2 emissions is also
outlined in the table below, and a breakdown of energy type is includes
in the Absolute Energy Consumption table above. Note that the Total
Scope 1 and 2 Emissions reported below include emissions associated
with refrigerant losses as well as energy consumption. Please note that
data has been included back to 2019, which has been chosen as the
baseline year for reporting (primarily given that it was not influenced
by energy/carbon reductions associated with COVID-19 restrictions).
Percentage change has been provided on a 2021 vs 2020 basis, and
2021 vs 2019 basis. Emissions intensity has increased over time due
to the inclusion of landlord consumption associated with vacant units.
It is important to include this data given it forms part of the Company’s
Scope 1 and 2 emissions but when included in intensity calculations it
has the effect of skewing the outcome at the portfolio level.
106 UKCP REIT Annual Report & Accounts
ukcpreit.com
Social Indicators
Health & Safety
Every asset in the portfolio (i.e. 100% coverage)
was subject to a health and safety inspection
during the reporting year, with no incidents of
non-compliance with regulations identified.
Community Engagement
A variety of community engagement activities
were undertaken at leisure assets. This has
included partnerships with local charities on
fundraising activities. A recent example is the
creation of The Summer Garden at Regent Circus
in Swindon which ran during August and
September 2021 and offered the community an
enlivened space to relax and for children to play.
The venue hosted live music and also was also used
by InSwindon, the local BID, for their activities.
At the Rotunda, Kingston, we converted a vacant
former restaurant unit to be used for the press
launch of the inaugural Kingston International
Film Festival, with the launch itself taking place
in January 2022. This included the commission of
a mural in support of the Film Festival. We expect
to offer further support and engagement in the run
up to the event in July 2022.
More broadly, community impacts are assessed
as part of any major development or construction
projects the Company undertakes.
Governance Indicators
The Company has a Board comprised of
five independent/Non-Executive Directors as
detailed on pages 48–49 of this document.
The average tenure of the Board members is
approximately 4.3 years with the longest serving
Director being the Chairman Ken McCullagh at
nine years and the shortest being Fionnuala Hogan
who was appointed in the late summer of 2021.
The Directors bring a broad range of experience
to their roles and all members have a keen focus
on ESG-related topics and in ensuring that the
Company meets its obligations. Alongside the
Manager, Margaret Littlejohns, as Chair of the
Risk Committee, considers the potential risk
posed by environmental factors as part of her role
while Chris Fry, as Chair of the Property Valuation
Committee, has consideration to the impact of
all ESG-related topics to the value of the property
portfolio. All Directors are also members of these
Committees and collectively contribute to the focus
upon environmental and social matters.
Sustainability certifications
Energy Performance Certificate (EPC) ratings for
assets in England owned by the Company are shown
below. For the few units that remain F or G rated,
plans are in place to improve ratings in advance of
lease events and the 2023 MEES deadline.
There are currently six BREEAM-rated assets in
the portfolio. The White Building in Reading and
Central Square in Newcastle have a BREEAM
Excellent ratings. Palletforce in Burton upon Trent,
Regent Circus in Swindon, The Maldron Hotel
in Newcastle and Hannah Close in Neasden all
have Very Good ratings. These assets account
for 17% of the portfolio by gross asset value.
The Company is currently committed to develop
two industrial developments at Precision Park,
Leamington Spa and Sussex Junction, Bolney
which are also expected to achieve a Very Good
rating, as will the student housing development at
Glenthorne Road, Exeter.
EPC RATING % ESTIMATED RENTAL VALUE
A+ 2%
A 9%
B 29%
C 35%
D 15%
E 10%
F 0.02%
G 0.38%
107
NOTICE OF ANNUAL
GENERAL MEETING
Notice is hereby given that the fifteenth Annual General Meeting of UK
Commercial Property REIT Limited will be held at the offices of abrdn,
Bow Bells House, 1 Bread Street, London EC4M 9HH on Thursday,
16 June 2022 at 11:00 for the following purposes.
Ordinary Resolutions
To consider and, if thought fit, pass the following resolutions as
Ordinary Resolutions:
1. To approve and adopt the Report of the Directors and auditor and the
financial statements for the year ended 31 December 2021.
2. To approve the dividend policy of the Company as set out in the
Annual Report.
3. To approve the Directors’ Remuneration Policy.
4. To receive and adopt the Directors’ Remuneration Report for the year
to 31 December 2021 (excluding the Directors’ Remuneration Policy).
5. To re-appoint Deloitte LLP as Auditor to the Company until the
conclusion of the next Annual General Meeting.
6. To authorise the Directors to determine the Auditor’s remuneration.
7. To re-elect Mr Ayre as a Director of the Company.
8. To elect Ms Fionnuala Hogan as a Director of the Company.
9. To re-elect Mr Fry as a Director of the Company.
10. To re-elect Mr McCullagh as a Director of the Company.
11. To re-elect Ms Littlejohns as a Director of the Company.
Special Resolutions
To consider and, if thought fit, pass the following resolutions as
Special Resolutions:
12. That the Directors of the Company be and they are hereby generally
empowered, to allot ordinary shares in the Company or grant rights
to subscribe for, or to convert securities into, ordinary shares in the
Company (“equity securities”), for cash including by way of a sale of
ordinary shares held by the Company as treasury shares, as if any
pre-emption rights in relation to the issue of shares as set out in the
listing rules made by the Financial Conduct Authority under Part VI of
the Financial Services and Markets Act 2000 (as amended) did not apply
to any such allotment of equity securities, provided that this power:
(a) expires at the conclusion of the next Annual General Meeting of
the Company after the passing of this resolution or on the expiry
of 15 months from the passing of this resolution, whichever is the
earlier, save that the Company may, before such expiry, make an offer
or agreement which would or might require equity securities to be
allotted after such expiry and the Directors may allot equity securities
in pursuance of any such offer or agreement as if the power conferred
hereby had not expired; and
(b) shall be limited to the allotment of equity securities up to an
aggregate nominal value of £32,485,312 being approximately
10 per cent of the nominal value of the issued share capital of the
Company (including treasury shares), as at 13 April 2022.
13. That the Company, be authorised in accordance with section 315
of The Companies (Guernsey) Law, 2008, as amended,(the ‘Law’)
to make market acquisitions within the meaning of section 316(I)
of the Law of its own ordinary shares of 25p each (“shares”) (either
for retention as treasury shares for future resale of transfer or
cancellation), provided that:
(a) the maximum number of shares hereby authorised to be acquired
shall be equal to 14.99 per cent of the Company’s issued share capital
on the date on which this resolution is passed;
(b) the minimum price (exclusive of expenses) which may be paid for
a share is 25p, being the nominal value per share;
(c) the maximum price (exclusive of expenses) which may be paid for
a share shall not be more than the higher of (i) an amount equal to
105 per cent of the average of the middle market quotations for a share
taken from the London Stock Exchange’s Daily Official List for the
five business days immediately preceding the day on which the share
is purchased and (ii) the higher of the last independent trade and the
highest current independent bid on the London Stock Exchange;
(d) the authority hereby conferred shall expire at the conclusion of the
next Annual General Meeting of the Company after the passing of
this resolution or on the expiry of 15 months from the passing of this
resolution, whichever is the earlier, unless such authority is renewed
prior to such time; and
(e) the Company may make a contract to purchase Shares under the
authority hereby conferred prior to the expiry of such authority
which will or may be executed wholly or partly after the expiration
of such authority and may make a purchase of Shares pursuant to
any such contract.
By order of the Board
Northern Trust International Fund Administration Services
(Guernsey) Limited
Company Secretary
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Date: 13 April 2022
108 UKCP REIT Annual Report & Accounts
ukcpreit.com
Notes
1. A member who is entitled to attend and vote at the Meeting is entitled
to appoint one or more proxies to attend, speak and vote instead of
him or her. A proxy need not be a member of the Company.
2. More than one proxy may be appointed provided each proxy is
appointed to exercise the rights attached to different shares held by
him or her.
3. A form of proxy is enclosed for use at the Meeting. The form of proxy
should be completed and sent, together with the power of attorney
or other authority (if any) under which it is signed, or a notarially
certified copy of such power or authority, so as to reach Computershare
Investor Services (Guernsey) Limited, The Pavilions, Bridgwater Road,
Bristol BS99 6ZY, not later than 11.00 on Tuesday, 14 June 2022.
4. Completing and returning a form of proxy will not prevent a member
from attending in person at the Meeting. If you have appointed a
proxy and attend the Meeting in person your proxy appointment will
remain valid and you may not vote at the Meeting unless you have
provided a hard copy notice to revoke the proxy to Computershare
Investor Services (Guernsey) Limited, The Pavilions, Bridgwater Road,
Bristol BS99 6ZY no less than 48 hours (excluding any part of a day
that is not a working day) prior to the commencement of the Meeting
as set out above.
5. To have the right to attend and vote at the Meeting (and also for the
purposes of calculating how many votes a member may cast on a poll)
a member must first have his or her name entered on the register of
members at the close of business on the day which is two days before
the date of the Meeting. Changes to entries in the register after that
time shall be disregarded in determining the rights of any member to
attend and vote at such Meeting.
6. The Directors’ letters of appointment will be available for inspection
for fifteen minutes prior to the Annual General Meeting and during
the Meeting itself.
7. As at 13 April 2022, the latest practicable date prior to publication of
this document, the Company had 1,299,412,465 ordinary shares in
issue with a total of 1,299,412,465 voting rights.
8. Any person holding 3 per cent of the total voting rights in the
Company who appoints a person other than the Chair as his proxy
will need to ensure that both he/she and such third party complies
with their respective disclosure obligations under the Disclosure and
Transparency Rules.
109
AIFMD/PRE-INVESTMENT DISCLOSURE
DOCUMENT (“PIDD”)
The Company has appointed Aberdeen Standard
Fund Managers Limited as its alternative
investment fund manager and Citibank UK Limited
as its depositary under the AIFMD. AIFMD requires
Aberdeen Standard Fund Managers Limited, as the
alternative investment fund manager (“AIFM”) of
UK Commercial Property REIT Limited, to make
available to investors certain information prior
to such investors’ investment in the Company.
Details of the leverage and risk policies which the
Company is required to have in place under AIFMD
are published in the Company’s PIDD, which can
be found on its website. The periodic disclosures
required to be made by the AIFM under AIFMD
are set out on page 112.
INVESTOR WARNING: BE ALERT TO SHARE
FRAUD AND BOILER ROOM SCAMS
abrdn has been contacted by investors informing
them that they have received telephone calls
and emails from people who have offered to buy
their investment trust shares, purporting to work
for abrdn.
abrdn has also been notified of emails claiming
that certain investment companies under its
management have issued claims in the courts
against individuals. These may be scams which
attempt to gain your personal information with
which to commit identity fraud or could be
“boiler room” scams where a payment from you
is required to release the supposed payment for
your shares. These callers/email senders do not
work for abrdn and any third party making such
offers/claims has no link with abrdn.
abrdn does not “cold-call” investors in this way. If
you have any doubt over whether a caller is genuine,
do not offer any personal information, end the call
and contact our Customer Services Department
(see next section for the contact details).
The Financial Conduct Authority providers advice
with respect to share fraud and boiler room scams:
www.fca.org.uk/consumers/scams.
KEEPING YOU INFORMED
The Company’s shares are listed on the London
Stock Exchange and the share price is quoted daily
in the Financial Times.
Details of the Company may also be found on
the Company’s own dedicated website at:
ukcpreit.com. This provides information on the
Company’s share price performance, capital
structure, stock exchange announcement and
an Investment Manager’s monthly factsheet.
Alternatively you can call 0808 500 0040 (free
when dialling from a UK landline) for Company
information.
If you have any questions about your Company,
the Investment Manager or performance, please
telephone the Customer Services Department
(direct private investors) on 0808 500 0040.
Alternatively, please send an email to
inv.trusts@abrdn.com or write to abrdn,
PO Box 11020, Chelmsford, Essex CM99 2DB.
In the event of queries regarding holding of shares,
lost certificates, dividend payments, or registered
details, shareholders holding their shares in the
Company directly should contact the registrars,
Computershare Investor Services (Guernsey)
Limited on 0370 707 4040 or by writing to the
address on page 115. Calls may be recorded and
monitored randomly for security and training
purposes. Changes of address must be notified
to the registrars in writing.
HOW TO INVEST IN THE COMPANY
Individual investors can buy and sell shares in
the Company directly through a stockbroker or
indirectly through a lawyer, accountant or other
professional adviser. Alternatively, for retail clients,
shares can be bought directly through abrdn
Investment Plan for Children, Investment Trust
Share Plan or Investment Trust ISA.
abrdn INVESTMENT PLAN FOR CHILDREN
abrdn runs an Investment Plan for Children
(the “Children’s Plan”) which covers a number
of investment companies under its management
including the Company. Anyone can invest in the
Children’s Plan, including parents, grandparents
and family friends (subject to the eligibility
criteria as stated within the terms and conditions).
All investments are free of dealing charges on
the initial purchase of shares, although investors
will suffer the bid-offer spread, which can,
on some occasions, be a significant amount.
Lump sum investments start at £150 per trust,
while regular savers may invest from £30 per
month. Selling costs are £10 + VAT. There is no
restriction on how long an investor need invest
in the Children’s Plan, and regular savers can
stop or suspend participation by instructing abrdn
in writing at any time. In common with other
schemes of this type, all investments are held in
nominee accounts. Investors have full voting and
other rights of share ownership.
abrdn INVESTMENT TRUST SHARE PLAN
abrdn runs a Share Plan (the “Plan”) through
which shares in the Company can be purchased.
There are no dealing charges on the initial purchase
of shares, although investors will suffer the
bid-offer spread, which can, on some occasions,
be a significant amount. Lump sum investments
start at £250, while regular savers may invest
from £100 per month. Selling costs are £10 + VAT.
There is no restriction on how long an investor
need invest in a Plan, and regular savers can stop
or suspend participation by instructing abrdn in
writing at any time. In common with other schemes
of this type, all investments are held in nominee
accounts. Investors have full voting and other rights
of share ownership.
SHAREHOLDER INFORMATION
110 UKCP REIT Annual Report & Accounts
ukcpreit.com
abrdn INVESTMENT TRUST ISA
abrdn operates an Investment Trust ISA (“ISA”)
through which an investment may be made of up
to £20,000 in the tax year 2022/2023.
There are no brokerage or initial charges for the ISA,
although investors will suffer the bid-offer spread,
which can, on some occasions, be a significant
amount. Selling costs are £15 + VAT. The annual
ISA administration charge is £24 + VAT, calculated
annually and applied on 31 March (or the last
business day in March) and collected soon thereafter
either by direct debit or, if there is no valid direct
debit mandate in place, from the available cash in
the Plan prior to the distribution or reinvestment of
any income, or, where there is insufficient cash in the
Plan, from the sale of investments held in the Plan.
Investors have full voting and other rights of share
ownership. Under current legislation, investments in
ISAs can grow free of capital gains tax.
ISA TRANSFER
You can choose to transfer previous tax year
investments to the abrdn Investments Trust ISA
which can be invested in the Company while
retaining your ISA wrapper. The minimum lump
sum for an ISA transfer is £1,000 and is subject to
a minimum per trust of £250.
LITERATURE REQUEST SERVICE
For literature and information on the Investment
Plan for Children, Share Plan, ISA or ISA Transfer
including application forms for the Company and the
Manager’s investment trust products, please contact:
abrdn Investment Trusts Trust
PO Box 11020
Chelmsford
Essex, CM99 2DB
Telephone: 0808 500 00 40
(free when dialling from a UK landline)
Terms and conditions for the abrdn managed
savings products can also be found under the
literature section of www.invtrusts.co.uk.
ONLINE DEALING DETAILS
Investor information
There are a number of other ways in which you can
buy and hold shares in this investment company.
Online dealing
There are a number of online dealing platforms
for private investors that offer share dealing,
ISAs and other means to invest in the Company.
Real-time execution-only stockbroking services
allow you to trade online, manage your portfolio
and buy UK listed shares. These sites do not give
advice. Some comparison websites also look at
dealing rates and terms. Some well-known online
providers, which can be found through internet
search engines, include:
AJ Bell Youinvest; Barclays Stockbrokers/Smart
Investor; Charles Stanley Direct; Equiniti; Halifax
Share Dealing; Hargreaves Lansdown; iDealing;
Interactive Investor; The Share Centre; Stocktrade.
Discretionary private client stockbrokers
If you have a large sum to invest, you may wish
to contact a discretionary private client
stockbroker. They can manage your entire portfolio
of shares and will advise you on your investments.
To find a private client stockbroker visit the Wealth
Management Association at www.pimfa.co.uk.
Independent Financial Advisers
To find an adviser who recommends on investment
trusts, visit www.unbiased.co.uk.
Regulation of Stockbrokers
Before approaching a stockbroker, always check
that they are regulated by the Financial Conduct
Authority:
Tel: 0800 111 6768 or at register.fca.org.uk
Email: register@fca.org.uk
EFFECT OF REIT STATUS ON PAYMENT
OF DIVIDENDS
REITs do not pay UK corporation tax in respect
of rental profits and chargeable gains relating
to property rental business. However, REITs
are required to distribute at least 90% of their
qualifying income (broadly calculated using the UK
tax rules) as a Property Income Distribution (“PID”).
Certain categories of shareholder may be able to
receive the PID element of their dividends gross,
without deduction of withholding tax. Categories
which may claim this exemption include: UK
companies, charities, local authorities, UK pension
schemes and managers of PEPs, ISAs and Child
Trust Funds.
Further information and the forms for completion
to apply for PIDs to be paid gross are available from
the Registrar.
Where the Group pays an ordinary dividend,
in addition to the PID, this will be treated in the
same way as dividends from non-REIT companies.
RETAIL DISTRIBUTION
On 1 January 2014, the FCA introduced rules
relating to the restrictions on the retail distribution
of unregulated collective investment schemes and
close substitutes (non-mainstream investment
products). UK REITs are excluded from these
restrictions therefore, the FCA’s restrictions on
retail distribution do not apply.
Note
Please remember that past performance is not
a guide to the future. Stock market and currency
movements may cause the value of shares and
the income from them to fall as well as rise and
investors may not get back the amount they
originally invested.
As with all equity investments, the value of
investment trusts purchased will immediately
be reduced by the difference between the buying
and selling prices of the shares, the market
maker’s spread.
Investors should further bear in mind that the
value of any tax relief will depend on the individual
circumstances of the investor and that tax rates and
reliefs, as well as the tax treatment of ISAs may be
changed by future legislation.
111
SHAREHOLDER INFORMATION
Continued
AIFMD Disclosures (unaudited)
The Company has appointed Aberdeen Standard
Fund Managers Limited as its alternative investment
fund manager with Citibank UK Limited, replacing
Citibank Europe Plc on 23 October 2021, as its
depositary under AIFMD. The AIFM and the
Company are required to make certain disclosures
available to investors in accordance with the
Alternative Investment Fund Managers Directive
(“AIFMD”). Those disclosures that are required
to be made pre-investment are included within
a pre-investment disclosure document (“PIDD”)
which can be found on the Company’s website
www.ukcpreit.com. There have been no material
changes to the disclosures contained within the
PIDD since its last publication in October 2021.
The periodic disclosures as required under the
AIFMD to investors are made below:
Information on the investment strategy, geographic
and sector investment focus and principal
exposures are included in the Strategic Report.
None of the Company’s assets are subject to special
arrangements arising from their illiquid nature.
The Strategic Report, note 18 to the Financial
Statements and the PIDD together set out the
risk profile and risk management systems in
place. There have been no changes to the risk
management systems in place in the period under
review and no breaches of any of the risk limits
set, with no breach expected.
There are no new arrangements for managing
the liquidity of the Company or any material
changes to the liquidity management systems
and procedures employed by ASFML.
All authorised Alternative Investment Fund
Managers are required to comply with the AIFMD
Remuneration Code. In accordance with the
Remuneration Code, the AIFM’s remuneration
policy is available from Aberdeen Standard Fund
Managers Limited on request (see contact details
on page 115) and the remuneration disclosures
in respect of the AIFM’s reporting period for the
period ended 31 December 2021 are available on
the Company’s website.
Leverage
The table below sets out the current maximum
permitted limit and actual level of leverage for
the Company:
There have been no breaches of the maximum
level during the period and no changes to the
maximum level of leverage employed by the
Company. There is no right of re-use of collateral
or any guarantees granted under the leveraging
arrangement. Changes to the information contained
either within this Annual Report or the PIDD in
relation to any special arrangements in place,
the maximum level of leverage which ASFML
may employ on behalf of the Company; the right
of use of collateral or any guarantee granted under
any leveraging arrangement; or any change to the
position in relation to any discharge of liability
by the Depositary will be notified via a regulatory
news service without undue delay in accordance
with the AIFMD.
The information on pages 110 to 112 has
been approved for the purposes of Section 21 of
the Financial Services and Markets Act 2000
(as amended by the Financial Services Act 2012)
by Aberdeen Standard Fund Managers Limited
which is authorised and regulated by the Financial
Conduct Authority.
Gross
Method
Commitment
Method
Maximum level of
leverage
250% 250%
Actual level at
31 December 2021
118% 118%
112 UKCP REIT Annual Report & Accounts
ukcpreit.com
9 Colmore Row
Birmingham
113
FINANCIAL CALENDAR 2022/23
May 2022
Payment of 2022
first interim dividend
13 April 2022
Announcement of
annual results
July 2022
16 June 2022
Annual General Meeting
August 2022
Payment of 2022 second
interim dividend
September 2022
Release of 2022
Interim Report
October 2022
November 2022
Payment of 2022 third
interim dividend
December 2022
January 2023
February 2023
Payment of 2022 fourth
interim dividend
March 2023
2022
2023
ukcpreit.com
114 UKCP REIT Annual Report & Accounts
CORPORATE INFORMATION
Directors (all non-executive)
Ken McCullagh
Chair
Michael Ayre
Chair of Audit Committee
Margaret Littlejohns
Chair of the Risk Committee
Senior Independent Director
Chris Fry
Chair of Property Valuation Committee
Fionnuala Hogan
Chair of the Management
Engagement Committee and
Nomination and Remuneration Committee
Registered Office
Registered Number
45387
Administrator and Company Secretary
Northern Trust International Fund
Administration Services
(Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
Channel Islands
GY1 3QL
Investment Manager and Alternative
Investment Fund Manager
Aberdeen Standard
Fund Managers Limited
Bow Bells House
1 Bread Street
London
EC4M 9HH
Property Valuer
CBRE Limited
St Martin’s Court
10 Paternoster Row
London
EC4M 7HP
Independent Auditors
Deloitte LLP
PO Box 137
Regency Court
Glategny Esplanade
St Peter Port
Guernsey
Channel Islands
GY1 3HW
Guernsey Legal Advisors
Walkers
12–14 New Street
Guernsey
GY1 2PF
UK Legal Advisors and Sponsor
Dickson Minto W.S.
16 Charlotte Square
Edinburgh
EH2 4DF
Maples Teesdale LLP
30 King Street
London
EC2V 8EE
Registrar
Computershare Investor Services
(Guernsey) Limited
1st floor
Tudor House
Le Bordage
St Peter Port
Guernsey
Channel Islands
GY1 1DB
Principal Bankers and Lenders
Barclays Bank plc
Quay 2
139 Fountainbridge
Edinburgh
EH3 9QG
Barings
Real Estate Advisors Europe LLP
Southwest House
11a Regent Street
London
SW1Y 4LR
Corporate P.R. Advisor
FTI Consulting Limited
200 Aldersgate
Aldersgate Street
London
EC1A 4HD
Corporate Broker
JP Morgan Cazenove
25 Bank Street
Canary Wharf
London
E14 5JP
Depositary
Citibank UK Limited
Citigroup Centre
Canada Square
Canary Wharf
London
E14 5LB
115
ukcpreit.com
GLOSSARY AND ALTERNATIVE PERFORMANCE MEASURES
116 UKCP REIT Annual Report & Accounts
AIC
Association of Investment Companies. The trade body representing closed-ended investment companies.
Annual rental income
Cash rents passing at the Balance Sheet date.
Average debt maturity
The weighted average amount of time until the maturity of the Group’s debt facilities.
Break option
A break option (alternatively called a ‘break clause’ or ‘option to determine’) is a clause in a lease which provides the landlord or tenant
with a right to terminate the lease before its contractual expiry date, if certain criteria are met.
Contracted rent
The contracted gross rent receivable which becomes payable after all the occupier incentives in the letting have expired.
Covenant strength
This refers to the quality of a tenant’s financial status and its ability to perform the covenants in a Lease.
Dividend
A sum of money paid regularly by the company to its shareholders. The Company currently pays dividends to shareholders quarterly.
Dividend cover
The ratio of the company’s net profit
after tax (excluding capital items) to the
dividends paid.
2021 £’000 2020 £’000
Total comprehensive income/(loss) for the year
236,233 (10,282)
Add back:
(Gains)/losses on investment properties
(201,753) 45,485
Profit for dividend cover
34,480 35,203
Dividend paid in the period
37,981 29,886
Dividend cover
91% 118%
Dividend cover (excluding top-up dividend)
111% n/a
Dividend yield
Annual dividend expressed as a percentage of share price.
Earnings per share (EPS)
Profit for the period attributable to shareholders divided by the average number of shares in issue during the period.
EPRA
European Public Real Estate Association. The industry body representing listed companies in the real estate sector.
EPRA Earnings per share
Profit for the period, as defined within EPRA Best Practices Recommendation Guidelines October 2019, divided by the average
number of shares in issue during the period.
ERV
The estimated rental value of a property, provided by the property valuers.
Fair value
Fair value is defined by IFRS 13 as ‘the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date’.
Fair value movement
Fair value movement is the accounting adjustment to change the book value of an asset or liability to its market value, and subsequent changes in market value.
Financial resources
Cash balance less financial commitments plus undrawn amount of revolving credit facility.
Gearing
Calculated under AIC guidance as
gross borrowing less cash divided by
portfolio valuation.
2021 £’000 2020 £’000
Gross borrowings
250,000 200,000
Less cash
(42,121) (122,742)
207,879 77,258
Portfolio valuation
1,537,450 1,206,780
Gearing
13.5% 6.4%
Group
UK Commercial Property REIT and its subsidiaries.
IFRS
International Financial Reporting Standards.
Index linked
The practice of linking the review of a tenant’s payments under a lease to a published index, most commonly the Retail Price Index (RPI),
but also the Consumer Price Index (CPI).
MSCI
An independent organisation supplying an expansive range of regional and global indexes, research, performance modelling,
data metrics and risk analytics across direct property, listed and unlisted vehicles, joint ventures, separate accounts and debt.
Lease incentive
A payment used to encourage a tenant to take on a new Lease, for example by a landlord paying a tenant a sum of money
to contribute to the cost of a tenant’s fit-out of a property or by allowing a rent free period.
MSCI benchmark
Benchmark which includes data relevant to all properties held by funds included in the MSCI UK Balanced Portfolios
Quarterly Property Index Benchmark.
NAV
Net Asset Value is the equity attributable to shareholders calculated under IFRS.
117
MSCI benchmark
Benchmark which includes data relevant to all properties held by funds included in the MSCI UK Balanced Portfolios Quarterly Property Index Benchmark.
NAV
Net Asset Value is the equity attributable to shareholders calculated under IFRS.
NAV total return
The return to shareholders, expressed as
a percentage of opening NAV, calculated
on a per share basis by adding dividends
paid in the period to the increase or decrease
in NAV. Dividends are assumed to have
been reinvested in the quarter they are
paid, excluding transaction costs.
2021 2020
Opening NAV
86.7 89.8
Closing NAV
102.0 86.7
Movement in NAV
15.3 (3.1)
% Movement in NAV
17.6% (3.5%)
Impact of reinvested dividends
3.9% 2.6%
NAV total return
21.5% (0.9%)
Net initial yield (NIY)
The net initial yield of a property is the initial net income at the date of purchase, expressed as a percentage of the gross purchase price
including the costs of purchase.
Ongoing charges
A measure, expressed as a percentage of NAV, of the regular, recurring costs of running an investment company, calculated in line with
AIC ongoing charge methodology.
Over-rented
Space where the passing rent is above the ERV.
Passing rent
The rent payable at a particular point in time.
Portfolio fair value
The market value of the company’s property portfolio, which is based on the external valuation provided by CBRE Limited.
Portfolio total return
Combining the Portfolio Capital Return (the change in property value after taking account of property sales, purchases and capital expenditure in the
period) and Portfolio Income Return (net property income after deducting direct property expenditure), assuming portfolio income is re-invested.
Portfolio yield
Passing rent as a percentage of gross property value.
Premium/Discount to NAV
The difference between the share price and NAV per share, expressed as a percentage of NAV. Premium representing a higher share price
compared to NAV per share, discount the opposite.
Property Income
Distribution
UK REITs are required to distribute a minimum of 90% of the income from their qualifying property rental business. This distribution
is known as a Property Income Distribution (“PID”). PIDs are taxable as UK property income in the hands of tax-paying shareholders.
Rack-rented
Space where the passing rent is the same as the ERV.
REIT
A Real Estate Investment Trust (REIT) is a single company REIT or a group REIT that owns and manages property on behalf of shareholders. In the
UK, a company or group of companies can apply for ‘UK-REIT’ status, which exempts the company from corporation tax on profits and gains from
their UK qualifying property rental businesses.
Rent collection
The percentage of rents paid compared to the rents invoiced over a specified period.
Rent free
A period within a lease (usually from the lease start date on new leases) where the tenant has been granted that they do not have to pay any rent.
Rent review
A rent review is a periodic review (usually five yearly) of rent during the term of a lease. The vast majority of rent review clauses require the assessment of the
open market, or rack rental value, at the review date, in accordance with specified terms, but some are geared to other factors, such as the movement in an Index.
Reversionary yield
Estimated rental value as a percentage of the gross property value.
Revolving Credit
Facility (“RCF”)
A bank loan facility from which funds can be withdrawn, repaid and redrawn again any number of times until the facility expires.
As at date of this report UKCM had a RCF facility of £150 million.
RICS
The Royal Institution of Chartered Surveyors, the global professional body promoting and enforcing the highest international standards in the
valuation, management and development of land, real estate, construction and infrastructure.
Share price
The value of each of the company’s shares at a point in time as quoted on the Main Market of the London Stock Exchange.
Share price total return
The return to shareholders, expressed as a
percentage of opening share price, calculated
on a per share basis by adding dividends paid
in the period to the increase or decrease in
share price. Dividends are assumed to have
been reinvested in the quarter they are paid,
excluding transaction costs.
2021 2020
Opening share price
69.0 88.8
Closing share price
74.7 69.0
Movement in share price
5.7 (19.8)
% Movement in share price
8.3% (22.3%)
Impact of reinvested dividends
4.2% 2.6%
Share price total return
12.5% (19.7%)
Void rate/vacancy rate
The quantum of rent relating to properties which are unlet and generating no rental income. Stated as a percentage of Estimated Rental Value.
ukcpreit.com