Commercial property

UK commercial property hit by bigger discount

UK commercial property REITs2021 results show the company is generating NAV return of 21.5% for the year (well above -0.9% in 2020 following the effects of COVID). A return of 21.4% on wallet was well above the 16.8% return generated by the company’s MSCI index reference. Yields were helped by much better rent collection of 97% compared to 83% for 2020. Occupancy rates also increased from 93.5% to 97.9%.

EPRA Earnings per share fell, however – from 2.71p to 2.65p. The problem was When part of a portfolio is invested in cash or cash-equivalent securities, as opposed to securities which are the portfolio's main focus, the cash component has no market exposure. This effect is referred to as cash drag. 

In a situation where markets are rising, cash tends to underperform markets and cash drag is negative. Conversely, where markets are falling, cash will tend to outperform the market and cash drag will be positive.

" class="glossary_term">cash trail the proceeds of the disposals carried out at the end of 2020 having only been reinvested in the third quarter of 2021. dividend has been increased by 2.3p to 2.923p. The President says this reflects the Read our guide to Boards and Directors

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optimism about the company’s prospects. It also includes an additional dividend to reflect the issues of 2020. The new quarterly dividend rate has been set at 0.75p.

The return that shareholders received was impacted by an increasing discount – they ended up with a full return by 12.5%. The discount was increased from 20.4% to 26.8% and the statement said the board is “actively considering options to reduce the discount“.

In 2021, the company sold £74m worth of property, divesting its last high street retail display as well as Kew Retail Park, the latter at a price reflecting the residential opportunity presented on that site. The trust has also sold two offices – Hartshead House, Sheffield and Network House, Hemel Hempstead, due to tenant concerns commitmentand to remove the biggest void that existed within the portfolio.

£216 million was invested in five acquisitions made during the year. The chairman says the market is becoming increasingly competitive across a narrower range of asset classes, but the company has been able to find off-market deals and create value through development-financed acquisitions forecast. At financial year 

" class="glossary_term">end of the year, the company has three developments underway; 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.

Fee reduction

There has been a decline in investment management fees. From 1 April 2022, the annual fee is 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. Additionally, the company will not be charged for fees on excessive cash balances.

UKCM: UK commercial property hit by bigger discount

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