Portfolio activity

In May 2022, the Company entered into an agreement to fund a high-quality hotel development in Leeds for a total commitment of £62.7 million. Aimbridge, a leading hotel operator will manage the hotel on UKCM’s behalf under the renowned Hyatt brand, with the lease structured so the Company’s income is solely derived from turnover and performance of the hotel. This is in line with UKCM’s strategy to invest in operational real estate sectors that are expected to deliver resilient and elevated rental incomes in well-researched markets. The 12-storey, 305 room hotel is scheduled to complete in Q3 2024, opening in an already undersupplied market which continues to enjoy a strong recovery since COVID-19. The hotel is targeting a BREEAM Excellent rating and EPC A, as well as positively impacting the local community with the creation of a number of new jobs.

In July 2022, the Company disposed of its 68,400 sq ft central Birmingham office, 9 Colmore Row, to Birmingham City Council at a price of £26.48 million, ahead of book cost and at a premium to the 30 June 2022 valuation. In addition to securing a strong sale price, the disposal reflects a continuation of UKCM’s strategy to exit risk assets and those in need of capital expenditure which will not enhance value, with a particular focus on assets with weaker ESG credentials.

The Company completed its student housing development at Gilmore Place, Edinburgh. We were pleased to secure a 20-year lease with the University of Edinburgh at an annual rent of £1.24 million per annum, which is subject to annual CPIH increases. At the time of purchase we expected to operate and lease the asset directly, but on balance the Board believed the opportunity to de-risk the investment by fixing a long term guaranteed and growing income stream from a first-class tenant covenant, was in the best interests of shareholders. The larger first phase of the Company’s student development at Exeter was completed and its 131 beds are now fully occupied. Phase 2 was completed in Q1 2023 and will provide a further 83 beds with the Company benefitting from a minimum guaranteed total annual income of £1.65 million for the 2022/23 academic year.

Homes for Students has been appointed to manage the asset and interest from students in Phase 2 has been strong. Portfolio occupancy was 98% at year end and this low level of vacancy demonstrates the appeal of the assets to both current and prospective tenants and provides good visibility on income streams.

The Board and the Investment Manager are focussed on driving earnings growth from the portfolio and capturing the reversionary potential of the assets to deliver value for shareholders. Rent collection rates have normalised and returned to pre-Covid levels. Further details on all investment transactions and significant lettings are outlined in the Investment Manager Review.


The 2022 NAV total return decline of -18.1% was driven by a sharp market-wide correction to real estate values, principally in Q4 2022 and primarily to the industrial sector to which UKCM is tilted. Due to the strong potential for rental growth, which your Company is now benefitting from, such stock was highly priced at low yields. With a sudden correction to bank interest rates those low yields suddenly became unsustainable given the predominantly debt-driven market, and despite the ongoing strength of the occupational market, and so the market, led by industrial, corrected and industrial assets experienced their most sudden fall since MSCI records started in 1981.

Over the longer term, the Company has outperformed the AIC Sector – Property – UK Commercial peer group on both a NAV and share price total return basis, delivering 77.9% and 43.1% respectively over ten years, compared to the 52.6% and 17.8% returns from the peer group. The 2022 NAV and share price total return performance was -18.1% and -16.2%. The Company’s strategic overweight position to the industrial sector (59.1% v MSCI 35.9%) was the primary driver of portfolio under-performance over the year against its MSCI benchmark, with a total return of -13.3% versus -9.6% for the benchmark. Positively, over all longer term periods and since its inception, the portfolio continues to outperform its MSCI benchmark. Further details on the Company’s portfolio performance are given in the Investment Manager Review.

The portfolio benefits from strong underlying fundamentals to generate earnings growth. The Company’s EPRA earnings per share increased 19% from 2.65 pence per share to 3.15 pence per share.


2022 was a year dominated by inflationary pressures. The monetary policy tightening phase, which began in earnest to tame inflation, saw interest rates increasing across all major economies. Whilst it appears that we are now past peak inflation globally, 2023 is likely to be another year dominated by inflation and more importantly for real estate, by the interest rate policy of central banks.

Looking forward, and despite the poor performance in 2022, the outlook is more positive for the industrial sector where the Company has a weighting of 59.1%. The size and speed of capital value correction in 2022 means the sector now looks better value relative to other real estate sectors. The sector continues to benefit from structural tailwinds and a positive supply/demand dynamic, with the UK-wide vacancy rate at 3.3% (according to CoStar), a near historic low.

Overall, we expect a recovery in UK real estate performance in 2023. The pace of repricing for UK real estate in 2022 means opportunities will arise over the course of 2023, particularly as the path of monetary policy turns more accommodative. Those sectors that benefit from longer-term growth drivers, such as the industrial and living sectors, will see greater demand return, attracted by re-based yields and rental value growth prospects. We believe that market pricing for these areas of UK real estate is finding a floor more quickly than we have seen in previous cycles. As such, our outlook, and forecasts for these areas of the market, have improved materially. Inflationary pressures are expected to moderate as we move through 2023, with the BoE likely to commence its base rate cutting cycle in the latter part of the year which will provide a more supportive backdrop for real estate pricing.

Overall, the Company, with its clear investment strategy, well-structured portfolio and solid financial footing, is strongly positioned to increase earnings, drive shareholder value and enhance UKCM’s status as one of the UK’s largest diversified REITs.

Read more in the annual report here.