• The Company delivered a NAV total return of 12.3%, outperforming the benchmark
  • There was a 19% increase in portfolio annual rent over the last 12 months
  • The portfolio delivered a total return of 11.2% in the half year, ahead of the MSCI benchmark total return of 8.1%

Portfolio Activity

In line with our strategy of increasing portfolio exposure to operational assets and the alternatives sector, the Company committed to funding the development of a high-quality hotel in central Leeds which will operate under the renowned Hyatt brand. The development has a maximum commitment of £62.7 million and will complete in mid-2024 when it will be operated under a lease by Interstate Hotels & Resorts. We expect it to be one of the best hotels in Leeds on completion and to deliver a high income return as the lease structure means the rents will be derived from the performance of the hotel.

After the reporting period to 30 June 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 the asset’s book cost and at a premium to the latest valuation. In addition to securing a strong sale price, the disposal is in line with the Company’s strategy of exiting 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 has made progress on its student housing developments in Gilmore Place, Edinburgh. We were pleased to secure a strong 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. Whilst the Company had originally expected to operate and lease the asset independently to generate a higher level of rent, the opportunity to secure a lease of this nature to a leading UK University whilst de-risking the asset was felt to be in the best interest of shareholders. The Company will retain operational leasing exposure in the student residential market at its asset in Exeter.

Portfolio occupancy increased to 98.5% within the period 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. Cumulatively across the three relevant billing periods straddling the first half of the year 99% of rents due have been received taking in to account agreed deferrals and monthly payments.

Portfolio and Corporate Performance

The portfolio delivered a total return of 11.2% in the half year, ahead of the MSCI benchmark total return of 8.1%. UKCM has continued to outperform against its MSCI UK Balanced Portfolio Quarterly Index benchmark for 1,3,5 and 10 years.

Further details on the Company’s portfolio performance are given in the Investment Manager’s Review.

The strong portfolio performance allowed the Company to report a 12.3% NAV total return for the period. This strong performance, both absolute and relative to its peers, is not reflected in the share price total return of 2.3% for the same period. The discount at which the Company’s shares traded versus their net asset value increased from 26.8% at the end of December 2021, to 33.5% at 30 June 2022.

Financial Resources

UKCM continues to be on a solid financial footing with a NAV of £1.47 billion as at 30 June 2022, and gearing of 13.7%, meaning the Company it remains one of the lowest geared in its AIC peer group and the wider REIT sector. The weighted average cost of this debt remains low at 2.79% per annum, and the Company continues to be comfortably within the covenants on its three debt facilities. In addition, with over £520 million of unencumbered assets, the Company has significant headroom and further flexibility with respect to its covenants and overall gearing strategy.

On the 19 August 2022 the Group increased its revolving credit facility with Barclays Bank plc to £180 million (Dec 2021: £150 million). There were no other amendments to the agreement. The facility expires in April 2024 and is cancellable at any time.


The Company paid two interim dividends totalling 1.55 pence per share during the period. The second quarter dividend was increased by a further 6.3% to 0.85p per share. This follows a 6.7% increase for the prior quarter and reflects the Board’s continued recognition of the importance of income to shareholders. Dividend cover for the first half of 2022 was 103% and the Board believes the further increase to be appropriate and sustainable given the current level of investment and development activity within the Company.

The Company paid a special dividend of 1.92p per share in August to return some of the strong gains that have been realised over the last number of quarters from capital allocation and asset management initiatives so that all shareholders can benefit from the recent growth in net asset value that is not currently reflected in the Company’s share price.

Environmental, Social and Governance (‘’ESG’’)

ESG is embedded within the processes of UKCM and underpins every Board discussion and decision.

ESG considerations are expected to become even more integral to investor decision making and asset underwriting. This trend was expedited as a result of the Covid-19 pandemic, but with the current energy and climate crisis, the case for the pathway to net-zero and integrating ESG considerations across all UK real estate sectors has never been greater.

Within the 2021 Annual Report & Accounts the Company made a commitment of achieving Net Zero Carbon on Landlord emission by 2030 and Net Zero Carbon on all emissions by 2040 and the Board is focussed on these ambitious targets.


The Company’s discount control policy provides that if the market price of the ordinary shares of 25 pence each in the Company (the “shares”) is more than 5 per cent below the published NAV for a continuous period of 90 dealing days or more, following the second anniversary of the Company’s most recent continuation vote in relation to the discount control policy, the Directors will convene an extraordinary general meeting to be held within three months to consider an ordinary resolution for the continuation of the Company. The most recent continuation vote in relation to the share discount policy was held on 18 March 2020.

The closing market price of the shares had been more than 5 per cent below the published NAV for more than 90 continuous days up to 29 July 2022. In accordance with the discount control policy, the Board is therefore convening an extraordinary general meeting in October 2022 to consider a resolution to approve the continuation of the Company.

The Investment Manager continues to improve earnings and identify attractive opportunities for the Company’s property portfolio and the Board believes it is important for shareholders to approve the continuation vote in order that the Investment Manager may continue to pursue the investment strategy effectively.

Accordingly, the Company will be publishing a circular convening an extraordinary general meeting to consider that continuation resolution and the Board will be recommending shareholders vote in favour of the Company’s continuation. The Company has discussed the upcoming resolution with its largest shareholder, Phoenix, which currently holds in aggregate approximately 43.4 per cent of the Company’s issued shares, and which has indicated it intends to vote in favour of continuation.


We have delivered a strong set of results from our portfolio during the first half of 2022 with further positive leasing momentum by our asset management team driving rental growth and an increase in portfolio valuation. Over the past few years we have taken advantage of our ability to invest in a diversified range of sectors to proactively manage our portfolio towards income growth and security, with a focus on future fit and operational asset classes. Of particular note we have built a strong position in both urban and big box logistics, and the living asset classes, where we are invested mainly in student housing and hotels – in all of these the supply demand imbalance and societal changes continue to be highly supportive of the occupational markets and rental growth.

The underlying pace of the UK economy is clearly slowing whilst inflation is running at multi-year highs. Despite the government’s announcement that energy prices will be frozen to help UK households and businesses, short-term inflation is still set to rise to above 10% in October. The government’s huge fiscal stimulus was always going to cause interest rates to rise further, but the large market moves since the government’s economic agenda was announced suggest even higher rates will be necessary to restore confidence in UK assets. We are sceptical on what is currently priced by markets, but a period of high and sustained rates is likely increasing our conviction that the economy will soon be in a recession. For UK real estate, the environment of rising rates has resulted in a repricing of debt and other asset classes, which has been a catalyst for a change in sentiment towards UK real estate more generally, with prices having started to adjust. Weaker returns are expected for UK real estate over the next 12-18 months, led by the lower yielding industrial and logistics sector although almost all sectors are expected to follow suit. On a positive note the occupational market for the industrial sector remains well balanced, with healthy levels of take-up and a national vacancy at a low 3%. Despite increased development for this sector, build cost inflation and development delays are expected to act as a natural cap on future supply. Meanwhile, the office market is becoming increasingly polarised between truly best in class space and the rest. ESG is playing an increasingly critical role in this regard, as are changing tenant requirements due to hybrid working arrangements, necessitating greater flexibility of space. With the cost of living crisis likely to weigh on consumer spending, the retail sector is more exposed, but this will be felt most acutely for discretionary led retailers, with high street shops and shopping centres more vulnerable.

While we are acutely aware of the broader economic challenges ahead, we believe that we are well placed both in terms of the quality of our portfolio and the strength of our lowly leveraged balance sheet, to continue to deliver shareholder value through a growing level of income.

“We have delivered a strong set of results from our portfolio during the first half of 2022 with further positive leasing momentum by our asset management team driving rental growth.’’

Ken McCullagh, Chairman