UK COMMERCIAL PROPERTY REIT
ANNUAL REPORT & ACCOUNTS
for the year ended 31 December 2023
ukcpreit.com
Strategic Report
02
2023 Financial Review
24
Environmental, Social
& Governance (ESG)
04
Performance Summary
34
Taskforce for Climate-Related
Financial Disclosures
05
Company Summary
41
Strategic Overview
08
Chair’s Statement
42
Key Performance Indicators
12
Investment Manager Review
44
Risk Management
22
Property Portfolio
55
Stakeholder Engagement
Governance
58
Corporate Governance Report
71
Nomination & Remuneration
Committee Report
60
Board of Directors and
Management Team
73
Directors’ Remuneration Report
64
Audit Committee Report
76
Report of Directors
68
Property Valuation
Committee Report
80
Directors’ Responsibility Statement
70
Management Engagement
Committee Report
Independent Auditor’s Report and Financial Statements
82
Independent Auditor’s Report
to the Members of UK Commercial
Property REIT Limited
92
Consolidated Statement
of Changes in Equity
90
Consolidated Statement
of Comprehensive Income
93
Consolidated Cash Flow Statement
91
Consolidated Balance Sheet
94
Notes to the Accounts
Other Information
114
Alternative Performance Measures
128
Shareholder Information
115
EPRA Performance Measures
130
Corporate Information
119
ESG Performance
132
Glossary and Alternative
Performance Measures
CONTENTS
1
2023 FINANCIAL REVIEW
6.3
%
Growth in earnings
Adjusted EPRA EPS 3.35p1
4.6
%
Increase in dividend paid
v 2022 — 99% covered
3.0
%
NAV total return
Underlying valuation stability
1 7. 2
%
Gearing2
Strong balance sheet
Source: abrdn, 31 December 2023
¹ Excluding non-cash Cineworld
adjustment announced in
Q2 2023 results
² Calculated under AIC guidance
³ Including Hyatt Hotel,
Leeds, under development
anticipating Q3 completion
⁴ Based on EPRA Adjusted Dividend
Cover excluding Cineworld
adjustment
* ESG = Environmental, Social
and Governance
£1.25bn portfolio benefits
from strong underlying
fundamentals to generate
earnings growth.
POSITIONED
FOR FURTHER
GROWTH
6.3% 2023 earnings growth with
significant 30% future rental
reversion opportunity3
4.6% increase in 2023 dividends
(99% covered4) v 2022
Disciplined capital allocation
Values stabilised producing a NAV
total return of 3.0% for the 2023
calendar year (–1.2% capital movement)
Positive implementation of ESG*
and Net Zero Carbon strategy
Continued strong leasing momentum
2 UKCP REIT Annual Report & Accounts
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2023 FINANCIAL REVIEW
Disciplined
Capital
Management
Strengthened our
balance sheet via
strategic disposals
focussed on lower
yielding assets
and reducing
RCF draw. Alive
to reinvestment
opportunities.
Portfolio
Positioned
for Growth
Strategic
capital
allocation
towards the
industrial
sector which
offers the best
rental prospects.
Asset
Management
Generating
Earnings
193
TENANCIES
(
2022: 196
)
39
PROPERTIES
(
2022: 40
)
7.4 yrs
AVERAGE WEIGHTED
UNEXPIRED LEASE TERM
(
2022: 8.3 yrs
)
Source: MSCI Inc
“UK Commercial Property REIT continues
its strategic focus on earnings growth through
development completion and portfolio reversion.”
PETER PEREIRA GRAY,
CHAIR OF UK COMMERCIAL PROPERTY REIT
UKCM Strategy Aims to Drive Earnings Growth
Focus on asset
management.
Continue momentum
in capturing
rental reversion
opportunities and
impending delivery
of Hyatt, Leeds
development.
Strategic Report Governance Report Financial Statements Other Information
3
PERFORMANCE SUMMARY
CAPITAL VALUES AND GEARING
31 December
2023
31 December
2022
%
Change
Total assets less current liabilities (excl bank loan) £’000
1,259,579 1,327,405 (5.1)
IFRS Net asset value (£’000)
1,023,247 1,035,719 (1.2)
Net asset value per share (p)
78.7 79.7 (1.3)
Ordinary Share Price (p)
62.0 58.4 6.2
Discount to net asset value (%)
(21.2) (26.7) n/a
Gearing (%)#*
17.2 20.0 n/a
TOTAL RETURN
1 year
% return
3 year
% return
5 year
% return
NAV†*
3.0 2.5 1.7
Share price†*
13.1 6.6 (4.7)
UKCM Direct Portfolio
3.9 9.3 12.0
MSCI Balanced Portfolios Quarterly Property Index
(1.9) 3.7 4.3
FTSE Real Estate Investment Trusts Index
11.6 (1.1) 8.3
FTSE All-Share Index
7.9 28.1 3 7.7
EARNINGS AND DIVIDENDS
31 December
2023
31 December
2022
Net profit/(loss) for the year £’000
31,708 (222,329)
Adjusted EPRA Earnings per share (p)
3.35 3.15
IFRS Earnings per share (p)
2.44 (17.11)
Dividends paid per ordinary share (p)
3.40 3.25
Dividend Yield (%)
5.5 5.6
MSCI Benchmark Yield (%)
5.1 4.8
FTSE Real Estate Investment Trusts Index Yield (%)
4.5 4.6
FTSE All-Share Index Yield (%)
4.0 3.6
ONGOING CHARGES AND VACANCY RATE
31 December
2023
31 December
2022
As a % of average net assets including direct property costs*
1.5 1.2
As a % of average net assets excluding direct property costs*
0.9 0.8
Vacancy rate (%)
4.0 2.0
# Calculated, under AIC guidance, as gross borrowings less cash divided by portfolio value.
* See alternative performance measures on page 114 for further details.
† Assumes re-investment of dividends excluding transaction costs.
Sources: abrdn, MSCI
4 UKCP REIT Annual Report & Accounts
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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.
BOARD & MANAGEMENT
ABOUT US
(“UKCM”) is a listed Real Estate Investment
Trust (REIT) with a net asset value of
£1.0 billion as at 31 December 2023.
UKCM is one of the largest diversified
REITs in the UK and is a component of
the FTSE 250 index made up of the largest
350 companies with a primary listing on
the London Stock Exchange.
£1.0bn
Net Asset Value
as at
31 December 2023
£1.3bn
Total Assets
as at
31 December 2023
Launched in
2006
FTSE
250
DIVERSIFIED PORTFOLIODIVERSIFIED PORTFOLIO
This objective is achieved by:
• Constructing a portfolio that is
diversified within the four main
commercial property sectors – Industrial,
Offices, Retail and Alternatives.
• Investing in a portfolio 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.
• Considering Environmental, Social and
Governance factors as integral parts of
the investment process.
Alternatives
Retail
Offices
OBJECTIVE
Industrial
The Company has a Board of five
experienced Non-Executive Directors
who have significant expertise in property,
accounting, risk and tax. UKCM is managed
by abrdn, a top 10 European (inc. UK) real
estate manager with over £39bn of assets
under management across direct and
indirect strategies.
To learn more, visit our website at:
ukcpreit.com
5
Independent
Non-Executive
Directors
5
Strategic Report Governance Report Financial Statements Other Information
No.1
OCADO
Industrial
5.8% of passing rent
No.6
B&Q
Retail Warehouse
2.7% of passing rent
No.7
ODEON CINEMAS LIMITED
Industrial
2.7% of passing rent
No.3
ARMSTRONG LOGISTICS
Industrial
3.6% of passing rent
No.8
DALATA
Alternatives
2.7% of passing rent
No.4
TOTAL
Industrial
3.1% of passing rent
No.9
WARNER BROS. STUDIOS LTD
Industrial
2.5% of passing rent
No.5
KANTAR
Office
2.8% of passing rent
No.10
STUDENTS (EXETER)
Alternatives
2.5% of passing rent
Top 10 Tenants by Rent
Industrial
Asset Allocation vs Benchmark
UKCM
59%
MSCI
35%
MSCI
23%
UKCM
12%
Offices Retail
MSCI
23%
UKCM
14%
Alternatives
MSCI
19%
UKCM
15%
Portfolio Split by Sub Sector
Industrial South East & London 33.9%
Industrial Rest of UK 25.1%
Retail Warehouse 12.0%
Alternatives Hotels 5.4%
Alternatives Leisure 5.2%
Alternatives 4.7%
Student Accommodation
Offices Rest of UK 5.2%
Offices Rest of South East 4.5%
Offices West End 1.8%
Supermarkets 2.2%
2023 PORTFOLIO ANALYSIS
All figures as at 31 December 2023
No.2
PUBLIC SECTOR
Office & Industrial
5.1% of passing rent
33.5% of passing rent
Industrial Offices RetailAlternatives
Portfolio Split by Geography
South East 37.3%
West Midlands 12.6%
London 10.0%
East Midlands 9.7%
South West 8.6%
Scotland 8.4%
Yorks and Humber 6.8%
North East 3.9%
North West 2.7%
7
Strategic Report Governance Report Financial Statements Other Information
CHAIR’S STATEMENT
Dear Shareholder
I am pleased to present the UKCM Annual
Report for the year to December 2023.
The Board can report that the UK market has
recovered a little of the poise that was lost
in the steep decline in commercial property
values experienced in the second half of
2022. The MSCI UK Quarterly property index
recorded a –1.0% total return for the year; a
marked improvement from the –9.1% of 2022.
To set the scene for this muted performance,
the Bank of England (BoE) aggressively
raised interest rates through the first half
of 2023 before settling at 5.25% in their
August 2023 meeting, (and where they
remain at the time of writing). The UK’s
Consumer Price Index (CPI), measuring
inflation, declined over the calendar year
from a peak of 10.4% in February 2023 to
4.0% by December 2023.
In such a context, with interest rates rising
as inflation was falling, the Government’s
10-year Gilt has been relatively volatile.
Starting from a yield as low as 1.13% at the
beginning of January 2022, it peaked at
around 4.5% in September that year, and then
declined to around 3.0% by February 2023.
The later months of the year have seen gilt
yields rise back and surpass that September
2022 peak, hitting 4.75% in August 2023.
At the time of writing, the 10-year Gilt has
fallen back to a yield of around 4.3%, but
the generally increasing rate environment
of 2023 has made it a difficult backdrop for
values to move ahead strongly, especially as
GDP growth has remained lacklustre.
The improvement in property returns
recorded in 2023 (whilst still overall negative)
was led by the industrial and living sectors,
both of which posted positive total returns for
the year, counterbalancing the office sector
which continued its decline as thematic
headwinds remained. The lack of uniformity
across the sectors has been notable and
offered opportunities for diversified portfolio
managers to orientate toward those sectors
which would prospectively perform well.
The industrial market rebounded from
a bruising second half of 2022, posting
a positive annual total return of 4.1% by
the end of the year according to the MSCI
Quarterly Index. Yields stabilised so that
capital value growth levelled out on an
annual basis at the All Industrial level at
–0.4%. London and the Southeast posted
total returns of 3.2% and 4.0% respectively,
and all regions posted positive capital value
changes on an annual basis. Market rental
growth has decelerated from the positive
growth seen in 2022 as levels of supply and
demand became more balanced.
The retail sector posted an annual total
return of –0.1% to December 2023 according
to the MSCI Quarterly Index. The sector
enjoyed something of a year of two halves,
with a relatively robust total return of
2.2% in the first half but reducing again
in the second half as the cost-of-living
pressures cemented themselves in consumer
psychology. Consequential consumer
spending habits and structural changes
in the market continue to influence
performance. Typically, value-conscious
consumers have propelled discount
retailers to the forefront of UK retail sales
and much of the recovery was influenced
by strong performance within the high-
yielding shopping centres and resilient retail
warehousing sub-sectors, with the latter
posting consistent month-on-month rental
growth over the year.
Peter Pereira Gray
Chair
8 UKCP REIT Annual Report & Accounts
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Strategic Report
“During the year, we continued to focus on
increasing earnings, controlling our gearing
and delivering a strong underlying operational
performance of the Company.”
The office sector continued to underperform,
delivering an annual total return of –10.2% to
December 2023 according to the MSCI
Quarterly Index. Weakening capital values
led this decline, with the deterioration
accelerating over 2023 as the Bank of England
raised interest rates. An uneven performance
across the sector was experienced as London
West End offices were substantially stronger
at –2.4% total annual return than the –13.9%
and –15.4% for the City of London and wider
Southeast respectively. Market rental value
growth was also uneven with Midtown
and West End offices leading the pack with
an annual 4.8% and 4.4% respectively,
compared to 2.4% for the year for all offices.
The alternatives sector, or ‘Other’ as
categorised by MSCI, saw an annual total
return of –0.3% over 2023. Notable within
these returns were a resilient living sector,
benefitting from a supply demand imbalance.
Purpose Built Student Accommodation
(PBSA) delivered strong total returns of 2.7%,
with a return of 1.4% delivered solely in Q4.
Elsewhere, the hotel market reversed its
recent fortunes in the face of sustained
cost of living pressures and delivered
above All Property total returns at 0.8% to
December 2023.
2024 has started with a renewed confidence
and whilst ‘caution’ is the watchword,
the market is displaying the hallmarks of
producing a positive annual return for the
year which would be welcomed by many.
The Real Estate Investment Trust market is
seen by some as a leading indicator of the
direct market, and share prices have moved
ahead in recent months, triggered by clear
anticipation of an improving macroeconomic
picture and the consequent potential for
corporate transaction activity. The direct
property market is expected to follow later
in the year and should continue to improve
into 2025 if lower interest rates result from
inflation stabilising. At the time of writing,
oil and commodity prices are rising which
suggests the path to lower interest rates and
uninterrupted economic growth might not
be straightforward.
In such a diverse out turn across sectors,
assets and regions, the Company’s managers
have done well to record a relatively strong
positive total return, meaningfully exceeding
the MSCI Benchmark index for the year which
we report on page 11.
Portfolio and Corporate Performance
Earnings Growth — the Company delivered
a net £4.9 million p.a. increase in rental
income from active asset management
(excluding lease incentive adjustments)
and three development completions
(243,000 sq ft) during the year.
Interest costs have been managed carefully
and the company has shown considerable
balance sheet discipline. For example,
during the year, the Company sold an
industrial asset in Wembley at 3.49% initial
yield and paid down its revolving credit
facility (RCF) which had an interest cost of
approx. 7.2% hence significantly enhancing
net earnings on this sum.
Dividend cover on adjusted EPRA earnings
for 2023 was 99% with an expectation of this
improving later in 2024 as asset management
initiatives come through.
3.35*
3.15
2.65
2021 2022 2023
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
4.0
*Excluding non-cash Cineworld adjustment announced in Q2 2023 results
Adjusted EPRA EPS
9
Strategic Report Governance Report Financial Statements Other Information
NAV Stability — Valuations stabilised
following the aggressive market repricing
in the final quarter of 2022, recording a
-1.2% net asset value movement in 2023.
Taking into account the positive earnings
for the year, the Company’s NAV total
return was 3% for the year.
The Board continued to authorise capital
expenditure throughout the year to invest
in assets that would drive future earnings
growth. The majority of capital was
utilised to progress the Company’s Hyatt
hotel development in Leeds which is
expected to generate a 7.25% yield on cost
when it completes later this year, and
which should contribute to enhanced
earnings for the company overall.
Disciplined Balance Sheet Management —
Mindful of the uncertain macroeconomic
and geopolitical environment at the
current time, the Company continues
to maintain a prudent approach to debt
to allow it to maintain a robust balance
sheet. Gearing remains low relative to
UKCM’s peer group at 17.2% (2022:20.0%)
across its three debt facilities, as calculated
using AIC methodology.
All debt covenants are well covered and there
is an additional £330 million of unencumbered
property which provides further significant
headroom and flexibility with respect to the
Company’s covenant package.
UKCM consequently had financial resources
of £91 million available at the end of the year,
after allowing for future capital commitments
and the February 2024 dividend. The bulk
of these resources relate to the Company’s
reduced RCF which is currently a relatively
expensive form of debt and so only likely to
be deployed if a compelling and accretive
opportunity arises.
*Calculated under AIC guidance
3.9%
3.0%
2.3%
4.7%
3.9%
1.2%
0.9%
–1.9%
1 year
UKCM
3 years (% pa) 10 years (% pa)5 years (% pa) Since inception (% pa)
Benchmark
6.0%
5.4%
8%
6%
4%
2%
–2%
–4%
0
Blended
Group LTV
17.2
%
*
Blended Period
to Maturity
4.7yrs
Weighted cost
of drawn debt
3.56
%
Drawn debt
at Fixed Rate
84
%
Opening NAV
31 December
2022
Gross
Valuation
Movement
Capital
Expenditure
Net
Revenue
Closing NAV
31 December
2023
Quaterly
dividends
paid
82.5
80.0
77.5
75.0
72.5
70.0
67.5
65.0
85.0
79.7
78.7
(3.4)3.4
(2.3)
1.3
UKCM NAV Movement in 2023
CHAIR’S STATEMENT
Continued
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As mentioned, the combination of balance
sheet and asset management has led to a
property performance of 3.9% total return
from UKCM’s high quality portfolio, which
represents a strong 1-year outperformance of
5.8%. against the MSCI benchmark. UKCM’s
Board and Manager are pleased to report long-
term outperformance of the property portfolio
against the MSCI Benchmark over all the
traditional time periods of 1, 3,5 and 10 years
as shown above.
Portfolio Activity
Further details on all investment transactions
and significant lettings during 2023 are
outlined in the Investment Manager Review.
Post the December 2023 year end, at the end
of January 2024, the Company completed the
sale of its Craven House office in London’s
West End for £22 million at December 2023
valuation, representing a 4.6% net initial
yield. The Company believes that the benefits
of recycling sale proceeds to reduce floating
rate debt costing 7.2% at this time outweighed
the planning risk and capital expenditure that
would have been required to generate future
rental growth from the asset.
Furthermore, at the end of February 2024,
the Company completed the sale of its Temple
Quay office in Bristol for £14.5 million, in line
with the year end December 2023 valuation.
Although well located in Bristol, the property
was close to the end of its economic life with
a short lease remaining. The Investment
Manager worked on many options but
concluded that the property would require
a significant injection of capital to rejuvenate
the asset, which, together with planning risk
and a redevelopment period would have
resulted in an extended period of no income.
Dividends
The Company paid four interim dividends
totalling 3.40 pence per share during the
period. This represents a 4.6% increase in
ordinary distributions over the year, a level
which was 99% covered. Positive initiatives
in hand within the portfolio are anticipated
to give the Board an opportunity to keep this
dividend level under review in 2024.
Environmental, Social and
Governance (“ESG”)
The Board fully appreciates the importance of
embedding ESG within our ways of working,
and ESG considerations underpin every Board
discussion and decision. Whilst taking ESG
seriously is of critical importance to the world
in general, the Board believes that it also plays
a critical role in both protecting and creating
future value for the company’s portfolio, and
that the Board’s focus on ESG at the company
and asset level will lead to enhanced income
for shareholders.
Real estate has a very large role to play in
our environment, and the Company has
previously announced two significant Net
Zero Carbon targets 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. Further details on all targets are
outlined in the ESG Report.
I would like to thank my fellow Board
members and the Investment Manager
for their considerable commitment to the
company over the reporting year, and it has
been gratifying to see the share price improve
markedly to the benefit of shareholders over
this time.
Recommended all-share combination
On 21 March 2024, the Company announced
they had reached agreement on the terms of
a recommended all-share combination with
Tritax Big Box REIT plc (“BBOX”) pursuant
to which BBOX will acquire the entire issued
and to be issued ordinary share capital of the
Company (the “Combination”).
The Combination is conditional on, among
other things, the approval of the Company’s
shareholders at a Court Meeting and a General
Meeting to be held on 2 May 2024.
For full details of the Combination,
please refer to the scheme document
published by the Company on 9 April 2024,
available through the Company’s website
at ukcpreit.com/en-gb/merger
Peter Pereira Gray
Chair
19 April 2024
Source: MSCI UK Balanced Portfolios Quarterly Property Index
3.9%
3.0%
2.3%
4.7%
3.9%
1.2%
0.9%
–1.9%
1 year
UKCM
3 years (% pa) 10 years (% pa)5 years (% pa) Since inception (% pa)
Benchmark
6.0%
5.4%
8%
6%
4%
2%
–2%
–4%
0
11
Strategic Report Governance Report Financial Statements Other Information
INVESTMENT MANAGER REVIEW
2023 Review
Following a steep decline in commercial
property total returns in the second half
of 2022, the UK market began to find its
footing during 2023. The MSCI UK
Quarterly property index recorded a –1.0%
total return, a marked improvement from
2022’s –9.1%. This improvement was assisted
by the resilient industrial and living sectors,
both of which posted positive total returns
for the year, despite further interest rate
increases working their way into real estate
valuations. In particular, the office sector
continued its decline across 2023 as thematic
headwinds remained.
On a macro plane, the Bank of England
(BoE) aggressively raised rates through
the first half of 2023 before settling at
5.25% in their August meeting where they
have remained since. UK gilts responded,
tracking up steadily with the base rate.
However, gilts began to shift inwards as
market expectations of a BoE pivot filtered
through during the latter half of the year.
Positively, the UK’s Consumer Price Index
(CPI), measuring inflation, steadily declined
over the calendar year from a peak of 10.4%
in February 2023 to 4.0% by December
2023. As the economy cooled off, lacklustre
GDP growth followed flipping into negative
territory over the second half of the year.
Back in property, cross-sector performance
was not equal across 2023 with some of the
trends which emerged and grew over the year
taking hold. Consumer spending habits and
structural changes remain front and centre.
Notably, value-conscious consumers have
propelled discount retailers to the forefront
of UK retail sales which, in turn, has directly
fed into strong performance within the retail
warehouse sector. The “beds” element of the
alternative sector showed greater resilience
where hotels capitalised on strong room rate
growth and student accommodation sector,
helped by lack of supply and robust demand,
posted market-beating returns. Polarisation
extended to the asset-level, with best-in-class
assets outperforming secondary space across
logistics and offices alike.
Will Fulton
UKCM Lead Fund Manager
“The portfolio
strongly
outperformed
over the year,
almost 6% ahead
of its MSCI
benchmark,
with a total
return of 3.9%
versus –1.9% for
the benchmark.”
12 UKCP REIT Annual Report & Accounts
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Strategic Report
Offices — Review
The office sector continues to underperform,
delivering an annual total return of –10.2%
to December 2023 according to the MSCI
Quarterly Index. Weakening capital values
led this decline, with the deterioration in
values accelerating over 2023 as the Bank
of England raised interest rates.
London West End offices were substantially
ahead at –2.4% compared to –13.9% and
-15.4% for the City of London and wider
Southeast respectively. Market rental value
growth provides a similar story, with
Midtown and West End offices leading
the pack at 4.8% and 4.4%, respectively,
compared to 2.4% for all offices.
As has been the trend post-Covid, concealed
within these figures is an occupational story
of sustained flight to best-in-class quality
where the emphasis is on assets with the
strongest sustainability credentials and
amenities. Outdated and out of fashion stock
is therefore experiencing both the highest
levels of vacancy and greatest fall in value.
A dwindling pipeline due to rising interest
rates and elevated construction costs will
only reinforce this trend over the medium
term as occupiers embrace flexible working
strategies and undesirable offices struggle to
reduce vacancies.
Retail Warehouse / Supermarkets
— Review
The retail sector posted a total return of
–0.1% to December 2023 according to the
MSCI Quarterly Index, beating all property
returns of –1.0%. This blends a retail year
of two halves with outperformance in H1,
a relatively robust total return of 2.2%, but
reducing in H2 as the cost of living pressures
cemented themselves. Despite a slowdown,
retail has performed well in context of the
significant rebasing seen over 2022.
Much of this recovery was influenced
by strong performance within the high-
yielding shopping centres and resilient
retail warehousing sub-sectors, with the
latter posting consistent month-on-month
rental growth over the year.
Much of the relative performance within the
retail warehousing sub-sector comes from
the continued resilience of discount retailers.
Value supermarkets and discount homeware
brands have been significant beneficiaries
of the persistent savvy consumer under
sustained cost of living pressures. This is
evident within ONS retail sales data through
the widening divergence between retail
sales values and volumes as consumers
increasingly spend more for less.
Although consumer confidence is rising, this
is hesitantly filtering into overall retail sales
as discretionary spending remains subdued.
And as value operators look to expand
further, a limited pipeline should support
further rental growth in this sub-sector
providing value-seeking consumers do not
move too far further from standard retailers
as e-commerce gains market share.
Industrial — Review
The industrial market rebounded, posting
a positive annual total return of 4.1% by
the end of the year according to the MSCI
Quarterly Index; as yields stabilised capital
value growth levelled out on an annual basis
across all industrial at –0.4%. London and
the Southeast posted total returns of 3.2%
and 4.0% respectively, and all regions posted
positive value changes on an annual basis.
Market rental growth has decelerated
from the near-parabolic positive values
seen over 2022 as levels of supply and
demand reconfigure. In terms of demand,
national take-up over 2023 declined 40%
year-on-year to 29.1m sq ft according to
Savills, though this represents a 12% increase
over pre-Covid levels. Manufacturing, food
retailers, and third-party logistics operators
(‘3PL’) led take-up figures at 24%, 17%,
and 15%, respectively. Similarly, overall
investment volumes reached £9.4 billion
according to Real Capital Analytics (RCA),
down from the £15.8bn seen over 2022 but
nearer the long-term average.
Availability rose across the UK during 2023
as occupiers recalibrated their immediate
requirements for space, although units over
200,000 sq ft are in notably short supply with
the greatest need in the South East for 3PLs.
Rental values within this sub-sector of the
market will likely continue to be squeezed
as costs remain too high to justify Build-
to-Suit space and e-commerce captures
more of the post-Covid retail sales market,
driving demand. Market rental growth is still
expected to remain positive in the near term
across all industrial, albeit at a slower pace
than recent years due to incoming supply.
With consumer confidence rising and the
prospect of rate cuts feeding through in the
second half of 2024, occupiers will likely feel
more confident in demand-driven expansion
plans as the economy improves.
Alternatives — Review
The alternatives sector, or ‘Other’ as
categorised by MSCI, saw a total return
of –0.3% over 2023, outperforming the all
property return of –1.0%. Notable within
these returns were a resilient living sector,
benefitting from a supply demand imbalance,
and a surprisingly resilient hotel market.
Purpose Built Student Accommodation
(PBSA) delivered strong total returns
of 2.7%, with a return of 1.4% delivered
solely in Q4. Elsewhere, the hotel market
reversed its recent fortunes in the face
of sustained cost of living pressures and
delivered above all property total returns
at 0.8% to December 2023.
Although occupational demand for hotels is
intrinsically linked to consumer sentiment,
domestic ‘staycations’ and post-Covid travel
demand has resulted in strong revenue per
available room (RevPAR) growth over 2023.
According to PWC, new supply is due to add
pressure on occupancy rates but due to the
segmented nature of the hospitality industry,
and consumer purchasing power, returns
are expected to be felt unequally with better
prospects in the budget, and potentially
London luxury lines.
There is a widening supply imbalance of
purpose built student housing (PBSA) as
current and forecasted students enrolled
at UK universities outstrips beds by some
margin. This lack of availability has put
significant upward pressure on market
rental values and a decline has not been seen
over the last thirteen quarters according to
the MSCI Quarterly Index. The imbalance
is expected to persist as development is
constrained by elevated build costs and
unfavourable financing conditions.
13
Strategic Report Governance Report Financial Statements Other Information
INVESTMENT MANAGER REVIEW
Continued
Portfolio Performance
Following the disruption witnessed at the end
of 2022 when the market experienced a rapid
rerating of property yields, 2023 was a more
stable year for the market in general, and
positive for UKCM’s portfolio.
The portfolio strongly outperformed over
the year, almost 6% ahead of its MSCI
benchmark, with a total return of 3.9% versus
–1.9% for the benchmark. Additionally, over
all MSCI’s longer recorded time periods and
since its inception, the portfolio continues to
outperform its benchmark.
Industrial — Performance
The Company maintains a deliberately high
weighting to the industrial sector which
benefits from continued structural tailwinds
in occupier demand and upward pressure
on rental values. Although vacancy levels
have risen throughout the year, they remain
generally low, particularly in London and
other key markets. It was again the strongest
performing sector in 2023. UKCM benefits
from a weighting of 59% at the end of Q4 2023,
compared to 35% for the benchmark.
The industrial assets returned 8.9% over
2023 compared to the benchmark return of
3.7%. This outperformance was driven by far
stronger growth in the portfolio of 4.9% while
the benchmark recorded a capital decline of
0.7%. The Company has a far higher weighting
to South East industrials than the benchmark
(35% vs. 21% at end Q4 2023) which saw the
strongest correction in yields in 2022 and
some of this has been recovered this year.
Many of UKCM’s assets, which were already
highly reversionary saw further strong ERV
growth throughout the year. As a result
this component of the portfolio delivered
capital growth of 6.5% while the benchmark
declined –0.4%.
Offices — Performance
The Company has a maintained a deliberately
underweight position to the office sector,
which faces challenges from reduced occupier
demand as tenants continue to assess the
long-term impact of hybrid work patterns
on their need for offices. At the same time,
there is increased pressure on landlords to
invest capital in their assets to both attract
those tenants in the market and to comply
with forthcoming minimum energy standards
legislation. At the end of Q4 2023 the
Company had a weighting of 12% compared
to the benchmark of 23%. UKCM has since
reduced its office exposure further with the
sale of Craven House, London for £22m in
January 2024 and Temple Quay in Bristol for
£14.5m in February 2024.
The office portfolio recorded a disappointing
total return of –10.4% driven by a capital
decline of –16.0%. Whilst this negative return
is disappointing it is slightly ahead of the
benchmark office total return of –11.1% for
the period. The benchmark saw slightly less
capital decline at –14.6% however UKCM
office assets delivered a far stronger income
return of 6.6% while the benchmark income
return was 4.1%.
Retail — Performance
At the end of Q4, retail assets made up 14% of
the Company’s portfolio compared to 23% for
the benchmark.
The performance of the Company’s retail
portfolio was ahead of the benchmark
delivering a total return of 3.7%, while
the benchmark was –0.3%. UKCM has no
shopping centres and no pure high street
retail exposure within its retail portfolio,
which comprises of bulky goods and discount-
led retail warehouses and supermarkets.
These assets have proven to be resilient and
are perceived to be the preferred format for
both retailers and shoppers as opposed to
shopping centres or traditional high streets.
The Company’s retail assets did experience
a mild capital decline of –2.3% which was far
less than the benchmark at –5.9%. UKCM’s
retail assets also delivered a stronger income
return of 6.2% versus 5.9% for the benchmark
The Company’s retail warehouse parks, which
form most of the retail portfolio, strongly
outperformed their benchmark, delivering
a total return of 4.4% whilst the benchmark
recorded a return of 1.9%. UKCM’s retail parks
experienced a mild capital fall of 1.6% whilst
the benchmark saw a decline of 4.1%.
8%
–10 %
–8%
–6%
–4%
–2%
0%
2%
4%
6%
P.A.
Percentile Rank
UKCM
Benchmark
0 100755025
–1.9
3.9
Source: MSCI
Distribution of Portfolio Returns
All assets performance for the 12 months
to December 2023
Rank
21
out of 162
14 UKCP REIT Annual Report & Accounts
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Strategic Report
Investment Activity
There was limited transactional activity in
2023, which reflects our confidence in the
construction of the portfolio, the strength
of the underlying assets and prioritising
reducing RCF borrowings ahead of
reinvestment. However, two strategic sales
were completed, within and just outside the
reporting period, demonstrating UKCM’s
disciplined approach to capital allocation.
Both were low-yielding assets completed
at a blended yield of 3.8%, and both have
limited ability to grow rents in the short term.
The receipts have been used to repay the
Company’s Revolving Credit facility which
currently costs c.7.2% (February 2024), which
is accretive to earnings.
In May, UKCM sold its 186,455 sq ft Wembley
180 logistics asset in London to Covent
Garden IP Limited, a registered charitable
company for a consideration of £74 million,
which reflects a net initial yield of 3.49%.
The sale was completed above the 31 March
2023 valuation.
The asset had been owned since 2009 and its
asset management plan was completed when
it was refurbished in 2019 and relet to Amazon
until 2029. The ability to access the full
underlying market rent was inhibited until
lease expiry as the upcoming rent review was
linked to CPI inflation with cap on the uplift.
At the end of January 2024, Craven House in
London’s West End was sold for £22 million
in line with its latest valuation, representing
a 4.6% net initial yield. The office is well
positioned and let to film and TV production
company Molinare.
The sale was motivated by our belief that
benefits of recycling sale proceeds to reduce
floating rate debt outweigh the potential
to grow rents at the building which would
expose UKCM to planning risk and significant
capital expenditure in repositioning the asset.
Development Activity
The Company continues to invest in its
portfolio and is moving towards completion
of its 305 bedroom Hyatt-branded hotel
at Sovereign Square, Leeds, expected in Q3
2024. The development lies to the south of
the city’s main railway station and is a short
walk from key city centre attractions and
businesses. The hotel’s accommodation
will be split between the short stay Hyatt
Place and the extended stay Hyatt House
brands. The upscale hotel will provide
meeting rooms, a gym and several food and
beverage options, including a rooftop bar
with its own dedicated entrance. The original
specification has also been enhanced by
UKCM from an ESG perspective with systems
that will operate on an ‘electric-only’ basis
with no gas supply required.
The Hyatt-branded hotel will be operated
under a lease by Aimbridge Hospitality,
a global leader in hotel operation, with the
Company’s rental income based on turnover.
The acquisition is in line with UKCM’s
strategy to invest in operational real estate
sectors that are expected to deliver resilient
rental incomes and are backed by both
strong local fundamentals and high quality
properties. The development has progressed
well throughout the period.
Alternatives — Performance
The Company’s alternative assets slightly
underperformed the benchmark return of
–0.9%, delivering a return of –2.6% in 2023.
This was the result of more negative capital
movement in the portfolio of –8.3% whilst
the benchmark saw a capital movement of
–5.7%. The Company’s Alternatives delivered
a stronger income return of 6.1%, ahead of the
benchmark income return of 5.1%.
In aggregate, the portfolio’s 15% weighting
to the Alternatives sector is below the
benchmark 19%. This will increase with the
final completion of the new 305 bed Hyatt
Hotel in central Leeds scheduled for Q3 2024.
The future rent from this development is
linked directly to the trade of the hotel.
Given the quality of the hotel, strength of the
Hyatt brand and the dynamics of the Leeds
market, we expect this to deliver an attractive
elevated income return against a traditional
leased hotel.
The make-up of the Alternatives element
of the portfolio has been deliberately tilted
towards the ‘living sectors’ having developed
two student housing developments in
Edinburgh and Exeter in recent years
adding to the successful Maldron Hotel in
Newcastle. The remaining Alternatives assets
are three cinema-anchored leisure schemes:
The Rotunda in Kingston, Cineworld in
Glasgow, and Regent Circus in Swindon.
Within the year we took steps to stabilise
Cineworld’s occupation of the Glasgow and
Swindon assets, reducing their rent to a level
that should allow them to trade profitably,
although this had a negative impact on the
assets’ valuations.
5%
4%
3%
2%
1%
0
–1%
–2%
–3%
4.7%
3.9%
3.0%
1.2%
2.3%
0.9%
3.9%
–1.9%
1 year
UKCM
3 years
(% pa)
5 years
(% pa)
Since inception
(% pa)
Benchmark
Source: MSCI UK Balanced Portfolios Quarterly Property Index
15
Strategic Report Governance Report Financial Statements Other Information
INVESTMENT MANAGER REVIEW
Continued
Asset Management Activity
Rent collection rates within the portfolio
remain strong, with 99% of rents due across
2023 collected. This is in line with levels
reported in 2022. Where arrears have accrued,
we remain in dialogue with tenants to
maximise recovery.
The average weighted unexpired lease term
of the portfolio is 7.4 years at the end of
the year. This compares to the benchmark
unexpired term of 9.4 years. At 31 December
2023, 28% of the portfolio rent is subject to
a form of index-linked rent review or fixed
increases. The Company has maintained a
very low vacancy rate of 4%, which is half
the level reported in the benchmark over the
same period at 8%. This reflects the strength
of the underlying assets in the portfolio and
their appeal to tenants.
The following asset management activity
on pages 16 to 18, grouped by sector
with percentage occupancy shown as at
31 December 2023, represents a summary
of noteworthy transactions:
Industrial — Asset Management
95% Occupied
Ventura Park, Radlett
2023 began with very strong letting activity
at the multi-let estate Ventura Park,
Radlett, when the 31,803 sq ft Unit B was
let to Aerospace Reliance Ltd, which
supplies aircraft maintenance materials
worldwide, at a rent of £558,025 per annum
(£17.55 per sq ft p.a.). The tenant entered
a 10 year lease, with a tenant only break
option in year 5. A seven month lease
incentive was provided as the tenant
accepted the unit in its current condition
without the need for any Landlord works
or additional capital contribution.
Unit 7 was let to Location Collective Ltd,
a Film & Media Production Company at
a rent of £1,455,880 per annum (£17 per sq ft
p.a.). The property has an area of 85,640 sq ft
and the tenant entered a 15 year lease with
a mutual break in year 12. An incentive of
twelve months rent free has been provided
to the tenant. Demonstrating the ability to
drive rental income and capture reversion
in the portfolio, these two new leases equate
to a 69% increase on the previous rent paid
over the units.
Emerald Park, Bristol
There has been strong letting and asset
management activity at Emerald Park, the
multi-let estate in Bristol. Unit 111 was let to
South West Ambulance Service on a 10 year
lease without break at a rent of £92,022 per
annum (£10.50 per sq ft p.a.) for the 8,764 sq ft
unit with a lease incentive of nine months’
rent free. The new rent is 21% ahead of the
previous passing rent and is also ahead of
ERV. Unit 101 extending to 22,500 sq ft was
let to Northgate Vehicle Hire Ltd on a new
10 year lease, subject to a tenant break in
year five at £247,500 p.a. establishing
a new rental tone of £11 per sq ft. The agreed
rent is 31% ahead of the previous rent over
the unit and in line with ERV.
Five tenants committed to new leases at the
Estate in the year with UPS agreeing a five
year lease extension on its 22,524 sq ft unit
at a rent of £247,000 per annum, equating
to £11 per sq ft while Medequip extended its
lease for seven years, subject to a break in
year five, over its 5,815 sq ft unit at a rent of
£60,900 per annum, equating to £10.50 per
sq ft. Erik’s Industrial Services Ltd renewed
its lease on the 8,097 sq ft. Unit 110 for a
further 10 years, subject to a break option in
year five. The renewal has increased the rent
generated at the unit by 24% to £85,000 p.a.,
reflecting £10.50 per sq ft.
30%
25%
20%
15%
10%
5%
0%
Dec
2024
Dec
2025
Dec
2026
Dec
2027
Dec
2028
Dec
2029
Dec
2030
Dec
2031
Dec
2032
Dec
2033
Dec
2034
Dec
2035
Dec
2036
Dec
2037
Dec
2038
and
beyond
Portfolio Expiries
(% rental income)
Benchmark Expiries
(% rental income)
6.2
11.0
9.7
9.5
15.1
8.6
9.0
9.1
4.9
7.1
4.4 4.4
2.5
3.8
7.3
4.2
9.8
4.0
1.2
2.8
8.9
2.3
6.7
2.6
6.2
2.6
1.4
3.2
6.7
24.9
Source: MSCI
16 UKCP REIT Annual Report & Accounts
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Strategic Report
A further two tenants also committed to
long-term leases with CarCo Ltd, the tenant
at unit 201, entering a new 10 year lease from
expiry of its existing lease in August 2024.
The lease incorporates a day one upwardly
only rent review to the open market rent
which will allow us to capture reversion at
that time. The Secretary of State, tenant at
unit 203, also entered a 10 year reversionary
lease ahead of their lease expiry in March
2024, subject to a break option at the end
of year five. The rent will also be agreed via
an upward only rent review. We expect to
capture further significant reversions from
these leases.
Gatwick Gate, Crawley
Espresso Solutions became the latest tenant
at the multi-let industrial estate agreeing
a new 10 year lease, subject to a five year
break option, over Unit 3A. The annual rent
of £144,625 p.a. equates to £13.00 per sq ft
which is in line with ERV and 25% ahead of
the unit’s previous passing rent. Two tenants
also committed to longer leases at the
Estate within the period. A 3 year
reversionary lease was agreed with DFS
at a rent of £256,000 (£12.74 per sq ft) per
annum reflecting an increase of 5.6% from
the previous rent and in line with ERV.
A 12 month extension over Unit 2B was agreed
with Airbase at a rent of £13.50 per sq ft,
equating to £330,000 per annum, increased
from £11.50 per sq ft representing a
significant rental increase and improving
the Estate’s rental tone.
Dolphin Industrial Estate,
Sunbury-on-Thames
Webcon, a supplier of car parts, agreed a
five-year lease renewal for the c.10,000 sq ft
Unit 1 at UKCM’s Dolphin Industrial Estate
a multi-let estate in Sunbury-on-Thames.
The new lease increased annual rental
income on the unit by 63% to £155,000.
A very significant rental uplift was also
agreed at rent review over the 64,488 sq ft
unit D1/2, which is let to Transglobal Freight
Management. The new rent of £1,096,000
(£17.00 per sq ft) represents a 56% increase
on the previous passing rent.
Newton’s Court Dartford
A 30% uplift on the previous passing rent
was secured at Newton’s Court multi let
industrial estate in Dartford on a new lease
over Unit 2 when Flint Hire & Supply Ltd
entered into a 15-year lease with a tenant-only
break option in year ten, at an annual rent
of £214,377 p.a. (£14.50 per sq ft p.a.) and
a six month rent free period. The lease set
a record rent for the estate. Importantly,
the Company was able to sign Flint as a
replacement for the previous occupier
on a back-to-back basis without any
vacancy period. Smart Access Platforms also
renewed the lease over their 6,650 sq ft unit.
The tenant entered a new ten year lease with
a tenant only break option in year five and
a new rent of £92,500 per annum, equating
to £14.00 per sq ft. The agreed rent is in line
with the asset’s latest ERV and is 29% higher
than the previous rent passing.
Offices — Asset Management
94% Occupied
At the multi-let office, The White Building,
Reading we completed an outstanding
rent review from September 2022 over the
13,348 sq ft fifth floor with the tenant Roc
Search at a rent of £460,506 (£34.50) per
annum, reflecting an increase of 1.5% from
the previous rent of £453,832 per annum.
While this reflects a marginal increase,
it helps to substantiate the ERV across the
wider building.
A further lease renewal was completed
at 18% above the previous passing rent on
6,700 sq ft at the Company’s Central Square
office in Newcastle upon Tyne. Trimble
UK Limited has taken a new 10 year lease,
subject to a tenant break option at year 5,
at a rent of £156,250 or £23.00 per sq ft.
Ventura Park,
Radlett
17
Strategic Report Governance Report Financial Statements Other Information
INVESTMENT MANAGER REVIEW
Continued
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.
The Company has made the following
commitments:
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.
Energy Performance Certificates (EPCs)
Energy Performance Certificates (EPCs),
which each property legally requires,
form a powerful regulatory measure by
which government can encourage the UK
property industry to decarbonise. Draft
legislation applying to England and Wales
indicates that all property must have an
EPC of class A, B, or C by 2027 and A or B
by 2030. The legislation and rating scale
in Scotland are different and there are
currently no similar minimum standards
based on the EPC system.
86% of the Company’s portfolio by
ERV is currently rated A, B, or C.
This is a positive position; however
every property is kept under review
and where asset level interventions are
required, we aim to do so at commercially
sensible times such as lease expiries or
during renewal discussions. There are also
instances within the portfolio where
there is no need to make improvements
as the asset will be entirely redeveloped
to a modern and fully compliant
specification at lease expiry.
Our embedded approach to ESG is carried
through to our approach to development
where we target an EPC of A as well
as strong BREEAM ratings. With the
forthcoming development completion
in Leeds, we expect the percentage of
the portfolio with an EPC rating of A-C
to increase.
Given the significance, and at times quite
technical content of ESG and its application,
we have dedicated a separate section of our
report to ESG matters.
EPC Rating by ERV
A&B C D E
6%
45%
41%
8%
Retail — Asset Management
100% Occupied
UKCM’s retail warehouse parks remain fully
occupied at the end of 2023 reflecting the
strength of their locations. Their popularity
with our current tenants is evidenced by
three strong lease renewals agreed at Trafford
Retail Park in Manchester.
Carpetright, the tenant at Unit 4 which
extends to 10,069 sq ft agreed a new 10 year
lease at a rent of £161,100 p.a. (£16 per sq ft),
representing a 13% increase on the previous
passing rent in line with ERV. Kentucky
Fried Chicken, which occupies the
2,388 sq ft unit 4 agreed a new 20 year lease
term with a tenant only break option at the
end of year 15. The rent of £83,580 per annum
(£35 per sq ft p.a.), reflects a 17% increase in
passing rent and a 9% premium to ERV.
At the end of the year Iceland Foods Ltd t/a
Food Warehouse at Unit 5 agreed a new 5 year
reversionary lease from expiry of its existing
lease on 1 March 2026, incorporating a day one
upwardly open rent review. At the Company’s
other two retail parks, Junction 27 in Leeds
and St Georges Retail Park in Leicester, the
focus remains on completing lease renewals
and rent reviews to secure and grow rents.
Alternatives — Asset Management
98% Occupied
Glenthorne Road, Exeter
Phase 2 of UKCM’s student hall development
close to the University of Exeter was
completed in Q1 2023. The 214 room
development benefits from excellent
amenity, including a gym and cinema room,
and has secured high occupancy in its first
full year of trading. The property is managed
by Homes for Students and is currently the
top rated student development in Exeter on
Student Crowd, the independent student
rating website. There is strong letting
interest for the forthcoming 2024/2025
Academic Year.
Cineworld Restructuring
The Company has successfully retained
Cineworld at Glasgow and Swindon
following negotiations in relation to its
US Chapter 11 process. The agreement
involved a restructuring of the leases to
vary turnover and base rent terms to reduce
the tenant’s annual outgoings ensuring the
cinemas are profitable. The Company agreed
a reduction in Cineworld’s rent representing
c.1% of the annualised portfolio valuation
rent at the nearest quarter day of 30 June
2023. The retention of Cineworld as a tenant
ensures these two assets remain occupied
and income producing.
18 UKCP REIT Annual Report & Accounts
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Strategic Report
ESG Case Study
On Trafford Retail Park, Manchester, an
ESG focussed initiative was completed
with the resurfacing and remodelling of the
customer car park. An additional access
lane was introduced to assist vehicle access
and egress from the extremely popular,
heavily used retail park. A sustainable
construction method was used involving
the shredding, rather than landfilling,
of 1,700 tyres.
Watch a 1 minute video of this initiative
at ukcpreit.com
These were incorporated in the
resurfacing material, reducing the
bitumen component, and in turn
reducing the use of fossil fuels. Recycled
plastic drinks bottles were also used in
the manufacture of the replaced slot
drains that serve the property.
Trafford Retail Park,
Manchester
19
Strategic Report Governance Report Financial Statements Other Information
INVESTMENT MANAGER REVIEW
Continued
Market Outlook
2024 has started with renewed but cautious
confidence as investors anticipate that the
market is close to an inflection point. Led
by the REIT market and triggered by clear
anticipation of an improved macro-picture,
the direct property market is expected to
follow later in the year and into 2025 as
interest rates are reduced, inflation stabilises,
and economic growth appears.
The REIT market has been stimulated by an
expectation that interest rates have peaked
and are set to fall mildly in 2024 and more
materially into 2025, and coupled with a sense
of more controlled and declining inflation.
The direct property market is set to follow
later in 2024 and into 2025 as lower rates are
embedded and economic growth picks up.
The REIT sector ended the year on a high,
taking the FTSE EPRA Nareit UK Index to a
total return of 10.7% for 2023, significantly
outperforming the FTSE All-Share Index’
s 7.9% over the same period. The UK listed
real estate index has historically led the UK
direct real estate sector by six-to-nine months,
which adds weight to the argument that the
fortunes for the latter will improve over the
course of 2024.
Encouragingly, the direct UK property
market saw a slowing of value declines and
stabilisation across many sectors in 2023,
when compared with 2022. All Property
capital decline in 2023, according to the
MSCI quarterly index data, was 5.7% when
compared to 2022’s decline of 12.8%. Total
return –1.0% 2023 versus –9.1% in 2022. It
remains the case that not all sectors are equal,
far from it in fact, with a wide range in cross-
sector performances.
Sectors benefitting from structural and
thematic tailwinds, such as the logistics and
living sectors are a clear example of this trend,
proving to be more resilient in the face of a
weaker macroeconomic environment and
outperforming the wider market with total
returns of 4.1% and 1.6% respectively.
The office sector was the laggard over the
course of the year, facing some structural
challenges with a negative return of 10.2%
during the year. In overview, following erratic
UK GDP data in the final quarter of 2023,
we expect a stagnant economy in 2024 with
growth of 0.2%, followed by growth of 1.5%
in 2025 which would, we believe, materially
improve business confidence.
The UK economy fell into a technical
recession in the second half of 2023, after Q4
GDP declined by 0.3%. However, there are
tentative signs that activity growth has started
to recover in 2024, helped by falling inflation
and easier financial conditions. Recession-
like conditions look set to continue into 2024,
with the prospect of further fiscal easing to
be announced in March helping limit the
extent of the downturn. We anticipate an
Autumn 2024 UK general election which
will undoubtedly create some short-term
fog around forecasting. However, based on
our base case political outcome, we do not
anticipate any economic shock to result.
Inflation was softer than expected in January,
holding steady at 4%. Higher energy prices
were offset by weakness in core inflation.
The bigger picture is that headline inflation
is still expected to fall further over the course
of 2024, aided by favourable base effects.
Meanwhile, cooling wage growth should help
to bring down underlying inflation pressure
down too. We forecast UK CPI headline
inflation to fall to 2.6% by the end of 2024,
and to 2.2% by 2025.
The Bank of England’s (BoE) rate-setters
voted 8-1 to maintain the UK policy rate at
a 16-year high of 5.25% at their March 2024
meeting. Importantly, BoE governor Andrew
Bailey signalled that the UK is moving in
the right direction to start cutting rates.
Overall, the meeting indicated a less hawkish
position from voting members, with two
Monetary Policy Committee (MPC) members
who had previously voted for an increase
in rates, opting to keep rates on hold at the
March meeting.
Inflation is trending lower, but the BoE have
maintained their stance that the labour
market remains a key determining factor
when it comes to their rate setting objectives.
We expect rate cuts to start in June 2024, with
the policy rate reaching 4.25% by the end of
2024 and 3.0% by the end of 2025.
Whilst yields have rebased outwards across all
UK real estate sectors, the rental cycle remains
positive for structurally supported sectors.
This is particularly the case for the logistics
sector, where structural drivers continue to
support demand at a time when the supply
pipeline remains constrained. Whilst vacancy
rates have picked up in the industrial sector,
they remain low in a historical context at
an estimated 4.1% at year-end according to
CoStar data. Importantly, the increased cost of
capital, higher construction costs and limited
availability of suitable sites have reduced the
sector’s development pipeline providing the
platform for continued rental growth over the
medium to long term.
With a weaker economic growth backdrop
anticipated in 2024, greater attention will
be placed on occupier strength and
capturing reversion. Both take-up and
investment levels are expected to trend
towards long-term historical averages,
following a Covid-19 induced surge in
both metrics.
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Strategic Report
Sentiment towards the office sector remains
weak as the sector grapples with new working
habits, environmental regulation, and an
increase in capital expenditure requirements.
The most recent data indicates that vacancy
rates across all major office sub-markets
have started to plateau, but at elevated levels
compared with historical averages. This is
being driven by the availability of second-
hand space as occupiers rationalise their
office footprint in light of a fundamental shift
in working habits.
Despite a consistent improvement in office
occupancy rates across the UK in 2023, it is
unlikely that we will see this translate into
any meaningful improvement in the vacancy
rate as businesses become more selective
about the quality of office stock they want
to occupy. However, the availability of truly
best-in-class office accommodation remains
in short supply and is creating a two-tier
leasing market, even producing rental growth
for prime office assets. Any office that falls out
with this definition will see further pressure
on rents in 2024. Yields, for all offices remain
under negative pressure.
The retail sector faced a challenging year in
2023, with low consumer confidence creating
a headwind. Month-on-month retail sale
volumes fell by 3.2% in December 2023,
according to the Office for National Statistics
(ONS), with retail sales down 2.4% compared
to December 2022. Black Friday tempted some
consumers to bring forward their spending
to November, which partly explains the
slowdown in December’s retail sales.
Positive real wage growth has the potential to
provide some support for the sector, although
we do not expect it to materially alter retail
fortunes this year given the ongoing cost-of-
living pressure. We retain a more favourable
outlook for retail warehousing, largely
because of lower vacancy, lower operating
costs for retail tenants, and with footfall and
tenant base both proving resilient considering
the cost-of-living pressures.
We expect an improvement in UK property
performance as we move through 2024,
driven by improved investor confidence and
greater liquidity in the market. The catalyst
for an improvement in the fortunes for UK
real estate is the increasing likelihood of an
interest rate cutting cycle in the second half
of 2024, matched to a repriced real estate
market, and the prospect of a more positive
real estate yield margin.
While the macro environment will continue
to dominate as we move through 2024, sector
allocation will remain crucial. Polarisation
in performance from both a sector and
asset-quality perspective will remain a key
differentiator for performance. Real estate
refinancing poses a risk to our outlook in
2024, but we believe that the risk is more
heavily skewed towards the office sector,
given the amount of outstanding debt and
lack of appetite for lending in this sector.
Sectors that benefit from longer-term
growth drivers, such as the industrial and
logistics sector, will continue to garner the
most interest from investors. It is unlikely
that there will be a material change in
investor sentiment towards the office sector,
but more attractively priced re-positioning
opportunities will emerge over the course
of 2024, with debt re-capitalisation and
funds working through redemption
queues the most likely source of product.
However, underwriting assumptions,
particularly around capital expenditure,
are crucial. Long income assets now look
more attractively priced, and we anticipate
there will be some good buying opportunities
in this area of the market in 2024.
Will Fulton
abrdn
19 April 2024
21
Strategic Report Governance Report Financial Statements Other Information
PROPERTY Tenure Sector Principal Tenant Value Range
1 Ventura Park, Radlett
Freehold Industrial Warner Bros Studios Ltd
Over £70m
(representing
24.1% of the
portfolio
capital value)
2 Dolphin Estate, Sunbury on Thames
Freehold Industrial
Trans Global Freight
Management Ltd
3
Ocado Distribution Unit,
Hatfield Business Area, Hatfield
Freehold Industrial Ocado Retail Ltd
4 Newton’s Court, Dartford
Freehold Industrial Veerstyle Ltd
£40m–£70m
(representing
20.5% of the
portfolio
capital value)
5 Junction 27 Retail Park, Birstall, Leeds
Freehold Retail Warehouse Barker & Stonehouse Ltd
6 XDock 377, Magna Park, Lutterworth
Leasehold Industrial Armstrong Logistics Ltd
7 The Rotunda, Kingston upon Thames
Freehold Alternatives Odeon Cinemas Ltd
8 Emerald Park East, Emersons Green, Bristol
Freehold Industrial Knorr-Bremse Systems Ltd
9 Maldron Hotel, Newcastle
Leasehold Alternatives Dalata Group plc
£20m–£40m
(representing
44.2% of the
portfolio
capital value)
10 Trafford Retail Park, Manchester
Freehold Retail Warehouse Dunelm (Soft Furnishings) Ltd
11 B&Q, Roneo Corner, Romford
Freehold Retail Warehouse B&Q Plc
12 Hyatt Hotel, Leeds — Funding
Leasehold Alternatives
Under Development
(PC date — Q3 2024)
13 St Georges Retail Park, Leicester
Freehold Retail Warehouse Aldi Stores Ltd
14 Gilmore Place, Edinburgh
Freehold Alternatives Edinburgh University
15 Glenthorne Road, Exeter
Freehold Alternatives Direct letting to university students
16 The White Building, Reading
Freehold Office Barracuda Networks Ltd
17 Centrum 260, Burton on Trent
Freehold Industrial Palletforce plc
18 Total, Aberdeen Gateway, Aberdeen
Freehold Industrial Total E&P UK Ltd
19 Sussex Junction, Bolney
Freehold Industrial CGG (UK) Ltd
20 Kantar, London
Freehold Office Kantar UK Ltd
21 Axiom, Precision Park, Leamington Spa
Freehold Industrial Public Sector
22 Gatwick Gate Industrial Estate, Crawley
Freehold Industrial International Logistics Group Ltd
23 Dalewood Road, Newcastle Under Lyme
Freehold Industrial TK Maxx Ltd
24 Tetron Point, Swadlincote
Freehold Industrial Clipper Logistics plc
25 Craven House, Fouberts Place, London, W1
Freehold Office Molinaire Ltd (Sold January 2024)
26 81–85 George Street, Edinburgh
Freehold Office Clydesdale Bank plc
27 Integra, Precision Park, Leamington Spa
Freehold Industrial Iron Mountain (UK) Ltd
28 Whittle Road, Stoke on Trent
Freehold Industrial Bestway Pharmacy NDC Ltd
29 Interlink Way West, Bardon
Freehold Industrial Roca Ltd
£0m–£20m
(representing
11.2% of the
portfolio
capital value)
30 Aura, Precision Park, Leamington Spa
Freehold Office Tata Technologies Europe Ltd
31 No.2 Temple Quay, Bristol
Freehold Office Public Sector (Sold February 2024)
32 Asda, Torquay
Freehold Supermarkets Asda Stores Ltd
33 Cineworld Complex, Glasgow
Freehold Alternatives Cineworld Group plc
34
Central Square Offices,
Forth Street, Newcastle Upon Tyne
Freehold Office
Ove Arup & Partners
International Ltd
35 14–22 West Street, Marlow
Freehold Supermarkets Sainsbury’s Supermarket Ltd
36 Cannock Watling Street
Freehold Industrial Rhenus Logistics Ltd
37 Tetra, Aberdeen Gateway, Aberdeen
Freehold Industrial Tetra Technologies UK Ltd
38 Units G &H, Precision Park, Leamington Spa
Freehold Industrial Vacant
39 Regent Circus, Swindon
Freehold Alternatives WM Morrison Supermarkets plc
Overall number of properties
39
Total number of tenancies
193
Total average property value
£32.1
Total floor area
6,217,983 sq ft (excluding Hyatt)
Freehold / Leasehold (leases over 100 years)
92% / 8%
Industrial Offices Retail Warehouse Alternatives SupermarketKey:
23
Strategic Report Governance Report Financial Statements Other Information
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
UKCM 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. Such outcomes
can also have a positive or negative affect on
investment performance.
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.
The Investment Manager’s ESG approach
groups material sustainability indicators
into four main categories:
(i) Environment & Climate,
(ii) Demographics;
(iii) Governance & Engagement; and
(iv) Technology & Infrastructure.
The Investment Manager has identified
21 different ESG ‘indicators’ that sit
beneath these four main categories.
These 21 ESG indicators are considered
by the Investment Manager to be the
most material ESG topics applicable to
real estate, and the risks and opportunities
associated with each indicator are assessed as
part of the Company’s investment decisions.
This approach allows the identification
and promotion (where relevant) of material
ESG risks and opportunities relevant to
a fund’s investment strategy, sector and
geography. These guide the Company’s
prioritisation and integration of ESG factors
at the fund and asset level, whilst providing
a structure for engagement with, and
reporting to stakeholders.
Centrum 260,
Burton on Trent
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UKCM ESG Priorities
and Commitments
The Company has previously outlined a
number of key priorities, which are derived
from the Investment Manager’s 21 material
ESG indicators that are considered as part of
the investment process.
The Company’s priorities fall under four
broad themes which form the basis for our
actions at portfolio level. The four themes are:
Carbon reduction and energy efficiency
Resilience and physical climate risk
Land and water contamination
Value to society
As mentioned above, climate change
represents one of the most material ESG
risks and opportunities to the Company.
With regard to transition climate risks
(net-zero), the Company announced its
pathway to achieving Net Zero Carbon in its
annual report on 2021, following a baseline
net-zero analysis completed earlier in 2021.
The Company’s commitments are as follows:
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).
The following provides an overview of
definitions of the different emissions scopes:
Scope 1 and 2: Cover emissions that directly
result from the landlord’s activities where
there is operational control, either through
the purchase or 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.
While there are no standard industry
definitions of net-zero carbon for real estate,
the Company has been working to build-out
its own definitions, which are detailed in the
table on page 29.
The Company’s strategy for achieving Net Zero
Carbon is fully detailed under the heading,
Transition Climate Risks, on page 36.
For a full overview of the Company’s
wider ESG commitments, the table below
provides an update on progress against these
commitments and ongoing activities:
Theme Commitment Current Status Next steps
Carbon
reduction
and energy
efficiency
Net Zero
Carbon
Carbon baseline established which supported
the announcement of the Company’s Net-Zero
Carbon targets of 2030 for landlord emissions and
2040 for all portfolio emissions. The Company
has since completed annual net-zero pathway
analysis in 2022 and 2023 to review progress
against the baseline, and the findings of this
analysis are included in page 30 of this report.
Continue to fully embed Net Zero Carbon across
asset management, acquisition and development/
refurbishment processes.
Complete a net-zero carbon audit prioritisation process
to flag high risk assets for net-zero audits and CAPEX
modelling, to identify costed interventions to integrate
into asset management plans.
Improve tenant
energy data
coverage
50% coverage of high-quality data coverage in
2022 (used for the purposes of net-zero carbon
analysis and reporting in 2023).
Seek to increase data coverage year-on-year through
tenant engagement, and engagement with third parties
involved in the automation of data collection, including
via the use of hardware (smart metering) and software
(central UK energy database).
In addition, we will continue to include green lease clauses
into new leases issued by the Company, to encourage ESG
collaboration and landlord-tenant sharing of ESG data.
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.
We have also identified assets which will fall below
minimum levels but do not require interventions
as they are likely to be redeveloped at lease expiry.
Make asset-level interventions at appropriate
lease events.
Resilience
and physical
climate risk
Undertake scenario
analysis to better
understand future
risk
Asset-level physical climate risk assessment
(which modelled a worst-case climate scenario)
completed in 2023, which did not identify any
significant risks.
Continue to assess physical climate risk upon acquisition,
and participate in future rounds of the Investment
Manager’s climate scenario screening analysis.
Land and
water
contamination
Maintain low
contamination
risk
The environmental status of properties continues
to be reviewed as part of acquisition, using a new
robust, standardised scope developed by the
Investment Manager in 2022. Due diligence and
records are maintained on current portfolio.
Continue to review environmental information as part
of acquisition due diligence using Investment Manager’s
latest scope and process.
Value to
society
Continue to
implement the
Investment
Managers approach
to ESG to identify
key social related
risks and
opportunities
Proprietary ESG questionnaire outputs for
5 assets (across varying sectors) in the portfolio
have been included in a “Value to Society”
model, and outputs delivered in 2022 annual
report. The Investment Manager has taken
learnings from this process to better understand
how its asset management activities contribute
to social value.
The Company will continue to use the Investment
Manager’s material ESG indicators as part of its
investment process, and continue to manage key social-
related risks and opportunities; We believe there is more
merit in a holistic approach to social value, seeking to
positively influence the communities where we invest
as opposed to focusing on attributing to the portfolio an
economic value to society.
25
Strategic Report Governance Report Financial Statements Other Information
ESG Principle 1: Transparency,
Integrity and Reporting
Taskforce for Climate-related Financial
Disclosures (TCFD)
TCFD was established to provide a
standardised way to disclose and assess
climate-related risks and opportunities.
The Company has provided an overview
of how we align with all 11 TCFD
recommendations in the table on pages 34
to 40. In addition, we have provided some
core TCFD carbon metrics on page 125.
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.
In 2023, we received a EPRA Gold Rating,
and improved on our rating received in 2022.
A full outline of the scope of reporting and
materiality review in relation to EPRA sBPR
indicators is included on pages 119 to 127.
Note that this year, the performance
data reported as part of the EPRA sBPR
disclosures has been externally assured by
an external third-party in accordance with
the International Standard on Assurance
Engagements (UK) 3000 (ISAE3000). The
limited assurance statement can be viewed
on the Company’s website ukcpreit.com
Streamlined, Energy and Carbon
Reporting (SECR)
The reporting against the EPRA sBPR
indicators included on pages 119 to 127
also includes disclosures required under
Streamlined Energy and Carbon Reporting
(SECR) Regulation.
Operational Sustainability
Performance Summary
Processes are in place to ensure operational
sustainability performance is monitored
and actions are implemented to drive
continual improvement. We have reported
against material EPRA sBPR indicators,
which are included on pages 119 to 127.
The sustainability data in the report
includes that which the Company has
direct operational control over (for
example landlord procured utilities and
associated GHG emissions) and covers
the entire calendar year of 2023 in full,
which is compared against that of 2022
on both an absolute and like-for like basis.
The variation between absolute and like-
for-like consumption/ GHGs is due to the
Company’s acquisitions and disposals
during 2022 and 2023.
Note that the data reported on pages 119 to
127 relates to a different time period (2022) to
the data reported under ‘Company Net-Zero
Strategy’ which is based on 2022 data due
to a time-lag associated with the time taken
to complete Scope 3 data collection for net-
zero analysis.
Like-for-like landlord-obtained electricity
consumption, which excludes the impact
of purchases, sales and developments
increased year on-year across the
Company’s assets by 16% from 2022 to
2023, driven primarily by an increase
in consumption at office assets in 2023
(following increased numbers returning
to the office following Covid-19 lockdown
measures). An increase in consumption at
the Company’s offices in 2023 was offset
by lower landlord consumption across
industrial business parks, leisure, retail
warehouse and hotel assets.
Like-for-like landlord gas consumption
decreased by 8%, primarily driven by
reduced consumption at offices and retail
high street assets. On a like-for like basis,
Scope 1 emissions decreased by 8% year
on year, while Scope 2 emissions increased
by 36%, driven by increased electricity
consumption in office assets, along with
a 7% increase in the carbon intensity of the
UK’s energy grid in 2023.
On an absolute basis, landlord obtained
electricity consumption increased by
11%, year-on-year. Landlord obtained gas
consumption decreased by 30%, driven
mainly by reduced gas consumption
at office and retail high street assets.
This resulted in an absolute emissions
reduction of 30% for Scope 1 emissions,
and a 19% increase in Scope 2 emissions.
Full details of performance against material
EPRA sBPR indicators are included in on
pages 119 to 127.
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 86% of the
Company’s total portfolio by ERV (84% in
England, the Company does not own
property 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 ongoing refurbishment
projects as well as the completion of the
Company’s developments, such as the
Leeds Hotel (due to complete 2024), which
is being built to a high energy and carbon
efficient standard.
EPC Ratings by ERV in England
A A+ B C D E N/A
9%
2%
1%
35%
3 8%
8%
7%
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
Continued
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2023 GRESB Assessment
The Company has submitted data to GRESB
(the Global Real Estate Sustainability
Benchmark) since 2014. It is the leading
global sustainability benchmark for real
estate vehicles.
In its 2023 assessment (which utilises 2022
data) the Company was rated third in its
peer group (out of 6 UK, diversified, listed
real estate companies), achieving a score of
75 and a three-star rating (maintaining the
score it achieved in the previous year).
The Company also made use of GRESB’s
customisable peer group functionality
(made available in 2023), to review
performance against a more specific list
of industry peers in a general UK listed
peer group. The Company was placed
5th out of 9 in this customised peer group.
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.
ESG Principle 2:
Capability and Collaboration
Company Approach
The Company follows the Investment
Manager’s approach to building ESG
capability and cross-team collaboration
in delivering ESG. The Investment
Manager invests significant time and
resource into integrating ESG into its
processes and supply chain, along with
building the capability of its investment
teams through structured training and
engagement. The Investment Manager’s
approach centres around the following:
Training Investment Teams on ESG:
Education: the on-desk real estate
ESG team and central investments
sustainability team provide comprehensive
training sessions for investment teams.
These sessions cover the fundamentals
of ESG, including its impact on
company performance, methodologies
for ESG integration, and relevant
regulatory measures.
Case Studies: Real-world case studies
can illustrate successful ESG integration.
Investment teams learn from practical
examples, understanding how ESG factors
influence investment decisions.
Industry Trends: Regular updates are
delivered on ESG trends, emerging
issues, and best practices keep investment
teams informed.
Gilmore Place,
Edinburgh
Strategic Report Governance Report Financial Statements Other Information
27
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
Continued
ESG Integration at All Levels:
Leadership Sponsorship: the
investment manager achieves this
through the nomination of a an
‘ESG Representative’ (who is part
of the portfolio management team),
to actively champion and progress
with ESG initiatives. Leadership
sponsorship ensures commitment
and alignment across the organization,
particularly between central ESG
functions and the investment teams.
Inclusion in Performance Targets: ESG
goals are embedded in investment
teams’ performance targets. Metrics
related to ESG performance contribute
to overall evaluations.
Cross-Functional Collaboration:
ESG integration involves collaboration
across departments. Investment teams
work closely with compliance, risk,
and ESG teams to align strategies.
The on-desk real estate ESG team
also host a bi-monthly ESG Strategy
Working Group, and feed into, and
receive input from, other abrdn
investments-level working groups,
including the Sustainable Investing
Strategy Group, led by the abrdn Head
of Sustainable Investing.
Engaging with suppliers, including
Property Management Teams:
Investment managers collaborate
closely with property management
teams responsible for ESG
implementation at the asset level.
Regular dialogue ensures alignment
with ESG goals, address operational
challenges, and track progress.
Property managers play a crucial role
in executing sustainable practices,
energy efficiency, waste reduction,
and tenant engagement.
ESG Principle 3: Investment
Process and Asset Management
Company Net-Zero Strategy
Net Zero Carbon – Energy Efficiency
and Decarbonisation
In 2021, COP26 served to reinforce the
need for the rapid decarbonisation of
the global economy. Conversely, the
outcomes of COP27 in November 2022
centred more around the important
issues of climate justice and climate
adaptation, rather than carbon reduction.
Despite the emphasized importance of
a 1.5 degrees limit on global warming and
the phase-out of fossil fuels at COP28 in
2023, we remain on track for a 2.4* degrees
increase in global temperatures.
The real estate sector has made some
progress to date but the pace must
accelerate from here to mitigate the worst
effects of climate change. The Company
is also acutely aware of the increasing link
between climate issues and investment
performance, and the impact that inaction
at the asset-level could have on valuations,
returns and investment activity.
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 (using a
baseline year of 2019) and model our pathway
to Net Zero. We have since completed two
annual updates of the net-zero pathway for
the portfolio (in 2022 using 2021 data, and in
2023 using 2022 data), to review our progress
towards our Company net-zero targets.
This process involved benchmarking the
performance of each asset, modelling our
future operational carbon footprint and
identifying the types of measures necessary to
fully decarbonise the portfolio, based on the
latest available data (which in the case of this
analysis, was data for the 2022 calendar year).
* www.abrdn.com/en-gb/institutional/
insights-and-research/cop28-what-should-
investors-look-out-for
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
complemented 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.
28 UKCP REIT Annual Report & Accounts
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Carbon Baseline and Net-Zero
Pathway Annual Update
In last year’s annual report, we disclosed
the progress made against our operational
carbon footprint baseline of 2019,
using data from the 2021 calendar year.
We used 2019 as a baseline for our work
as it was unaffected by changes in
occupancy due to Covid-19. In 2023,
we completed another annual update
of our net-zero pathway, the results of
the analysis are disclosed over-leaf.
Note that the analysis completed in 2023
uses data for the calendar year of 2022,
due to this being the latest data available
at the time of the analysis. ESG data for
2023 is included in this report in the
EPRA tables on pages 119 to 127, but
is not considered below as part of the
net-zero analysis.
Carbon Footprint
The 2019 carbon baseline is shown
in the pie chart on page 30, alongside
the latest annual carbon footprints
calculated during net-zero pathway
analysis completed in 2022 (using 2021
data) and 2023 (using 2022 data). The 2019
pie chart shows a total operational carbon
footprint of 32,596 tonnes of carbon
dioxide equivalent (tCO
²
e).
Measurable:
Clear key performance indicators at the
asset and portfolio level.
While there are no standard industry
definitions of net-zero carbon for real estate,
the Company has been working to build-out
its own definitions, which are detailed in the
table below.
Net-Zero Carbon by 2030:
Scope 1 and 2 emissions
Net-Zero Carbon by 2040:
Scope 1, 2 and 3 emissions
For properties where the Company procures energy
for the ‘whole building’ (2 properties):
Target: seek to align assets with Carbon Risk Real Estate
Monitor (“CREEM”) 1.5C 2030 pathway, and ensure that
energy is procured from high quality renewable sources.
For all properties:
Target: seek to align
all assets with CRREM
1.5C 2040 pathway,
and consider offsetting
residual carbon.
For properties where the Company procures energy
for the interior common parts (5 properties):
Target: Reduce energy consumption and carbon
intensity as far as possible, and ensure energy is
procured from high quality renewable sources.
For properties where the Company procures energy
for external common parts (8 properties):
Target: reduce energy consumption as far as possible
and procure energy from high quality renewable sources.
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
29
Strategic Report Governance Report Financial Statements Other Information
Of this 2019 carbon baseline,
approximately 4% is associated with
Scope 1 and 2 emissions that are in direct
control of the Company, and the remaining
96% are Scope 3 emissions from tenant
procured energy. This is consistent with
2022, where the total operational carbon
footprint was 24,539 tCO
²
e, of which
96% is again associated with Scope 3
emissions from tenant procured energy.
It should also be noted that 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.
In 2021, we increased our actual energy
consumption data coverage to 45%,
which contributes to a more accurate
representation of the Company’s carbon
emissions, and forecasts for the future.
In 2022, we increased our energy
consumption data coverage further to
50% by floor area, reflecting further
progress with data collection. It should
be noted that this floor area data coverage
translates to a 55% data coverage when
taken as a percentage of total consumption.
The bar chart below provides an overview of
how data coverage has improved between
2019 and 2022.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
Continued
100
80
60
40
20
0
% 2019 2021 2022
20
80
45
55
50
50
Estimated Actual
Energy Data Coverage by Floor Area (%)
561
729
115
14,399
16,792
605
412
142
10,876
12,845
619430
8,348
15,142
2019 Carbon Baseline – 32,596 tCO2e
Landlord Refrigerants (<0.5%)
Landlord Gas (<2%)
Landlord Electricity (2%)
Tenant Gas (44%)
Tenant Electricity (52%)
2022 Pathway Update (2021 data)
– 24,880 tCO2e
Landlord Refrigerants (0.5%)
Landlord Gas (2.5%)
Landlord Electricity (2%)
Tenant Gas (44%)
Tenant Electricity (51%)
2023 Pathway Update (2022 data)
– 24,539 tCO2e
Landlord Refrigerants (0%)
Landlord Gas (1.8%)
Landlord Electricity (2.5%)
Tenant Gas (34%)
Tenant Electricity (61.7%)
All units in tCO2e
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In 2019, the energy intensity at the
portfolio level was 290kWh/m² and
the operational emissions intensity
was 63 kgCO
²
e/m² across Scopes 1, 2
and 3. In comparison, the latest net-zero
analysis using 2022 data yielded
a 2022 portfolio level energy intensity
of 224kWh/m², and an operational
emissions intensity of 42 kgCO
²
e/m²
across Scopes 1, 2 and 3. This represents
a 23% improvement in energy
intensity of the portfolio, and a 33%
improvement in emissions intensity.
These will be key metrics as we progress
with our delivery strategy.
Overall, the Company remains on track
in terms of progress towards its net-zero
targets of 2030 and 2040 respectively.
We will continue to monitor our progress
against our net-zero pathway annually,
and work to deliver on the actions
outlined in our delivery strategy above,
supported by the Investment Manager’s
investment process, which ensures that
net-zero thinking is integrated into all
investment decisions.
Net-Zero Carbon – Next Steps
The Company has made positive progress
against its 2019 baseline, by increasing
its data coverage while reducing overall
emissions. Going forward, the Company
will use the outputs of the latest net-zero
analysis completed in 2023 (using 2022 data)
to prioritise its assets for further detailed
energy and carbon assessment, to build
a robust understanding of total CAPEX
required to deliver against its net-zero
targets. Such analysis will allow net-zero
carbon interventions to be programmed
into existing asset management plans.
Tenant Gas Tenant Electricity Landlord Total 2040 Trend line
2,500
2,000
1,500
1,000
200
0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
2019 2021 2022
35,000
30,000
25,000
20,000
15,000
10,0 00
5,000
0
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2019
2022
2021
Landlord Gas Landlord Electricity Refrigerants Landlord Trend line
Scope 1 and 2 Total Landlord Carbon Footprint
Total Portfolio Carbon Footprint
Physical Climate Risk
Company Approach to Physical
Climate Risks
Physical climate 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.
We must also consider the costs of adaptation
(i.e. the infrastructure required to protect
from physical damage).
Following our Company commitment
to undertake scenario analysis to better
understand the resilience of UKCM assets
and the extent to which they are exposed
to physical climate risk, the Company has
engaged in 3 rounds of analysis to evaluate
the acute and chronic physical risks
associated with the buildings owned by the
Company; the latest of which was completed
in early 2023.
The results of this assessment include (but
are not limited to) an overview of how asset
value at risk may change over time, as a
result of chronic and acute physical risks.
Results of Analysis
In the first two rounds of analysis (concluded
in 2021 and 2022 respectively), the Company’s
assets were modelled under a “worst-case”
climate change scenario (an increase of
around 4 degrees Celsius, above pre-industrial
levels) to identify any relevant physical risks.
In the third-round of analysis, the Company’s
assets were compared against the following
scenarios under a 2022 and 2025 scenario,
then at 5-year intervals out to 2080:
Current policies: this is a worst-case
climate scenario broadly consistent with
a future global temperature increase of
around 4°C above pre-industrial levels,
assuming that ‘current policies’ around
climate mitigation do not tighten;
Probability-weighted: this is the most-
likely scenario, which assumes a global
temperature increase of 2.3°C above
pre-industrial levels; and,
Paris-weighted: this is consistent with the
targeted scenario of the Paris Agreement,
which seeks to keep global temperature
increases well below 2°C, with efforts to
be made to limit such increases to 1.5°C.
31
Strategic Report Governance Report Financial Statements Other Information
The round of analysis which was concluded
in 2023 identified a very low portfolio-level
physical climate value impact of less
than –1% by 2050 (under a worst-case
scenario), and yielded the following other
key takeaways:
Acute physical climate risks: the analysis
did not identify any significant value
impacts (>5%) at any asset screened
against the key acute weather risks of
coastal flooding, river flooding, tropical
cyclone, windstorm, wildfire, surface
water flooding.
Chronic physical climate risks: the
analysis identified that heating costs
will decrease out to 2050, while cooling
costs will increase over the same period;
the net effect of such costs translating
to a negligible effect on total value
impact by 2050.
It should be noted that data quality and
methodologies in the physical climate risk
space are continually evolving, and the
Company continues to work with an external
third-party data provider to analyse such
risks, and their materiality. Importantly,
no significant risks to the Company’s
assets have been identified at this stage.
In the event significant risks are identified
by any subsequent physical climate risk
analysis, the Company will take appropriate
action to limit its exposure to such risks.
Next Steps
Physical climate risk assessment remains
a fundamental part of the Investment
Manager’s investment process, and is
considered in detail during acquisition,
asset-management and development/
refurbishment.
More information on the Investment
Manager’s approach to physical climate
risks can be found in the document
‘Our Blueprint for Addressing Climate
Change’ – available on abrdn.com
Wider Company ESG Action –
Societal Value
Company approach to measuring
societal value
The Company seeks to have a practical
positive impact on the local communities
where it invests. In 2023, the Company
completed a social value analysis on a
varied sub-set of its underlying assets,
to better understand their contribution to
social value. While the outputs provided
the Company with a good understanding
of the assets’ value to society (which
remains a focus for the Company), it has
also served to reinforce the need to focus
on delivering our Company ESG priorities
(see ESG Priorities and Commitments
on Page 25), including carbon reduction
and energy efficiency, physical climate
risk and land/water contamination,
alongside wider initiatives on biodiversity.
Continuing to deliver on such elements
will help us to minimise any negative
impacts to society that are inherent in
real estate investment such as carbon
emissions and increased air pollution.
In addition, by continuing to implement
our investment process and approach
to ESG integration, we can continue to
capitalise on opportunities to enhance
social sustainability at every opportunity.
The Company continues to use the
Investment Manager’s material ESG
indicators as part of its investment
process and continues to manage key
social-related risks and opportunities.
While the Company considers that there
is currently limited value in conducting
further specific value to society calculations,
it will remain focussed on a holistic ESG
approach seeking to positively impact the
communities where we invest.
Practical Examples of
Positive Societal Impact
On Trafford Retail Park, Manchester,
an ESG focussed initiative was completed
with the resurfacing and remodelling
of the customer car park. An additional
access lane was introduced to assist vehicle
access and egress from the extremely
popular, heavily used retail park. A more
sustainable construction method was
used involving the shredding, rather than
landfilling, of 1,700 tyres. These were
incorporated in the resurfacing material,
reducing the bitumen component, and
in turn reducing the use of fossil fuels.
Recycled plastic drinks bottles were also
used in the manufacture of the replaced
slot drains that serve the property.
The Company’s student housing
development provides an excellent
opportunity to positively contribute to
society and the welfare of its student
residents is paramount. UKCM has
retained leading student housing
operator Homes For Students to manage
Hill View Place, its newly developed
226-room property in Exeter. In its
opening year the asset has welcomed
140 students from 25 countries. Ensuring
the students feel safe, comfortable and
engaged at the property is a key focus
for UKCM and Homes For Students.
A total of 60 student events were
organised throughout the year to help
foster community spirit within the
property, ranging from ‘meet and greet’
events, quizzes, movie nights, baking
competitions and cultural celebrations
including Chinese New Year festivities.
There are also several environmentally
focused initiatives at the property
covering recycling, energy efficiency
and raising environmental awareness.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
Continued
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Wider Company ESG Action –
Biodiversity
The Company is committed to exploring
opportunities to increase biodiversity within
its property portfolio and the Investment
Manager has sought to implement practical
steps to generate a positive impact.
The approach to understanding the
Company’s impact on biodiversity from
its real estate investments is based on two
phases in the property asset’s lifecycle:
1. The Construction Phase – For construction/
development sites, there are two ways to
consider the impact on biodiversity. The
first is to focus directly on the existing
site and target biodiversity net gain.
The second is to actively engage with
the supply chains of the materials used
to construct the buildings to reduce the
impact on biodiversity upstream.
2. The Use Phase – For buildings already
standing, where we have management
control and can be directly involved
on site, the Company can optimise the
site for biodiversity as much as possible
(e.g. native species planting alongside
installation of bird and bat boxes).
Where our occupiers have control, we can
engage and work together to improve the
building’s environmental surroundings.
We have initiated a programme of best
practice with our managing agents to
ensure each asset is assessed with a view to
optimising landscaping regimes to support
greater biodiversity.
Hyatt Hotel, Leeds
Computer generated image
33
Strategic Report Governance Report Financial Statements Other Information
TASKFORCE FOR CLIMATE-RELATED FINANCIAL DISCLOSURES
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
carbon standard.
Nonetheless, we have progressed already
with work to model the implications of
decarbonising the portfolio in line with a
1.5°C scenario (using the ‘Carbon Risk Real
Estate Monitor’ (CRREM) as a real-estate
specific framework to measure against) and
undertaken analysis to understand potential
future physical climate risks.
The table below provides a brief overview
of our Company approach to all 11 TCFD
recommendations. The below disclosure
outlines how the Company complies with
all 11 recommendations. We expect that our
reporting against TCFD recommendations
will continue to evolve over time as industry
methodologies improve and our own work
develops further. In addition to the qualitative
disclosure below, pages 125 to 127 provide core
TCFD metrics on carbon emissions and value
at risk from physical climate risks.
Dolphin Industrial Estate,
Sunbury-on-Thames
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TCFD Recommendation Company Approach Further Information
Governance
Board oversight of
climate-related risks
and opportunities
The Board recognises its responsibility to assess the Company’s Principal risks and emerging
risks; of which some have been identified to relate to climate change.
The Board consider climate-related risks and opportunities alongside all other Company
risks. The Board has appointed a Risk Committee, which meets quarterly (and comprises
all members of the Board) to ensure that proper consideration of risk is undertaken in all
aspects of the Company’s business on a regular basis. The Risk Committee uses a detailed
Risk Matrix to prioritise individual risks, allocating scores of 1-5 to each risk based on
likelihood and impact severity. The Risk Committee, with the help of the Investment
Manager’s resources, works closely with the Audit Committee and Management Engagement
Committee to examine the effectiveness of climate risk management systems and internal
control systems. All applicable climate 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.
The Company has identified its most material potential risks, one of which relates to
its investment and asset management activity, and how ill-judged property investment
decisions could expose the Company to risk, including those associated with climate change.
The Board, alongside the Investment Manager, consider climate related risks and
opportunities relating to transitional and physical climate risk, as an integral part of the
Investment and Asset Management Process. This includes review of such climate related
risks and opportunities during acquisition ESG due diligence (at the pre-bid and exclusivity
phase), and during annual Company strategic planning, which is the process by which
risks and opportunities against various ESG indicators (including climate indicators) are
identified across the portfolio, and strategic goals are set.
Risk Management
section on
pages 44 to 53.
Management’s role
in assessing and
managing climate-
related risks and
opportunities
The Investment Manager’s ESG approach groups material sustainability indicators into
four main categories: (i) Environment & Climate, (ii) Demographics; (iii) Governance &
Engagement; and (iv) Technology & Infrastructure. This approach allows the identification
and promotion (where relevant) of material ESG risks and opportunities relevant to a fund’s
investment strategy, sector and geography. These guide the prioritisation and integration of
ESG factors at the fund and asset level, whilst providing a structure for engagement with, and
reporting to stakeholders. Of these ESG factors, climate change represents one of the most
material ESG risks and opportunities that the Company’s real estate portfolio considers as
part of its investment process. The Investment Manager’s ‘Blueprint for addressing climate
change’, which details its approach to climate risk,is available on abrdn.com
At an operational level, the Investment Manager is responsible for integrating consideration
of climate risks and opportunities into the investment and asset management process.
The Company adopts the Investment Manager’s approach to integrating ESG in the
investment process, and climate related risks and opportunities are considered the most
material ESG topic relating to the Company. As such, climate risk and opportunities are
considered throughout the investment process, including during acquisitions, asset/property
management, refurbishment/development and fund strategic planning.
A range of governance mechanisms exist which are used to ensure that (a) the Investment
Manager’s approach and house-view on climate risk approaches is cascaded down from the
senior leadership team to the real estate and Company level; and (b) to ensure the climate
related factors are considered during investment decisions. These governance bodies include
(but are not limited to):
abrdn Investments-level Climate Change Strategy Group: this is led by abrdn’s Head of
Sustainability Insights and Climate Strategy, attended by the Real Estate Head of ESG.
This group meets quarterly and is the decision-making forum for climate related
risks and opportunities in the investments vector, and ensures compliance with TCFD
reporting obligations.
Investment Strategy Committee (ISC): this committee is the decision-making and approval
body for the Company’s annual strategic plan, which includes several sections on ESG
risks/opportunities (including relating to climate risks), and strategic goals. This committee
is also the approval body for ESG/climate-related changes to the investment process,
developed in the ‘ESG Strategy Working Group’.
Investment Committee (IC): this is the approval body for acquisitions, fundings and
large development proposals, during which a climate related risks and opportunities
are considered.
ESG Strategy Working Group: this group is led by Head of Real Estate ESG, and is used
to develop new processes and procedures with respect to ESG (including climate related
processes and procedures), to ensure that the Investment Manager stays in line with best
practice and emergent legislation.
The Investment Manager reports a number of KPIs to the Board on a quarterly and annual
basis, including climate related indicators including energy data coverage and portfolio
carbon emissions.
The Company’s
approach is set
out in the
Environmental,
Social &
Governance (ESG)
section on pages
24 to 33.
35
Strategic Report Governance Report Financial Statements Other Information
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 and scenarios, also taking into account the
type and geographical location of our assets. A summary of our initial assessment over the
short, medium and long term is as follows. The time horizons used below are considered to
be appropriate umbrellas under which to identify climate risks and opportunities and are
informed by the timescales against which we expect the impacts of transitional/policy related
and physical climate risks to be felt, based on our understanding of local regulation, and the
outputs of climate scenario analysis completed on our portfolio to-date.
Short-term (0-5 years):
Transition: Policy and Legal: in the short term we anticipate regulations affecting the energy
performance and emissions of buildings to continue to tighten to align more closely with
Government targets for economy-wide decarbonisation. Whilst this will provide clarity
of direction to the sector, the risk is likely to take the form of increased development and
refurbishment costs, which could start to affect valuations.
Transition: Market and Reputational: the above trends will also create opportunities to benefit
from shifting occupier and investor demand for low-carbon, future-fit assets.
Physical: Acute: we anticipate that the frequency and severity of acute/extreme weather events
will continue to increase, even in the short-term.
Medium-term (5-15 years):
Transition: Policy and Legal: the aforementioned policy and legal related trends will
continue and we expect regulations and market sentiment to further drive energy
efficiency and decarbonisation towards alignment with science-based decarbonisation
pathways (such as CRREM), representing the same risks as outlined above (increased costs).
Transition: Market and Reputational: as with the short-term risks, we anticipate that
addressing policy and legal related risks will create market and reputational opportunities
arising from shifting investor demand.
Transition: Technology: 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. In addition, grid decarbonisation will continue
to contribute to the required carbon emissions reductions from the built environment sector.
Long-term (15+ years):
Physical: Acute and Chronic: over the long term (15+ years), in terms of risk we are likely to see
climate-related extreme/acute weather events increase in frequency and severity which may
impact built environment assets depending on their location and characteristics. In addition,
we are also likely to see how the impact of chronic physical climate risks, such as the influence
that changing weather will have on heating and cooling costs, along with energy consumption.
This is an example where increased cooling costs associated with heat stress could also have
a negative impact on the asset’s alignment with net-zero carbon benchmarks, due to the increased
energy consumed. However, there will remain opportunities to enhance the resilience of our
assets through resilience planning/interventions, creating market and reputational opportunities.
An overview of
the Company’s
approach to
addressing
physical climate
risks is on
pages 31 to 32.
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.
Transition Climate Risks:
In recognition of the importance of decarbonisation, and in order to support the Company’s alignment
with tightening policy around carbon reduction, the Company has set a net-zero carbon target of
2030 for all portfolio landlord Scope 1 and 2 emissions, and 2040 for all portfolio emissions scopes.
The Company also established a baseline operational carbon footprint of 2019, against which
progress has been measured in 2021 and 2022 (progress in 2020 was excluded due to Covid-19
influence). Operational energy consumption data is used to support the calculation of the
portfolio’s operational carbon footprint, with industry-accepted benchmarks used to estimate
the remainder. For the latest analysis, 50% of the data (by portfolio floor area) used in the
carbon footprint was ‘actual’ data, with the remainder estimated.
On an absolute carbon emissions basis: the portfolio achieved a 46% reduction in total Scope
1 and 2 emissions between 2019 and 2022, and a 25% reduction for all operational emissions
scopes during the same period. Such analysis has also improved coverage of actual carbon
data from 20% (by floor area) in 2019, compared with 50% (by floor area) in 2022.
On an emissions intensity basis: in 2019, the energy intensity at the portfolio level was
290kWh/m² and the operational emissions intensity was 63 kgCO
²
e/m² across Scopes
1, 2 and 3. In comparison, the latest net-zero analysis using 2022 data yielded a 2022 portfolio
level energy intensity of 224kWh/m², and an operational emissions intensity of 42 kgCO
²
e/m²
across Scopes 1, 2 and 3. This represents a 23% improvement in energy intensity of the portfolio,
and a 33% improvement in emissions intensity.
The EPC profile
of the Company’s
properties is set
out on page 26.
The Company’s
approach to
net-zero is set
out on page 25.
TCFD Recommendation Company Approach Further Information
Strategy
TASKFORCE FOR CLIMATE-RELATED FINANCIAL DISCLOSURES
Continued
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Such analysis has supported the identification of opportunities to reduce the carbon intensity
of poor performing assets. The Company uses the Carbon Risk Real Estate Monitor (CRREM)
tool to analyse the net-zero performance of its assets. CRREM is a real estate specific net-zero
assessment framework, widely used across the real estate industry, and recommended under
the Institutional Investors Group on Climate Change (IIGCC) (under which the Investment
Manager is a member) net-zero investment framework implementation guide.
The Company will use such analysis, to support the prioritisation of assets to take forward for
more detailed net-zero carbon audits. While the Company is already including decarbonisation-
related capital expenditure (CAPEX) figures into its asset cash flow calculations, such detailed
audits will support the refinement of these CAPEX figures and support our asset managers in
programming in net-zero interventions into wider asset management plans.
Alongside our net zero carbon planning described above, an assessment of the EPC ratings of the
Company’s assets against anticipated Minimum Energy Efficiency Standards legislation has been
completed, to determine whether assets are likely to be caught by such minimum standards. As at
December 2023, 45% of the portfolio ERV in the EPC A+/A/B bracket, and 86% was in the EPC A+ to C
bracket. This represents the resilience of the portfolio to current and future known energy regulation
in the UK, which is currently anticipated to be minimum EPC C by 2027, and EPC B by 2030 (for
all leases). With regard to the 14% of portfolio ERV that does not currently meet the anticipated
2027 and 2030 minimum standards, we use EPC recommendation reports to better understand
the interventions required to meet minimum energy standards, and while exact costs to achieve
these standards has not yet been fully established, the Company manages this risk by integrating
the Investment Manager’s house-level net-zero carbon costs into asset forecast cashflows, to ensure
that the estimated cost of decarbonisation is reflected in investment return calculations.
Physical Climate Risks:
The Company continues to participate in physical climate risk scenario analysis (using a third-
party data provider) to understand future risks and opportunities based on asset type/nature
and geographical location of its assets. The analysis uses climate data relating to various hazards
(e.g. cyclones, windstorm, wildfire, inland/coastal flood) along with company exposure data
(e.g. asset type, location, insurance costs, replacement value, floor area and market value).
This data is modelled out under varying time horizons (out to 2080) under different climate
scenarios). The outputs of the analysis support the understanding of future cost and value
impact relating to the portfolio. The round of analysis which was concluded in 2023 identified
a very low portfolio-level physical climate value impact of less than –1% of gross asset value by
2050 (under a worst-case scenario), and yielded the following other key takeaways:
Acute physical climate risks: the analysis did not identify any significant value impacts
(>5%) at any asset screened against the key acute weather risks of coastal flooding, river
flooding, tropical cyclone, windstorm, wildfire, surface water flooding, right from the
short-term (<5 years) out to 2050.
Chronic physical climate risks: the analysis identified that heating costs will decrease out
to 2050, while cooling costs will increase over the same period; the net effect of such costs
translating to a negligible effect on total value impact by 2050.
It should be noted that data quality and methodologies in the physical climate risk space are
continually evolving, and the Company continues to work with an external third-party data
provider to analyse such risks, and their materiality. Importantly, no significant risks to the
Company’s assets have been identified at this stage. In the event significant risks are identified by
any subsequent physical climate risk analysis, the Company will take appropriate action to limit its
exposure to such risks, including integrating the cost of resilience planning into asset cash flows.
The resilience of
the organization’s
strategy, taking
into consideration
different climate
related scenarios,
including
a 2°C or lower
scenario
A full outline of how we have considered the climate related risks and opportunities under
chosen future scenarios has been outlined above. The Company has set out its long term aim
to be a net zero Company by 2040 with an interim target for portfolio landlord emissions within
our direct control (Scope 1 and 2 emissions) by 2030. We are tracking progress against our
long-term aim at the Fund level and asset level, using key KPIs including EPC ratings vs ERV,
carbon data coverage, total energy/carbon emissions and energy/carbon intensity metrics.
Against current and future known energy regulation in England and Wales, the portfolio is
well-positioned with 45% of the portfolio ERV in the EPC A+/A/B bracket, and 86% was in the
EPC A+ to C bracket. This represents the resilience of the portfolio to current and future known
energy regulation in the UK, which is currently anticipated to be minimum EPC C by 2027,
and EPC B by 2030 (for all leases). The Company is working to put a plan in place to achieve
all minimum energy efficiency standards set by the UK Government.
With regard to resilience against science-based decarbonisation pathways, the Company’s
work to establish a net zero pathway is informed by industry benchmarks including the
Carbon Risk Real Estate Monitor (CRREM) 1.5°C Paris-aligned emissions trajectories.
Going forward, the Company will use such analysis to compare its assets against 1.5°C science-
based decarbonisation pathways (CRREM), to support the prioritisation of assets to take
forward for more detailed net-zero carbon audits. While the Company is already including
decarbonisation-related capital expenditure (CAPEX) figures into its asset cash flow calculations,
such detailed audits will support the refinement of these CAPEX figures, and support our asset
managers in programming in net-zero interventions into wider asset management plans.
Our delivery
strategy
is set out on
page 28.
TCFD Recommendation Company Approach Further Information
Strategy continued
37
Strategic Report Governance Report Financial Statements Other Information
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. The Investment Manager 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 a worst-case climate scenario, physical climate risks
do not become material to the Company’s portfolio until after 2050, 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.
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. The Company has identified its most material potential risks, one of which relates
to its investment and asset management activity, and how ill-judged property investment
decisions could expose the Company to risk, including those associated with climate change.
The Company employs the Investment Manager’s approach to addressing climate risks and
opportunities as part of the investment process. This includes assessment of transition and
physical climate risks during acquisition due diligence, asset management, refurbishment/
development and portfolio-level strategic planning.
The Company considers transition climate risks via net-zero carbon analysis, to determine
the extent to which the portfolio aligns with the defined net-zero targets, and to define
indicative high-level CAPEX figures to decarbonise the portfolio in line with a net-zero
pathway. The Company also uses a third-party data provider to assess value at risk (amongst
other indicators) associated with several climate hazards, over multiple time horizons and
climate scenarios.
Risk Management
section on
pages 44 to 53,
which includes
information on
environmental
risk mitigation.
Company
approach to
integration/
assessment of
ESG factors,
including climate
risks, is available
on pages 24 to 31.
The Company’s
processes for
managing climate-
related risks
The Company follows the Investment Manager’s approach to managing climate related risk.
We have embedded our approach to such risks into our investment process for acquisitions,
refurbishments/developments and standing investments. This approach is outlined below.
On acquisition:
Transition risks: Our ESG due diligence process involves the assessment of transition risks at
both the pre-bid and post-bid stage, with the aim of reducing a Fund’s exposure to transitional
climate risks going forward. At the pre-bid stage, we use all available information about the
asset, its context and regulatory backdrop, alongside our in-house decarbonisation guidance
and ESG priorities of the Fund, to form a view of anticipated decarbonisation costs over the
next 10-year period. Where appropriate, such decarbonisation CAPEX is captured as part
of the pre-bid screen and meeting; which subsequently feeds into the IC paper for review.
When detailed DD is completed during exclusivity, the assumptions around decarbonisation
for compliance and net-zero alignment (using a 1.5°C CRREM pathway) are refined by an
external consultant. This allows the Fund to better understand the costs that it may be
responsible for in the future for decarbonisation. Such findings are included in our pre-signing
checklist prior to deal completion.
Physical risks: As part of any pre-bid ESG screen/meeting, we use a mapping tool made
available to us by a physical climate risk data provider to screen assets (based on their
geographical location) against up to 8 different physical climate risks across different time
horizons (current, 2030, 2050, 2100) under different climate scenarios including Low (RCP2.6),
Intermediate (RCP4.5) and High (RCP8.5) scenarios. This tool is used alongside available
online mapping provided by environmental regulators/authorities in the given country
(where/if available). Such risks are considered at pre-bid stage in a “go/no-go” context. During
exclusivity, as a minimum, flood risk will be assessed in more detail by an external third-party,
alongside any other physical climate risks identified during the pre-bid screen.
On development/refurbishment:
abrdn has established a set of ESG guidelines and standards (which include a focus on
climate related aspects) that apply to all new construction, major renovations and forward
funded developments. These standards ensure new developments are future fit and resilient
to future transition and physical climate risks. This sets out the standards that are used as
a benchmark during the design and appraisal of development schemes and outlines
the process to be followed by our internal and external teams when undertaking major
development work. This covers, for example, requirements for EPC ratings, CRREM alignment
and physical climate resilience.
An overview of
the findings of the
latest net-zero and
physical climate
risk analysis is
provide above on
pages 29 to 31.
TCFD Recommendation Company Approach Further Information
Strategy continued
TASKFORCE FOR CLIMATE-RELATED FINANCIAL DISCLOSURES
Continued
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Approval for major development must be sought through the Investment Committee in
the same way as for asset acquisitions. The process can also be flexible to account for any
separate Investment Committee processes outlined by client requirements. For smaller
refurbishment activity an ESG checklist is available to teams to support the identification of
ESG opportunities (which include climate related risks and opportunities) that contribute to
fund goals that can be included in project specification. Approval for landlord refurbishment
works is through a Capital Expenditure Approval Form (CEAF) which requires description of
ESG measures incorporate in the works. Overall, the approach to development seeks to deliver
high quality assets that meet the needs of tenants and ultimately support investment returns.
On standing investments:
The Company completes an annual ESG risk and performance dashboard as part of their
strategic plan which flags priority assets for action against both transition risks (looking at
levels of energy data collection, carbon performance against net-zero pathways where data
available and energy performance ratings) and physical risks (looking at modelled acute
weather risks out to 2050 as a result of climate change). The Company’s strategic plan is
approved via the Investment Manager’s Investment Strategy Committee (ISC). All assets have
an ESG and climate related component integrated into their asset management plan. These
are set to enable the assets to contribute to the fund level strategic ESG ambition/goals set in
the annual strategic plan. An example of this would be installing solar panels onto the roof
of a property; enabling the fund to sell the generated electricity to the tenant and in turn
generating additional income from the asset.
In addition to the annual ESG risk and performance dashboard, The Company completes an
annual carbon footprinting exercise to review progress against its 2019 baseline, and to review
asset level performance against CRREM 1.5°C benchmarks, to help determines next steps and
priorities for the fund with regards to priority assets for focus and specific initiatives to roll out
with more detailed analysis.
The Company also undertakes analysis with an external consultant to assess the assets within
the fund against various hazards which are expected to impact real estate due to climate
change under multiple different scenarios, including a worst-case scenario (RCP8.5).
The Company’s
processes for
identifying, assessing
and managing climate-
related risks into the
organisation’s overall
risk management
The Company’s overall risk management process is underpinned by the Investment Manager’s
investment process described above. Climate related risks and opportunities are assessed at
all stages of the investment process, which are in turn supported by robust governance bodies
including the Investment Committee (IC) and Investment Strategy Committee (ISC).
In addition, as detailed in section “Board oversight of climate-related risks and opportunities”,
the Board has appointed a Risk Committee, which meets quarterly, to ensure that proper
consideration of risk (of which one identified risk relates to climate change) is undertaken in
all aspects of the Company’s business on a regular basis.
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 greenhouse gas emissions (alongside other related ESG performance metrics
on energy and water consumption, waste generation and disposal routes) in line with EPRA
Sustainability Best Practices Recommendations. In addition, we also disclose the following
carbon and climate metrics in line with TCFD requirements:
Scope 1, 2 and 3 emissions (tCO
²
e)
Scope 1, 2 and 3 emissions data coverage (%)
Year-on-year change in carbon emissions (%)
Portfolio carbon intensity by floor area (tCO
²
e/m²)
Weighted Average Carbon Intensity (WACI) (tCO
²
e/m² weighted by value)
Economic Emissions Intensity (tCO
²
e/Gross Asset Value)
Climate Value at Risk (%), further details available on page 37 under physical climate risk
As part of our decarbonisation strategy we also track progress against our baseline carbon
footprint from 2019. Information on year-on-year performance is included in the net-zero
pathway section above (on pages 29 to 31) and in the EPRA disclosures on pages 119 to 127.
At present, the Company does not have sufficient reliable data to report a specific percentage
of total assets that have associated climate related “risks” vs “opportunities”. However, based
on the findings of net-zero carbon and climate scenario analysis completed to-date, along
with the current status of the portfolio against the UK Government’s Minimum Energy
Efficiency Standards (MEES), there are not considered to be any significant climate risks
in the portfolio. The Company accounts for the cost of decarbonising its assets in line with
regulation and recognised industry pathways (e.g. CRREM), by factoring in such cost into our
cash flows (and deploying capital where necessary).
The EPRA
disclosures
included on pages
119 to 127 include
the relevant
climate-related
performance data,
including GHG
emissions.
Further
information on our
net-zero pathway
are included above
in pages 29 to 31.
TCFD Recommendation Company Approach Further Information
Risk Management continued
39
Strategic Report Governance Report Financial Statements Other Information
TCFD Recommendation Company Approach Further Information
Metrics and Targets continued
St Georges Retail Park,
Leicester
The Company does not apply a specific carbon price (e.g. £ per tonne of carbon), rather we
assess our assets to understand what the interventions to decarbonise our assets may cost,
and where necessary use the Investment Manager’s house-level decarbonisation cost
guidance. In addition, it should be noted that ESG goals (which include climate relate goals)
are included in investment teams’ performance targets.
The metrics from the 2023 calendar year included in the EPRA disclosures will in part be used
to inform future progress updates relating to the Company’s net-zero pathway (alongside any
additional Scope 3 data collected for the 2023 calendar year throughout the first half of 2024).
This net-zero pathway analysis supports the analysis of assets against CRREM 1.5°C net-zero
pathways, to better understand risk, and likely decarbonisation related CAPEX to include in
cash flow calculations. In addition, the metrics outlined above also support with investment
decision making at all touch-points of the investment process.
As part of the Investment Manager’s ESG policy and approach, ESG goals (including those
related to climate aspects) are embedded in investment teams’ performance targets. Metrics
related to ESG performance contribute to overall evaluations.
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 page 124).
This covers Scope 1 and 2 emissions associated with landlord-procured energy as well as Scope
3 emissions from energy sub-metered to occupiers. Scope 3 emissions are considered material
to the Company, especially given that they contributed to around 96% of the Company’s total
operational carbon footprint in 2022. Our revised 2019 baseline emissions including tenant
consumption (actual and estimated) is presented on page 30. 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
119 to 123.
The targets used by
the organisation to
manage climate-
related risks and
opportunities
and performance
against targets
An outline of the Company’s climate related targets are outlined above in section “The
impact of climate-related risks and opportunities on the organisation’s businesses, strategy,
and financial planning where material”. We have set out our long-term aim to be a net zero
Company by 2040 with an interim target for portfolio landlord emissions within our direct
control by 2030. While the Company has not yet established specific targets around other
climate related elements (for example percentage of EPC ratings by ERV), the Company
continually looks to improve the portfolio’s performance through implementation of the
Investment Manager’s investment process and will look to set specific targets in the future
where appropriate. Note that the Company also looks to maintain or improve its GRESB
score year-on-year.
Our delivery
strategy is set out
on page 28.
TASKFORCE FOR CLIMATE-RELATED FINANCIAL DISCLOSURES
Continued
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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,
the Investment Manager Review and
Environmental, Social and Governance (ESG)
report which all give a more in-depth review
of performance and future strategy.
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 60 to 61 and indicate
their range of property, investment,
commercial, professional, financial and
governance experience. The Company has
no executive Directors or employees.
Objective
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 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, which sets out how the
Company has complied with Section 172 of the
UK Companies Act 2006, on pages 55 to 57.
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.
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’s performance in meeting its
objective is measured against key performance
indicators as set out on pages 42 to 43.
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.
STRATEGIC OVERVIEW
Gatwick Gate,
Crawley
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Strategic Report Governance Report Financial Statements Other Information
KEY PERFORMANCE INDICATORS
1 year
% return
(p.a.)
3 year
% return
(p.a.)
5 year
% return
(p.a.) Why we use this indicator
TOTAL RETURNS
Net Asset Value Total Return
3.0 0.8 0.4
We use NAV and share price total returns to
measure the performance of the Investment
Manager in terms of growth of the Company
taking account of dividends paid to shareholders.
Share Price Total Return
13.1 2.2 –1.0
PORTFOLIO PERFORMANCE
UKCM Direct Portfolio Total Return
3.9 3.0 2.3
We use portfolio performance because it shows
the success of the portfolio strategy without the
impact of gearing and corporate costs.
MSCI Benchmark Total Return
–1.9 1.2 0.9
UKCM Direct Portfolio Income Return
4.8 4.2 4.1
MSCI Benchmark Income Return
4.8 4.4 4.4
UKCM Direct Portfolio Capital Growth
–0.9 –1.1 –1.8
MSCI Benchmark Capital Growth
–6.4 –3.0 –3.5
Key Performance Indicators
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.
Given the structure of the Company and
the Company’s knowledge of its underlying
shareholder base, it is believed the measures
below are the most appropriate for
shareholders to determine the performance
of the Company. Commentary can be
found in the Chair’s Statement, Investment
Manager Review and Environmental,
Social & Governance Report. The main key
performance indicators (KPI’s) are as follows:
Alternative Performance Measures and EPRA Performance on pages 114 to 118 for further details.
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Strategic Report
31 December
2023
31 December
2022
31 December
2021 Why we use this indicator
SHARE PRICE PREMIUM (DISCOUNT) TO NAV
Discount to net asset values
(%)
–21.2 –26.7 –26.8 This is the difference between the share price and
the NAV per share. It can be an indicator of the
imbalance between market supply and demand
for the shares and their level of attraction to investors.
GEARING
Group gearing
(%)
17.2 20.0 13.5 This is a measure of financial risk. Gearing can
magnify investment gains when values are rising
but conversely can exaggerate investment losses
when values are declining.
EARNINGS, EXPENSES AND DIVIDENDS
Adjusted EPRA earnings per share
(Pence)
3.35 3.15 2.65 We use EPRA earnings per share because it
measures the operating profit generated by the
business from the core property rental business
which underpins dividends.
Dividend paid per ordinary share
(Pence)
3.4 3.25 2.923 We use dividend paid because it reflects the
Company’s ability to deliver a sustainable
income stream from its portfolio.
Dividend cover
(%)
99 97 91 We use dividend cover because it indicates the
Company’s capacity to pay dividends from the
rental business attributable to shareholders.
Ongoing charges excluding
direct property costs
(%)
0.9 0.8 0.8 We use ongoing charges because it shows how
efficiently the business is being run, and the extent
to which ecomomies of scale are being achieved.
Vacancy rate
(%)
4.0 2.0 2.1 We use vacancy rate because the Company’s
aim is to minimise vacancy of the properties
to help underpin dividends.
NON-FINANCIAL
EPC rating A–C
(%)
86 75 66 Energy Performance Certificates (EPCs) indicate how
energy efficient a building could be by assigning a
rating from ‘A’ (very efficient) to ‘G’ (very inefficient).
Carbon emissions (Scope 1 & 2)
(tonnes CO2e)
727 762 1,243 This indicates the absolute amount of greenhouse
gas emissions associated with the landlord’s
operational activities across the portfolio.
Global Real Estate Sustainability
Benchmark – GRESB (score – max 100)
75 75 73 This benchmark is the leading global sustainability
benchmark for real estate vehicles. It is used by
investors to understand and measure the performance
against the most important ESG metrics.
43
Strategic Report Governance Report Financial Statements Other Information
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.
Risk Committee
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 and Management
Engagement 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.
RISK MANAGEMENT
Margaret Littlejohns
Chair of Risk Committee
44 UKCP REIT Annual Report & Accounts
ukcpreit.com
Strategic Report
AA
B
B
CC
DD
EE
FF
GG
HH
I
I
JJ
KK
Widening Discount and Continuation Vote
Macroeconomic
Health & Safety
Environmental
Gearing
Liquidity
Credit Risk
of Tenants
Service
Providers
Accounting
& Valuation
Regulatory
Change
Stakeholder
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 resilience, 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 Property 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 Risks 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.
The principal risks, including their impact
and the actions taken by the Company
to mitigate them, are provided on pages
46 to 53.
Principal Risks
Green Low Risk
Amber Medium Risk
Red High Risk
A Strategic Risks
B
Investment & Asset
Management Risks
C
D
Financial Risks
E
F
G
H
Operational Risks
I
J Regulatory Risks
K Stakeholder Risks
Gross Risks
Net Risk through
mitigating controls
45
Strategic Report Governance Report Financial Statements Other Information
RISK MANAGEMENT
Continued
B
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.
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 Property 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 Property 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.
At the Student Accommodation in Exeter, a bespoke management service is provided by Homes
for Students (H4S). They are responsible for the health and safety of the residents and the
management of risks within the building. S2 Partnership Limited oversee H4S on an annual basis.
The Investment Manager also reviews the management of risks on a quarterly basis.
No major Health and Safety issues were noted in the year.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK
See page 27
for further
information on
the Group’s Health
& Safety policy.
Investment and Asset Management
Risks: Health & Safety
C
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.
The Company may have difficulty
attracting tenants whose own
strategies for sustainability will
place increasing demands on
landlords. 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.
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, 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.
An EPC rating strategy has been set to ensure future compliance with Minimum Energy
Efficiency Standards (MEES).
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
2014. It is the leading global sustainability benchmark for real estate vehicles. In its 2023 assessment
(which utilizes 2022 data) the Company achieved a score of 75 and a three-star rating.
A full review of EPC ratings across the Group’s portfolio has been undertaken and the portfolio
is positively positioned. The Company is actively preparing for future compliance with the
anticipated increasingly strict Minimum Energy Efficiency Standards between now and 2030.
A number of asset management initiatives are underway to consider the feasibility of installing
solar panels at some of the Company’s properties.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK BUT
TRENDING UP
The 2023 Annual
Report includes a
dedicated section
for ESG on pages
24 to 33 and
also Taskforce
for Climate-
Related Financial
Disclosures on
pages 34 to 40.
Investment and Asset Management Risks:
Environmental
Risks & Impact Mitigation Commentary Change
A
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 per share, 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.
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.
Financial and 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.
There is a marked divergence in the performance of different real estate sectors, and also within
each sector itself, due to changes in the behaviour of tenants and consumers, particularly in
the office and retail sectors. This is focusing the Company’s strategy on investing selectively
in “future fit” properties.
Investors have access to the Board, the Investment Manager and the underlying team who will
respond to any queries concerning the discount. The Investment Manager and Broker themselves
arrange regular meetings with prospective and existing investors to try and improve demand for the
Company’s shares. The level of discount is kept under constant review but it is difficult to control.
Shareholders overwhelmingly supported the Company’s periodic continuation vote held in
October 2022, with the next periodic continuation vote scheduled to be held in 2027 and seven
yearly thereafter. However, there is the potential for a further continuation vote at the beginning of
2025, should the Company’s discount remain at over 5% for 90 days following the 2 year anniversary
of the previous continuation vote in October 2022.
As consolidation and M&A activity continue within the REIT sector, the number of listed REITS
in the market is set to shrink and may impact liquidity.
Tritax Big Box REIT plc (BBOX) have made a firm offer to acquire the Company by way of an all
share merger. If approved by each company’s respective shareholders, it is anticipated that the
acquisition of the Company will be made by way of a court sanctioned scheme of arrangement.
If completed, the Company’s shares will be delisted and new BBOX shares issued to shareholders.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK BUT
TRENDING UP
See page 79 for
details of the
current discount
control policy.
Strategic Risks: Widening Discount
and Continuation Vote
46 UKCP REIT Annual Report & Accounts
ukcpreit.com
Strategic Report
B
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.
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 Property 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 Property 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.
At the Student Accommodation in Exeter, a bespoke management service is provided by Homes
for Students (H4S). They are responsible for the health and safety of the residents and the
management of risks within the building. S2 Partnership Limited oversee H4S on an annual basis.
The Investment Manager also reviews the management of risks on a quarterly basis.
No major Health and Safety issues were noted in the year.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK
See page 27
for further
information on
the Group’s Health
& Safety policy.
Investment and Asset Management
Risks: Health & Safety
C
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.
The Company may have difficulty
attracting tenants whose own
strategies for sustainability will
place increasing demands on
landlords. 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.
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, 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.
An EPC rating strategy has been set to ensure future compliance with Minimum Energy
Efficiency Standards (MEES).
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
2014. It is the leading global sustainability benchmark for real estate vehicles. In its 2023 assessment
(which utilizes 2022 data) the Company achieved a score of 75 and a three-star rating.
A full review of EPC ratings across the Group’s portfolio has been undertaken and the portfolio
is positively positioned. The Company is actively preparing for future compliance with the
anticipated increasingly strict Minimum Energy Efficiency Standards between now and 2030.
A number of asset management initiatives are underway to consider the feasibility of installing
solar panels at some of the Company’s properties.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK BUT
TRENDING UP
The 2023 Annual
Report includes a
dedicated section
for ESG on pages
24 to 33 and
also Taskforce
for Climate-
Related Financial
Disclosures on
pages 34 to 40.
Investment and Asset Management Risks:
Environmental
Risks & Impact Mitigation Commentary Change
A
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 per share, 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.
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.
Financial and 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.
There is a marked divergence in the performance of different real estate sectors, and also within
each sector itself, due to changes in the behaviour of tenants and consumers, particularly in
the office and retail sectors. This is focusing the Company’s strategy on investing selectively
in “future fit” properties.
Investors have access to the Board, the Investment Manager and the underlying team who will
respond to any queries concerning the discount. The Investment Manager and Broker themselves
arrange regular meetings with prospective and existing investors to try and improve demand for the
Company’s shares. The level of discount is kept under constant review but it is difficult to control.
Shareholders overwhelmingly supported the Company’s periodic continuation vote held in
October 2022, with the next periodic continuation vote scheduled to be held in 2027 and seven
yearly thereafter. However, there is the potential for a further continuation vote at the beginning of
2025, should the Company’s discount remain at over 5% for 90 days following the 2 year anniversary
of the previous continuation vote in October 2022.
As consolidation and M&A activity continue within the REIT sector, the number of listed REITS
in the market is set to shrink and may impact liquidity.
Tritax Big Box REIT plc (BBOX) have made a firm offer to acquire the Company by way of an all
share merger. If approved by each company’s respective shareholders, it is anticipated that the
acquisition of the Company will be made by way of a court sanctioned scheme of arrangement.
If completed, the Company’s shares will be delisted and new BBOX shares issued to shareholders.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK BUT
TRENDING UP
See page 79 for
details of the
current discount
control policy.
Strategic Risks: Widening Discount
and Continuation Vote
47
Strategic Report Governance Report Financial Statements Other Information
RISK MANAGEMENT
Continued
Risks & Impact Mitigation Commentary Change
D
The property market is cyclical
and very sensitive to changes
in the economic environment.
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.
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 Board intends that borrowing of the Group at the time of draw down will not exceed 25% of
the total assets of the Group.
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. The Board approves every material acquisition and disposal.
Every building has comprehensive insurance to cover both the property itself and injury to
associated third parties.
The UK economy fell into a recession in second half of 2023, with GDP declining and productivity
growth continuing to disappoint. Inflation has fallen during the year from its high levels at the
beginning of 2023 as energy prices have eased. Inflation has, however, still been stickier than
generally anticipated and interest rates have remained higher for longer.
There is still uncertainty over the timing of interest rate cuts and recent voting on the Bank of
England’s Monetary Policy Committee suggests that members are divided in their views on the
timeline for monetary easing.
Falling consumer demand, inflationary pressures and labour shortages all remain risks in 2024.
In addition, there is heightened uncertainty in the financial markets, as both UK and US elections
take place towards the end of the year. These conditions could prove challenging for real estate until
pressures begin to ease and the economy starts to pick up again.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK BUT
TRENDING UP
See further details
on risk in note 18
to the accounts.
Financial Risks:
Macroeconomic
E
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.
The Board intends that borrowing of the Group at the time of draw down will not exceed
25% of the total assets of the Group.
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 has attracted 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.
Market yield expansion following bank interest rate hikes and macro-economic uncertainty,
increased the risk in general of potential loan covenant breaches and refinancing risk within
the property sector, but particularly for those property companies with short-term debt.
Even with existing debt levels unchanged, gearing has increased within the sector as a result
of falls in capital values of the underlying properties.
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
£37.5 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 4.7 years, and an overall blended
interest of 3.56% per annum.
At year end, gearing was 17%, relatively low for its peer group.
During the year, the Group’s bank covenants have been regularly monitored and stress tested
under different capital and income scenarios. There is considerable headroom before any loan
covenants would be breached.
Over £330 million of property remains unencumbered, providing additional cushion if needed.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK BUT
TRENDING DOWN
See further details
on risk in note 18
to the accounts.
Financial Risks:
Gearing
F
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.
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 £91 million due to the undrawn £112.5 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 250 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.
2023 has been a challenging year for real estate due to persistent inflation and a 15-year high in
interest rates, both of which negatively impacted economic growth. This led to reduced volumes
of commercial real estate investment. Yet while 2024 will likely start the same way, inflation and
base rates are likely to reduce as the year progresses.
Having a closed-ended structure, the Company is 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.
£1.37 million value of shares on average were traded daily in 2023 highlighting the ongoing liquidity
of the Company’s shares.
Shareholders are able to sell their shares in a highly regulated and liquid secondary market.
NET RISK: LOW
NO SIGNIFICANT
CHANGE IN RISK
See further details
on risk in note 18
to the accounts.
Financial Risks:
Liquidity
48 UKCP REIT Annual Report & Accounts
ukcpreit.com
Strategic Report
Risks & Impact Mitigation Commentary Change
D
The property market is cyclical
and very sensitive to changes
in the economic environment.
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.
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 Board intends that borrowing of the Group at the time of draw down will not exceed 25% of
the total assets of the Group.
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. The Board approves every material acquisition and disposal.
Every building has comprehensive insurance to cover both the property itself and injury to
associated third parties.
The UK economy fell into a recession in second half of 2023, with GDP declining and productivity
growth continuing to disappoint. Inflation has fallen during the year from its high levels at the
beginning of 2023 as energy prices have eased. Inflation has, however, still been stickier than
generally anticipated and interest rates have remained higher for longer.
There is still uncertainty over the timing of interest rate cuts and recent voting on the Bank of
England’s Monetary Policy Committee suggests that members are divided in their views on the
timeline for monetary easing.
Falling consumer demand, inflationary pressures and labour shortages all remain risks in 2024.
In addition, there is heightened uncertainty in the financial markets, as both UK and US elections
take place towards the end of the year. These conditions could prove challenging for real estate until
pressures begin to ease and the economy starts to pick up again.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK BUT
TRENDING UP
See further details
on risk in note 18
to the accounts.
Financial Risks:
Macroeconomic
E
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.
The Board intends that borrowing of the Group at the time of draw down will not exceed
25% of the total assets of the Group.
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 has attracted 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.
Market yield expansion following bank interest rate hikes and macro-economic uncertainty,
increased the risk in general of potential loan covenant breaches and refinancing risk within
the property sector, but particularly for those property companies with short-term debt.
Even with existing debt levels unchanged, gearing has increased within the sector as a result
of falls in capital values of the underlying properties.
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
£37.5 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 4.7 years, and an overall blended
interest of 3.56% per annum.
At year end, gearing was 17%, relatively low for its peer group.
During the year, the Group’s bank covenants have been regularly monitored and stress tested
under different capital and income scenarios. There is considerable headroom before any loan
covenants would be breached.
Over £330 million of property remains unencumbered, providing additional cushion if needed.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK BUT
TRENDING DOWN
See further details
on risk in note 18
to the accounts.
Financial Risks:
Gearing
F
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.
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 £91 million due to the undrawn £112.5 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 250 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.
2023 has been a challenging year for real estate due to persistent inflation and a 15-year high in
interest rates, both of which negatively impacted economic growth. This led to reduced volumes
of commercial real estate investment. Yet while 2024 will likely start the same way, inflation and
base rates are likely to reduce as the year progresses.
Having a closed-ended structure, the Company is 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.
£1.37 million value of shares on average were traded daily in 2023 highlighting the ongoing liquidity
of the Company’s shares.
Shareholders are able to sell their shares in a highly regulated and liquid secondary market.
NET RISK: LOW
NO SIGNIFICANT
CHANGE IN RISK
See further details
on risk in note 18
to the accounts.
Financial Risks:
Liquidity
49
Strategic Report Governance Report Financial Statements Other Information
RISK MANAGEMENT
Continued
Risks & Impact Mitigation Commentary Change
G
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.
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 193 tenants, with the top 10 tenants representing 33.4% of the Company’s contracted
rental income, and no single tenant accounting for more than 6%.
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/Director approval is necessary for any material lettings.
For the four key rent invoicing dates for quarterly payment in advance in 2023 (March, June,
Sept, Dec 2023) 99% of rent had been collected by the end of February 2024.
The Company has a bad debt provision of £3.1 million for ultimate non-payment of rent by
some tenants but still continues its concerted efforts to recover outstanding amounts due.
There are concerns over some tenants’ underlying covenant strength and we are therefore
closely monitoring their levels of trade.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK
See further details
on risk in note 18
to the accounts.
Financial Risks:
Credit Risk of Tenants
H
Poor performance and/or
inadequate procedures at key
service providers i.e. Investment
Manager, Company Secretary,
Property 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.
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 the Investment Manager,
Registrar and the Property Agent are received and reviewed annually.
Key service providers put their business continuity plans into practice quickly during the
pandemic and adapted successfully to working remotely from their business premises and many
have now adopted more permanently a hybrid model of home and office working.
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 55 to 57) 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 2023.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK
See further details
on pages 55 to 57.
Operational Risks:
Service Providers
I
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.
All properties within the portfolio are independently valued by CBRE Limited on a quarterly basis
and their half year and 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 and Investment Manager 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 and reported to the Board within an annual ISAE 3402 assurance report on internal controls.
Financial statements are subject to a year end audit by Deloitte LLP. The valuations of investment
properties are a key audit matter for Deloitte LLP.
The Property 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 2023.
NET RISK: LOW
NO SIGNIFICANT
CHANGE IN RISK
See further details
on valuations
in note 1(f) on
page 95 and note
10 to the accounts
on pages 101 to 103.
Operational Risks:
Accounting & Valuation
J
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 FCA’s 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.
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.
The Property Income Distributions (PIDs) announced for 2023 are in compliance with REIT rules.
A full review of EPC ratings across the Group’s portfolio has been undertaken and the portfolio
is positively positioned. The Company is actively preparing for future compliance with the
anticipated increasingly strict Minimum Energy Efficiency Standards between now and 2030.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK
—
Regulatory Risks:
Regulatory Change
50 UKCP REIT Annual Report & Accounts
ukcpreit.com
Strategic Report
Risks & Impact Mitigation Commentary Change
G
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.
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 193 tenants, with the top 10 tenants representing 33.4% of the Company’s contracted
rental income, and no single tenant accounting for more than 6%.
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/Director approval is necessary for any material lettings.
For the four key rent invoicing dates for quarterly payment in advance in 2023 (March, June,
Sept, Dec 2023) 99% of rent had been collected by the end of February 2024.
The Company has a bad debt provision of £3.1 million for ultimate non-payment of rent by
some tenants but still continues its concerted efforts to recover outstanding amounts due.
There are concerns over some tenants’ underlying covenant strength and we are therefore
closely monitoring their levels of trade.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK
See further details
on risk in note 18
to the accounts.
Financial Risks:
Credit Risk of Tenants
H
Poor performance and/or
inadequate procedures at key
service providers i.e. Investment
Manager, Company Secretary,
Property 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.
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 the Investment Manager,
Registrar and the Property Agent are received and reviewed annually.
Key service providers put their business continuity plans into practice quickly during the
pandemic and adapted successfully to working remotely from their business premises and many
have now adopted more permanently a hybrid model of home and office working.
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 55 to 57) 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 2023.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK
See further details
on pages 55 to 57.
Operational Risks:
Service Providers
I
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.
All properties within the portfolio are independently valued by CBRE Limited on a quarterly basis
and their half year and 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 and Investment Manager 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 and reported to the Board within an annual ISAE 3402 assurance report on internal controls.
Financial statements are subject to a year end audit by Deloitte LLP. The valuations of investment
properties are a key audit matter for Deloitte LLP.
The Property 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 2023.
NET RISK: LOW
NO SIGNIFICANT
CHANGE IN RISK
See further details
on valuations
in note 1(f) on
page 95 and note
10 to the accounts
on pages 101 to 103.
Operational Risks:
Accounting & Valuation
J
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 FCA’s 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.
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.
The Property Income Distributions (PIDs) announced for 2023 are in compliance with REIT rules.
A full review of EPC ratings across the Group’s portfolio has been undertaken and the portfolio
is positively positioned. The Company is actively preparing for future compliance with the
anticipated increasingly strict Minimum Energy Efficiency Standards between now and 2030.
NET RISK: MEDIUM
NO SIGNIFICANT
CHANGE IN RISK
—
Regulatory Risks:
Regulatory Change
51
Strategic Report Governance Report Financial Statements Other Information
RISK MANAGEMENT
Continued
Risks & Impact Mitigation Commentary Change
K
A concentrated shareholder
register with a dominant
shareholder could exert influence,
restrict the strategic options
available to the Company, limit
the liquidity of Company’s shares
and impact the level of discount
of share price to NAV.
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.
Efforts are made to maintain good working relationships with both shareholders and tenants
providing they are responsive to engagement.
The Investment Manager regularly meets with shareholders and periodically, the Chair
of the Board also meets key shareholders that wish to engage with the Company.
Quarterly Board reports include detailed shareholder analysis, written and verbal reports
from 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.
Communication has continued with stakeholders where possible, but not all shareholders
have chosen to engage directly with the Board.
The Company’s largest shareholder, Phoenix Group, with approx 43% shareholding chose
not to support a proposed merger with Picton Property Income Ltd in November 2023 which
had the support of the Board.
The Company’s two largest shareholders, Phoenix Group and Investec, together holding
about 57% of the Company’s shares in issue have provided support for the current proposed
merger with Tritax Big Box REIT plc.
Investment Managers have continued to visit properties when possible to engage with tenants.
The Board of Directors visit properties, 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.
NET RISK: MEDIUM
INCREASED RISK
See further details
on pages 55 to 57.
Stakeholder
Risks
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.
Economic and Geopolitical
2024 is a year in which more than half the
global population will experience local
elections and there will be greater focus on
the democratic process in some 70 countries.
The outcome of some elections, particularly
the United States, may have far reaching
implications on the geo-political world order.
If former President, Donald Trump, wins the
US election, there is the risk that America may
pursue a more isolationist and protectionist
policy which may result in less military
support (e.g. Ukraine), less diplomatic
intervention in other conflicts such as the
Middle East and more trade tariffs. Greater
escalation of events could result and financial
markets are likely to be volatile.
Conflict between countries is rising.
Following Hamas’ attack on Israel and
Israel’s military response in Gaza, it is
uncertain yet if other countries will be
drawn into the violence.
The war waging between Ukraine and Russia
since February 2022 has reached a stalemate,
but with no settlement in sight.
Rapid inflationary pressures caused by
supply side shortages generated initially
by the Russia’s invasion of Ukraine have
now subsided but inflation may continue
to remain above acceptable levels and so
there is an expectation that interest rates
will stay “higher for longer” than originally
anticipated. The impact on consumers
and businesses remains to be seen, even
if recessions are avoided, and increasing
default rates on loans could put strain on the
banking system.
Tensions are also increasing in the
relationship between the United States
and China which could lead to greater
protectionism and a decline in global
trade. In particular, the future of Taiwan is
disputed and as one of the largest producers
and exporters of microchips in the world
could cause considerable disruption if its
independence was threatened. Many Western
companies are continuing to build supply
chains closer to home and reduce their
dependency on Asia, particularly China.
The current economic and geopolitical
environment is unpredictable, and changing
rapidly, and this may affect real estate
valuations within the Company’s portfolio.
Climate
Climate change is happening now and
its rate of change and impact on the
environment will depend on the planet’s
success in controlling global emissions.
The average surface temperature in the
UK has risen by 1.2°C since pre-industrial
times, and further warming is predicted.
More extreme weather events are also
expected in future which could cause
serious damage to infrastructure and
property. The extent of climate change and
the necessary regulation to control it are
uncertain and will continue to be monitored.
A “greenlash” against climate policies is
beginning to emerge, and may become
more evident if the Republicans win the
US elections in 2024. This could derail
progress against global climate targets.
52 UKCP REIT Annual Report & Accounts
ukcpreit.com
Strategic Report
Risks & Impact Mitigation Commentary Change
K
A concentrated shareholder
register with a dominant
shareholder could exert influence,
restrict the strategic options
available to the Company, limit
the liquidity of Company’s shares
and impact the level of discount
of share price to NAV.
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.
Efforts are made to maintain good working relationships with both shareholders and tenants
providing they are responsive to engagement.
The Investment Manager regularly meets with shareholders and periodically, the Chair
of the Board also meets key shareholders that wish to engage with the Company.
Quarterly Board reports include detailed shareholder analysis, written and verbal reports
from 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.
Communication has continued with stakeholders where possible, but not all shareholders
have chosen to engage directly with the Board.
The Company’s largest shareholder, Phoenix Group, with approx 43% shareholding chose
not to support a proposed merger with Picton Property Income Ltd in November 2023 which
had the support of the Board.
The Company’s two largest shareholders, Phoenix Group and Investec, together holding
about 57% of the Company’s shares in issue have provided support for the current proposed
merger with Tritax Big Box REIT plc.
Investment Managers have continued to visit properties when possible to engage with tenants.
The Board of Directors visit properties, 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.
NET RISK: MEDIUM
INCREASED RISK
See further details
on pages 55 to 57.
Stakeholder
Risks
Changing behavioural patterns
The pandemic introduced or accelerated
some structural changes to the ways we
live, work and consume and reformed
our expectations of our environment and
society. Some of these patterns of behaviour
have persisted. The ongoing trend towards
hybrid working has continued to limit the
use of offices and sharpened the focus on
the sustainability, health, well-being and
social impact of offices.
The continuing attraction of online
shopping and decline in physical retailing
have created challenging conditions for
traditional retailers and their landlords.
It is still uncertain how the role of offices
and retail will develop and they both
continue to be assessed in order to protect
the portfolio but also to identify new
investment opportunities.
Technology & Artificial Intelligence
Technology is rapidly changing the 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 and also within each sector itself.
Advances in technology have enabled many
of the behavioural changes in the use of
real estate: for example, the increased use
of video conferencing by businesses has
facilitated 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
and greater use of data and advanced
analytics is driving the need for data
storage and data centres. Technology
is also increasingly contributing to
improvements in the sustainability of
properties. If landlords fail to embrace
technology, they may face the risk of
“stranded” assets in the future.
Artificial intelligence is being adopted
rapidly by businesses and jobs may change
significantly as AI replaces the need for
particular human activities. This will impact
business models and may reduce workforce
numbers, but also could generate new roles.
This potentially transforming aspect of AI,
in turn, will affect business’ requirements
for space.
Cyber attacks are increasing in occurrence
and target businesses’ data, IT systems
and even their physical infrastructure as
buildings have become more reliant on
smart technology for their daily operation.
In addition, the rapid evolution of AI is
potentially introducing risks that have not
yet been identified or quantified.
53
Strategic Report Governance Report Financial Statements Other Information
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 UK 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
2023, 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.
The Role of the REIT Board
The Company is a REIT which is governed
by an independent Board of Non-executive
Directors.
The Board considers the Company’s
main stakeholders to be Shareholders,
the Investment Manager, Tenants,
Service Providers, Debt Providers and the
Environment and Community.
The Board recognises the importance of
acting fairly between stakeholders and
fosters a culture where all of the Company’s
stakeholders are treated fairly and with
respect. The Board considers Stakeholder
Engagement as one of the Company’s
principal risks with the mitigating actions
are set out on page 54.
The Board is responsible 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 Corporate Governance
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
55
Strategic Report Governance Report Financial Statements Other Information
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
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,
and welcomes shareholders’ views on the
Company and its performance. 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,
which is then shared with the Board.
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. 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. The last continuation vote took
place on 25 October 2022, with 98.9% of votes
cast in favour of continuation.
The Company’s Annual General Meeting
(AGM) and 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 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 to 21 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 approved by shareholders and
overseen by 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 a strategy meeting, at least
annually, to consider whether its strategy is
fit for purpose and to 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.
Cineworld,
Glasgow
STAKEHOLDER ENGAGEMENT
Continued
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Tenants
Board members regularly visit properties
and, where appropriate, engage with tenants
directly to enhance their understanding of
each property and the tenants’ requirements.
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.
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 property agent, Jones Lang LaSalle,
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.
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 24 to 33 and within the Taskforce for
Climate-Related Financial Disclosures on
pages 34 to 40 and the EPRA Financial and
Sustainability Reporting starting on page
119, for more information on the Company’s
approach to ESG, including examples of
Community Engagement during 2023.
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 Financial Review
Performance Summary, Chair’s Statement,
Investment Manager Review, Environmental,
Social & Governance (ESG), Taskforce for
Climate-Related Financial Disclosures,
Key Performance Indicators, Risk
Management, Stakeholder Engagement,
Property Portfolio and Strategic Overview.
The Strategic Report was approved by the
Board on 19 April 2024.
Peter Pereira Gray
Director
57
Strategic Report Governance Report Financial Statements Other Information
GOVERNANCE
Dear Shareholder
As Chair, I am pleased to present the
governance report for our financial year
ended 31 December 2023. This report seeks
to explain the Company’s core governance-
related procedures and actions which have
taken place during the year.
Statement of Compliance
The Board has considered the Principles
and Provisions of the AIC Code on
Corporate Governance 2019 (the “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 UK Code is available on the
Financial Reporting Council’s (the “FRC”)
website: frc.org.uk. 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 considers that reporting against
the Principles and Provisions of the AIC
Code, which has been endorsed by the
FRC 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.
“Good governance is central to making good decisions and
both the independent Directors and the Investment Manager
have worked hard to ensure that we consider all our stakeholders.”
FROM THE CHAIR
Peter Pereira Gray
Chair
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Governance Report
Independent Board
5 Non-Executive Directors
Audit
Committee
Report on
pages 64 to 66
Property
Valuation
Committee
Report on
pages 68 to 69
Risk
Committee
Report on
pages 44 to 54
Management
Engagement
Committee
Report on
page 70
Nomination and
Remuneration
Committee
Report on
pages 71 to 72
The Board Structure
Matters Reserved for the Board
The Board sets the Company’s objectives
and ensures that its obligations to its
shareholders are met. It has formally adopted
a schedule of matters which are required to
be brought to it for decision, thus ensuring
that it maintains full and effective control
over appropriate strategic, financial,
operational and compliance issues.
These matters include:
the maintenance of clear investment
objectives and risk management policies;
the monitoring of the business activities
of the Company ranging from analysis of
investment performance through to review
of quarterly management accounts;
monitoring requirements such as
approval of the Half-Yearly Report and
Annual Report and financial statements
and approval and recommendation of
any dividends;
setting the range of gearing in which the
Manager may operate;
major changes relating to the Company’s
structure including share buy-backs and
share issuance;
Board appointments and removals
and the related terms;
authorisation of Directors’ conflicts
or possible conflicts of interest;
terms of reference and membership
of Board Committees;
appointment and removal of the Manager
and the terms and conditions of the
Management Agreement relating thereto;
and
London Stock Exchange/Financial
Conduct Authority – responsibility for
approval of all circulars, listing particulars
and other releases concerning matters
decided by the Board.
Full and timely information is provided
to the Board to enable it to function
effectively and to allow the Directors to
discharge their responsibilities.
At least once a year, the Board also
holds a meeting specifically to review
the Group’s strategy.
Individual Directors are entitled to
have access to independent professional
advice at the Group’s expense where they
deem it necessary to discharge their
responsibilities as Directors. The Group
maintains appropriate Directors and Officers
liability insurance.
The Directors have access to the company
secretarial and administration services of
the Company Secretary, Northern Trust
International Administration Services
(Guernsey) Limited, through its appointed
representatives. The Company Secretary is
responsible to the Board for:
ensuring that Board procedures are
complied with;
under the direction of the Chair,
ensuring good information flows to
the Board and its Committees; and
liaising, through the Chair, on all
corporate governance matters.
59
Strategic Report Governance Report Financial Statements Other Information
BOARD OF DIRECTORS AND MANAGEMENT TEAM
Peter Pereira Gray, Chair of the
Board, is a resident of the UK.
Mr. Pereira Gray has wide ranging
experience of global institutional
investment markets having served
of the Investment Committee of the
Wellcome Trust from February 2001
to his recent retirement from
executive duties in September 2022.
His last position at Wellcome was as
Chief Executive and co-leader of the
Investment Division, overseeing
a $50 billion global unconstrained
total return investment portfolio.
Previously he was a Director of
Property Fund Management with
Prudential Portfolio Managers Ltd,
and before that, an adviser with
Drivers Jonas, Chartered Surveyors.
Mr. Pereira Gray was Co-Chair of the
Institutional Investors Roundtable,
(a global gathering of asset owners
and long-term institutional investors)
between November 2018 and June
2021. Mr Pereira Gray is Chair of
Urban & Civic plc., the UK’s leading
master-planner and strategic land
development company, and of
Premier Marinas Holdings Ltd.,
the UK’s leading operator of Marinas
and Boatyards on the South Coast.
He is a fellow of the Royal Institution
of Chartered Surveyors and the
Royal Society of Arts and was the
independent lead for the RICS Review
of Investment Property Valuations
published in January 2022. Mr Pereira
Gray was appointed to the Board on
3 April 2023.
Other public company directorships:
None
Contribution: The Board, through
the Nomination and Remuneration
Committee, has reviewed the
contribution of Peter Pereira Gray 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 over 25 years’
experience of investment, corporate advisory,
entrepreneurship and financing across
sustainability, real estate, innovation and the
creative industries. Ms Hogan’s most recent
senior role was as Head of early-stage venture
investing at Goldacre Ventures, an early-stage
VC, where she built a platform of 25 growth
investments in sustainability, smart cities
and buildings, as well as creating RElab, an
award-winning ecosystem of entrepreneurs,
corporates and investors focused on scaling
innovation in the built world. Previous
senior roles which span larger corporates
and growth companies include at Kleinwort
Benson, KPMG, enba plc and Hypo Real
Estate, where she spent 10 years, including
as Joint Head of Global Restructuring.
Ms Hogan is a strategic advisor to
Groundbreak Ventures and was previously
a member of the Growth Advisory Board
for IMI plc. She is a Trustee of Brixton
House Theatre and East London Dance,
having previously served as a Governor
of the Southbank Centre and a Trustee
of Tomorrow’s Warriors. Ms Hogan was
appointed to the Board on 5 August 2021.
Other public company directorships: None
Contribution: The Board, through the
Nomination and Remuneration Committee,
has reviewed the contribution of Fionnuala
Hogan 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.
BOARD OF DIRECTORS
MANAGEMENT TEAM
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.
Other public company directorships:
None
Contribution: The Board, through
the Nomination and Remuneration
Committee, has reviewed the
contribution of Michael Ayre and has
concluded that he has chaired the Audit
Committee effectively during the year.
Will Fulton
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Governance Report
Margaret Littlejohns, Chair of the Risk
Committee and Senior 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.
Other public company directorships:
Foresight VCT plc
Contribution: The Board, through
the Nomination and Remuneration
Committee, has reviewed the contribution
of Margaret Littlejohns 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.
Other public company directorships:
None
Contribution: The Board, through
the Nomination and Remuneration
Committee, has reviewed the
contribution of Chris Fry 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.
Peter Taylor, Finance Manager, returned
to abrdn in 2022. Throughout his 23-year
career, he has held a variety of real estate
accounting positions gaining experience
in open-ended and close-ended products.
Prior to joining abrdn, he was accountant
to Balance Commercial Property Trust
Limited (FTSE 250 company) and
Investment Secretarial Executive to CT
Property Growth & Income Feeder Fund
for 7 years, companies managed by
Columbia Threadneedle Investments.
His real estate career started with Standard
Life Investments (now abrdn) working
as an accountant on global real estate
products gaining multi-disciplinary
experience spanning debt facility
management, consolidated financial
reporting, supplier management and
client reporting. Mr Taylor also gained
further close-ended experience on
Standard Life Investments Property
Income Trust Limited (now abrdn Property
Income Trust Limited) for 4 years.
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.
Diversity Number %
Male 3
60%
Female 2
40%
Peter Taylor
Jamie Horton
61
Strategic Report Governance Report Financial Statements Other Information
GOVERNANCE
Continued
Chair and Senior Independent Director
The Chair is responsible for providing
effective leadership to the Board,
demonstrating objective judgement and
promoting a culture of openness and
debate. The Chair facilitates the effective
contribution, and encourages active
engagement by each Director. In conjunction
with the Company Secretary, the Chair
ensures that Directors receive accurate,
timely and clear information to assist
them with effective decision-making.
The Chair leads the evaluation of the
Board and individual Directors, and acts
upon the results of the evaluation process
by recognising strengths and addressing
any weaknesses. The Chair also engages
with major shareholders and ensures that
all Directors understand shareholder views.
The Senior Independent Director acts
as a sounding board for the Chair and
acts as an intermediary for other Directors,
when necessary. Working alongside the
Chair of the Nomination and Remuneration
Committee, the Senior Independent
Director leads the annual appraisal of the
Chairman’s performance and supports the
orderly succession process for the Chair.
The Senior Independent Director is also
available to shareholders to discuss any
concerns they may have.
Management of Conflicts of Interest,
Anti-Bribery Policy and Tax Evasion Policy
The Board has a procedure in place to deal
with a situation where a Director has a conflict
of interest. As part of this process, the
Directors prepare a list of other positions
held and all other conflict situations that
may need authorising either in relation to
the Director concerned or their connected
persons. The Board considers each Director’s
situation and decides whether to approve any
conflict, taking into consideration what is in
the best interests of the Group and whether
the Director’s ability to act in accordance
with his or her wider duties is affected.
Each Director is required to notify the
Company Secretary of any potential or actual
conflict situations which require authorising
by the Board. Any authorisations given by the
Board are reviewed at each Board meeting.
The Board takes a zero-tolerance approach
to bribery and has adopted appropriate
procedures designed to prevent bribery.
abrdn also takes a zero-tolerance approach
and has its own detailed policy and
procedures in place to prevent bribery
and corruption.
It is the Company’s policy to conduct all
of its business in an honest and ethical
manner. The Company takes a zero-tolerance
approach to facilitation of tax evasion,
whether under UK law or under the law of
any foreign country. abrdn also takes
a zero-tolerance approach to tax evasion and
has its own detailed policy which may be
found on its website.
Internal Controls
The Board, through the work of the Audit
Committee and the Risk Committee, 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 is detailed on pages
44 to 54. 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 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.
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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 abrdn 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.
Table of Attendance
The table below sets out the Directors’
attendance at each scheduled quarterly
Board and Committee meetings.
Board
of Directors
Audit
Committee
Property
Valuation
Committee
Management
Engagement
Committee
Remuneration
& Nomination
Committee
Risk
Committee
Held Attended Held Attended Held Attended Held Attended Held Attended Held Attended
Peter Pereira Gray
(A,B)
3 3 1 1 3 3 2 2 1 1 3 3
Ken McCullagh
(A,C)
2 2 — — 2 2 — — 2 2 2 2
Michael Ayre
4 4 4 4 4 4 2 2 2 2 4 4
Chris Fry
4 4 4 4 4 4 2 2 2 2 4 4
Fionnuala Hogan
4 4 4 4 4 4 2 2 2 2 4 4
Margaret Littlejohns
4 4 4 4 4 4 2 2 2 2 4 4
A The Chair of the Board is not a member of the Audit Committee but may attend meetings at the invitation of the Audit Committee Chairman.
B Appointed as a Director on 3 April 2023.
C Retired as a Director on 31 July 2023.
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Strategic Report Governance Report Financial Statements Other Information
Composition
During the year the Audit Committee
comprised all the Directors except the
chair of the Board. Peter Pereira Gray is
not a member of the Audit 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 Audit Committee is
chaired by Michael Ayre who is a fellow
of the Association of Chartered Certified
Accountants and is also a member
of the Chartered Institute of Taxation.
The Audit Committee met four times during
the financial year. 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 Audit Committee’s responsibilities,
as set out in terms of reference which are
available on the Company’s website.
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 Investment 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 Investment
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
(2022: £Nil) paid to the auditor during the
year under review;
AUDIT COMMITTEE REPORT
Michael Ayre
Chair of Audit Committee
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Reviews a statement from the Investment
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.
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 of 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. At the
conclusion of the audit, Deloitte LLP did not
highlight any issues to the Audit Committee
which would cause it to qualify its audit
report, nor did it highlight any fundamental
internal control weaknesses. Deloitte LLP
issued an unqualified audit report which is
included on pages 82 to 89.
Audit Committee Evaluation
The activities of the Audit Committee were
considered as part of the Board appraisal
process completed in accordance with
standard governance arrangements as
noted as page 71. A full evaluation was
undertaken on the effectiveness, roles and
responsibilities of the Audit Committee in
accordance with the Financial Reporting
Council’s current guidance.
The evaluation found that the Audit
Committee functioned well with the right
balance of membership and skills.
Auditor Assessment, Independence,
and Appointment
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 Audit 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.
The selection criteria for appointing an
external auditor is based on quality, including
independence, challenge and technical
competence. This will include a review of
audit quality indicators published by the
firms and / or the FRC. Tendering process will
include challenger audit firms. The tendering
process will be led by the Audit Committee.
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 audit
for year ended 31 December 2016. The next
audit tender of the Company is due to be
completed by March 2026 in compliance
with the EU regulations and FRC Guidance
on audit tenders for the audit for year ended
31 December 2026.
65
Strategic Report Governance Report Financial Statements Other Information
Significant matters considered by the Audit Committee in relation to 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(f) 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 2024 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 £1,251,050,000 was agreed as
the valuation of the property portfolio as at 31 December 2023.
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 Audit 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 Audit
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.
As part of the auditors planned procedures, it performed an analysis
on the valuation of every property in the portfolio. Where a property
is identified as a property of audit interest as per the criteria below,
the property valuation was tested in detail by Deloitte Real Assets
Advisory (DRAA) specialists, part of Deloitte LLP.
Consider material tenants in the sectors that have either gone or
planning to go into administration (identified by online research);
Properties with tenants in a high risk sector;
Properties where the fair value has fluctuated significantly since
the prior year or remained stable against expectation;
Properties where movements in yields over the year compared
against an assessed average movement over the year taken from
independent sources is greater than a determined threshold;
Identify properties where large value tenants are in arrears; and
New acquisitions of properties made during the year.
The auditor did not highlight any issues with the Audit Committee
on the property valuations as at 31 December 2023.
Going Concern Basis of Accounting
Given the material uncertainty in relation to going concern surrounding
the proposed merger of the Company with Tritax Big Box REIT plc,
as set out in more detail in the Chair’s Statement on page 11, the Audit
Committee gave particular consideration to the appropriateness of the
going concern basis of preparation of the financial statements.
The Board’s statement on going concern is included on pages 77 to 78.
In accordance with present professional
guidelines, the Senior Statutory Auditor
requires to be rotated after a period of five
years. Siobhan Durcan has been appointed as
audit engagement partner and the 2023 audit
is her third year.
The Audit 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 (2022:
£Nil) for the year ended 31 December 2023.
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 Audit Committee.
Recommendation to the Board
Following its review of the Annual Report
& Accounts for the year ended 31 December
2023, 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
19 April 2024
AUDIT COMMITTEE REPORT
Continued
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Governance Report
Maldron Hotel,
Newcastle
67
Strategic Report Governance Report Financial Statements Other Information
Chris Fry
Chair of the Property
Valuation Committee
Composition
The Property Valuation Committee comprises
all the Directors and is chaired by Chris Fry.
It met four times during the financial year.
Responsibilities
The terms of reference of the Property
Valuation Committee are reviewed and
re-assessed for their adequacy on an annual
basis. In accordance with those terms of
reference, the Property Valuation Committee:
Shall review the quarterly property valuation
report produced by the Valuer before its
submission to the Board, focussing in
particular on:
Significant adjustments for the previous
property valuation report;
Reviewing the individual valuations of
each property;
Reviewing applicable standards and
guidelines including those issued by the
Royal Institute of Chartered Surveyors
and the FCA’s Listing Rules; and
Reviewing the findings and any
recommendations or statements
made by the Valuer.
Shall be responsible for the appointment
and retendering of the Valuer.
The terms of reference are available of the
Company’s website (www.ukcpreit.com), or
upon request from the Company Secretary.
Activity
The Chair prepares a report to the
Committee that ties in with the quarterly
NAV announcement and members of the
Committee meet with 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 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.
PROPERTY VALUATION COMMITTEE REPORT
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Governance Report
External Valuer
CBRE Limited are appointed as the external
valuer of the Company and they carry out
a valuation of the Company’s property
assets each quarter, the results of which
are incorporated in the quarterly net asset
value statements and interim and annual
financial statements.
The Committee reviewed the performance
of the valuer, rating its understanding of
the Company’s aims and strategy, market
awareness, quality of staff, cost effectiveness,
reporting and compliance. The Committee
continues to be satisfied with the service
provided by the valuer.
The Committee is mindful of the Royal
Institution of Chartered Surveyors mandatory
rotation cycles for regulated purpose
valuations which comes into effect on
1 May 2024 and the Committee will consider
re-tendering during 2024.
5%
4%
3%
2%
1%
0
–1%
–2%
–3%
4.7%
3.9%
3.0%
1.2%
2.3%
0.9%
3.9%
–1.9%
1 year
UKCM
3 years
(% pa)
5 years
(% pa)
Since inception
(% pa)
Benchmark
Total Return 2023
(%)
Income Return 2023
(%)
Capital Growth 2023
(%)
UKCM Benchmark UKCM Benchmark UKCM Benchmark
Industrials
8.9 3.7 3.9 4.4 4.9 –0.7
Offices
–10.4 –11.1 6.6 4.1 –16.0 –14.6
Retail
3.7 –0.3 6.2 5.9 –2.3 –5.9
Alternatives
–2.6 –0.9 6.1 5.1 –8.3 –5.7
Total Portfolio 3.9 –1.9 4.8 4.8 –0.9 –6.4
Source: MSCI UK Balanced Portfolios Quarterly Property Index
69
Strategic Report Governance Report Financial Statements Other Information
MANAGEMENT ENGAGEMENT COMMITTEE REPORT
Fionnuala Hogan,
Chair of the Management Engagement Committee
and Nomination and Remuneration Committee
Composition
The Management Engagement Committee
comprises all the Directors and is chaired
by Fionnuala Hogan. It met two times
during the financial year.
Responsibilities
The terms of reference of the Management
Engagement Committee are reviewed
and re-assessed for their adequacy on an
annual basis. In accordance with those
terms of reference, the Management
Engagement Committee:
Reviews the performance of the Investment
Manager and the Company’s compliance
with the Investment Management
Agreement on an annual basis and
recommends any action to be taken
by the Company under such terms;
Considers the statement to be made in the
Annual Report of the Company regarding the
continued appointment of the Investment
Manager, as required by the FCA’s Listing
Rules, and make a recommendation to the
Board on such statement;
Considers the continuing ability of
the Board to act independently of the
Investment Manager, or any other
substantial shareholder, and their
associates for so long as they have or
their associates have a substantial
shareholding in the Company; and
Reviews the performance of the Company’s
other professional service providers annually
with the exception of the Company’s
Auditors and Property Valuers as these will
be reviewed by the relevant Committees.
The terms of reference are available of the
Company’s website (www.ukcpreit.com), or
upon request from the Company Secretary.
Activity
Investment Management Agreement
The Company appointed Ignis Fund
Managers Limited up until 29 December
2015 when it was replaced by abrdn Fund
Managers Limited (the “Investment
Manager”) following the takeover of Ignis
Asset Management by abrdn plc. The
Company appointed abrdn Fund Managers
Limited as its Alternative Investment Fund
Manager with effect from 29 December 2015.
Under the terms of the Investment Management
Agreement between the Investment Manager
and the Company (the “Management
Agreement”), from 1 April 2022 the Investment
Manager is entitled to an annual fee equal
to 0.525% of total assets (as defined in the
Management Agreement) up to £1.75 billion,
excluding any cash held over £50 million and
0.475% for total assets above £1.75 billion,
excluding any cash held over £50 million.
The Management Engagement Committee
reviews the performance of, and contractual
arrangements with, the Investment Manager
on an annual basis.
The Board has considered the appropriateness
of the continuing appointment of the
Investment Manager in view of the performance
of the Investment Manager, the fees payable
to the Investment Manager and the notice
period under the Management Agreement.
The Board has also considered the quality
of other services provided to the Company
by the Investment Manager, which
include administrative, compliance
and promotional activities.
Following this review, the Board has
concluded that the appointment of the
Investment Manager on the terms agreed
continues to be in the best interests of
shareholders as a whole.
As set out in more detail in the scheme
documents published by the Company on
9 April 2024, available through the Company’s
website, it is proposed that the Company
combines with Tritax Big Box REIT plc. If the
combination is completed, the Management
Agreement between the Company and the
Investment Manager will be terminated.
Other Service Providers
The Management Engagement Committee
has conducted reviews of the Company’s
other key service providers, rating each
provider on its understanding of the Group’s
aims and strategy, market awareness, quality
of staff, cost effectiveness, reporting and
regulatory compliance. The evaluations are
shared and discussed with the individual
suppliers and an overall rating is applied to
the service of the provider in the year.
Where appropriate, the Investment Manager
has provided input. There were no changes
to any of the Company’s key service
providers during the year. However, since
the end of the year, following a review of the
corporate broking function, the Company
has announced the appointment of Deutsche
Numis as its corporate broker, in place of
JPMorgan Cazenove.
The Management Engagement Committee
conducted its first performance review
of Homes for Students, the operator
of student accommodation at Exeter.
The conclusion of the evaluation rated
Homes for Student as strong and the
Committee was impressed by the strength
of site team at the asset.
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Governance Report
Composition
The Nomination & Remuneration Committee
comprises all the Directors and is chaired
by Fionnuala Hogan. The Committee
believes that, given the size of the Board,
it is appropriate for all Directors to serve
as members of the Committee. It met two
times during the financial year.
Responsibilities
The terms of reference of the Nomination
& Remuneration Committee are reviewed
and re-assessed for their adequacy on
an annual basis. In accordance with
those terms of reference, the Nomination
& Remuneration Committee:
determines the remuneration policy,
taking into account all factors which the
Committee deems necessary including
relevant legal and regulatory requirements
and the provisions and recommendations
of the AIC Code of Corporate Governance;
determines the remuneration of the
Chair (the Board itself determines the
remuneration of non-executive directors).
No Director is involved in any decisions as
to his or her own remuneration;
shall have full authority to appoint
remuneration consultants and to
commission or purchase any reports,
surveys or information which it deems
necessary at the expense of the Company
but within any budgetary restraints
imposed by the Board;
shall regularly review the structure, size
and composition (including the skills,
knowledge experience, independence
and diversity) required of the Board
compared to its current position and make
recommendations to the Board with regard
to any changes;
shall give full consideration to succession
planning for Directors, taking into account
the challenges and opportunities facing the
Company, and what skills and expertise are
needed on the Board in the future;
shall be responsible for identifying and
nominating for the approval of the Board,
candidates to fill Board vacancies as and
when they arise;
The terms of reference are available of the
Company’s website (www.ukcpreit.com), or
upon request from the Company Secretary.
Performance of the Board
The Nomination and Remuneration
Committee, at the request of the Board,
undertook an annual evaluation of the Chair
of the Board, individual Directors and the
performance of Committees and the Board
as a whole with respect to the year ended
31 December 2023. The aim of the review
was to assess the effectiveness of the
Board and Committees and to identify
actions which would improve these.
The review involved the completion by
each Director of questionnaires following
an agreed framework.
The questionnaires covered a number of
topics including Board Composition and
Expertise, Board Dynamics, Management
and Focus of Meetings, Board Support,
Board Committees, Investment Strategy
and Performance, External Relations, Risk
Management, Succession Planning and
Priorities for Change.
The results of the evaluation were considered
by the Board with the evaluation concluding
that the overall Board is operating effectively.
The evaluation highlighted the diversity
of the Board in terms of gender and skills,
and the open and collaborative culture on
the Board. All Directors are comfortable to
contribute and to challenge appropriately,
while recognising and respecting each others
attributes and contributions. The Board
assessed that it had in place the appropriate
balance of skills, experience, length of service
and knowledge of the Company, while also
recognising the advantages of diversity.
No major weaknesses were identified.
In accordance with the AIC Code, the Board’s
intention is that the annual evaluation is
externally facilitated at least every three
years with the next such review expected
to be conducted for the year ending
31 December 2025.
NOMINATION &
REMUNERATION
COMMITTEE REPORT
71
Strategic Report Governance Report Financial Statements Other Information
Board Diversity
The Board recognises the importance of
having a range of skilled, experienced
individuals with the right knowledge
represented on the Board in order to allow
it to fulfil its obligations. The Board also
recognises the benefits and is supportive
of, and will give due regard to, the principle
of diversity in its recruitment of new Board
members. The Board will not display any
bias for age, gender, race, sexual orientation,
socioeconomic background, religion, ethnic
or national origins or disability in considering
the appointment of Directors. The Board will
continue to ensure that all appointments
are made on the basis of merit against the
specification prepared for each appointment.
In doing so, the Board will seek to meet
the targets set out in the FCA’s Listing
Rules which are set out below. The Board
has resolved that the Company’s year
end date is the most appropriate date for
disclosure purposes.
The information included below in relation
to the gender and ethnic background of
the Board has been obtained following
confirmation from the individual Directors.
As shown in the table below, the Company
has not as yet met the target set out in
LR 9.8.6R (9)(a)(iii) in relation to the ethnic
background of the Board. It is the Board’s
intention that achieving this target will
be a priority during the Board’s next
succession appointments.
Tenure Policy and Re-Election of Directors
at the Annual General Meeting
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 compromised by
length of tenure on the Board. However,
in accordance with corporate governance
best practice and the need for regular
refreshment and diversity on the Board,
the Board does not expect any of the
Company’s Directors, including the
Chairman, to serve on the Board longer than
the AGM following their ninth anniversary
of appointment as a Director, except in
exceptional circumstances.
The appointment date of each of the
Directors is set out in the table below.
Director Appointment date
Peter Pereira Gray
3 April 2023
Michael Ayre
24 February 2016
Margaret Littlejohns
1 January 2018
Chris Fry
1 January 2020
Fionnuala Hogan
5 August 2021
Pursuant to the Articles of Incorporation
of the Company, one third, or the number
nearest to but not exceeding one third,
of the Directors are required to retire and
stand for re-election at the Annual General
Meeting each year, provided that each
Director shall retire and stand for election
at the Annual General Meeting immediately
following their appointment then at intervals
of no more than three years. However, in
accordance with the recommendations of
the AIC Code, the Board has agreed that all
Directors will retire annually and, if eligible,
will seek re-election.
The Board has reviewed the skills and
experience of each Director, as described
in their individual biographies on pages
60 to 61 and believes that each contributes
to the long-term sustainable success of
the Company.
Number of
Board members
Percentage
of the Board
Number of senior
positions on the Board
Number in executive
management
Percentage of executive
management
Men
3 60% 2
B
n/a n/a
Women
2 40%
A
1
C D
n/a n/a
A meets target of 40% as set out in LR 9.8.6R (9)(a)(i).
B the positions of Chair of the Board and Audit Committee Chair are held by men.
C the position the Senior Independent Director is held by a woman.
D meets target of 1 as set out in LR 9.8.6R (9)(a)(ii).
Number of
Board members
Percentage
of the Board
Number of senior
positions on the Board
Number in executive
management
Percentage of executive
management
White British or other White
(including minority-white groups)
5 100% 3 n/a n/a
A does not meet the target of 1 as set out in LR 9.8.6R (9)(a)(iii).
Board Gender as at 31 December 2023
Board Ethnic Background as at 31 December 2023
A
NOMINATION & REMUNERATION
COMMITTEE REPORT
Continued
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Governance Report
The Nomination & Remuneration Committee,
has prepared this Directors’ Remuneration
Report which consists of two parts:
a Remuneration Policy, which is subject
to a shareholder vote every three years –
most recently voted upon at the AGM on
16 June 2022 where the proxy votes on the
relevant resolution were: For – 1,029,897,131
votes (99.96%); Discretionary – 10,150 votes
(0.01%); Against – 176,223 votes (0.02%);
and Withheld votes – 14,497 votes (0.01%).
The Remuneration Policy will next be
put to a shareholder vote at the AGM in
2025; and
an annual Implementation Report, which is
subject to an advisory vote by shareholders.
Where disclosures have been audited,
they are indicated as such. The independent
auditor’s opinion is included on pages
82 to 89.
The fact that the Remuneration Policy is
subject to a shareholder vote at least every
three years does not imply any change on
the part of the Company. The principles
remain the same as for previous years.
There have been no changes to the Directors’
Remuneration Policy during the period of
this Report.
Remuneration Policy
This part of the Remuneration Report
provides details of the Company’s
Remuneration Policy for the Directors of the
Company, which takes into consideration
corporate governance principles. No
shareholder views were sought in setting
the Remuneration Policy although any
comments received from shareholders are
considered on an ongoing basis.
The Directors are non-executive and it is
the Board’s policy that the remuneration of
Directors be reviewed annually, although
such review may not necessarily result in any
change. The annual review should ensure
remuneration reflects Directors’ duties and
responsibilities, expected time commitment,
the level of skills and experience required
and the need for Directors to maintain on
an ongoing basis an appropriate level of
knowledge of regulatory and compliance
requirements in an industry environment of
increasing complexity. Remuneration should
be fair and comparable to that of similar real
estate investment companies. The level of
fees should also be sufficient to attract and
retain the high calibre of Directors needed to
oversee the Group properly and to reflect its
specific circumstances.
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
£46,750). Additional fees are paid to
Committee Chairs.
No incentive or introductory fees will be
paid to encourage a directorship.
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 and losses, together with
certain expenses and liabilities, which may
be incurred in the discharge of duties as
Directors of the Company.
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.
Limit on Directors’ Fees
The Company’s Articles of Incorporation
limit to £400,000 the aggregate annual
fees payable to Directors. The limit can be
amended by shareholder resolution from
time to time and was last increased at the
Annual General Meeting in 2019.
Implementation Report
The level of fees as at 31 December 2023 and
31 December 2022 are set out in the table
below. There are no further fees to disclose
as the Company has no employees, Chief
Executive or Executive Directors.
31 December
2023
£
31 December
2022
£
Chair
73,500 70,000
Chair of Audit
Committee
55,150 52,500
Chair of Risk
Committee
48,300 46,000
Chair of
Management
Engagement
Committee1
48,300 46,000
Chair of Property
Valuation
Committee
48,300 46,000
Director
46,750 44,500
1 Fee covers responsibilities as Chair of
Management Engagement Committee and Chair
of Nomination and Remuneration Committee
Directors’ fees were last revised on 1 July 2023.
DIRECTORS’
REMUNERATION
REPORT
73
Strategic Report Governance Report Financial Statements Other Information
DIRECTORS’ REMUNERATION REPORT
Continued
Company Performance
The graph above compares the share
price total return (assuming all dividends
are reinvested) to ordinary shareholders
compared with the total return on the
Company’s MSCI benchmark for the
ten year period ended 31 December 2023
(rebased to 100 at 31 December 2013).
Statement of Proxy Voting at
Annual General Meeting
At the Company’s latest Annual General
Meeting, held on 21 June 2023, shareholders
approved the Directors’ Remuneration
Report (other than the Directors’
Remuneration Policy) in respect of the
year ended 31 December 2022 and the
proxy votes received on the relevant
resolution were: For – 1,014,063,556
(99.86%); Discretionary – 111,929 (0.01%);
Against – 1,280,986 (0.13%); and Withheld
votes – 21,094 (0.00%).
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.
2023
£
2022
£
% change
in
directors
fees
Peter Pereira
Gray1
45,507 n/a n/a
Ken McCullagh2
41,242 70,000 n/a
Michael Ayre
53,825 52,500 2.5
Chris Fry
47,150 46,000 2.5
Margaret
Littlejohns
47,150 46,000 2.5
Fionnuala
Hogan
47,150 46,000 2.5
Directors
National
Insurance
and expenses
20,979 2,232 —
Total
303,003 262,732 —
1 Appointed as a Director on 3 April 2023
2 Retired as a Director on 31 July 2023
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
2023 £
Year to
31 December
2022 £
Aggregate
Directors’
Remuneration
303,003 262,732
Aggregate
Shareholder
Distributions
44,180,024 67,179,624
180
200
220
240
260
160
140
120
100
80
60
Total
Return
Index %
2013 20142014 2015 2016 2017 2018 2019 2020 2021 2022
UKCM share price total return
MSCI benchmark
2023
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Annual Percentage Change in
Directors’ Remuneration
The table below sets out the annual
percentage change in Directors’ fees for the
past five years.
Director
2023
%
2022
%
2021*
%
2020*
%
2019
%
Peter Pereira Gray
A
n/a n/a n/a n/a n/a
Michael Ayre
B
2.5 0.0 17.6 (12.5) 18.6
Chris Fry
C
2.5 0.0 17.6 (23.3) n/a
Margaret Littlejohns
2.5 0.0 17.6 (23.3) 20.0
Fionnuala Hogan
D
2.5 0.0 n/a n/a n/a
A Appointed as a Director on 3 April 2023
B Appointed as Audit Chair on 1 January 2020
C Appointed as a Director on 1 January 2020
D Appointed as a Director on 5 August 2021
* 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’ Interests in the Company
(audited)
The declared Directors’ interests in the
ordinary shares in the Company, each of
which is beneficial unless otherwise stated,
is as follows:
On 12 March 2024, Peter Pereira Gray
acquired 1,099 shares as part of a dividend
reinvestment plan, taking his total to
154,845 shares.
On 21 March 2024, Fionnuala Hogan
announced that she purchased 5,187 shares
as part of a dividend reinvestment plan
over a two year period, taking her total to
69,221 shares. There have been no other
changes to the interests listed below.
Director
31 December
2023
31 December
2022
Michael Ayre
192,000 142,000
Chris Fry
A
106,445 81,664
Margaret Littlejohns
60,000 40,000
Fionnuala Hogan
64,034 26,207
Peter Pereira Gray
B
152,535 —
A Includes an indirect interest over 6,445 shares held through a pension fund over which Chris Fry has discretion
B Appointed 3 April 2023
Fionnuala Hogan
Director
19 April 2024
75
Strategic Report Governance Report Financial Statements Other Information
The Directors of UK Commercial Property
REIT Limited (the “Company”) present the
Annual Report and Audited Consolidated
Financial Statements for the year ended
31 December 2023.
Principal Activity and Status
The Company was incorporated on
24 August 2006 in Guernsey under
registration number 45387. The Company
is a closed ended investment company
registered under the provisions of The
Companies (Guernsey) Law, 2008 (as
amended). The principal activity and status of
the Company’s subsidiaries is set out in note
11 on page 104. The Company migrated tax
residence to the UK and elected to be treated
as a UK REIT with effect from 1 July 2018.
Listing Requirements
The Company’s ordinary shares are
admitted to trading on the Main Market of
the London Stock Exchange and to listing
on the Official List of the FCA.
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.
Information contained elsewhere
in the Annual Report
Information that is part of this Directors’
Report can be found elsewhere in the
Annual Report and is incorporated into
this report by reference, as indicated in the
relevant section.
Information
Location in Annual Report
Directors
Pages 60 to 61
Strategy
(including purpose and objective)
Page 41
Promoting the success of the Company
(“S172 Statement”)
Pages 55 to 57
Directors’ interest in shares
Page 75
Financial instruments
Note 18 on page 108
Corporate Governance Statement
Pages 58 to 63
Taskforce for Climate-related
Financial Disclosures (“TCFD”)
Pages 34 to 40
DIRECTORS’ REPORT
Results and Dividends
The Group generated an IFRS profit of
£31.7 million (2022: loss of £222.3 million)
in the year equating to an earnings per share
loss of 2.44p (2022: loss 17.11p). The Company
had cash at the year end of £22.1 million
(2022: £30.9 million). The Group paid
out dividends totalling £44.2 million
(2022: £67.2 million) in the year.
The Company has paid interim dividends in
the year ended 31 December 2023 as follows:
Payment
date
Rate per
share (p)
Fourth interim
for prior period
February
2023
0.85
First interim
May 2023 0.85
Second interim
August 2023 0.85
Third interim
November
2023
0.85
Total
3.40
On 7 February 2024 the Company declared
a fourth interim dividend of 0.85p per
ordinary share in respect of the quarter
ended 31 December 2023 with an ex-dividend
date of 15 February 2024, which was paid on
29 February 2024.
Share Capital, Voting Rights and
Issue of Shares
The issued share capital at 31 December 2023
consisted of 1,299,412,465 ordinary shares of
25p each. At 18 April 2024 the issued share
capital was unchanged. Each ordinary share
of the Company carries one vote at general
meetings of the Company.
All ordinary shares rank equally for
dividends and distributions and carry
one vote each. There are no restrictions
concerning the transfer of ordinary shares in
the Company, no special rights with regard
to control attached to the ordinary shares,
no agreements between holders of ordinary
shares regarding their transfer known to
the Company and no agreement which the
Company is party to that affects its control
following a takeover bid.
As required by the FCA’s Listing Rules, the
Directors will only issue shares at prices
which are not less than the net asset value
of the ordinary shares unless such shares
are first offered on a pre-emptive basis to
existing shareholders or otherwise with the
approval of shareholders.
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Substantial Interests in Share Capital
At 31 December 2023 the following fund
managers had notified the Company of a
holding of 3% or more of the Company’s issued
share capital pursuant to the FCA’s Disclosure,
Guidance and Transparency Rules.
Holdings
(%)*
31 December
2023
31 March
2024
Phoenix Group
43.4 43.4
Investec
14.3 13.7
BlackRock
4.7 4.7
Vanguard
3.0 3.1
Threadneedle
— 3.6
Brooks
MacDonald
— 3.1
* Based on 1,299,412,465 Ordinary Shares in issue
as at 31 December 2023 and 31 March 2024
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 Group. 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 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 an agreement between the
Company and Phoenix Life Limited and
Phoenix Life Assurance Limited which
provides that both Phoenix entities and
their associates will not take any action
which would be detrimental to the general
body of shareholders.
As at 31 March 2024, the Company had
not been notified of any changes to the
information above.
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.
Relations with Shareholders
As set out in the Stakeholder Engagement
section, the Board welcomes correspondence
from shareholders, addressed to the
Company’s registered office or by email
to commercial.property@abrdn.com
To promote a clear understanding of the
Group, its objectives and financial results,
the Board aims to ensure that information
relating to the Group is disclosed in
a timely manner and once published,
quarterly factsheets, the interim report
and annual report are available on the
Company’s website which can be found at:
www.ukcpreit.com
The Chairman and the Investment Manager
continue to offer individual meetings to
the largest institutional and private client
manager shareholders and they report back
to the Board on these meetings.
External Agencies
The Board has contractually delegated
certain services, including the following,
to external firms:
The function of Alternative Investment
Fund Manager, including management
of the investment portfolio (delegated
to abrdn Fund Managers Limited);
Company secretarial and administration
services (delegated to Northern Trust
International Fund Administration
Services (Guernsey) Limited); and
Shareholder registration services
(Computershare Investor Services
(Guernsey) Limited)
These contracts were entered into after full
and proper consideration by the Directors
of the quality and cost of services offered,
including the financial control systems in
operation in so far as they relate to the Group.
These contracts are reviewed regularly by the
Management Engagement Committee.
Key members of staff from the Investment
Manager and Company Secretary attend
Board meetings to brief the Directors on
issues pertinent to the services provided.
Directors’ Insurance and Indemnities
The Group maintains insurance in respect
of Directors’ & Officers’ liabilities in relation
their acts on behalf of the Group.
The Company’s Articles of Incorporation
provide, subject to the provisions of
Guernsey law, for the Group to indemnify
Directors in respect of costs which they
may incur relating to the defence of any
proceedings brought against them arising
out of their position as Directors in which
judgement is given in their favour or they
are acquitted.
Depositary
The Company’s Depositary is Citibank
UK Limited in accordance with the AIFM
Directive.
Going Concern
The Group’s strategy and business model,
together with the factors likely to affect
its future development, performance
and position, including principal risks
and uncertainties, are set out in the
Strategic Report.
The Directors have reviewed detailed cash
flow, income and expense projections in
order to assess the Group’s ability to pay
its operational expenses, bank interest
and dividends for the foreseeable future.
The Directors have examined significant
areas of possible financial risk including
cash and cash requirements and the debt
covenants, in particular those relating to
LTV and interest cover.
77
Strategic Report Governance Report Financial Statements Other Information
As set out in more detail in the scheme
document published by the Company on
9 April 2024, available through the Company’s
website, it is proposed that the Company
combines with Tritax Big Box REIT plc
(“Big Box”). The combination, if approved
by each company’s shareholders, will be
structured as an all-share offer by Big Box for
the Company under the Code on Takeovers
and Mergers and would be implemented by
way of a scheme of arrangement in accordance
with the Companies (Guernsey) Law, 2008
(the “Scheme”). The outcome of the general
meetings (currently scheduled for 2 May 2024)
to make the Scheme effective represents a
material uncertainty which may cast significant
doubt on the Company’s ability to continue as
a going concern and it may be unable to realise
its assets and discharge its liabilities in the
normal course of business. If the combination
is not approved by either company’s
shareholders, the Company will continue to
operate in the normal course of business whilst
continuing to assess its strategic options.
Notwithstanding this material uncertainty,
the Directors have reasonable expectation that
the Group will continue to operate and meet
its liabilities as they fall due and therefore the
Board has concluded that it remains appropriate
to continue to prepare the financial statements
on a going concern basis. In reaching this
conclusion, the Board has come to the view that,
as the Scheme is contingent on shareholder
approval and the Company is considered
solvent in all other regards, and thus going
concern remains the most appropriate basis
for preparation. In reaching this conclusion,
the Board has also given due consideration to
the risks associated with the Scheme.
Viability Statement
As set out in more detail in the scheme
document published by the Company on
9 April 2024, available through the Company’s
website, it is proposed that the Company
combines with Tritax Big Box REIT plc
(“Big Box”). The combination, if approved
by each company’s shareholders, will be
structured as an all-share offer by Big Box for
the Company under the Code on Takeovers
and Mergers and would be implemented
by way of a scheme of arrangement in
accordance with the Companies (Guernsey)
Law, 2008 (the “Scheme”). The outcome of
the general meetings (currently scheduled
for 2 May 2024) to make the Scheme effective
represents a material uncertainty which may
cast significant doubt on the Company’s
ability to continue as a going concern.
Notwithstanding this material uncertainty, for
the purposes of this viability statement, the
Board has decided that five-year time horizon
is an appropriate period over which to report.
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 October 2022 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 25 October 2024. Further
details on this are set out on page 79 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
98.9% of shareholders voting for continuation
based on a 77.4% 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 the emerging geopolitical and
economic risks.
The Board has also carried out a robust
assessment of the principal risks faced by
the Group, as detailed on pages 44 to 54.
The main risks which the Board considers will
affect the business model, future performance,
solvency, and liquidity, are macroeconomic
and geopolitical uncertainties leading to
a fall in the capital value of the Company’s
property portfolio, tenant failure leading to
a fall in dividend cover and ongoing discounts
leading to a continuation vote. 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 under both normal
and stressed conditions;
Future debt repayment dates and debt
covenants, in particular those in relation
to LTV and interest cover under both
normal and stressed conditions;
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 2025 should the Company’s
discount remain at over 5% for 90 business
days following the second anniversary
of the previous continuation vote
(25 October 2022).
The assessment for stressed conditions
used a foreseeable severe but plausible
scenario which modelled using the following
assumptions:
47 per cent capital fall in the next
two years (based on the largest UK
commercial property downturn
experienced in 2007–2008) followed by
zero growth for the next three years;
Tenant defaults of 20 per cent for the
first year, then 15, 10, 5 per cent for the
second to fourth years respectively before
returning to normal levels;
Transfer of £217 million of unencumbered
properties to lenders to support loan
covenants with continued passing of loan
tests (£330 million currently available);
and
Current dividend is maintained although
in an uncovered dividend position.
Even under this extreme model the Group
remains viable.
Despite the uncertainty from
macroeconomics and geopolitical
environment for the UK, 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 to March
2029. This assessment is based on the
results of the reviews mentioned above and
also the support of shareholders for the
Company’s continuation.
DIRECTORS’ REPORT
Continued
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Criminal Finance Act
The Directors are fully committed to
complying with all legislation and
appropriate guidelines designed to prevent
tax evasion and the facilitation of tax
evasion in the jurisdictions in which the
Group, its service providers and business
partners operate.
Modern Slavery Act 2015
As an investment vehicle the Company
does not provide goods or services in the
normal course of business and does not
have customers or employees. Accordingly,
the Directors consider that the Company is
not required to make any slavery or human
trafficking statement under the Modern
Slavery Act 2015. The Investment Manager,
however, does provide goods and services
and is required to make a statement under
Modern Slavery Act 2015 which is available
on the Investment Manager website at
abrdn.com
Disclosure of Information to Auditor
In the case of Directors at the time when
the Annual Report and Consolidated
Financial Statements were approved,
the following applies:
so far as each Director is aware, there is no
relevant audit information of which the
Group’s auditor is unaware; and
they have taken all the steps that they
could reasonably be expected to have taken
as a Director in order to make themselves
aware of any relevant audit information
and to establish that the Group’s auditor is
aware of that information.
Discount Control Policy
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 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 25 October 2022.
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.
Approved by the Board on 19 April 2024.
Peter Pereira Gray
Director
79
Strategic Report Governance Report Financial Statements Other Information
The Directors are responsible for preparing
the Annual Report and the Group
Consolidated Financial Statements in
accordance with applicable Guernsey
law and those International Financial
Reporting Standards (“IFRS”) as adopted
by the European Union. They are also
responsible for ensuring that the Annual
Report includes information required by
the Rules of the FCA.
In preparing those Group Consolidated
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;
Make judgement and estimates that are
reasonable and prudent;
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 as adopted by the European
Union 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 as adopted by the European Union,
subject to any material departures
disclosed and explained in the Group
Consolidated Financial Statements; and
Prepare the Group Consolidated Financial
Statements on a going concern basis unless
it is inappropriate to presume that the
Group will continue in business.
The Directors confirm that they have
complied with the above requirements in
preparing the Group Consolidated Financial
Statements.
The Directors are responsible for keeping
proper accounting records that are sufficient
to show and explain, the Group’s transactions
and disclose with reasonable accuracy at
any time, the financial position of the Group
and enable them to ensure that the Group
Consolidated Financial Statements comply
with The Companies (Guernsey) Law 2008.
The Directors are responsible for ensuring
that the Group complies with the provisions
of the Listing Rules and the Disclosure Rules
and Transparency Rules of the FCA 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.
The maintenance and integrity of the
Company’s website is the responsibility
of the Directors through its Investment
Manager; the work carried out by the
auditors does not involve considerations
of these matters and, accordingly, the
auditors accept no responsibility for
any change that may have occurred to
the Consolidated Financial Statements
since they were initially presented on the
website. Legislation in Guernsey governing
the preparation and dissemination of the
consolidated financial statements may differ
from legislation in other jurisdictions.
Responsibility Statement of the Directors
in respect of the Consolidated Annual
Report under the Disclosure and
Transparency Rules
The Directors each confirm to the best of
their knowledge that:
The Group Consolidated Financial
Statements, prepared in accordance with
the IFRS as adopted by the European
Union, give a true and fair view of the
assets, liabilities, financial position and
profit or loss of the Group and comply with
The Companies (Guernsey) Law 2008; and;
The management report, which is
incorporated into the Strategic Report,
Directors’ Report and Investment
Manager’s Review, includes a fair review
of the development and performance of
the business and the position of the Group,
together with a description of the principal
risks and uncertainties that they face.
Statement under the UK Corporate
Governance Code
The Directors each confirm to the best
of their knowledge and belief that the
Annual Report and Consolidated Financial
Statements taken as a whole are fair,
balanced and understandable and provide
the information necessary to assess
the Group’s position and performance,
business model and strategy.
On behalf of the Board
Peter Pereira Gray
Director
19 April 2024
DIRECTORS’ RESPONSIBILITY STATEMENT
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Newcastle upon Tyne
Strategic Report Governance Report Financial Statements Other Information
81
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 2023
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 the preparation is applicable law
and IFRSs as adopted by the European Union and as issued by the IASB.
1. OPINION
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
2. 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.
82 UKCP REIT Annual Report & Accounts
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Financial Statements
Evaluated director’s assessment of going concern and the assumptions, including income, expenditure, and cash forecasts,
used in their 12 month and other 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 the Group stress testing results;
Assessed compliance with banking covenants as at the balance sheet date;
Assessed the impact of the possible all-share merger on the Group’s ability to continue as a going concern; and
Assessed the financial statements disclosures and assessed whether the going concern assessment is appropriately disclosed.
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; and
the directors’ identification in the financial statements of the material uncertainty related to the Group’s ability to continue
as a going concern over a period of at least twelve months from the date of approval of the financial statements.
Our responsibilities and the responsibilities
of the directors with respect to going concern are
described in the relevant sections of this report.
3. MATERIAL UNCERTAINTY RELATED TO GOING CONCERN
We draw attention to note 1 in the financial
statements, which indicates the Company’s
intention to combine with Tritax Big Box
REIT plc (“Big Box”) following terms being
agreed relating to a possible all share
merger. If approved by the shareholders of
both companies, the combination will be
structured as an all-share offer by Big Box for
the Company under the Code on Takeovers
and Mergers. The implementation of the
combination will be carried out through
a scheme of arrangement in accordance
with the Companies (Guernsey) Law, 2008.
As stated in note 1, these events or
conditions, along with the other matters
as set forth in note 1, indicate that a material
uncertainty exists that may cast significant
doubt on the Group’s ability to continue as
a going concern. Our opinion is not modified
in respect of this matter.
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 ability to continue to adopt the
going concern basis of accounting included:
83
Strategic Report Governance Report Financial Statements Other Information
Key audit matters
The key audit matters that we identified in the current year were:
Going concern (see material uncertainty related to going concern section); and
Key judgements in the valuation of investment property.
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
£10.23million 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, except for the removal
of the recoverability of rental income receivable as a key audit matter. This was removed as
the impact of COVID-19 on the Group had significantly reduced during the period under audit.
4. SUMMARY OF OUR AUDIT APPROACH
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF UK COMMERCIAL
PROPERTY REIT LIMITED
Continued
5. 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.
In addition to the matter described in the
material uncertainty related to going concern
section, we have determined the matter
described below to be the key audit matter
to be communicated in our report.
5.1 Key judgements in the valuation of investment property
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. The main judgements are around
equivalent yields and estimated market rent 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.
Directors’ valuation is based on the external
valuation provided by CBRE Limited, chartered
surveyors. The valuation of the investment
property portfolio at 31 December 2023 amounted
to £1,224m (2022: £1,276m).
Refer to notes 1(b) and 1(h) of accounting policies
on pages 94 to 95 and note 10 on page 101 of the notes
to the financial statements. Also refer to the audit
committee report on pages 64 to 67.
How the scope of our audit responded
to the key audit matter
We performed the following:
Obtained an understanding of and tested 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 advisory
specialists we challenged the external valuer on their
valuation process and assumptions, performance
of the portfolio, significant assumptions and critical
judgement areas, 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;
Assessed the integrity of information provided to
the external valuer, including testing on a sample
basis back to underlying lease agreements; and
Assessed the financial statements disclosures and
whether the significant judgements and estimations
are appropriately disclosed.
Key observations
Based on the work
performed, we
concluded that the
key judgments used
in the valuation of the
investment property
are appropriate.
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Financial Statements
6. OUR APPLICATION OF MATERIALITY
6.1 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
£10.23 million (2022: £9.18 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 were 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
£2.00m (2022: £2.01m), which equates
to 5% (2022: 5%) of that measure for
testing all balances impacting that
measure, including trade receivables
and trade payables.
Net Assets £1,023 million
Audit Committee reporting threshold
£0.511 million
Group materiality £10.23 million
6.2 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 70% of Group materiality for the
2023 audit (2022: 70%). In determining
performance materiality, we considered the
following factors:
A. The impact of macroeconomic
uncertainty on the Group’s operations
and across the wider real estate sector
as a whole.
B. The fact that we have not identified
significant changes in the business
structure;
C. The quality of the control environment
and our ability to rely on controls; and
D. Our experience from previous audits
has indicated a low number of corrected
and uncorrected misstatements identified
in prior periods.
6.3 Error Reporting Threshold
We agreed with the Audit Committee
that we would report to the Committee
all audit differences in excess of £0.511m
(2022: £0.455m), 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.
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7.1 Scoping
The Group consists of 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. Audit
work to respond to the risks of material
misstatement was performed directly by
the group audit engagement team.
The audit is performed centrally, as the books
and records for each entity within the Group
are maintained at head office. All the Group’s
subsidiaries that are registered as Guernsey
companies are subject to full scope audits.
Our audit work on the components was
executed at levels of materiality applicable
to each individual component which
were lower than Group materiality and
ranged from £5m to £8m. We also tested
the consolidation process to confirm our
conclusion that there were no significant
risks of material misstatement of the
aggregated financial information.
7.2 Our Consideration of the
Control Environment
The Board of Directors delegates
management functions to Abrdn Fund
Managers Limited as Investment Manager.
As part of our risk assessment, we assessed
the control environment in place at the
Investment Manager, and obtained an
understanding of the relevant controls,
such as those related to the financial
reporting cycle, and those in relation
to our key audit matter. We also tested
relevant controls in relation to the valuation
of investment property and were able to
apply a control reliance approach on the
key business processes surrounding
investment property valuations.
As part of our audit procedures we obtained
an understanding of the relevant controls
in operation at the service organisation
of the Investment Manager, including
an assurance report on controls at Service
Organisations. We further obtained a
bridging letter from the Investment
Manager detailing that there have not
been any material changes to the internal
control environment. There were no other
balances where we planned to rely on
controls, other than the balances noted above.
7.3 Our Consideration of Climate-Related Risks
As part of our risk assessment, we have
considered the potential impact of climate
change on the Group’s business and its
financial statements. We have obtained an
understanding of the process for identifying
climate-related risks, the processes, and
controls in place, as well as the determination
of any mitigating actions.
The Group continues to develop its
assessment of the potential impact of
environmental, social and governance
(“ESG”) related risks, including climate
change. As outlined in the ESG disclosures
on pages 24 to 33 and strategic overview on
page 41 the Group considers climate change
to be a principal risk within the business,
with particular impact on their investment
properties. As part of our assessment of our
key audit matter, we considered whether
there was a heightened element of climate
risk in relation to the key judgements in the
valuation of investment properties.
We read the Strategic Report to consider
whether the climate related disclosures
are materially consistent with the financial
statements and our knowledge obtained in
the audit.
The Directors have assessed that there
is currently no material impact arising
from climate change on the valuation of
investment property. This is disclosed in
Note 10 to the financial statements.
We have assessed whether the risks
identified by the entity are consistent with
our understanding of the Group’s business
and we evaluated the appropriateness
of disclosures included in the financial
statements in this regard. The Directors
have adopted the Task Force for Climate
Related Disclosures and therefore with the
involvement of our ESG assurance specialists
we assessed the disclosures in the strategic
overview, ESG and TCFD section on page
24 to 40.
7. AN OVERVIEW OF THE SCOPE OF OUR AUDIT 8. OTHER INFORMATION
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.
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF UK COMMERCIAL
PROPERTY REIT LIMITED
Continued
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Financial Statements
9. 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.
10. 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.
11. 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.
11.1 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
Group’s remuneration policies, key drivers
for directors’ remuneration, bonus levels
and performance targets;
results of our enquiries of management,
the directors and the audit committee
about their own identification and
assessment of the risks of irregularities,
including those that are specific to the
Group’s sector;
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, real estate
advisory specialists and ESG assurance
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: key
judgements in the valuation of investment
property. 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, the Listing
Rules and relevant tax legislation.
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.
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Strategic Report Governance Report Financial Statements Other Information
11.2. Audit response to risks identified
As a result of performing the above, we
identified key judgements in the valuation
of investment property as a key audit matter
related to the potential risk of fraud. The key
audit matters section of our report explains
the matter in more detail and also describes
the specific procedures we performed in
response to that key audit matter.
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 reviewing
correspondence with the Guernsey
Financial Services Commission; 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
12. 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.
13. 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 77 to 78;
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
pages 77 to 78;
the directors’ statement on fair, balanced
and understandable set out on pages
44 to 54;
the board’s confirmation that it has carried
out a robust assessment of the emerging
and principal risks set out on page 79;
the section of the annual report that
describes the review of effectiveness of risk
management and internal control systems
set out on pages 62 to 63; and
the section describing the work of the audit
committee set out on page 66.
14. MATTERS ON WHICH WE
ARE REQUIRED TO REPORT
BY EXCEPTION
14.1. 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 this regard.
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF UK COMMERCIAL
PROPERTY REIT LIMITED
Continued
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Financial Statements
15. OTHER MATTERS WHICH
WE ARE REQUIRED TO
ADDRESS
15.1. 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 8 years, covering the years ending
31 December 2016 to 31 December 2023.
15.2. 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).
16. 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) 4.1.15R – DTR
4.1.18R, these financial statements form part
of the Electronic Format Annual Financial
Report filed on the National Storage
Mechanism of the FCA in accordance with
DTR 4.1.15R – DTR 4.1.18R.
This auditor’s report provides no assurance
over whether the Electronic Format Annual
Financial Report has been prepared in
compliance with DTR 4.1.15R – DTR 4.1.18R.
Siobhan Durcan
Senior Statutory Auditor
For and on behalf of Deloitte LLP,
Recognised Auditor,
St Peter Port, Guernsey
19 April 2024
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Strategic Report Governance Report Financial Statements Other Information
Notes
| Year ended | Year ended | ||
| 31 December 2023 | 31 December 2022 | ||
| £’000 | £’000 | ||
| INCOME | |||
| Rental income | 2 | ||
| Service charge income | 3 | ||
| Loss on investment properties | 10 | ( | ( |
| Loss on liquidation of subsidiaries | ( | ||
Total income/(expense) | ( | ||
| EXPENDITURE | |||
| Investment management fee | 4 | ( | ( |
| Direct property expenses | 5 | ( | ( |
| Service charge expenses | 5 | ( | ( |
| Other expenses | 5 | ( | ( |
Total expenditure | ( | ( | |
Operating profit/(loss) before finance costs | ( | ||
| FINANCE COSTS | |||
| Finance costs | 6 | ( | ( |
| Interest income | |||
| Net finance costs | ( | ( | |
Operating profit/(loss) after finance costs | ( | ||
| Net profit/(loss) from ordinary activities before taxation | ( | ||
| Taxation on profit on ordinary activities | 7 | ||
Net profit/(loss) for the year | ( | ||
Total comprehensive (income/deficit) for the year | ( | ||
| Basic and diluted earnings per share (pence) | 9 | ( | |
| Adjusted EPRA earnings per share (pence) | 9 |
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
For the year ended 31 December 2023
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 115 to 118.
The accompanying notes are an integral part of this statement.
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Financial Statements
Notes
| Year ended | Year ended | ||
| 31 December 2023 | 31 December 2022 | ||
| £’000 | £’000 | ||
| NON-CURRENT ASSETS | |||
| Investment properties | 10 | ||
| CURRENT ASSETS | |||
| Investment properties held for sale | 10 | ||
| Trade and other receivables | 12 | ||
| Cash and cash equivalents | |||
Total assets | |||
| CURRENT LIABILITIES | |||
| Trade and other payables | 13 | ( | ( |
( | ( | ||
| NON-CURRENT LIABILITIES | |||
| Bank loans | 14 | ( | ( |
Total liabilities | ( | ( | |
Net assets | |||
REPRESENTED BY Share capital | 15 | ||
| Special distributable reserve | |||
| Capital reserve | ( | ( | |
| Revenue reserve | |||
Equity shareholders’ funds | |||
| Net asset value per share (pence) | 16 |
CONSOLIDATED
BALANCE SHEET
As at 31 December 2023
The accompanying notes are an integral part of this statement.
Company Registration Number: 45387
Peter Pereira Gray
Director
The accounts on pages 90 to 113 were approved and authorised for issue
by the Board of Directors on 19 April 2024 and signed on its behalf by:
91
Strategic Report Governance Report Financial Statements Other Information
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
For the year ended 31 December 2023
Notes
| Special | Equity | |||||
| Share | Distributable | Capital | Revenue | Shareholders’ | ||
| Capital | Reserve | Reserve | Reserve | Funds | ||
| £’000 | £’000 | £’000 | £’000 | £’000 | ||
| At 1 January 2022 | ||||||
| Total comprehensive deficit | ( | ( | ||||
| Dividends paid | 8 | ( | ( | |||
| Transfer in respect of loss on investment property | 10 | ( | ||||
| Transfer from special distributable reserve | ( | |||||
As 31 December 2022 | | ( | |
For the year ended 31 December 2022
The accompanying notes are an integral part of this statement.
Notes
| Special | Equity | |||||
| Share | Distributable | Capital | Revenue | Shareholders’ | ||
| Capital | Reserve | Reserve | Reserve | Funds | ||
| £’000 | £’000 | £’000 | £’000 | £’000 | ||
| At 1 January 2023 | ( | |||||
| Total comprehensive income | ||||||
| Dividends paid | 8 | ( | ( | |||
| Transfer in respect of loss on investment property | 10 | ( | ||||
| Transfer from special distributable reserve | ( | |||||
As 31 December 2023 | | ( |
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Financial Statements
CONSOLIDATED
CASH FLOW STATEMENT
For the year ended 31 December 2023
Notes
| Year ended | Year ended | ||
| 31 December 2023 | 31 December 2022 | ||
| £’000 | £’000 | ||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||
| Net profit/(loss) for the year before taxation | ( | ||
| Adjustments for: | — | — | |
| Loss on investment properties | 10 | ||
| Loss on liquidation of subsidiaries | |||
| Movement in lease incentives | 10 | ( | ( |
| Movement in provision for bad debts | 12 | ||
| Decrease in operating trade and other receivables | |||
| (Decrease)/increase in operating trade and other payables | ( | ||
| Net finance costs | |||
Net cash inflow from operating activities | |||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||
| Purchase of investment properties | 10 | ( | ( |
| Sale of investment properties | |||
| Capital expenditure | 10 | ( | ( |
Net cash inflow/(outflow) from investing activities | ( | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||
| Facility fee charges from bank financing | ( | ( | |
| Dividends paid | 8 | ( | ( |
| Bank loan repaid | 14 | ( | ( |
| Bank loan drawdown | 14 | ||
| Bank loan interest paid | ( | ( | |
| Loan facility set up costs | ( | ( | |
| Interest income | |||
Net cash outflow from financing activities | ( | ( | |
Net decrease in cash and cash equivalents | ( | ( | |
Opening cash and cash equivalents | |||
Closing cash and cash equivalents | |||
REPRESENTED BY Cash at bank | |||
| Money market funds | |||
The accompanying notes are an integral part of this statement.
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Strategic Report Governance Report Financial Statements Other Information
NOTES TO THE ACCOUNTS
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Strategic Report Governance Report Financial Statements Other Information
NOTES TO THE ACCOUNTS
Continued
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Financial Statements
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| £’000 | £’000 | |
| Investment management fee | 6,738 | 8,617 |
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| £’000 | £’000 | |
| Rental income | 69,465 | 64,515 |
| Rent incentives | (2,863) | 2,415 |
66,602 | 66,930 |
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| £’000 | £’000 | |
| Service charge income | 6,229 | 6,451 |
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Strategic Report Governance Report Financial Statements Other Information
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| £’000 | £’000 | |
| Interest on principal loan amount | 9,351 | 7,922 |
| Facility fees | 918 | 735 |
| Amortisation of loan set up fees | 920 | 524 |
11,189 | 9,181 |
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| £’000 | £’000 | |
| DIRECT PROPERTY EXPENSES | ||
| Direct property expenses of let rental units | 5,431 | 4,220 |
| Expenditure incurred relating to operating units | 618 | 475 |
| Direct property expenses of vacant units | 647 | 675 |
| Bad debts recognised during the year, net | 215 | 896 |
6,911 | 6,266 | |
Service charge expenses | 6,229 | 6,451 |
| OTHER EXPENSES | ||
| Professional fees | 1,082 | 705 |
| Abortive transaction costs | 459 | 380 |
| Valuation fees* | 145 | 152 |
| Directors’ fees and expenses** | 303 | 263 |
| Marketing fees | 396 | 396 |
| Administration and company secretarial fees | 172 | 161 |
| Regulatory fees | 95 | 92 |
| Auditor’s remuneration for: | ||
| Statutory audit | 180 | 150 |
| Non audit services | — | — |
2,832 | 2,299 |
NOTES TO THE ACCOUNTS
Continued
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Financial Statements
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| £’000 | £’000 | |
NET PROFIT/(LOSS) FROM ORDINARY ACTIVITIES BEFORE TAX | 31,708 | (222,329) |
| UK Corporation tax at a rate of 23.5 per cent (2022: 19%) | 7,451 | (42,243) |
| Effect of: | ||
| Capital losses on Investment properties not taxable | 1,986 | 49,987 |
| Income not taxable, including interest receivable | (288) | (59) |
| UK REIT exemption on net income | (9,149) | (7,685) |
Total tax charge | — | — |
99
Strategic Report Governance Report Financial Statements Other Information
| Year ended | Year ended | ||
| 31 December 2023 | 31 December 2022 | ||
| £’000 | £’000 | ||
| DIVIDENDS ON ORDINARY SHARES | |||
| Interim dividends paid per ordinary share: | |||
2022 | Fourth interim: PID of 0.680p per share, Non-PID of 0.170p per share paid 28 February 2023 | 11,045 | 9,746 |
(2021 | Fourth interim: PID of 0.466p per share, Non-PID of 0.284p per share) | ||
2023 | First interim: PID of 0.850p paid 31 May 2023 | 11,045 | 10,395 |
(2022 | First interim: PID of 0.800p per share) | ||
2023 | Second interim: PID of 0.500p per share, Non-PID of 0.350p per share paid 31 August 2023 | 11,045 | 11,045 |
(2022 | Second interim: PID of 0.850p per share) | ||
2022 | Special dividend: 1.92p per share paid 31 August 2022 | — | 24,949 |
2023 | Third interim: PID of 0.600p per share, Non-PID of 0.250p per share paid 30 November 2023 | 11,045 | 11,045 |
(2022 | Third interim: PID of 0.500p per share, Non-PID of 0.350p per share) | ||
44,180 | 67,180 |
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| Weighted average number of shares | 1,299,412,465 | 1,299,412,465 |
| Net profit / (loss) (£) | 31,708,000 | (222,329,000) |
| Basic and diluted Earnings per share (pence) | 2.44 | (17.11) |
Adjusted EPRA earnings per share (pence)* | 3.35 | 3.15 |
NOTES TO THE ACCOUNTS
Continued
100 UKCP REIT Annual Report & Accounts
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Financial Statements
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| £’000 | £’000 | |
| FREEHOLD AND LEASEHOLD PROPERTIES | ||
| Opening valuation | 1,275,610 | 1,508,368 |
| Purchase at cost | (923) | 6,934 |
| Capital expenditure | 29,387 | 48,517 |
| Loss on revaluation to market value | (3,776) | (264,295) |
| Disposals at prior year valuation | (72,252) | (21,554) |
| Lease incentive movement | (4,451) | (2,360) |
| Total fair value at 31 December | 1,223,595 | 1,275,610 |
| Less: reclassified as held for sale | (44,068) | — |
Fair value as at 31 December | 1,179,527 | 1,275,610 |
| (LOSSES)/GAINS ON INVESTMENT PROPERTIES AT FAIR VALUE COMPRISE | ||
| Loss on revaluation to market value | (3,776) | (264,295) |
| Lease incentive movement | (4,451) | (2,360) |
| (Loss)/gain on disposal | (224) | 3,565 |
(8,451) | (263,090) | |
| GAIN/(LOSS) ON INVESTMENT PROPERTIES SOLD | ||
| Original cost of investment properties | (25,864) | (22,972) |
| Sale proceeds less sales costs | 72,027 | 25,119 |
| Gain on investment properties sold | 46,163 | 2,147 |
| Recognised in previous periods | 46,387 | (1,418) |
| Recognised in current period | (224) | 3,565 |
46,163 | 2,147 |
101
Strategic Report Governance Report Financial Statements Other Information
| Sector | Fair Value at | Valuation techniques | Unobservable inputs | Range |
| 31 December 2023 (£m) | (weighted average) | |||
| Industrial | 739.8 | Yield methodology | Annual rent per sq ft | £5 – £13 (£8) |
| Initial Yield | 2.9% – 7.3% (4.8%) | |||
| Office | 143.6 | Yield methodology | Annual rent per sq ft | £7 – £54 (£23) |
| Initial Yield | 4.6% – 11.2% (9.3%) | |||
| Retail | 176.1 | Yield methodology | Annual rent per sq ft | £12 – £30 (£19) |
| Initial Yield | 5.4% – 7.2% (6.2%) | |||
| Alternatives | 191.6 | Yield methodology | Annual rent per sq ft | £0 – £19 (£15) |
| Initial Yield | 4.0% – 10.0% (4.7%) |
| Sector | Fair Value at | Valuation techniques | Unobservable inputs | Range |
| 31 December 2022 (£m) | (weighted average) | |||
| Industrial | 773.4 | Yield methodology | Annual rent per sq ft | £5 – £15 (£7) |
| Initial Yield | 4.9% – 7.7% (5.6%) | |||
| Office | 171.2 | Yield methodology | Annual rent per sq ft | £7 – £53 (£23) |
| Initial Yield | 4.0% – 8.5% (6.6%) | |||
| Retail | 180.3 | Yield methodology | Annual rent per sq ft | £12 – £30 (£19) |
| Initial Yield | 4.8% – 6.5% (5.8%) | |||
| Alternatives | 183.1 | Yield methodology | Annual rent per sq ft | £0 – £19 (£16) |
| Initial Yield | 6.3% – 10.5% (4.7%) |
NOTES TO THE ACCOUNTS
Continued
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Financial Statements
Sector | Assumption | Movement | Effect on valuation |
| Industrial | Initial Yield | + 50 basis points | Decrease £62.4 million |
| − 50 basis points | Increase £74.3 million | ||
| Office | Initial Yield | + 50 basis points | Decrease £11.0 million |
| − 50 basis points | Increase £12.7 million | ||
| Retail | Initial Yield | + 50 basis points | Decrease £13.4 million |
| − 50 basis points | Increase £15.7 million | ||
| Alternatives | Initial Yield | + 50 basis points | Decrease £11.7 million |
| − 50 basis points | Increase £13.7 million |
Sector | Assumption | Movement | Effect on valuation |
| Industrial | Initial Yield | + 50 basis points | Decrease £67.2 million |
| − 50 basis points | Increase £80.4 million | ||
| Office | Initial Yield | + 50 basis points | Decrease £14.3 million |
| − 50 basis points | Increase £16.8 million | ||
| Retail | Initial Yield | + 50 basis points | Decrease £14.1 million |
| − 50 basis points | Increase £18.8 million | ||
| Alternatives | Initial Yield | + 50 basis points | Decrease £12.7 million |
| − 50 basis points | Increase £14.7 million |
103
Strategic Report Governance Report Financial Statements Other Information
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| £’000 | £’000 | |
| Rental debtors | 12,623 | 20,605 |
| Rental deposits | 3,312 | 3,000 |
| Provision for bad debts | (3,195) | (5,071) |
| Lease incentives | 28,090 | 32,541 |
| Other debtors and prepayments | 1,295 | 1,573 |
42,125 | 52,648 | |
| Provision for bad debts as at 1 January | 5,071 | 5,327 |
| Bad debts recognised during the year | 215 | 896 |
| Bad debts written off during the year as uncollectable | (2,091) | (1,152) |
Provision for bad debts as at 31 December | 3,195 | 5,071 |
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.
NOTES TO THE ACCOUNTS
Continued
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Financial Statements
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| £’000 | £’000 | |
| Deferred rental income | 15,270 | 14,223 |
| Investment Manager fee payable | 1,657 | 3,819 |
| Rental deposits | 3,312 | 3,000 |
| Bank loan interest | 2,234 | 2,402 |
| Transaction costs | 324 | 798 |
| VAT payable | 3,348 | 3,622 |
| Other payables | 2,111 | 3,850 |
28,256 | 31,714 |
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| £’000 | £’000 | |
| Less than 6 months | 681 | 697 |
| Between 6 and 12 months | 663 | 578 |
| Over 12 months | 1,851 | 3,796 |
3,195 | 5,071 |
105
Strategic Report Governance Report Financial Statements Other Information
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| £’000 | £’000 | |
| Total facilities available | 350,000 | 380,000 |
| Drawn down: | ||
| Barclays facility | 37,500 | 93,000 |
| Barings facility | 200,000 | 200,000 |
| Set up costs incurred | (7,566) | (6,792) |
| Accumulated amortisation of set up costs | 6,398 | 5,478 |
Total due | 236,332 | 291,686 |
| Cash and cash | Interest- | 2023 | Cash and cash | Interest- | 2022 | |
| equivalents | bearing loans | net debt | equivalents | bearing loans | net debt | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Opening balance | 30,861 | (291,686) | (260,825) | 42,121 | (248,326) | (206,205) |
| Cash movement | (8,746) | 56,274 | 47,528 | (11,260) | (42,836) | (54,096) |
| Amortisation of arrangement costs | — | (920) | (920) | — | (524) | (524) |
Closing balance | 22,115 | (236,332) | (214,217) | 30,861 | (291,686) | (260,825) |
NOTES TO THE ACCOUNTS
Continued
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Financial Statements
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| £’000 | £’000 | |
| SHARE CAPITAL | ||
| Opening balance | 539,872 | 539,872 |
| Share capital as at 31 December | 539,872 | 539,872 |
(ii) Barings Facility £200 million
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 UKCPFHL.
As at 31 December 2023, the facility was fully drawn (31 December
2022: Fully drawn). The bank loan is secured on the portfolio of
seven properties held within UKCPFHL. Under bank covenants
related to the loan UKCPFHL 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.
UKCPFHL met all covenant tests during the year for this facility.
Interest is payable by UKCPFHL 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 20 February
2019, maturing in February 2031, with Barings Real Estate Advisers.
The loan was taken out by UKCPFHL. As at 31 December 2023,
the facility was fully drawn (31 December 2022: Fully drawn).
The bank loan is secured on the portfolio of seven properties
held within UKCPFHL. This facility has the same covenant tests as
the 2027 facility outlined above. UKCPFHL met all covenant tests
during the year for this facility.
Interest is payable by UKCPFHL 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, the Company would incur an early
repayment charge. Although the Company has no intention
of doing so, as at 31 December 2023, the charge would be
£2,000,000 (2022: £2,000,000).
107
Strategic Report Governance Report Financial Statements Other Information
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| Ordinary Shares | 1,299,412,465 | 1,299,412,465 |
| Net assets attributable at the year end (£’000) | 1,023,247 | 1,035,719 |
NAV per share (pence) | 78.7 | 79.7 |
| EPRA Net Tangible Assets per share1 | 78.7 | 79.7 |
NOTES TO THE ACCOUNTS
Continued
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Financial Statements
| 31 December 2023 Level 1 | Level 2 | Level 3 | Total fair value | |
| £’000 | £’000 | £’000 | £’000 | |
| Investment properties | — | — | 1,251,050 | 1,251,050 |
| 31 December 2022 Level 1 | Level 2 | Level 3 | Total fair value | |
| £’000 | £’000 | £’000 | £’000 | |
| Investment properties | — | — | 1,308,025 | 1,308,025 |
| Level 1 | Level 2 | Level 3 | Total fair value | |
| £’000 | £’000 | £’000 | £’000 | |
| Bank loans | — | 237,500 | — | 237,500 |
| Level 1 | Level 2 | Level 3 | Total fair value | |
| £’000 | £’000 | £’000 | £’000 | |
| Bank loans | — | 293,000 | — | 293,000 |
109
Strategic Report Governance Report Financial Statements Other Information
| Financial Assets 2023 3 months | More than 3 months | More than | ||
| or less | but less than one year | one year | Total | |
| £’000 | £’000 | £’000 | £’000 | |
| Cash and cash equivalents | 22,115 | — | — | 22,115 |
| Rent receivable and provision for bad debts | 9,428 | — | — | 9,428 |
| Other debtors | 1,295 | — | — | 1,295 |
32,838 | — | — | 32,838 |
| Financial Assets 2022 3 months | More than 3 months | More than | ||
| or less | but less than one year | one year | Total | |
| £’000 | £’000 | £’000 | £’000 | |
| Cash and cash equivalents | 30,861 | — | — | 30,861 |
| Rent receivable and provision for bad debts | 15,534 | — | — | 15,534 |
| Other debtors | 1,573 | — | — | 1,573 |
47,968 | — | — | 47,968 |
NOTES TO THE ACCOUNTS
Continued
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Financial Statements
| Financial Liabilities 2023 3 months | More than 3 months | More than | ||
| or less | but less than one year | one year | Total | |
| £’000 | £’000 | £’000 | £’000 | |
| Bank loans | 2,131 | 4,332 | 266,797 | 273,260 |
| Other creditors | 28,256 | — | — | 28,256 |
30,387 | 4,332 | 266,797 | 301,516 |
| Financial Liabilities 2022 3 months | More than 3 months | More than | ||
| or less | but less than one year | one year | Total | |
| £’000 | £’000 | £’000 | £’000 | |
| Bank loans | 2,505 | 4,332 | 328,047 | 334,884 |
| Other creditors | 31,714 | — | — | 31,714 |
34,219 | 4,332 | 328,047 | 366,598 |
111
Strategic Report Governance Report Financial Statements Other Information
| Year ended | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| £’000 | £’000 | |
| Carrying amount of interest-bearing loans and borrowings | 236,332 | 291,686 |
| External valuation of completed investment property and assets | 1,251,050 | 1,308,025 |
| held for sale (excluding lease incentive adjustment) | ||
| Loan to value ratio | 18.9% | 22.3% |
NOTES TO THE ACCOUNTS
Continued
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Financial Statements
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 | Year ended | |
| 31 December 2023 | 31 December 2022 | |
| £’000 | £’000 | |
| Within one year | 63,784 | 71,373 |
| Between one and two years | 60,605 | 67,990 |
| Between two and three years | 54,582 | 61,523 |
| Between three and four years | 46,439 | 54,581 |
| Between four and five years | 40,905 | 46,519 |
| Over five years | 236,278 | 308,269 |
Total | 502,593 | 610,254 |
The largest single tenant at the year end accounted for 5.2 per cent (2022: 5.8 per cent) of the annualised rental income at 31 December 2023.
The unoccupied property expressed as a percentage of annualised total rental value was 4.0 per cent (2022: 2.0 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 ‘UKCM Portfolio in Numbers’ pages 22.
21. EVENTS AFTER THE BALANCE SHEET DATE
On 31 January 2024 the Company sold Craven House, London,
for a headline sale price of £22m. On 28 February 2024 the
Company sold 2 Rivergate, Temple Quay, Bristol for a headline
sale price of £14.5m.
A fourth interim, PID of 0.85p was paid on 29 February 2024
to shareholders on the register on 15 February 2024. Although
this payment relates to the year ended 31 December 2023, under
International Financial Reporting Standards it will be accounted
for in the year ending 31 December 2024.
On 21 March 2024, the Company announced they had reached
agreement on the terms of a recommended all-share combination
with Tritax Big Box REIT plc (“BBOX”) pursuant to which BBOX
will acquire the entire issued and to be issued ordinary share
capital of the Company (the “Combination”).
The Combination is conditional on, among other things,
the approval of the Company’s shareholders at a Court Meeting
and a General Meeting to be held on 2 May 2024.
For full details of the Combination, please refer to the scheme
document published by the Company on 9 April 2024, available
through the Company’s website at ukcpreit.com/en-gb/merger
113
Strategic Report Governance Report Financial Statements Other Information
ALTERNATIVE PERFORMANCE
MEASURES
Unaudited
DIVIDEND COVER 2023 £’000 2022 £’000
Earnings per IFRS Income statement
31,708 (222,329)
Adjustments to calculate Dividend Cover, exclude:
Net changes in value of investment properties
8,451 263,090
Early close-out of debt
508 —
Cineworld rent smoothing adjustment
2,909 —
Profit for Dividend Cover
43,576 40,761
Dividends paid in year
44,180 67,180
Dividend Cover
99% 61%
Dividend Cover (excluding special dividend)
99% 97%
GEARING 2023 £’000 2022 £’000
Gross borrowings
237,500 293,000
Less cash
(22,115) (30,861)
215,385 262,139
Portfolio valuation
1,251,050 1,308,025
Gearing
17.2% 20.0%
TOTAL RETURN Net asset value Share price
NAV/Share price per share at 31 December 2022 (pence)
79.7 58.4
NAV/Share price per share at 31 December 2023 (pence)
78.7 62.0
Change in the year
(1.3)% 6.2%
Impact of dividend reinvestment
4.3% 6.9%
Total return for the year
3.0% 13.1%
ONGOING CHARGES INCLUDING DIRECT PROPERY EXPENSES 2023 £’000 2022 £’000
Investment management fee
6,738 8,617
Direct property expenses
6,911 6,266
Other expenses
2,832 2,299
Less non-recurring costs – Bad debts recognised in the year, net
(215) (896)
Less non-recurring costs – Abortive transaction costs
(459) (380)
Less non-recurring costs – Direct costs on operating assets
(618) (475)
Total
15,189 15,431
Average net assets
1,041,686 1,318,399
Ongoing charges
1.5% 1.2%
ONGOING CHARGES EXCLUDING DIRECT PROPERY EXPENSES 2023 £’000 2022 £’000
Investment management fee
6,738 8,617
Other expenses
2,832 2,299
Less non-recurring costs – Abortive transaction costs
(459) (380)
Total
9,111 10,536
Average net assets
1,041,686 1,318,399
Ongoing charges
0.9% 0.8%
The Company uses the following Alternative Performance
Measures (APMs). APM do not have a standard meaning
prescribed by GAAP and therefore may not be comparable
to similar measures presented by other entities.
Further descriptions can be found in the Glossary on pages 132 to 133.
114 UKCP REIT Annual Report & Accounts
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Other Information
The European Public Real Estate
Association (EPRA) is the industry
body representing listed companies in
the real estate sector. EPRA publishes
Best Practice Recommendations
(BPR) to establish consistent reporting
by European property companies.
Further information on the EPRA
BPR can be found at epra.com
Notes
31 December
2023
Total
31 December
2022
Total
Company adjusted EPRA earnings £’000
A 43,576 40,761
Company adjusted EPRA earnings per share
(pence per share)
A 3.35 3.15
EPRA Net Tangible Assets (“NTA”) £’000
B 1,023,247 1,035,719
EPRA NTA per share (pence per share)
B 78.7 79.7
EPRA Net Reinstatement Value (“NRV”) £’000
C 1,106,132 1,121,955
EPRA NRV per share (pence per share)
C 85.1 86.3
EPRA Net Disposable Value (“NDV”) £’000
D 1,020,079 1,032,405
EPRA NDV per share (pence per share)
D 78.5 79.5
EPRA Net Initial Yield
E 4.8% 4.8%
EPRA topped-up Net Initial Yield
E 5.1% 5.1%
EPRA Cost Ratios – including direct vacancy costs
F 23.0% 26.1%
EPRA Cost Ratios – excluding direct vacancy costs
F 22.1% 25.0%
EPRA LTV
I 17.1% 20.2%
EPRA Vacancy Rate
4.0% 2.0%
EPRA performance measures: Summary Table
31 December 2023
£’000
31 December 2022
£’000
A. EPRA Earnings
Earnings per IFRS income statement
31,708 (222,329)
Adjustments to calculate EPRA Earnings, exclude:
Net changes in value of investment properties
8,227 266,655
Loss/(Gain) on disposal of Investment properties
224 (3,565)
Early close-out of debt costs
508 —
EPRA Earnings
40,667 40,761
Weighted average number of shares (000’s)
1,299,412 1,299,412
EPRA Earnings per share (pence per share)
3.13 3.15
Company specific adjustments
Reversal of Cineworld lease step rent amortisation
2,909 —
Company adjusted EPRA Earnings
43,576 40,761
Weighted average number of shares (000’s)
1,299,412 1,299,412
EPRA Earnings per share (pence per share)
3.35 3.15
EPRA PERFORMANCE
MEASURES
Unaudited
115
Strategic Report Governance Report Financial Statements Other Information
EPRA PERFORMANCE MEASURES
Unaudited — continued
31 December 2023
£’000
31 December 2022
£’000
B. EPRA Net Tangible Assets
IFRS NAV
1,023,247 1,035,719
Fair value of financial instrument (assets)/liabilities
— —
EPRA NTA
1,023,247 1,035,719
Shares in issue (000’s)
1,299,412 1,299,412
EPRA NTA per share (pence per share)
78.7 79.7
31 December 2023
£’000
31 December 2022
£’000
C. EPRA Net Reinstatement Value
IFRS NAV
1,023,247 1,035,719
Real Estate Transfer Tax and other acquisition costs
82,885 86,236
EPRA NRV
1,106,132 1,121,955
Shares in issue (000’s)
1,299,412 1,299,412
EPRA NRV per share (pence per share)
85.1 86.3
31 December 2023
£’000
31 December 2022
£’000
D. EPRA Net Disposal Value
IFRS NAV
1,023,247 1,035,719
Fair value of debt
(3,168) (3,314)
EPRA NDV
1,020,079 1,032,405
Shares in issue (000’s)
1,299,412 1,299,412
EPRA NDV per share (pence per share)
78.5 79.5
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Other Information
E. EPRA Net Initial Yield and ‘topped up’ NIY Disclosure
Completed Property Portfolio
31 December 2023
£’000
31 December 2022
£’000
Investment property — wholly owned
1,218,900 1,268,175
Allowance for estimated purchasers’ costs
82,885 86,236
Gross up completed property valuation
1,301,785 1,354,411
Annualised cash passing rental income
68,422 69,353
Property outgoings
(6,078) (4,895)
Annualised net rents
62,344 64,458
Add: notional rent expiration of rent free periods or other lease incentives
4,463 4,505
Topped-up net annualised rent
66,807 68,963
EPRA NIY
4.8% 4.8%
EPRA “topped-up” NIY
5.1% 5.1%
31 December 2023
£’000
31 December 2022
£’000
F. EPRA Cost Ratios
Total expenditure line per IFRS income statement less service charge expenses
16,481 17,182
Expenditure incurred relating to operating units
(618) (475)
EPRA Costs (including direct vacancy costs)
15,863 16,707
Direct vacancy costs
(647) (675)
EPRA Costs (excluding direct vacancy costs)
15,216 16,032
Gross Rental income less ground rent costs
68,847 64,040
EPRA Cost Ratio (including direct vacancy costs)
23.0% 26.1%
EPRA Cost Ratio (excluding direct vacancy costs)
22.1% 25.0%
No operating costs or overheads were capitalised in 2023 (2022: nil).
Rental growth
£’000
Portfolio value by sector
£’000
Rental growth
£’000
Portfolio value by sector
£’000
G. Like-for-like Rental Growth Reporting 2023 2023 2022 2022
Sector:
Industrial
2,692 739,800 9,947 773,450
Offices
353 143,600 479 171,200
Retail
987 176,100 40 180,325
Alternatives
(642) 191,550 3,075 183,050
Total portfolio value
3,391 1,251,050 13,540 1,308,025
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.
117
Strategic Report Governance Report Financial Statements Other Information
31 December 2023
£’000
31 December 2022
£’000
H. Property-related CapEx
Acquisitions
225 6,934
Development
28,218 47,332
Investment properties:
Incremental lettable space
— —
No incremental lettable space
872 1,221
Tenant incentives
(890) (911)
Other material non-allocated types of expenditure
— —
Total capital expenditure incurred
28,425 54,576
31 December 2023
£’000
31 December 2022
£’000
I. LTV
Borrowings from Financial Institutions
237,500 293,000
Exclude Cash and cash equivalents
(22,115) (30,861)
Net Debt (a)
215,385 262,139
Investment properties at fair value
1,191,445 1,235,760
Properties under development
32,150 39,850
Net Receivables
35,984 20,934
Total Property Value (b)
1,259,579 1,296,544
LTV (a/b)
17.1% 20.2%
EPRA PERFORMANCE MEASURES
Unaudited — continued
118 UKCP REIT Annual Report & Accounts
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Other Information
ESG PERFORMANCE
Unaudited
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
Material
Water-Abs building energy consumption Material
Water-LfL Total water consumption Material
Water-Int
Like-for-like total water
consumption
Material
Waste-Abs Building water intensity Material
Waste-LfL
Total weight of waste by disposal
route
Material
Cert-Tot
Like-for-like total weight of waste
by disposal route
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
GOVERNANCE
Gov-Board
Composition of the highest
governance body
Material – see
main body of
report (pages
58 to 63 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.
In addition, carbon metrics in line with the Taskforce for Climate-
Related Financial Disclosures (TCFD) are included in this section.
Explanatory Notes on Methodology
Reporting Period
Sustainability data in this report covers the calendar years of 2022 and 2023.
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 Industrial distribution
warehouses 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.
The data in the below sBPR disclosures has not been estimated, due to
the excellent coverage of data from landlord procured utilities. All data
disclosed in the tables below is ‘actual’ data (primarily from utility invoices).
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 (refrigerant) 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. There is currently no landlord self-generated
renewable electricity across the portfolio although we are at the
feasibility with a number of large landlord-led 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. The ESG data (including energy, GHGs,
water and waste data) in this disclosure has also been subject to limited
assurance by an external third-party consultant, in accordance with the
International Standard on Assurance Engagements (UK) 3000 (ISAE3000).
Materiality
We have undertaken a review of materiality against each of the EPRA
sBPR indicators. The table below indicates the outcome of the review.
119
Strategic Report Governance Report Financial Statements Other Information
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)
2022 2023 Change
(%)
2022 2023 Change
(%)
2022 2023 Change
(%)
2022 2023 Change
(%)
2022 2023 Change
(%)
Industrial,
Business
Parks
5 of 5 168,390 95,258 –43% 278,584 290,493 4% 446,974 385,751 –14% 2,756 11,528 318% 3.2 2.8 –12%
Leisure 3 of 3 403,562 401,290 –1% 2,920 3,034 4% 406,482 404,324 –1%
No landlord
obtained gas
N/A 11 11 –1%
Offices 3 of 6 1,012,758 1,556,218 54% 911,996 883,488 –3% 1,924,754 2,439,706 27% 1,434,210 1,320,763 –8% 155 173 12%
Retail,
Warehouses
3 of 5 88,093 86,173 –2%
No sub–metered
consumption
N/A 88,093 86,173 –2%
No landlord
obtained gas
N/A 2.0 2.0 –2%
Hotels 1 of 1 29,257 24,651 –16%
No sub–metered
consumption
N/A 29,257 24,651 –16%
No landlord
obtained gas
N/A 2.5 2.1 –16%
Retail,
High Street
1 of 1 50,625 62,318 23%
No sub–metered
consumption
N/A 50,625 62,318 23% 63,030 47,877 –24% 31 30 –3%
Totals
16 of 34 1,752,684 2,225,908
27% 1,193,500 1,177,015 –1%
2,946,184 3,402,924
16% 1,499,996 1,380,168 –8% 17 18 8%
Like-for-like Energy Consumption
Landlord electricity consumption across like-for-like assets
increased by 27% in 2023, primarily driven by increases in
consumption at offices (associated with the return to office
in 2023 following emergence of Covid-19 lockdown restrictions,
which is also responsible for the 16% overall increase in total
landlord-obtained electricity). Despite this increase, there was
a 1% decrease in the overall electricity sub-metred to occupiers.
The 8% decrease in landlord-obtained gas consumption in
2023 is driven by reduced consumption of gas at office and
retail high street assets; albeit offset by an increase in gas
consumption at Industrial, Business Parks (primarily as result
of increased void space in 2023 at Ventura Park and Gatwick
Gate, resulting in a greater level of landlord gas usage).
Other notable asset-level drivers for the year-on-year data
swings included:
Emerald Park East (Industrial, Business Parks) – landlord
energy consumption decreased at this asset due to the
implementation of efficiency measures (e.g. LED lights),
and due to the re-letting of two previously vacant units.
Ventura Park (Industrial, Business Parks) – the increase
in consumption at this asset was driven by landlord
refurbishment works undertaken while units were void
in 2023, resulting in higher consumption.
Trafford Retail Park (Retail, Warehouses) – the increase in
energy consumption at this asset was driven by the re-instatement
of several spent external lamps, along with lighting used during
contractor works (e.g. carpark resurfacing).
ESG PERFORMANCE
Unaudited — continued
All figures in this table have been subject to limited assurance by a third-party consultant against ISAE3000.
120 UKCP REIT Annual Report & Accounts
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Other Information
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)
2022 2023 Change
(%)
2022 2023 Change
(%)
2022 2023 Change
(%)
2022 2023 Change
(%)
Industrial, Business Parks 5 of 5 0.5 2.1 319% 33 20 –39% 62 67 9% 0.7 0.6 –6%
Leisure 3 of 3
No Scope 1
emissions
N/A 78 83 6% 7.8 7.9 2% 2.3 2.4 6%
Offices 3 of 6 262 242 –8% 196 322 65% 210 227 8% 31 36 18%
Retail, Warehouses 3 of 5
No Scope 1
emissions
N/A 17 18 5% 1.6 1.5 –1% 0.4 0.4 4%
Hotels 1 of 1
No Scope 1
emissions
N/A 6 5 –10% 0.5 0.4 –15% 0.5 0.5 –10%
Retail, High Street 1 of 1 12 8.8 –24% 10 13 32% 0.9 1.1 25% 6.0 6.1 3%
Totals 16 of 34 274 252 –8% 339 461 36% 283 305 8% 41 47 14%
Note: Scope 3 also includes emissions associated with transmission and distribution losses for all landlord-procured electricity.
All figures in this table have been subject to limited assurance by a third-party consultant against ISAE3000.
See text beneath ‘Like-for-like Energy Consumption’ tables for an overview of asset level drivers of year-on-year data swings.
Like-for-like Greenhouse Gas Emissions
Scope 1 greenhouse gas (GHG) emissions reduced by 8% in
2023, driven by reduced gas consumption at office and retail
high street assets. Note that there were no F-gas leakages
recorded at any of the assets in 2022 nor 2023.
Scope 2 emissions from landlord electricity consumption
increased by 36%, driven primarily by increased consumption
at office assets, alongside a 7% increase in the carbon intensity
of the UK’s energy grid between 2022 and 2023.
Scope 3 emissions from energy sub-metered to occupiers and
grid transmission and distribution losses increased by 8%,
again driven primarily by increases in total landlord-procured
electricity (from which Scope 3 transmission and distribution
GHG emissions are calculated).
121
Strategic Report Governance Report Financial Statements Other Information
Absolute Energy Consumption
Absolute landlord electricity consumption increased by 11%,
while landlord gas consumption decreased by 30% in 2023.
Absolute occupier energy consumption also decreased by
15%, driven primarily by reduced sub-metered tenant
consumption at offices.
The variation from like-for-like consumption is due to
the Company’s acquisitions, disposals and completed
developments during 2022 and 2023. In the reporting period,
all landlord-procured electricity was from 100% renewable
sources. Gas consumed was not from renewable sources.
Other notable asset-level drivers for the year-on-year data
swings included:
Sussex Junction, Bolney (Industrial, Distribution Warehouse) –
the increase in consumption in 2023 was due to the connection
of a new electricity supply at the asset in 2023.
Cineworld (Leisure) – the increase in consumption at this
asset was driven in part by the connection of a new landlord
electricity supply late in 2022.
ESG PERFORMANCE
Unaudited — continued
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
2022
(assets)
Coverage
2023
(assets)
2022 2023
Change
(%)
2022 2023
Change
(%)
2022 2023
Change
(%)
2022 2023
Change
(%)
2022 2023
Change
(%)
Industrial,
Business
Parks
5 of 5 5 of 5 168,390 95,258 –43% 278,584 290,493 4% 446,974 385,751 –14% 2,756 11,528 318% 3.2 2.8 –12%
Industrial,
Distribution
Warehouses
0 of 15
1 of 15
No
landlord–
obtained
electricity
25,264 N/A
No sub–metered
consumption
54%
No
landlord–
obtained
electricity
25,264 N/A
No landlord
obtained gas
N/A —
2.5
N/A
Leisure
3 of 3
3 of 3 403,562 401,290 –1% 2,920 3,034 4% 406,482 404,324 –1%
No landlord
obtained gas
N/A 11 11 –1%
Offices
4 of 7
3 of 6 1,297,795 1,556,218 20% 1,098,839 883,488 –20% 2,396,634 2,439,706 2% 1,945,840 1,320,763 –32% 153 173 13%
Retail,
Warehouses
3 of 5
3 of 5 88,093 86,173 –2%
No sub–metered
consumption
N/A 88,093 86,173 –2%
No landlord
obtained gas
N/A 2.0 2.0 –2%
Hotels
1 of 1
1 of 1 29,257 24,651 –16%
No sub–metered
consumption
N/A 29,257 24,651 –16%
No landlord
obtained gas
19% 2.5 2.1 –16%
Retail,
High Street
1 of 1
1 of 1 50,625 62,318 23%
No sub–metered
consumption
N/A 50,625 62,318 23%
63,030
47,877 –24% 31 30 –3%
Land
1 of 1
1 of 1
No
landlord–
obtained
electricity
11,642 N/A
No sub–metered
consumption
N/A
No
landlord–
obtained
electricity
11,642 N/A 2,016 32,328 1,503% 0.3 7.0 2,081%
Totals
18 of 38
18 of 39
2,037,722 2,262,815
11%
1,380,343
1,177,015 –15%
3,418,064 3,439,830
1%
2,013,642
1,412,496
–30% 20 18 –12%
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Other Information
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
2022
(assets)
Coverage
2023
(assets)
2022 2023 Change
(%)
2022 2023 Change
(%)
2022 2023 Change
(%)
2022 2023 Change
(%)
Industrial,
Business Parks
5 of 5 5 of 5 0.5 2.1 319% 33 20 –39% 62 67 9% 0.7 0.6 –6%
Industrial,
Distribution
Warehouses
0 of 15 1 of 15
No Scope 1
emissions
N/A
No
Scope 2
emissions
5.2 N/A
No
Scope 3
emissions
0.5 N/A — 0.6 N/A
Leisure 3 of 3 3 of 3
No Scope 1
emissions
N/A 78 83 6% 7.8 7.9 2% 2.3 2.4 6%
Offices 4 of 7 3 of 6 355 242 –32% 251 322 28% 257 227 –12% 30 36 20%
Retail,
Warehouses
3 of 5 3 of 5
No Scope 1
emissions
N/A 17 18 5% 1.6 1.5 –1% 0.4 0.4 4%
Hotels 1 of 1 1 of 1
No Scope 1
emissions
N/A 5.7 5.1 –10% 0.5 0.4 –15% 0.5 0.5 –10%
Retail,
High Street
1 of 1 1 of 1 12 8.8 –24% 10 13 32% 0.9 1.1 25% 6.0 6.1 3%
Land 1 of 1 1 of 1 0.4 5.9 1,507%
No
Scope 2
emissions
2.4 N/A
No
Scope 3
emissions
0.2 N/A 0.1 1.4 2,218%
Totals 18 of 38 18 of 39 368 258 –30% 394 469 19% 330 305 –7% 4.0 3.7 –7%
Absolute Greenhouse Gas Emissions
Absolute Scope 1 GHG emissions decreased by 30%.
Total Scope 2 emissions increased by 19%, while Scope 3
emissions decreased by 7%.
Note: Scope 3 also includes emissions associated with transmission and distribution losses for all landlord-procured electricity.
All figures in this table have been subject to limited assurance by a third-party consultant against ISAE3000.
See text beneath ‘Absolute Energy Consumption’ tables for an overview of asset level drivers of year-on-year data swings.
123
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ESG PERFORMANCE
Unaudited — continued
Data Type 2019 2020 2021 2022
2023
% Change
2023 vs 2022
% Change 2022 vs 2019
(base year)
Total Scope 1/2 Emissions (tCO
2
e) 1603 1336 1243 762
727
–5% –55%
Emissions intensity
(kgCO
2
e/m
2
Net Lettable Area)
4.5 3.9 5.8 2.8
2.6
–6% –42%
Total Landlord Energy Consumption (kWh)
6,861,568 6,004,638 5,645,227 4,051,364 3,675,311 –9% –46%
Streamlined Energy and Carbon Reporting (SECR)
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 2023 vs 2022 basis,
and 2023 vs 2019 basis. Emissions intensity has decreased 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.
Absolute Water Consumption
(m
3
)
LfL Water Consumption
(m
3
)
Indicator references Water–Abs; Water–Int Water–LfL; Water–Int
Sector Coverage
2022
(assets)
Coverage
2023
(assets)
2022
(m
3
)
2022
Intensity
(litres/m
2
)
2023
(m
3
)
2022
Intensity
(litres/m
2
)
Change
(%)
Coverage
(assets)
2021
(m
3
)
2021
Intensity
(litres/m
2
)
2023
(m
3
)
2023
Intensity
(litres/m
2
)
Change
(%)
Industrial, Business Parks 2 of 5 4 of 5 4,049 50 2,923 24 –28% 4 of 5 4,049 33 2,923 24 –28%
Land 0 of 0 1 of 1 — — 432 69 n/a n/a — — — — n/a
Offices 3 of 7 2 of 6 10,089 449 10,426 659 3% 2 of 6 8,343 528 10,426 659 25%
Leisure 2 of 3 2 of 3 500 20 334 13 –33% 2 of 3 500 20 334 13 –33%
Retail, High Street 1 of 1 1 of 1 202 54 723 195 258% 1 of 1 202 54 723 195 258%
Totals 8 of 38 10 of 39 14,841 113 14,838 86 –0.02% 9 of 34 13,095 79 14,406 87 10%
Water Consumption
Water consumption at like-for-like assets
increased by 3% in 2022, but reduced by 8% across
the whole portfolio. 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.
All figures in this table have been subject to limited assurance by a third-party consultant against ISAE3000.
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Other Information
TCFD Carbon metrics (2023 calendar year) —
Scope 1 and 2 GHG Emissions only
Metric Units Performance
Total carbon emissions (Scope 1 and 2) kgCO
²
e
356
Data coverage of Scope 1 and 2 emissions
(relative to the rest of the fund)
% based on
floor area
45%
Data coverage of Scope 1 and 2
(only where scope 1 and 2 emissions are applicable)
% based on
floor area
100%
Scope 1 emissions kgCO
²
e
258,386
Scope 2 emissions kgCO
²
e
468,571
Year on year change (Scope 1 and 2 emissions)
% based on
like for like
-5%
Portfolio Carbon Intensity based on Scope 1 and 2
emissions (kgCO
²
e/m²)
kgCO
²
e/m²
2.6
Weighted Average Carbon Intensity (WACI) based on
Scope 1 and 2 emissions
kgCO
²
e/m² weighted
by value (£)
2.5
Economic Emissions Intensity based on Scope 1 and 2
emissions (kgCO
²
e/value)
kgCO
²
e/value (£)
0.001
Financed Emissions based on Scope 1 and 2 emissions
kgCO
²
e*
attribution factor
726,957
TCFD Carbon metrics (2022 calendar year) —
Scope 1, 2 and 3 GHG Emissions
Metric Units Performance
Total carbon emissions (Scope 1, 2 and 3) kgCO
²
e
24,538,603
Data coverage of Scope 1, 2 and 3 emissions
(including estimates)
% based on
floor area
100%
Data coverage of Scope 1, 2 and 3 emissions
(excluding estimates)
% based on
floor area
50%
Scope 1 emissions kgCO
²
e
429,648
Scope 2 emissions kgCO
²
e
619,085
Scope 3 emissions kgCO
²
e
23,489,870
Year on year change (Scope 1, 2 and 3 emissions)
% based on
like for like
–1%
Portfolio Carbon Intensity based on Scope 1, 2 and 3
emissions (kgCO
²
e/m²)
kgCO
²
e/m²
42
Weighted Average Carbon Intensity (WACI) based on
Scope 1, 2 and 3 emissions
kgCO
²
e/m² weighted
by value (£)
48
Economic Emissions Intensity based on Scope 1, 2 and 3
emissions (kgCO
²
e/value)
kgCO
²
e/value (£)
0.02
Financed Emissions based on Scope 1, 2 and 3 emissions
kgCO
²
e*
attribution factor
24,538,603
Taskforce for Climate Related
Financial Disclosures (TCFD)
In support of our own TCFD reporting,
along our clients’ own TCFD obligations,
core TCFD metrics for the Fund for the
2023 and 2022 period are disclosed in
the below tables. Note that the TCFD
carbon metrics relating to the 2023
calendar year only include Scope 1 and 2
GHG emissions data (this is because Scope
3 data collection for the calendar year of
2023 is still in progress, and concludes at
the end of June 2024).
For TCFD carbon metrics which are
inclusive of Scope 3 emissions, data
from the previous (2022) calendar year
has also been provided (which includes
estimates of Scope 3 data where these were
not available).
125
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ESG PERFORMANCE
Unaudited — continued
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 7 assets for which
waste is managed, 257 tonnes of non-
hazardous waste was generated in 2023,
with 57% recovered via energy from
waste, and 43% recycled. There was
no waste sent to landfill. Note that
like-for-like and absolute waste
generation is very similar, the only
difference being associated with the sale
of an office asset in 2022 (Colmore Court),
and the absence of waste data for 2023
for 81–85 George Street, Edinburgh
(due to no waste orders taking place
at the asset in 2023).
Sector
Coverage
(assets)
Total Waste
(tonnes)
Waste to Landfill
(tonnes)
Waste Recovered
(tonnes)
Waste Recycled
(tonnes)
Indicator
reference
Waste-LfL
2023 2023 2023 2023 2023 2023
Leisure 2 of 3 157 117 0% 0 46% 54 54% 63
Offices 3 of 6 95 119 0% 0 61% 72 39% 47
Retail,
Warehouses
1 of 5 21 21 0% 0 100% 21 0% 0
Retail,
High Street
1 of 1 1 0 N/A N/A N/A N/A N/A N/A
Totals 7 of 34 274 257 0% 0 57% 147 43% 110
Indicator
reference
Waste-Abs
2022 2023 2022 2023
2023
2023 2023
Leisure 2 of 3
2 of 3
157
117 0% 0 46% 54 54% 63
Offices
4 of 7 3 of 6 123 119 0% 0 61% 72 39% 47
Retail,
Warehouses
1 of 5 1 of 5 21 21 0% 0 100% 21 0% 0
Retail,
High Street
1 of 5 0 of 5 0.9 0 N/A N/A N/A N/A N/A N/A
Totals
8 of 38 6 of 39 302 257 0% 0 57% 147 43% 110
All figures in these tables have been subject to limited assurance by a third-party consultant against ISAE3000.
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Other Information
Asset Rating Details Green Building Certification
Regents Circus Leisure BREEAM/New Construction | Very Good
Central Square Office BREEAM/New Construction | Excellent
Palletforce
Industrial,
Distribution
Warehouse
BREEAM/New Construction | Very Good
White Building Office BREEAM/New Construction | Excellent
Maldron Hotel Hotel BREEAM/New Construction | Very Good
Sussex Junction, Bolney
Industrial,
Distribution
Warehouse
BREEAM/New Construction | Very Good
Hill View Place,
Glenthorne Road
Student Housing BREEAM/New Construction | Very Good
EPC
Rating
% Estimated
Rental Value
A+ 9.31%
A 1.95%
B 35.26%
C 37.89%
D 7.27%
E 8.02%
N/A 0.30%
Total 100.00%
Sustainability Certifications
Energy Performance Certificate (EPC)
ratings for assets in England owned by the
Company are shown below.
As at December 2023, there were
7 BREEAM-rated assets in the portfolio,
accounting for 14% of the portfolio by gross
asset value. These are detailed below:
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
OLIO Food Waste
At the Rotunda in Kingston-upon-Thames,
the Company has worked with OLIO to tackle
food waste generated by its tenants. OLIO
fostering connections among neighbours and
businesses to share surplus food instead of
discarding it. This aligns with Rotunda’s ESG
strategy, making OLIO an essential component
of our sustainability initiatives. Currently, four
tenants—Odeon / Costa, David Lloyd, PICNIC,
and Cornerstone—are actively participating in
the OLIO programme at Rotunda.
Throughout 2023 edible goods have been
redistributed throughout Kingston with
a total of:
1,404 items saved
909 meals saved
338,7kg of edible food donated
47 households fed
1,647kg CO
2
emissions avoided
76 equivalent number of trees planted
5,600 car miles off the road
Kingston International Film Festival
(Sponsor)
UKCM proudly sponsored the Best U18
Short Film category at the 2023 Kingston
International Film Festival. The Rotunda
Award acknowledges and celebrates the
exceptional talent of young filmmakers.
In addition to exclusive prizes such as
Final Draft software, the winner receives
valuable mentoring to further develop their
skills. This opportunity provides a platform
for aspiring filmmakers to showcase their
creativity and opens doors to future success.
Swindon & Wiltshire Pride Pop Up
at Regents Circus
At Regent Circus in Swindon, Swindon &
Wiltshire Pride utilised a vacant unit space
to create their ‘Pride Hub’. Through their
exceptional fundraising efforts in 2023, they
raised over £3,000 for the charity. Their Pride
event in August, along with a sold-out after-
party at Boom Battle Bar, garnered great
excitement with over 350 tickets sold.
Governance Indicators
The Company has a Board comprised
of five independent/Non-Executive
Directors as detailed on pages 60 to 61
of this document. The average tenure of
the Board members is approximately
4.2 years with the longest serving Director
being Michael Ayre at eight years and the
shortest being Peter Pereira Gray who was
appointed on 3 April 2023.
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.
127
Strategic Report Governance Report Financial Statements Other Information
Alternative Investment Fund Managers
Directive (“AIFMD”) and Pre-Investment
Disclosure Document (“PIDD”)
The Company has appointed abrdn
Fund Managers Limited as its alternative
investment fund manager and Citibank UK
Limited as its depositary under the AIFMD.
The AIFMD requires abrdn Fund Managers
Limited, as the Company’s AIFM, 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 the AIFMD are
published in the Company’s Pre-Investment
Disclosure Document (“PIDD”) which can be
found on its website: www.ukcpreit.co.uk
The periodic disclosures required to be made
by the AIFM under the AIFMD are set out on
page 129.
Investor Warning: Be alert to share
fraud and boiler room scams
abrdn has been contacted by investors
informing us that they have received
telephone calls and emails from people
who have offered to buy their investment
company shares, purporting to work for
abrdn or for third party firms. abrdn has
also been notified of emails claiming that
certain investment companies under our
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/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 the
veracity of a caller, do not offer any personal
information and end the call.
The Financial Conduct Authority provides
advice with respect to share fraud and boiler
room scams at: fca.org.uk/consumers/scams
Shareholder Enquiries
For queries regarding shareholdings, lost
certificates, dividend payments, registered
details and related matters, shareholders
holding their shares directly in the Company
are advised to contact the Registrar (see
details on page 130). Changes of address
must be notified to the Registrar in writing.
Any general queries about the Company
should be directed to the Company Secretary
in writing (see Contact Addresses) or by
email to: CEF.CoSec@abrdn.com
Closure of the abrdn Investment Trust
Savings Plans (the “Plans”)
In June 2023, abrdn notified investors
in the abrdn Investment Trust ISA, Share
Plan and Investment Plan for Children
that these plans would be closing in
December 2023. All investors with a
holding or cash balance at that time
transferred to interactive investor (“ii”).
ii communicated with investors in
November to set up account security to
ensure that investors could continue to
access their holdings via ii following the
closure of the Plans.
Please contact ii for any ongoing support
with your account on 0345 646 1366,
or +44 113 346 2309 if you are calling
from outside the UK. Lines are open
8.00am to 5.00pm Monday to Friday.
Alternatively you can access the ii website
at: www.ii.co.uk/abrdn-welcome
How to Invest in the Company
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 private investors, there are a number of
online dealing platforms 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.
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 Personal Investment
Management and Financial Advice
Association at: pimfa.co.uk
Financial Advisers
To find an adviser who recommends on
investment trusts, visit: unbiased.co.uk
Regulation of Stockbrokers
Before approaching a stockbroker,
always check that they are regulated
by the Financial Conduct Authority at:
fca.org.uk/firms/financial-services-register
SHAREHOLDER INFORMATION
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Other Information
Keeping You Informed
Information about the Company can be
found on its website: www.ukcpreit.co.uk,
including share price and performance
data as well as London Stock Exchange
announcements, current and historic Annual
and Half-Yearly Reports, and the latest
monthly factsheet on the Company issued by
the Manager. Investors can receive updates
via email by registering on the home page of
the Company’s website.
The Company’s Ordinary share price appears
under the heading ‘Investment Companies’
in the Financial Times.
Details are also available at: invtrusts.co.uk
Twitter: @abrdnTrusts
LinkedIn: abrdn Investment Trusts
Key Information Document (“KID”)
The KID relating to the Company and
published by the Manager can be found on
the Company’s website.
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 trust shares purchased will
immediately be reduced by the difference
between the buying and selling prices of the
shares, known as 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.
AIFMD Disclosures (unaudited)
The Company has appointed abrdn
Fund Managers Limited as its alternative
investment fund manager with Citibank
UK Limited, 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 June 2022.
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 abrdn Fund Managers Limited on
request (see contact details on page 130)
and the remuneration disclosures in
respect of the AIFM’s reporting period for
the period ended 31 December 2023 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:
Gross
Method
Commitment
Method
Maximum level
of leverage
250% 250%
Actual level at
31 December 2023
124% 124%
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 128 to 129 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 abrdn Fund Managers Limited
which is authorised and regulated by the
Financial Conduct Authority.
129
Strategic Report Governance Report Financial Statements Other Information
CORPORATE INFORMATION
Directors (all non-executive)
Peter Pereira Gray
(Appointed 3 April 2023)
Chair (with effect from 31 July 2023)
Ken McCullagh
(Retired 31 July 2023)
Chair
Michael Ayre
Chair of Audit Committee
Chris Fry
Chair of Property Valuation Committee
Fionnuala Hogan
Chair of the Management
Engagement Committee and
Nomination and Remuneration Committee
Margaret Littlejohns
Chair of the Risk Committee and
Senior Independent Director
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
abrdn Fund Managers Limited
280 Bishopsgate
London
EC2M 4AG
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 (Guernsey) LLP
Helvetia Court
St Peter Port
Guernsey
GY1 1AR
UK Legal Advisors and Sponsor
Dickson Minto W.S.
16 Charlotte Square
Edinburgh
EH2 4DF
Property Legal Advisors
Maples Teesdale LLP
30 King Street
London
EC2V 8EE
Financial Advisor
Rothchild & Co
New Court
St Swithin’s Lane
London
EC4N 8AL
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
Deutsche Numis
45 Gresham Street
London
EC2V 7BF
Depositary
Citibank UK Limited
Citigroup Centre
Canada Square
Canary Wharf
London
E14 5LB
Environmental Statement
This Report is printed on Oxygen Offset, manufactured using 100% FSC® Recycled fibre sourced from de-inked post
consumer waste. Oxygen Offset is a Carbon Balanced paper, 100% of the CO
2
produced in the manufacture of the paper
has been offset using Carbon Footprint Ltd and it also carries the EU Eco Label.
The Printer and the manufacturing mill are both credited with ISO14001 Environmental Management Systems standard
and both are FSC® certified.
The production of this Report has been Carbon Balanced through the printer who are a certified partner of ClimateCare.
130 UKCP REIT Annual Report & Accounts
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Other Information
Ocado Distribution Unit,
Hatfield Business Area, Hatfield
Strategic Report Governance Report Financial Statements Other Information
131
GLOSSARY
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.
Detailed calculation provided on page 114.
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 February 2022,
divided by the average number of shares in issue during the period. Detailed calculation provided on page 115.
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.
Detailed calculation provided on page 114.
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.
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Other Information
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. Detailed calculation provided on page 114.
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. Detailed calculation provided on page 114.
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.
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