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Padlock Partners UK Fund II Announces 2022 Year End Results and Business Update

TORONTO, March 31, 2023 /CNW/ - Padlock Partners UK Fund II ("the Trust") announced today financial results for its December 31, 2022, year-end.

Business Update Highlights

  • The Trust's properties achieved increased occupancy across all operational assets generating £1.1 million gross revenues in the year (2021: £0.4 million)

  • Currently the Trust owns properties in Newmarket, Brentwood, Huntingdon, and Houghton-Regis

  • The Trust continued to invest in the self storage portfolio spending £2.19 million on development and fit-out works

  • The Trust's self-storage portfolio was increased to four properties as a result of the strategic acquisition of the Newmarket property on March 31, 2022, for £6.68 million and the Houghton Regis property on September 1, 2022, for £2.3 million

  • Quarterly distributions were maintained throughout the year at a coupon level of 6%

Financial and Operating Results Highlights

  • The Trust had IFRS Net rental income of £0.50 million (2021: £0.25 million) equal to Net Operating Income

  • Net Income and comprehensive income totalled £4.59 million (2021: £0.13 million)

  • As calculated for the Reporting Period, the weighted average net achieved rent per square foot across the properties was as follows:

  • The Trust's Net Asset Value totalled £22.30 million (2021: 18.99 million) an increase of 17.4%

  • The Trust's total indebtedness through loans payables was £8,316,759 as of December 31, 2022

  • The Trust's leverage was 28% Debt to Total Assets as of December 31, 2022

  • [£7.06] per unit Total Net Assets attributable to unitholders and non-controlling interest


CAD Class A

Trust Unit

CAD Class F

Trust Unit

GBP Class U

Trust Unit

Net assets

attributable to

Unitholders

Total Net assets

attributable to

Unitholders and Non-
controlling interest


£ per unit

£ per unit

£ per unit

£ per unit

£ per unit

NAV per unit, December 31, 2022

6.20

6.40

10.62

6.65

7.06


Commenting on the annual results John Stevenson, CEO for Padlock Partners UK Fund II said, "The Trust has achieved significant progress in this financial year. We have maintained a distribution coupon of 6% throughout the year while investing in and expanding the portfolio to four stores. We're happy to report the increased NAV for the year which reflects the strong property performance."

Results of Operations
The results of the financial year ended December 31, 2022, reflect operations from January 1, 2022, to December 31, 2022. In the management's discussion and analysis ("MD&A") of the financial results of the Trust and its subsidiaries, dated March 30, 2023 for the year ended December 31, 2022, management has included further details of the year broken down by property to explain the significance of each property to the consolidated totals.

Impact of Foreign Conflict
Foreign conflict remains a low risk to the business at this time as it's not expected to impact the UK self-storage sector. Management is monitoring the Russia-Ukraine conflict and the potential economic, social, and political ramifications.

Impact of Political & Economic Turmoil in UK
On September 23, 2022, the UK Government announced a mini-budget of £45 billion unfunded tax cuts, which caused turmoil in the financial markets. The UK Pound Sterling fell 4% against the United States dollar to its lowest point in history. Gilt yields rose over the course of the day and panic in the financial markets resulted in a sell-off in Government Bonds. By September 28, 2022, the Bank of England was forced to intervene in the Gilts market, however significant damage had been done to financial markets in the form of increased interest rates and reduced consumer confidence.

Since September 30, 2022, the majority of the policies from the mini-budget have been reversed with a new Chancellor and Prime Minister appointed restoring an increased level of stability in the UK markets. To date there has been minimal impact on the self-storage industry. However, during 2022, yields have moved out across the wider UK property market as a result of double-digit inflation persisting throughout the year despite the Bank of England's attempts to reduce it through raising interest rates.  With the resultant increase in the cost of debt, real estate development appraisals have been negatively impacted and transaction activity slowed in the fourth quarter of 2022.

We continue to monitor the wider economic and political climate to ensure the Trust is well-prepared against any downside shocks to the economy. The Trust's existing debt facility is not due to mature in the next 12 months, however with a June 2024 maturity Management will continue to monitor potential refinance options to ensure the Trust is well-capitalized for the medium term.

Future Outlook
The objective of the Trust is to generate stable cash flows, while maximizing the Trust's value through active management and value enhancing initiatives such as the fit out of bulk space into additional storage and the development of new self-storage and mixed-use facilities. The UK Manager estimates that there is an opportunity to increase the NOI over the short to medium term by raising market rental rates after improving the property, fitting out additional storage space, and by reducing operating expenses through more prudent management controls.

The Trust is focused on completing the development and redevelopment activities with respect to the Properties as follows:

  • The Trust intends to continue to focus on increasing rental rates and occupancy at the Huntingdon Property through 2023.

  • The Trust intends to complete the fit out of the warehouse at the Brentwood Property in order to develop an 80,000 square foot gross lettable area self-storage facility with 53,000 net rentable square feet of purpose built, self-storage units across three floors. The development of the Brentwood Property is well progressed and expected to be completed in two phases and at an estimated aggregate cost of approximately £3,300,000.

  • The Trust intends to continue the lease up of the Newmarket Property while focusing on occupancy, rental rates, and community outreach.

  • The Trust intends to finalize redevelopment plans of the Houghton Regis Property in order to establish a brand new 35,000 net rentable square feet of Class-A self-storage space. Total build out and conversion is expected to be completed in 12 months with the first of the newly created self-storage units expected to be available in 2024.

About Padlock Partners UK Fund II

The Trust is an unincorporated investment trust and was established for the primary purpose of investing in a diversified portfolio of income producing commercial real estate properties in the United Kingdom with a focus on self-storage and mixed-use properties.

Forward-looking Statements

This news release contains statements that include forward-looking information within the meaning of Canadian securities laws. These forward-looking statements reflect the current expectations of the Trust, Clear Sky Capital and the Manager regarding future events and the anticipated use of proceeds of the Offering. In some cases, forward-looking statements can be identified by terms such as "may", "might", "will", "could", "should", "would", "occur", "expect", "plan", "anticipate", "believe", "intend", "seek", "aim", "estimate", "target", "project", "predict", "forecast", "potential", "continue", "likely", "schedule", or the negative thereof or other similar expressions concerning matters that are not historical facts.

Material factors and assumptions used by management of the Trust to develop the forward-looking information include, but are not limited to, the Trust's current expectations about: the availability of properties for acquisition and the price at which such properties may be acquired; the availability of mortgage financing; the Manager's expectations regarding the expected timeline for the Trust's development plans; the Manager's expectations regarding the operation and development of the Properties, including, but not limited to, the planned conversion of open warehouse spaces into self-storage units; the capital structure of the Trust; the global and United Kingdom economic environment; the impact of negative geopolitical events, including the conflict in Ukraine; foreign currency exchange rates; and governmental regulations or tax laws. While management considers these assumptions to be reasonable based on currently available information, they may prove to be incorrect.

Although management believes the expectations reflected in such forward-looking statements are reasonable and represent the Trust's internal projections, expectations and beliefs at this time, such statements involve known and unknown risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities may not be achieved. A variety of factors, many of which are beyond the Trust's control, could cause actual results in future periods to differ materially from current expectations of estimated or anticipated events or results expressed or implied by such forward-looking statements. Such factors include the risks identified in the final prospectus of the Trust dated May 25, 2021, including under the heading "Risk Factors" therein, as well as, among other things, risks related to the availability of suitable properties for purchase by the Trust, the availability of mortgage financing for such properties, and general economic and market factors, including interest rates, prospective purchasers of real estate, business competition, negative geo-political events, changes in government regulations or income tax laws. Readers are cautioned against placing undue reliance on forward-looking statements. Except as required by applicable Canadian securities laws, the Trust undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

SOURCE Padlock Partners UK Fund II

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View original content: http://www.newswire.ca/en/releases/archive/March2023/31/c3187.html