Padlock Partners UK Fund I Announces 2021 Year End Results and Business Update

TORONTO, April 19, 2022 /CNW/ - Padlock Partners UK Fund I ("the Trust") announced today financial results for the year ended December 31, 2021.

Business Update Highlights:

• The Trust completed its first full financial year of operations in the year ended December 31, 2021
• Quarterly distributions were maintained throughout the year at approximately 6% annual yield⁽³⁾
• The self-storage portfolio was increased from 5 properties to 7 properties at year-end enhancing geographical diversification within the United Kingdom. Subsequently to the year-end, the self-storage portfolio was reduced to 6 properties as a result of the strategic disposition of the Newmarket property.
• The Trust's management, marketing and operations programs have been fully implemented into all operating properties
• The Trust's properties achieved increased occupancy and rental rates across all operational assets
• The Trust implemented ancillary revenue streams, including tenant insurance and merchandise sales
• The Trust brought existing and new tenants onto the Trust's autopay program, which is intended to help assist with efficient rental rate increases, increased tenant tenure and reduced payment arrears

Financial and Operating Results Highlights:

• The Trust's Rental revenue and Ancillary fees and charges combined totaled £2.01m (2020: £0.35m)⁽¹⁾
• The Trust had Net operating income of £0.94m (2020: £0.18m)⁽²⁾
• Net Income and comprehensive income totalled £5.16m (2020: £1.43m)
• As calculated for the quarter ended December 31, 2021, the weighted average net achieved rent per square foot across the properties was as follows⁽²⁾:
• Leighton Buzzard Property: £27.10
• Letchworth Property: £23.96
• Bicester Property: £21.42
• Chippenham Property: £24.44
• Enfield: £17.01
• Newmarket: £22.29
• For all of the Trust's properties, the rate per unit has increased over the year ended December 31, 2021, as indicated by the Closing Weighted Average Rate per square foot detailed below, being higher than the weighted average net achieved rent as of December 31, 2021 for most properties
• The Trust's total indebtedness through loans payables (third party and related parties) was £16,523,880, in addition to its lease obligations which were £986,665 as of December 31, 2021
• The Trust's total Investment properties value almost doubled in the year to £41.32m (2020: £20.98m) reflecting the new acquisitions, capital expenditures, and a £8.18m fair value adjustment to investment properties
• The Trust's leverage was 40% ⁽²⁾
• The Net assets attributable to unitholders increased to £23.4m (2020: £20.6m), a 13.6% increase for the year

Note:
(1)	All 2020 financial year data in this news release is in respect of the initial reporting period of the Trust from July 8, 2020 (date of formation of the Trust) to December 31, 2020. See the "Results of Operations" section of this news release.
(2)	This is a non-IFRS (as defined herein) measure. Refer to the "Non-IFRS Measures" section in this news release.
(3)	Yield of 6% based on total distributions declared as a percent of gross capital raised as determined in Canadian dollars.  As a results of the Trust's proportionate interest allocation to the various unit classes and currency exchange differences, the yield may vary between unit classes.

Net Asset Value per Unit Highlights:

• The Net assets attributable to unitholders per unit ("NAV per unit")⁽¹⁾ has increased 9.7% to 12.6% as compared to the issuance price and 15.8% to 17.7% as compared to issuance price, net of agent fees⁽¹⁾, amongst its various classes of units as follows:

	CAD Class A Trust Unit	CAD Class F Trust Unit	GBP Class U Trust Unit
	per unit	per unit	per unit
NAV per unit, December 31, 2021 (£)	£6.41	£6.57	£11.09
NAV per unit, December 31, 2021 (C$)^1	$10.97	$11.26	n/a
Issuance price	C$10.00	C$10.00	£10.00
Issuance price, net of agent fees	C$9.425	C$9.725	£9.425
Increase in NAV per unit since issuance	9.7%	12.6%	10.90%
Increase in NAV per unit since issuance, net of agent fees	16.4%	15.8%	17.7%

" The Trust has achieved significant progress in its first full financial year, achieving double digit NAV increase and while still maintaining a distribution yield throughout the year of 6%.  Looking ahead, we are excited to see the development properties wrap up in the coming year and continue to focus on the operational performance of these and existing income properties."  says John Stevenson, CEO for the Trust.

Results of Operations:

The results of the financial year ended December 31, 2021 reflect operations from January 1, 2021 to December 31, 2021. Since the Trust was not formed until July 8, 2020, the comparative period is not a full year, however, in the management's discussion and analysis ("MD&A") of the financial results of the Trust and its subsidiaries for the year ended December 31, 2021, the Trust has included further details of the period broken down by property to understand the significance of each property to the consolidated totals.

Impact of COVID-19:

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. Uncertain economic conditions resulting from the ongoing COVID-19 pandemic (including any variants thereto) or any escalation in the severity thereof may, in the short or long term, materially adversely impact: the Trust's tenants and their ability to pay rent (credit risk); and/or, the debt and equity markets and the Trust's ability to access debt and/or capital on acceptable terms, or at all (liquidity risk), all of which could materially adversely affect the Trust's operations and financial performance.

During the financial year ended December 31, 2021, the impact of COVID-19 has had a minimal impact on the Trust as collection rates for the Trust's properties have not materially changed since those experienced prior to COVID-19. For the Trust's properties under continued development, the Trust currently believes that it will still achieve the lease up rates and target occupancies based on the successful experience at the Trust's existing properties.

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 if the conflict escalates.

Note:
(1)	This is a non-IFRS measure. Refer to the "Non-IFRS Measures" section in this news release.

Subsequent Events:

As announced by the Trust on April 4, 2022, the Trust completed the sale of the Newmarket Property to a subsidiary (the "Buyer") of Padlock Partners UK Fund II for an aggregate purchase price of approximately £6,680,000 on March 31, 2022. The strategic disposition, made necessary by the less than expected loan facility proceeds, enabled the Trust to secure the economic benefit of the sale with both sale proceeds and a preservation of the Trust's operating and reserve capital. The sale was completed pursuant to a share purchase agreement, whereby the Buyer agreed to acquire 100% of the outstanding shares of a subsidiary of the Trust, whose sole property was the Newmarket property. As a result of the sale, the Newmarket property and the associated risks and rewards from ownership of the Newmarket property will not be consolidated into the Trust in subsequent periods.

Subsequent to year end, the Trust made two construction draws totaling £944,810 on its senior secured term loan facility.

The Trust declared a distribution on January 14, 2022 (the "January 2022 Distribution"). The distribution for each class was as follows:

• C$0.15116 per Class A Unit
• C$0.15598 per Class F Unit
• £0.15342 per Class U Unit

The Trust declared a distribution on April 18, 2022 (the "April 2022 Distribution"). The distribution for each class was as follows:

• C$0.14787 per Class A Unit
• C$0.15259 per Class F Unit
• £0.15659 per Class U Unit

The January 2022 Distribution and April 2022 Distribution constituted a return of capital. The Trust decided to declare the January 2022 Distribution and April 2022 Distribution using its own capital in order to satisfy the Trust's investment objectives and ensure the Trust is able to achieve its targeted annual pre-tax distribution yield as set out in the final prospectus of the Trust dated August 13, 2020.

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 Trust's portfolio of properties as follows:

• With the majority of the Leighton Buzzard Property now leased, the Trust intends to fit out an additional 20,000 gross square feet at a preliminary budget of £1,300,000 on a 6 month build timescale estimated to be completed in 2022.
• In Letchworth, to meet demand, the Board of Trustees of the Trust approved the addition of 6 new drive-up units at a cost of £28,000 plus VAT in Q3 2021. The Trust projects that these larger units will provide an additional 900 net rentable square feet of storage space. Management originally projected these to be available at the end of Q4 2021, but due to a delay in procuring planning approval on the drive-up locations, these have not become available as of this report date. Management expects them to be available for rent during Q2 2022.
• The Trust intends to complete the development of the Wimbledon Property and build a five-storey purpose-built self-storage facility. The redevelopment is currently expected to cost approximately £4.6 million and generate revenues of approximately £665,727 per year, assuming 90% occupancy. The total estimated cost has increased from our previous expectation of £3.5 million as a result of supplemental planning obligations and price increases of materials.
• At the Chippenham Property, the Trust intends to commence the second phase of the construction project, adding another 19,000 square feet, when the final commercial tenant vacates the Chippenham Property.
• The Trust is seeking to further increase performance of the Bicester Property and maximize occupancy and increase rental rates.
• The Trust intends to convert and expand the existing warehouse with respect to the Enfield Property at a cost of approximately £3,500,000. The resulting efforts are expected to produce approximately 42,000 net rentable square feet of Class A storage space and should be completed during 2022.

About Padlock Partners UK Fund I:

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. After giving effect to the sale of the Newmarket Property, the Trust holds properties in Bicester, Letchworth, Leighton Buzzard, Wimbledon, Chippenham and Enfield.

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 regarding future events, including statements regarding the financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, occupancy levels, taxes, and plans and objectives of or involving the Trust. 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.

Information contained in forward-looking information is based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including management's perceptions of historical trends, current conditions and expected future developments, as well as other considerations that are believed to be appropriate in the circumstances, including the following: the inventory of self-storage and mixed-use properties in the United Kingdom; the ability of the Trust to deploy the remaining cash on hand into one or more income producing self-storage and mixed-use properties; the timing of any improvements or fit-outs of the properties of the Trust, including the proposed expansion of the Leighton Buzzard Property and the Wimbledon Property; the availability of properties for acquisition and the price at which such properties may be acquired; the availability of mortgage financing and current interest rates; the extent of competition for properties; assumptions about the markets in which the Trust operates; the ability of Padlock Capital Partners, LLC, the UK manager of the Trust, to manage and operate the properties; the global and UK economic environment; foreign conflict; foreign currency exchange rates; and governmental regulations or tax laws.

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 August 13, 2020, 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, 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.

Non-IFRS Measures:                                                                  

The Trust's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). However, the Trust's management uses a number of measures, including weighted average net achieved rent per square foot, Net Operating Income (NOI), NAV per Unit, and debt to total assets, which do not have a meaning recognized or standardized under IFRS. These non-IFRS measures and ratios should not be construed as an alternative to financial measures calculated in accordance with IFRS. Further, the Trust's method of calculating these supplemental non-IFRS measures and ratios may differ from the methods of other issuers, and accordingly may not be comparable. The Trust uses these measures to better assess the Trust's underlying performance and provides these additional measures so that investors may do the same.

For information on the most directly comparable IFRS measures, composition of the measures, a description of how the Trust uses these measures and an explanation of how these measures provide useful information to investors, refer to the "Non-IFRS Measures" section of the MD&A for the year ended December 31, 2021, available at the Trust's profile on SEDAR at www.sedar.com, which is incorporated by reference into this news release.

The reconciliations for each non-IFRS measure included in this news release are outlined as follows:

Calculation of Weighted average net achieved rent PSF PA for the three months ended December 31, 2021
(In UK Pound Sterling)	Leighton Buzzard	Letchworth	Bicester	Chippenham	Enfield	Newmarket	Total
Rental income	168,780	175,938	130,293	60,624	3,584	6,389	545,608
Less: Pre-opening revenue^(1)	-	-	-	-	-	(2,097)	(2,097)
Adjusted Rental Income	168,780	175,938	130,293	60,624	3,584	4,292	n/a
Average occupied area	24,696	29,131	24,128	9,835	1,640	1,493	n/a
Rent per square foot	6.83	6.04	5.40	6.16	2.19	2.87	n/a
Number of days	92	92	92	92	47	47	n/a
Weighted average net achieved rent PSF PA	27.10	23.96	21.42	24.44	17.01	22.29	n/a

Calculation of Net operating income (NOI)
(In UK Pound Sterling)	Year ended December 31, 2021	Initial Reporting Period ended December 31, 2020
Rental revenue and Ancillary fee and charges	2,011,081	353,228
Direct Operating Expenses	(1,069,809)	(176,642)
Net Operating Income	941,272	176,586

Calculation of NAV per unit:
	CAD Class A Trust Unit	CAD Class F Trust Unit	GBP Class U Trust Unit
	per unit	per unit	per unit
Net assets attributable to unitholders	19,985,288	358,209	3,066,547
Outstanding units at December 31, 2021	3,120,000	54,500	276,450
NAV per unit, December 31, 2021 (£)	£6.41	£6.57	£11.09
NAV per unit, December 31, 2021 (C$)^(2)	$10.97	$11.26	n/a
Issuance price	C$10.00	C$10.00	£10.00
Issuance price, net of agent fees	C$9.425	C$9.725	£9.425
Increase in NAV per unit since issuance	9.7%	12.6%	10.90%
Increase in NAV per unit since issuance, net of agent fees	16.4%	15.8%	17.7%

Note:
(1)	The Newmarket property opened in November 2021, however, the property generated £2,097 in rental revenue from an office space usable prior to opening.  This has been removed to more appropriately reflect the rates achieved during the period.

Calculation of Leverage Ratio
	As at December 31, 2021	As at December 31, 2020
Investment Properties (B)	£41,319,445	£20,978,413
Loans payable	£10,552,919	-
Loan payable to related party	£5,181,880	-
Add back:  Loan costs	£789,081	-
Loans payable and Loan payable to related party, before loan costs (A)	£16,523,880	-
Leverage Ratio (A/B)	40%	-

SOURCE Padlock Partners UK Fund I

Additional information regarding Padlock Partners UK Fund I is available on www.sedar.com. For more information, please contact: John Stevenson, Chief Executive Officer, Padlock Partners UK Fund I, 480-309-6184, [email protected]; Matthew Collins, Chief Financial Officer, Padlock Partners UK Fund I, 480-428-0152, [email protected]