Padlock Partners UK Fund II Announces December 31, 2021 Results and Business Update

TORONTO, April 25, 2022 /CNW/ - Padlock Partners UK Fund II (the "Trust") announced today financial results for its December 31, 2021 period end.

Business Update Highlights

• The Trust completed its first audited financial period of operations for the period from April 16, 2021 to December 31, 2021
• Quarterly distributions were maintained throughout the period at approximately 6% annual yield⁽³⁾
• The Trust's self-storage portfolio consisted of two properties at period-end. Subsequent to the period-end, the Trust's self-storage portfolio was increased to three properties as a result of the strategic acquisition of the Newmarket property on March 31, 2022. See "Subsequent Events".
• The Trust's management, marketing and operations programs have been fully implemented into all operating properties
• 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 approximately £0.41m⁽¹⁾
• The Trust had Net operating income of approximately £0.25m⁽²⁾
• Net Income and comprehensive income totalled approximately £0.10m
• 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⁾:
• Huntingdon Property: £12.70
• Brentwood Property: £6.27
• On June 8, 2021, the Trust completed the IPO and raised gross proceeds of C$33,800,000.
• On June 10, 2021 the Trust completed its indirect acquisition of a freehold interest in Huntingdon for a purchase price of £5,125,000.
• On June 25, 2021 the Trust completed its indirect acquisition of a freehold interest in the Brentwood Property for a purchase price of £5,100,000.

Notes:
(1)	There is no comparative year data as this is the initial reporting period.
(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 result of the Trust's proportionate interest allocation to the various unit classes and currency exchange differences, the yield may vary between unit classes.

John Stevenson, CEO of the Trust, noted: "The Trust acquired two properties in the period and, subsequent to the period-end, added a third to the portfolio. Both assets owned in the period were operational and generated cash and this has enabled the Trust to pay out a distribution yield of approximately 6% throughout the period. Plans have been worked up to fit-out the Brentwood property for self-storage as soon as the incumbent tenant vacates in 2022. Looking ahead, we are focused on trying to lease up the assets, improve rental rates, fit-out the Brentwood Property and consider further acquisitions."

Results of Operations:

The results of the period ended December 31, 2021 reflect operations from April 16, 2021 to December 31, 2021. Since the Trust was not formed until April 16, 2021, there is not a comparative annual period, however, in the management's discussion and analysis ("MD&A") of the financial results of the Trust and its subsidiaries for the period ended December 31, 2021 management has compared the three months ended December 31, 2021 to the three months ended September 30, 2021 for discussion purposes.

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, COVID-19 has had a minimal impact on the Trust as collection rates for the Huntingdon Property and the Brentwood Property have not materially changed as compared to those experienced prior to COVID-19.

Impact of Foreign Conflict:

Foreign conflict remains a low risk to the business at this time as it is 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.

Subsequent Events:

Newmarket Property

On April 4, 2022, the Trust announced that it had successfully completed the indirect acquisition of a newly developed self-storage property (the "Newmarket Property") from a subsidiary ("the Seller") of Padlock Partners UK Fund I on March 31, 2022 for an aggregate purchase price of approximately £6,680,000. The Newmarket Property was sold by the Seller to a subsidiary of the Trust (the "Buyer") pursuant to a share purchase agreement, whereby the Buyer agreed to acquire 100% of the outstanding shares of a subsidiary of the Seller holding the Newmarket Property. The deferred consideration due and payable by the Buyer to the Seller on or before June 24, 2022 may be further adjusted for additional working capital adjustments as agreed to between Buyer and Seller. As a result, the Newmarket Property and the associated risks and rewards from ownership of the property will be consolidated into the Trust in subsequent periods.

Distributions to Unitholders

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

• C$0.15065 per Class A Unit
• C$0.15545 per Class F Unit
• £0.15091 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$0.14738 per Class A Unit
• C$0.15207 per Class F Unit
• £0.15402 per Class U Unit

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 acquiring additional self-storage and mixed-use properties utilizing the undeployed proceeds from the IPO. In addition, the Trust intends to carry out the following development and redevelopment activities with respect to the Properties:

• The Trust intends to continue to expand the Huntingdon Property to add approximately 7,487 net rentable square feet by converting unused warehouse space and adding additional drive up storage units.
• The Trust intends to fit out the current 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 expected to be completed in two phases and at an estimated aggregate cost of approximately £3,500,000.

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. After giving effect to the purchase of the Newmarket Property, the Trust holds properties in Brentwood, Huntingdon and Newmarket.

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 "UK"); the timing of any improvements or fit-outs of the properties of the Trust; the terms of the new lease with the existing tenant of the Brentwood Property, the terms of the deferred consideration payable by the Buyer to the Seller in connection with the acquisition of the Newmarket Property, the departure of the existing tenant of the Brentwood 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 II, LLC (the "UK Manager"), 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 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, 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 and Net Operating Income (NOI), 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 period 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
	Huntingdon	Brentwood
Rental revenue (IFRS)	£118,668	£68,750
Average occupied area (sq. ft)	37,131	43,417
Rent per square foot	£3.20	£1.58
Number of days	92	92
Weighted average net achieved rent PSF PA	£12.70	£6.27

Calculation of Net operating income (NOI)
(In UK Pound Sterling)	For the three months ended December 31, 2021	For the period from April 16, 2021 to December 31, 2021
Rental revenue and Ancillary fee and charges	195,706	408,107
Direct Operating Expenses	68,239	161,915
Net Operating Income	127,467	246,192

Additional information regarding Padlock Partners UK Fund II is available on www.sedar.com. 

SOURCE Padlock Partners UK Fund II

John Stevenson, Chief Executive Officer, Padlock Partners UK Fund II, 480-309-6184, [email protected]; Matthew Collins, Chief Financial Officer, Padlock Partners UK Fund II, 480-428-0152, [email protected]