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

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

Business Update Highlights

• The Trust acquired four properties in its maiden period since the closing of the initial public offering on July 19, 2022, and was fully deployed post period end when it added a fifth in March 2023
• Currently the Trust owns properties in Watford, Woking, Brighton, Seaford, and Southend-on-Sea
• The portfolio was valued at £33.3 million as at December 31, 2022
• The Trust properties include one operational asset in Brighton which achieved occupancy of 96.2% as at December 31, 2022, generating £80,414 gross revenues in the period
• The Trust commenced development and fit-out works across the development properties, spending £2.61 million in the period

Financial and Operating Results Highlights

• The Trust had IFRS Net rental income of £45,978 equal to Net Operating Income
• Net Income and comprehensive income totalled £2,079,982, reflecting a significant £3,300,204 fair value uplift in portfolio valuations in the period
• As calculated for the Reporting Period, the weighted average net achieved rent per square foot across the properties was as follows:
• Brighton Property: £31.00
• The Trust's Net Asset Value totalled £35.44 million as at December 31, 2022
• The Trust's total indebtedness through loans payable was £1,310,655 as of December 31, 2022
• The Trust's leverage was 4% Debt to Total Assets as of December 31, 2022
• £6.83 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	6.33	6.53	9.82	6.45	6.83

Commenting on the annual results John Stevenson, CEO for Padlock Partners UK Fund III said, " In its maiden period the Trust has fully deployed the capital raised into four self-storage opportunities prior to the period end and a fifth subsequently.. Despite the economic and political headwinds in the UK economy, the UK self-storage market remains strong and the Trust has commenced the refurbishment and development of its self-storage assets as planned. We are happy to have executed on our plan to acquire class leading properties in highly undersupplied markets. This investment has already resulted in valuation uplift and increased the net asset value of the Trust as at December 31, 2022."

Results of Operations
The results of the financial period ended December 31, 2022, reflect operations from offering launch date May 31, 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 period 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 Management will continue to monitor the debt markets to ensure the Trust is well-capitalized for the medium term.

Subsequent Events
On March 10, 2023, the Trust completed the acquisition of the freehold interest in the land and building at 53-57 Sutton Road, Southend-on-Sea for £4,404,500. The property is an existing four storey building with expansion approvals for self-storage. A new £19,086,000 debt facility was closed simultaneous with the property transaction providing the trust with capacity to complete all the development projects planned.

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 properties, fitting out additional storage space, and by reducing operating expenses through more prudent management controls.

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

• The Trust intends to complete the fit out of the Watford Property to develop approximately 59,200 net rentable square feet of purpose built self-storage units across three internal floors.
• The Trust intends to convert and expand the existing warehouse at the Woking Property into approximately 63,000 net rentable square feet of Class A self-storage space across four internal floors.
• The Trust intends to expand the existing Brighton Property by adding another 10,600 net rentable square feet. The existing 13,040 will continue to be available to tenants during the expansion.
• The Trust intends to convert and expand the existing warehouse at the Seaford Property into approximately 23,900 net rentable square feet of Class A self-storage space across two internal floors.
• The Trust intends to fit out approximately 26,000 net rentable square feet at the most recent acquisition post period end in Southend-on-Sea. Additionally, the Trust plans to seek approval from the local council to raise the roof of the existing building.

About Padlock Partners UK Fund III

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 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 July 11, 2022, 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 III

Additional information regarding Padlock Fund III is available on www.sedar.com. For more information, please contact: John Stevenson, Chief Executive Officer, Padlock Partners UK Fund III, [email protected]; Matthew Collins, Chief Financial Officer, Padlock Partners UK Fund III, [email protected]; Contact Telephone Number for Padlock Partners UK Fund III: 606-428-8961