Annual Financial Report

RNS Number : 7095P

AEW UK REIT PLC

22 June 2022

 

AEW UK REIT PLC

Announcement of Full Year Results for the year ended 31 March 2022

AEW UK REIT plc (the 'Company'), which holds a diversified portfolio of 36 commercial investment properties throughout the UK, is pleased to publish its full year results for the year ended 31 March 2022.

Mark Burton, Chairman of AEW UK REIT plc, commented :

"We are delighted with the Company's performance over the past twelve months, which has delivered strong share price total returns for the year of 53.61% to investors. NAV total returns, which increased to 29.73%, were the highest recorded by any of the UK's diversified REITs. These returns have been driven partly by the removal of pandemic restrictions but also by our Investment Manager's strategy which combines defensive positioning, identifying assets with shorter unexpired lease terms that are often mispriced and active asset management of the portfolio. We are also pleased the Company has continued to pay its full 8.00p per share annual dividend for the sixth consecutive year and that our strong performance has been recognised by industry awards that also acknowledge the hard work and dedication of the whole AEW UK REIT team."

Financial Highlights

• Net Asset Value ('NAV') of £191.10 million and 120.63 pence per share ('pps') as at 31 March 2022 (31 March 2021: £157.08 million and 99.15 pps).

• Operating profit before fair value changes of £11.75 million for the year (year ended 31 March 2021: £10.73 million).

• Profit before tax ('PBT')* of £46.70 million and earnings per share ('EPS') of 29.47 pps for the year (year ended 31 March 2021: £22.17 million and 13.98 pps).

• EPRA Earnings Per Share ('EPRA EPS')* for the year of 6.79 pps (year ended 31 March 2021: 6.19 pps). See note 10 in the full Annual Report for the calculation of EPRA EPS.

• Total dividends of 8.00 pps declared for the year (year ended 31 March 2021: 8.00 pps).

• Shareholder total return* for the year of 53.61% (year ended 31 March 2021: 33.72%).

• The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 119.80 pps as at 31 March 2022 (31 March 2021: 83.20 pps).

• As at 31 March 2022, the Company had drawn £54.00 million (31 March 2021: £39.50 million) of a £60.00 million (31 March 2021: £60.00 million) term credit facility with the Royal Bank of Scotland International Limited ('RBSi') and was geared to 28.26% of NAV (31 March 2021: 25.15%) (see note 15 in the full Annual Report for further details).

• The Company held cash balances totalling £6.77 million as at 31 March 2022 (31 March 2021: £17.45 million).

Property Highlights

• As at 31 March 2022, the Company's property portfolio had a valuation of £240.18 million across 36 properties (31 March 2021: £179.00 million across 34 properties) as assessed by the Valuer¹ and a historical cost of £207.96 million (31 March 2021: £173.28 million).

• The Company acquired four properties during the year for a total purchase price of £38.23 million, excluding acquisition costs (year ended 31 March 2021: one property for a purchase price of £5.40 million).

• The Company made two disposals during the year with total gross sale proceeds of £16.71 million (year ended 31 March 2021: two disposals with total gross sale proceeds of £29.30 million).

• The portfolio had an EPRA Vacancy Rate** of 10.69% as at 31 March 2022 (31 March 2021: 8.96%). Excluding vacancy contributed by Bath Street, Glasgow, which was exchanged to be sold with the condition of vacant possession, the vacancy rate was 5.42% (31 March 2021: 5.58%).

• Rental income generated in the year under review was £15.92 million (year ended 31 March 2021: £15.71 million). The number of tenants as at 31 March 2022 was 131 (31 March 2021: 99).

• EPRA Net Initial Yield ('NIY')** of 5.87% as at 31 March 2022 (31 March 2021: 7.37%).

• Weighted Average Unexpired Lease Term ('WAULT')* of 3.94 years to break (31 March 2021: 4.43 years) and 5.78 years to expiry (31 March 2021: 6.71 years).

• The Company has achieved very high rent collection levels, which stand at over 98% for each quarter since March 2020 (excluding current quarter where rent continues to be collected).

* See KPIs in the full Annual Report for definition of alternative performance measures.

** See Glossary in the full Annual Report for definition of alternative performance measures.

¹ The valuation figure is reconciled to the fair value under IFRS in note 12 in the full Annual Report.

Enquiries
AEW UK   L aura Elkin	[e-mail]
Nicki Gladstone	[e-mail]   [phone]
Liberum Capital Darren Vickers	[e-mail] [phone]
TB Cardew    Ed Orlebar  Tania Wild Lucas Bramwell	[e-mail]   [phone]  [phone] [phone]

Chairman's Statement

Overview

This financial year has seen the gradual removal of restrictions that had been implemented as a result of the COVID-19 pandemic. This has been a welcome change that has assisted the Company in producing a strong share price total return for the year of 53.61% (31 March 2021: 33.72%). This return to normality has been particularly important for the sectors of the property market that were hardest hit by the pandemic, most notably leisure and some parts of the retail market. The Company has continued to take a cautious approach to cash and debt management, mindful that a degree of uncertainty remains. As is often the case, uncertainty has created opportunities, and pragmatic choices have been rewarded with another year of strong performance for the Company. We are pleased this has allowed the Company to be the only REIT in its peer group to continue paying its full 8p per share annual dividend. Indeed, the Company's dividend of 2p per share per quarter has now been paid consistently since Q1 2016 for 26 consecutive quarters, with the Company's EPRA earnings covering in excess of 98% of this amount.

For this financial year, the Company's NAV per share has increased by 21.66%, providing a NAV total return for the year of 29.73% (31 March 2021: 15.06%). This was the highest NAV total return recorded by any of the UK diversified REIT's and, as a result, the Company has been awarded the Citywire award for best generalist UK property trust for the second consecutive year. During the year, the Company also received awards from EPRA, the European Public Real Estate Association, who awarded the Company a gold medal for the standards of our financial reporting and a silver medal for the standards of our sustainability reporting. We are delighted that these awards recognise the hard work and dedication that is put into the running of the Company by both my colleagues on the Board, and the Company's Investment Manager, AEW.

The Company has benefited from its defensively positioned portfolio which achieved, at property level, a total return of 25.87% over the year, an outperformance of 0.51% relative to the MSCI Benchmark. This success further builds upon the outperformance of 10.7% achieved in the prior year. Relatively small lot sizes, geographical diversification and valuations that are underpinned by alternative use values have all contributed to the Company's resilience during a time of protracted economic uncertainty. This strong performance supports the Company's long-standing strategy of diversification, benefitting both performance and risk mitigation.

Exposure to various key sectors of the property market via its diversified strategy has allowed the Company to maximise shareholder returns with significant profits crystallised this year following the sale of two industrial assets that had seen large valuation uplifts. The Company's industrial assets at Bessemer Road in Basingstoke and Langthwaite Business Park, South Kirkby, were sold achieving sale prices 1.7x and 1.9x ahead of their respective purchase prices.

The proceeds of these industrial sales have now been reinvested into the retail warehouse and leisure sectors in order to create opportunities for future income and NAV growth. The Central Six Retail Park in Coventry was purchased in November 2021 for a price of £16.41 million, producing a net initial yield of circa 11%. The site occupies a strategic and central location close to Coventry city centre with an anticipated reversionary yield of circa 12.5%.

The PRYZM Nightclub in Cardiff was purchased for a price of £3.63 million, reflecting a net initial yield of 7.7%, with an anticipated reversionary yield of circa 9.2% and a low capital value of £92 per sq ft.

Two further assets were purchased in the year, also in the leisure and retail warehousing sectors. The first of these was Arrow Point Retail Park in Shrewsbury which was acquired in May 2021 for a price of £8.35 million. Secondly, the Company acquired 15-33 Union Street Bristol in June 2021 for a price of £10.19 million, providing a net initial yield of 8.0%.

All of these purchases deliver very attractive levels of income and contribute immediately to the Company's earnings, as well as offering further opportunities to manage the assets proactively to enhance NAV over the long term. Assets such as these form the basis of an attractive pipeline which the Company is currently pursuing in order to reinvest the sale proceeds that are due to be received following the expected sales of assets in 225 Bath Street, Glasgow and Eastpoint Business Park, Oxford. The Company will continue to target acquisitions that offer the opportunity to deliver both strong income and capital performance. The Company's Investment Manager continues to use its extensive knowledge in both asset selection and asset management to select each asset on its own specific merits, rather than being entirely sector driven in its purchasing strategy.

Active asset management continues to form a major part of the Company's strategy where key targets are to improve the length and quality of income streams, as well as maximising rental receipts. Notable successes within the year include the settlement of the Company's September 2021 open market rent review at its industrial holding in Knowles Lane, Bradford, at a level representing a 14% increase over the three-year period. New high rental tones were also set at the Company's multi-let industrial assets in Runcorn and Basildon at £6 per sq ft and £8 per sq ft, respectively. At the Company's office holding in Queen Square, Bristol, strong rental growth has also been observed, with current rents being £30 per sq ft, almost doubling the rental value at acquisition.

The realisation of some business plans within the portfolio has led to periods of income volatility with total EPS of 6.79p achieved over the four quarters of the year. The cause of this has been multi-faceted, with income subdued by the necessity of service charge works at Blackpool, the removal of tenants in preparation for the vacant possession sale of Glasgow and the reinvestment of proceeds following profitable sales. Once the sale of Glasgow completes and its sale proceeds are reinvested, EPS is expected to return to a level in line with the Company's target level of 8p per annum. Looking forward, the portfolio's future income generation prospects appear strong as assessed independently by Knight Frank, the Company's valuer. As at year-end, the portfolio's total estimated market rental value remained 20% higher than its current gross income, demonstrating the portfolio's inherent ability to grow income receipts over the medium term.

Financial Results Summary

	Year ended 31 March 2022	Year ended 31 March 2021
Operating Profit before fair value changes (£'000)	11,752	10,735
Operating Profit (£'000)	46,913	23,102
Profit before Tax (£'000)	46,695	22,172
Earnings Per Share (basic and diluted) (pence)*	29.47	13.98
EPRA Earnings Per Share (basic and diluted) (pence)*	6.79	6.19
Ongoing Charges (%)	1.35	1.36
Net Asset Value per share (pence)	120.63	99.15

* See note 10 of the financial statements in the full Annual Report for calculation.

Financing

The Company had a £60.00 million loan facility, of which it had drawn a balance of £54.00 million as at 31 March 2022 (31 March 2021: £60.00 million facility; £39.50 million drawn), producing the following measures of gearing:

	Year ended 31 March 2022 %	Year ended 31 March 2021 %
Loan to NAV	28.26	25.15
Gross Loan to GAV	22.48	22.07
Net Loan to GAV (deducts cash balance from the outstanding loan value)	19.67	12.32

The unexpired term of the facility was 1.6 years as at 31 March 2022 (31 March 2021: 2.6 years). The loan incurred interest at SONIA +1.4%, which equated to an all-in rate of 2.20% as at 31 March 2022 (31 March 2021: 1.44%).

The Company had in place interest rate caps at the year-end a notional value of £51.50 million (31 March 2021: £51.00 million), resulting in the loan being 95% hedged (31 March 2021: 130%). These interest rate caps were effective for the remaining period of the loan.

As at 31 March 2022, the Company had £12.89 million of the facility available up to the maximum 35.00% Loan to NAV at drawdown.

Post year-end, the decision was taken to complete the refinancing of the portfolio, as announced in May 2022. The Company has secured a new £60.00 million, 5-year term loan facility with AgFe, a leading independent asset manager specialising in debt-based investments. The loan is priced as a fixed rate loan with a total interest cost of 2.959%. The existing RBSi loan facility, which was priced at a floating rate according to SONIA, was due to mature in October 2023 and has been repaid in full by the new loan facility. Simultaneous to the funding, the Company's interest rate cap was sold for proceeds of £743,000. In the current inflationary environment, the Company considers it prudent to fix the loan now, rather than run the risk of further rising rates. The Company intends to utilise borrowings to enhance returns over the next five years.

Dividends

The Company has continued to deliver on its target of paying dividends of 8.00 pps per annum. During the year, the Company declared and paid four quarterly dividends of 2.00 pence per share, in line with its target, which were 84.88% covered by the Company's EPRA EPS of 6.79 pence. It remains the Company's intention to continue to pay dividends in line with its dividend policy. In determining future dividend payments, regard will be given to the circumstances prevailing at the relevant time, as well as the Company's requirement, as a UK REIT, to distribute at least 90% of its distributable income annually, which will remain a key consideration.

Outlook

Post year-end, the Company made the announcement that Alex Short, joint Portfolio Manager, had taken the decision to resign from her position within the Company's Investment Manager and therefore also resigned her position in respect of the Company. Laura Elkin continues as Portfolio Manager of the Company supported by the wider AEW UK team which remains unchanged. Laura has played a key role in the portfolio management team since the Company's launch in 2015 and as such, the Board have confidence in her abilities to continue to lead the team at AEW. Laura will work alongside Henry Butt as Assistant Portfolio Manager. All investment decisions made on behalf of AEW UK require the approval of AEW UK's Investment Management Committee, which has remained unchanged for the past 11 years. My colleagues on the Board and I would like to take the opportunity to thank Alex for her involvement in the Company to date and wish her the best for future endeavours.

Despite various headwinds facing the UK economy, the Board feels confident that the asset management opportunities inherent within the portfolio and the Company's investment pipeline provide a strong basis for the continuation of attractive returns to the Company's shareholders. The portfolio's future income generation prospects appear strong as assessed independently by Knight Frank, the Company's valuer. As at 31 March 2022, the portfolio's total estimated market rental value remained 20% higher than its current gross income, demonstrating Knight Frank's belief in the portfolio's inherent ability to grow income receipts over the medium term.

In anticipation of capital receipts from the sale of Glasgow and Oxford later this year, AEW are pursuing an attractive pipeline of retail warehousing, leisure and office assets across the UK, which offer income levels and capital growth opportunities in line with the existing portfolio. Also, as part of the Company's re-financing, the remaining £6.00m available in the loan facility was drawn post year-end, which further extends purchasing capability.

We are pleased to see that the Company's strong performance has been recognised in the rating of its shares, where demand has delivered periods of a share price premium to NAV. With an attractive pipeline of opportunities, we hope the Company will be in a position to take advantage of continued strong demand for its shares and grow its capital base in the future.

Mark Burton

Chairman

21 June 2022

Investment Manager's Report

Economic Outlook

Despite COVID-19 restrictions finally being lifted, the anticipated post-pandemic rebound appears to have slowed as UK GDP fell by a disappointing 0.1% month-on-month in March 2022. It is likely this is primarily due to a significant increase in the rate of inflation with a 30-year high of 9.0% recorded for April 2022. Russia's invasion of Ukraine, and the consequential sanctions imposed by the international community, continues to drive up energy and commodity prices. There is a risk that, as well as affecting manufacturing industries, this may further damage consumer and investor sentiment as real income and wealth levels are reduced. Economic growth is now forecast to slow to 3.8% by 2022 year-end.

(SOURCE - Oxford Economics)

With higher than expected inflation, the Bank of England has increased interest rates from 0.50% in February 2022 to 1.25% in June 2022. Despite this backdrop of rising inflation and rising interest rates, over a five-year period, we consider that bond yields are likely to remain low with central banks reluctant to push economies into recession, particularly in times of war.

Property Market Outlook

Industrial

The sector has seen significant growth for a number of years due to the growth of e-commerce.  The COVID-19 pandemic caused an acceleration of this trend as lockdowns and social distancing forced changes in shoppers' habits. These trends have positively impacted values throughout the industrial market from the prime end to more traditional manufacturing accommodation as older stock has been redeveloped and low rented accommodation has become scarcer. 

Strong investor demand in the sector has compressed yields and driven much value growth within the Company's portfolio and, as a result of a number of the asset values being felt to have been maximised, two industrial assets were disposed of during the period. For this reason, we exercise caution when analysing pipeline assets in the sector. 

Attributes which we still find very compelling within the sector are the historically low levels of availability of accommodation and continued strong tenant demand. It is these attributes which continue to drive rental growth and with the portfolio's average passing rent within the sector being only £3.30 per sq ft we believe that we are ideally placed to be able to benefit from this. This growth potential has been demonstrated by a number of recent asset management transactions including the Company's asset in Bradford where the settlement of a rent review during the period resulted in a 14% increase in income over a three-year period.

The industrial sector represents the portfolio's largest sector holding, making up 50.3% of the portfolio's value as at year-end. The Company's industrial holding delivered a total return of 34.8% during the year and an income yield of 6.3%. In contrast, benchmark total return was 46.5%, reflecting the very strong investor demand seen for prime assets, which delivered a significantly lower income yield of 3.7%.

Office

Despite numerous lockdowns and work from home mandates during the pandemic, we have not seen the significant decline in office occupation that some had predicted. It is certainly the case that hybrid working has become more commonplace, however it is clear that at least some exposure to the physical office brings numerous benefits over its more solitary alternative, including increased collaboration and higher levels of personal wellbeing.

UK employment levels have also remained robust, rising to pre-pandemic levels and showing a historic high level.

The office assets within the portfolio have been the subject of much recent discussion with the proposed sales of the Company's assets in Glasgow and Oxford both into alternative uses. When considering office assets for investment, we have often sought to acquire those showing strong alternative use values and we believe that this has assisted in delivering the benchmark outperformance that we have seen from the sector over recent periods.

The investment pipeline for offices focuses on strong, regional centres and a preference for town or city centres rather than business park locations where alternative uses may be more limited.

Our office assets represent the second largest sector holding, with 18.0% of the valuation. This was the strongest performing sector relative to the Benchmark, achieving an outperformance of 13.2%, which was largely driven by capital growth outperformance of 13.7% resulting from key asset management transactions.

Alternatives

This is a sector in which AEW as Investment Manager has significant expertise and has seen a number of compelling opportunities in the market. The Company's current alternatives holding comprises assets within the leisure sector that have been selected due to their defensive, value protection characteristics as well as their high-income yield.

The leisure sector suffered significant strain during the pandemic as lockdowns kept customers away for many months. However, due to the high levels of cost involved in relocation and fit out, occupiers tend to move accommodation far less than in other sectors. This has been shown by the fact that, since the lifting of all social distancing restrictions, headway has been made in various asset management initiatives within the Company's portfolio. We also find the sector attractive on a selective basis going forward, particularly those properties that occupy larger land holdings or sites in economically active areas such that can often be underpinned by alternative use values.

Assets held in alternative sectors comprise 7.0% of the 31 March 2022 valuation, all of which is within the leisure sector. The Company's alternative holdings outperformed the Benchmark, with a relative outperformance of 7.5%, driven by an income return outperformance of 8.6%.

Retail

The high street retail sector (referred to as 'Standard Retail') suffered greatly during the pandemic and experienced an acceleration of trends already present in consumer habits. Values in high street retail have now stabilised somewhat and we believe that the sector is likely to offer opportunities for repurposing to alternative uses over the medium term.

By contrast, performance in the retail warehousing sector has generally been significantly stronger than that seen on the high street due to the ease of parking and open air environments which, in a post COVID-19 world, have been perceived as more pleasant and safer places to shop. This effect has been felt quite acutely in the growing demand for investment properties within the sector and we expect the Company's recently purchased investments to benefit accordingly.

We are attracted to assets located within established commercial locations with low passing rents and particularly where values for warehousing assets have been surpassed by those within the existing use.

Retail represents 11.6% of the valuation and our retail assets have performed weaker than the Benchmark, as Central London retail, where we have no exposure, props up the Benchmark performance to some extent.

Property Portfolio

The Company made four acquisitions during the year:

Arrow Point Retail Park, Shrewsbury

In May 2021, the Company acquired Arrow Point Retail Park in Shrewsbury for a purchase price of £8.35 million. The established retail park is located on a busy commercial estate and is fully let. The estate provides a net initial yield of 8.7%, with low passing rents compared with competing locations. It comprises a modern purpose-built retail park constructed in 2007, arranged across nine units with 176 car parking spaces, and is prominently located within the main retail warehouse provision of Shrewsbury, approximately 2.5 miles north east of the town centre.

Union Street, Bristol

In June 2021, the Company acquired 15-33 Union Street for a purchase price of £10.2 million. 15-33 Union Street occupies a prominent location in Bristol city centre, opposite The Galleries Shopping Centre and near Cabot Circus, Bristol's premier retail destination. Located on a busy thoroughfare for pedestrians, the 65,238 sq ft site experiences high footfall and is ideally suited for retail or leisure units. Constructed in 2001, the property currently comprises five purpose built split-level retail or leisure units over four floors and road access to both Union Street and Fairfax Street. Four of the five units are let to three household names and a successful local retailer. The location of the site has been identified as a major regeneration area and it offers the ability for further growth through development.

Central Six Retail Park, Coventry

In November 2021, the Company completed the acquisition of the 11.9 acre Central Six Retail Park in Coventry for a purchase price of £16.4 million. The purchase price reflects a net initial yield of circa 11%, with an anticipated reversionary yield of circa 12.5% and a capital value per sq ft of £110. The site occupies a strategic and central location, approximately 0.7 miles away from Coventry city centre and adjacent to Coventry Railway Station and the Friargate Regeneration area. The retail park is highly accessible and provides 148,765 sq ft of modern purpose-built retail space with parking for 635 cars. Site coverage is low at just 27%. Units are let to TK Maxx, Next, Boots, Sports Direct, Burger King and Poundland. The site presents opportunities to add value through active asset management by renewing current tenancies and securing new tenants on the park. This purchase will be accretive to the Company's income return and it is anticipated that asset management initiatives will result in NAV growth over the medium term.

Greyfriars Road, Cardiff

In February 2022, the Company completed the acquisition of PRYZM nightclub in Cardiff for a purchase price of £3.6 million reflecting £92 per sq ft. The purchase price represents a net initial yield of 8%, with an anticipated reversionary yield of circa 9%. The property is prominently located within the leisure and late-night district of Cardiff city centre near the Principality Stadium and St David's Shopping Centre. Cardiff University and the University of Wales are located approximately 300m from the property, contributing to the total student population of circa 75,000.

The property provides 39,469 sq ft of nightclub and bar accommodation and is single-let to a subsidiary of Rekom UK (formerly The Deltic Group), providing over 14 years' unexpired lease term. Rekom UK is one of the largest specialist late-night operators in the UK with 46 clubs and bars across a number of brands.  The nightclub trades as "PRYZM" and "Steinbeck & Shaw".

The Company made two disposals during the year:

Langthwaite Business Park, South Kirkby

During August 2021, a sale of the Company's asset at Langthwaite Business Park in South Kirkby was completed for a price of £10.84 million. The sale price achieved was 87% ahead of the purchase price paid by the Company for the asset in Q4 2015.

No capital expenditure had been invested into the asset during its hold period, however the tenant's lease had been extended and rental levels increased by 13%. Throughout its hold period the asset remained income producing with a minimum yield of 11% against the purchase price.

Bessemer Road, Basingstoke

In October 2021, the Company completed on the sale of its warehouse at Bessemer Road, Basingstoke for a price of £5.9 million, a 73% premium above the purchase price of £3.4 million paid in Q1 2016.

No capital expenditure had been invested into the asset during its hold period, however, prior to the sale, the tenant's lease had been extended for a period of five years and rental levels increased by 16%. Throughout its hold period the asset remained income producing with a minimum yield of 9.8% against the purchase price.

Asset Management Update

The Company completed the following material asset management transactions during the period:

-  Arrow Point Retail Park, Shrewsbury (retail warehousing) - During Q2 2021, the Company completed an agreement with tenant British Heart Foundation to push its November 2021 break option out to December 2024 in return for four months' rent free. The majority of the rent free was used to write off rent arrears predating the Company's ownership.

-  Diamond Business Park, Wakefield (industrial) - During Q2 2021, the Company completed a new five year lease at Unit 14 reflecting a rent of £3.75 per sq ft. The annual rental of £41,866 pa sits 25% above the independently assessed March 2021 estimated rental value and six months' rent free was given as an incentive. The lease was agreed outside of the provisions of the Landlord and Tenant Act 1954 meaning that the Company benefits from greater flexibility upon expiry of the lease.

-  Bristol, 40 Queen Square (office) - During Q2 2021, the Company completed a new five year lease to Brewin Dolphin at a rent of £103,770 pa reflecting £30 per sq ft versus the previous passing rent of £22 per sq ft and the March 2021 ERV of £26 per sq ft. A 12 month rent free incentive was given.

-  Vantage Point, Hemel Hempstead (office) - During Q3 2021, the Company completed a new five-year lease to Netronix Integration Limited at a rent of £33,683 pa reflecting £14.50 psf. The rental level agreed reflects £3 per sq ft above valuers, ERV. Four months' rent free incentive was given to the tenant who also has the ability to bring the lease to an end at the expiry of three years.

-  Bristol, 40 Queen Square (office) - During Q3 2021, the Company completed a lease renewal to Candide Limited until February 2025 at a rent of £30 psf, £116,970 pa. The previous passing rent reflected £22.81 per sq ft and only 1.5 months' rent free incentive was given.

-  Sarus Court, Runcorn (industrial) - During Q3 2021, the Company completed a 10 year lease renewal with tenant NTT United Kingdom Limited, trading as Dimension Data. Rental income from the lease was agreed at £5.75 per sq ft as compared to the previous level of passing rent of £5.25 per sq ft. There is a tenant break option in December 2025. Five months' rent free was given to the tenant as an incentive.

-  15-33 Union Street, Bristol (Standard Retail) - During Q4 2021, the Company completed a new 15 year lease to Roxy Leisure Limited, a "competitive social" leisure occupier, at a rent of £181,000 pa reflecting £10 per sq ft. The lease provides for five yearly RPI linked reviews, collared and capped at 1.5% and 4% respectively. A 12-month rent free period was granted to the tenant as an incentive along with a £300,000 capital contribution to the tenant's fit out. On acquisition in June 2021, the 18,122 sq ft of upper floor space was vacant, with the Company benefiting from a 12-month rental guarantee from the vendor of the asset with a value of £190,000.

-  Pearl House, Nottingham (Standard Retail) - During Q4 2021, the Company completed the renewal of Cancer Research's lease for a term of 5 years with a tenant break in year three, subject to a break penalty equivalent to three months' rent. The rent agreed is £21,000 pa. Three months' rent-free incentive was given to the tenant.

-  Above Bar Street, Southampton (Standard Retail) - During Q4 2021, the Company completed a new straight five year lease to Shoe Zone at its property at 69 Above Bar Street. The transaction will provide the Company with a rental income of £80,000 pa with 12 months' rent free incentive given to the tenant. The lease was agreed outside of the provisions of the Landlord and Tenant Act 1954 meaning that the Company benefits from greater flexibility upon expiry of the lease. The transaction exchanged during Q3 2021 and was subject to approximately £40,000 of landlord works which have now been completed.

-  Walkers Lane, St Helens (industrial) - During Q4 2021, the Company reached agreement with tenant Kverneland in respect of its October 2020 open market rent review. The review has been settled at £389,000 pa reflecting £4.16 per sq ft and representing a £89,000 pa increase above the prior passing rent.

-  Westlands Distribution Park, Weston-Super-Mare (industrial) - During Q4 2021, the Company completed a new letting to North Somerset District Council at £20,000 pa, rising to £30,000 pa in April 2022. The lease provides for five yearly upwards only rent reviews to the higher of open market or RPI (capped at 1.5% per annum) in 2027 and 2032. The lease expires in April 2037 with mutual rolling break options in 2024, 2027 and 2032.

-  Sarus Court, Runcorn (industrial) - During Q4 2021, the Company completed a new 10 year lease to KMS (Europe) Ltd at a headline rent of £6 per sq ft reflecting an annual rental income of £95,000 pa. The letting set a new high rental tone for the estate and far exceeds the prior passing rent of £4.83 per sq ft. The incoming tenant was given the benefit of a 12-month rent free period spread out over the first three years of the lease.

-  Knowles Lane, Bradford (industrial) - During March 2022, the Company settled the September 2021 open market rent review with tenant, Pilkington United Kingdom Ltd, at our industrial unit in Bradford. The agreed rent is £208,000 per annum reflecting £4.50 per sq ft . The previous passing rent was £182,500 per annum reflecting £3.95 per sq ft, representing a 14% increase over a three-year period.

-   Apollo Business Park, Basildon (industrial) - During March 2022, the Company completed a new 10-year letting at Unit 1 Apollo Business Park, Basildon. The lease provides the tenant with a five-year break option and offers six months' rent free. The letting produces annual rental income of £240,750 and realises a new headline rent of £8 per sq ft versus an expected market rental value of £7 per sq. ft.

-   First Avenue, Deeside (industrial) - In Q4 2021, incumbent tenant, Magellan Aerospace (UK) Ltd, served notice to bring its lease to an end on 1 April 2022. Discussions have been ongoing since the service of the break notice to agree terms for a short-term lease extension. This agreement has now been signed, extending the tenant's occupation by six months. Upon completion of the new lease, the tenant paid to the Company a dilapidations settlement of £250,000, three months' rent up front at a rate of £6 per sq ft (vs market rent value of £5.25 per sq ft and previous passing rent of £3.75 per sq ft) and a single lease premium of £50,000.  The total capital receipt from the tenant upon completion was £457,400 excluding VAT. The property continues to be marketed.

-   Bath Street, Glasgow (office) - During February 2022, the Company received confirmation that planning consent had been granted for the demolition and development of a 527-unit student accommodation scheme at 225 Bath Street in Glasgow city centre. This follows the exchange of contracts for the sale of the site with a subsidiary company of IQ Student Accommodation in October 2020. The sale of 225 Bath Street is expected to complete after the standard three-month judicial review period.

Once the sale of Bath Street completes, occupancy within the portfolio is expected to increase by just over 4% with a corresponding decrease in the Company's costs and associated increase in income once sale proceeds have been reinvested. Earnings are then expected to normalise at a level much closer to the Company's long-term target.

Vacancy

The portfolio's overall vacancy level now sits at 5.42%, excluding vacancy contributed by the asset at 225 Bath Street, Glasgow, which as discussed above, has now been exchanged for sale for alternative use redevelopment. As a condition of the sale agreement, full vacancy had to be achieved in the building before the sale could be completed. Including this asset, overall vacancy is 10.69%.

Financial Results

The Company's Net Asset Value as at 31 March 2022 was £191.10 million or 120.63 pps (31 March 2021: £157.08 million or 99.15 pps). This is an increase of 21.48 pps or 21.7% over the year, with the underlying movement in NAV set out in the table below:

	Pps
NAV as at 1 April 2021	99.15
Portfolio acquisition costs	(1.60)
Profit on sale of investments	1.80
Capital expenditure	(0.49)
Valuation changes in property portfolio	22.49
Valuation change in derivatives	0.48
Income earned for the period	10.87
Expenses for the period	(4.07)
Interim dividend paid	(8.00)
NAV as at 31 March 2022	120.63

EPRA earnings per share for the period was 6.79 pps which, based on dividends paid of 8.00 pps, reflects a dividend cover of 84.88%. The increase in dividend cover compared to the prior 12-month period has largely arisen due to improvements in rent collection levels, along with successful legal outcomes that have recovered significant arrears. Income across the tenancy profile has remained largely intact. Collection rates have reached 99% for both the March 2022 and June 2022 quarters, with further payments expected to be received under longer term payment plans; of the outstanding arrears, £0.76 million has been provided for expected credit losses.

Financing

As at 31 March 2022, the Company had a £60.00 million loan facility with RBSi, which was due to be in place until October 2023, the details of which are presented below:

	31 March 2022	31 March 2021
Facility	£60.00 million	£60.00 million
Drawn	£54.00 million	£39.50 million
Gearing (Loan to NAV)	28.26%	25.15%
Interest rate	2.20% all-in (SONIA +1.4%)	1.44% all-in (LIBOR +1.4%)
Notional Value of Loan Balance Hedged	95%	130.4%

Due to GBP LIBOR ending at the end of 2021, the Company transitioned to SONIA on 20 July 2021, with a credit adjustment spread of 0.0981%. Post year-end, the Company secured a new £60.00 million, five-year term loan facility with AgFe. See above for further detail .

Property Portfolio

Summary by Sector as at 31 March 2022

Sector	Number of assets	Valuation (£m)	Area (sq ft)	Vacancy   by ERV  (%)	WAULT to break (years)	Gross passing rental income (£m)	Gross passing rental income (£psf)	ERV (£m)	ERV (£psf)	Rental income (£m)	Like-  for-like  rental  growth  (£m)	Like-  for-like  rental  growth (%)
Industrial	19	120.75	2,364,571	4.87	3.60	7.80	3.30	9.28	3.92	7.88	0.29	4.16
Office	5	43.28	251,812	31.59	3.88	1.58	6.27	3.64	14.47	1.74	(0.71)	(28.89)
Retail Warehouse	3	34.25	285,704	14.78	2.05	3.11	10.89	3.38	11.82	2.17	(0.01)	(1.98)
Standard Retail	6	24.98	237,792	2.53	5.03	2.58	10.87	2.33	9.79	2.59	(0.06)	(3.19)
Alternatives	3	16.92	151,824	0.00	7.67	1.80	11.83	1.59	10.47	1.54	(0.05)	(2.98)
Portfolio	36	240.18	3,291,703	10.69	3.94	16.87	5.13	20.22	6.14	15.92	(0.54)	(3.91)

Summary by Geographical Area as at 31 March 2022

Geographical area	Number of assets	Valuation (£m)	Area (sq ft)	Vacancy   by ERV  (%)	WAULT to break (years)	Gross passing rental income (£m)	Gross passing rental income (£psf)	ERV (£m)	ERV (£psf)	Rental income (£m)	Like-  for-like  rental  growth  (£m)	Like-  for-like  rental  growth  (%)
West Midlands	5	42.65	598,405	14.03	2.76	3.73	6.23	4.01	6.69	2.72	(0.12)	(9.22)
South West	5	40.08	517,232	6.42	3.28	2.78	5.38	3.48	6.73	2.73	0.26	13.89
Yorkshire and Humberside	7	38.02	791,858	6.75	2.44	2.23	2.81	3.33	4.20	2.54	(0.22)	(8.77)
South East	4	27.90	137,026	5.01	5.06	1.36	9.91	1.72	12.57	1.85	(0.14)	(8.07)
Eastern	5	26.90	344,339	0.00	2.19	1.99	5.78	2.12	6.16	1.85	0.19	11.51
Wales	3	23.13	415,607	0.00	7.50	1.76	4.24	1.84	4.43	1.35	0.00	0.12
North West	4	19.15	301,654	0.00	4.33	1.56	5.17	1.43	4.75	1.51	0.16	11.59
Rest of London	1	9.90	71,720	0.00	9.62	0.96	13.40	0.75	10.45	0.96	(0.04)	(4.56)
Scotland	1	8.50	85,643	91.85	1.42	0.09	1.10	1.16	13.54	0.01	(0.64)	(98.55)*
East Midlands	1	3.95	28,219	0.00	4.67	0.41	14.56	0.38	13.38	0.40	0.01	2.69
Portfolio	36	240.18	3,291,703	10.69	3.94	16.87	5.13	20.22	6.14	15.92	(0.54)	(3.91)

* Excluding the vacancy from 225 Bath Street Glasgow, which has exchanged to be sold with the condition of vacant possession, the vacancy rate is 5.42%.

Properties by Market Value as at 31 March 2022

Sector weighting by valuation - high industrial weighting and low exposure to retail

Sector	Percentage
Industrial	50%
Offices	18%
Standard Retail	11%
Alternative	7%
Retail Warehouse	14%

Geographical weighting by valuation - highly diversified across the UK

Region	Percentage
Yorkshire and Humberside	16%
South East	11%
Eastern	11%
South West	17%
West Midlands	18%
East Midlands	2%
North West	8%
Wales	10%
Rest of London	4%
Scotland	3%

Properties by Market Value as at 31 March 2022

	Property	Sector	Region	Market Value Range (£m)
	Top 10:
1.	Central Six Retail Park, Coventry	Retail Warehouses	West Midlands	15.0 - 20.0
2.	Eastpoint Business Park, Oxford	Offices	South East	15.0 - 20.0
3.	Gresford Industrial Estate, Wrexham	Industrial	Wales	10.0 - 15.0
4.	40 Queen Square, Bristol	Offices	South West	10.0 - 15.0
5.	Lockwood Court, Leeds	Industrial	Yorkshire and Humberside	10.0 - 15.0
6.	15-33 Union Street, Bristol	Standard Retail	South West	10.0 - 15.0
7.	London East Leisure Park, Dagenham	Alternatives	Rest of London	7.5 - 10.0
8.	Arrow Point Retail Park, Shrewsbury	Retail Warehouses	West Midlands	7.5 - 10.0
9.	Apollo Business Park, Basildon	Industrial	Eastern	7.5 - 10.0
10.	225 Bath Street, Glasgow	Offices	Scotland	7.5 - 10.0

The Company's top 10 properties listed above comprise 49.4% (2021: 49.7%) of the total value of the portfolio.

	Property	Sector	Region	Market Value Range  (£m)
11.	Sarus Court, Runcorn	Industrial	North West	7.5 - 10.0
12.	Storey's Bar Road, Peterborough	Industrial	Eastern	7.5 - 10.0
13.	Euroway Trading Estate, Bradford	Industrial	Yorkshire and Humberside	5.0 - 7.5
14.	Westlands Distribution Park, Weston Super Mare	Industrial	South West	5.0 - 7.5
15.	Brockhurst Crescent, Walsall	Industrial	West Midlands	5.0 - 7.5
16.	Barnstaple Retail Park, Barnstaple	Retail Warehouses	South West	5.0 - 7.5
17.	Walkers Lane, St Helens	Industrial	North West	5.0 - 7.5
18.	Deeside Industrial Park, Deeside	Industrial	Wales	5.0 - 7.5
19.	Diamond Business Park, Wakefield	Industrial	Yorkshire and Humberside	5.0 - 7.5
20.	Mangham Road, Rotherham	Industrial	Yorkshire and Humberside	< 5.0
21.	710 Brightside Lane, Sheffield	Industrial	Yorkshire and Humberside	< 5.0
22.	Oak Park, Droitwich	Industrial	West Midlands	< 5.0
23.	Pipps Hall Industrial Estate, Basildon	Industrial	Eastern	< 5.0
24.	Pearl House, Nottingham	Standard Retail	East Midlands	< 5.0
25.	Eagle Road, Redditch	Industrial	West Midlands	< 5.0
26.	Cedar House, Gloucester	Offices	South West	< 5.0
27.	PRYZM, Cardiff	Alternatives	Wales	< 5.0
28.	69-75 Above Bar Street, Southampton	Standard Retail	South East	< 5.0
29.	Clarke Road, Milton Keynes	Industrial	South East	< 5.0
30.	Odeon Cinema, Southend-on-Sea	Alternatives	Eastern	< 5.0
31.	Bridge House, Bradford	Industrial	Yorkshire and Humberside	< 5.0
32.	Commercial Road, Portsmouth	Standard Retail	South East	< 5.0
33.	Pricebusters Building, Blackpool	Standard Retail	North West	< 5.0
34.	Vantage Point, Hemel Hempstead	Offices	Eastern	< 5.0
35.	Moorside Road, Swinton	Industrial	North West	< 5.0
36.	11/15 Fargate, Sheffield	Standard Retail	Yorkshire and Humberside	< 5.0

Top 10 Tenants as at 31 March 2022

	Tenant	Sector	Property	Passing Rental Income (£'000)	% of Portfolio Total Passing Rental Income
1.	Plastipak UK Ltd	Industrial	Gresford Industrial Estate, Wrexham	883	5.2
2.	Sports Direct	Retail	Various	678	4.0
3.	Wyndeham Group	Industrial	Wyndeham, Peterborough	644	3.8
4.	Poundland Limited	Retail	Various	631	3.7
5.	Mecca Bingo Ltd	Leisure	London East Leisure Park, Dagenham	625	3.7
6.	Harrogate Spring Water Limited	Industrial	Lockwood Court, Leeds	603	3.6
7.	Magellan Aerospace (UK) Ltd	Industrial	Excel 95, Deeside	580	3.4
8.	Odeon Cinemas	Leisure	Victoria Circus, Southend-on-Sea	535	3.2
9.	Wilko Retail Limited	Retail	15-33 Union Street, Bristol	481	2.9
10.	Advanced Supply Chain (BFD) Ltd	Industrial	Euroway Trading Estate, Bradford	467	2.8

The Company's top ten tenants, listed above, represent 36.3% (2021: 38.8%) of the total passing rental income of the portfolio.

Alternative Investment Fund Manager ('AIFM')

AEW UK Investment Management LLP is authorised and regulated by the FCA as a full-scope AIFM and provides its services to the Company.

The Company has appointed Langham Hall UK Depositary LLP ('Langham Hall') to act as the depositary to the Company, responsible for cash monitoring, asset verification and oversight of the Company.

Information Disclosures under the AIFM Directive

Under the AIFM Directive, the Company is required to make disclosures in relation to its leverage under the prescribed methodology of the Directive.

Leverage

The AIFM Directive prescribes two methods for evaluating leverage, namely the 'Gross Method' and the 'Commitment Method'. The Company's maximum and actual leverage levels are as per below:

	31 March 2022		31 March 2021
Leverage Exposure	Gross Method	Commitment   Method	Gross  Method	Commitment  Method
Maximum Limit	140%	140%	140%	140%
Actual	125%	129%	114%	125%

In accordance with the AIFM Directive, leverage is expressed as a percentage of the Company's exposure to its NAV and adjusted in line with the prescribed 'Gross' and 'Commitment' methods. The Gross method is representative of the sum of the Company's positions after deducting cash balances and without taking into account any hedging and netting arrangements. The Commitment method is representative of the sum of the Company's positions without deducting cash balances and taking into account any hedging and netting arrangements. For the purposes of evaluating the methods above, the Company's positions primarily reflect its current borrowings and NAV.

Remuneration

The AIFM has adopted a Remuneration Policy which accords with the principles established by AIFMD. AIFMD Remuneration Code Staff includes the members of the AIFM's Management Committee, those performing Control Functions, Department Heads, Risk Takers and other members of staff that exert material influence on the AIFM's risk profile or the AIFs it manages.

Staff are remunerated in accordance with the key principles of the firm's remuneration policy, which include:

(1)  promoting sound risk management;

(2)  supporting sustainable business plans;

(3)  remuneration being linked to non-financial criteria for Control Function staff;

(4)  incentivising staff performance over long periods of time;

(5)  awarding guaranteed variable remuneration only in exceptional circumstances; and

(6)  having an appropriate balance between fixed and variable remuneration.

As required under section 'Fund 3.3.5.R(5)' of the Investment Fund Sourcebook, the following information is provided in respect of remuneration paid by the AIFM to its staff for the year ended 31 December 2021.

	Year ended 31 December 2021
Total remuneration paid to employees during financial year:
a) remuneration, including, where relevant, any carried interest paid by the AIFM	2,938,680
b) the number of beneficiaries	30
The aggregate amount of remuneration of the AIFM Remuneration Code staff, broken down by:
a) senior management	£753,900
b) members of staff	£2,184,780

	Fixed remuneration	Variable remuneration	Total remuneration
Senior management	£681,900	£72,000	£753,900
Staff	£1,615,193	£569,587	£2,184,780
Total	£2,297,093	£641,587	£2,938,680

Fixed remuneration comprises basic salaries and variable remuneration comprises bonuses.

AEW UK Investment Management LLP

21 June 2022

FURTHER INFORMATION

AEW UK REIT PLC's annual report and accounts for the year ended 31 March 2022 (which includes the notice of meeting for the Company's AGM) will be available today on  www.aewukreit.com.

It will also be submitted shortly in full unedited text to the Financial Conduct Authority's National Storage Mechanism and will be available for inspection at   data.fca.org.uk/#/nsm/nationalstoragemechanism  in accordance with DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

LEI:   21380073LDXHV2LP5K50

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