NAV Update and Dividend Declaration

AEW UK REIT PLC

20 July 2023

 

20 July 2023

AEW UK REIT plc

NAV Update and Dividend Declaration

AEW UK REIT plc (LSE: AEWU) ("AEWU" or the "Company"), which directly owns a value-focused portfolio of 33 UK commercial property assets, announces its unaudited Net Asset Value ("NAV") as at 30 June 2023 and interim dividend for the three-month period ended 30 June 2023.

Highlights

·   NAV of £169.56 million or 107.03 pence per share as at 30 June 2023 (31 March 2023: £167.10 million or 105.48 pence per share).

·      NAV total return of 3.36% for the quarter (31 March 2023 quarter: 2.42%).

·      0.74% like-for-like valuation increase for the quarter (31 March 2023 quarter decrease: 0.77%).

·      EPRA earnings per share ("EPRA EPS") for the quarter of 1.75 pence (31 March 2023 quarter: 1.77 pence).

·     Interim dividend of 2.00 pence per share for the three months ended 30 June 2023, paid for 31 consecutive quarters and in line with the targeted annual dividend of 8.00 pence per share. 

·    Loan to NAV ratio at the quarter end was 35.39% (31 March 2023: 35.91%).  Loan to GAV ratio at the quarter end was 30.54% (31 March 2023: 28.06%).  Significant headroom remains on all loan covenants.

·      Company continues to benefit from a low fixed cost of debt of 2.959% until May 2027.

·     Disposal of an industrial holding at Deeside Industrial Estate for £4.75 million, reflecting an 8.0% premium to the 31 March 2023 valuation.

·   Disposal of an industrial holding at Lockwood Court, Leeds, for £9.65 million, reflecting a 5.9% NIY and a 3.8% premium to the 31 March 2023 valuation.

·    Disposal of an industrial holding at Euroway Trading Estate, Bradford, for £6.45 million, reflecting a 6.8% NIY and a 26.5% premium to the 31 March 2023 valuation.

·     Post quarter end, purchase of a car park asset in central York for £10.02m, reflecting a NIY of 9.3%.

·     Cash available for deployment as at 30 June 2023 of £25.0m, reduced to circa £15.0m following the post quarter end acquisition of York.

·      14 asset management transactions completed during the quarter.

·     99% of rental income collected, excluding the current rent quarter, consistent with each quarter since the onset of the COVID pandemic in March 2020.

Laura Elkin, Portfolio Manager, AEW UK REIT, commented:

"We are pleased to report continued NAV growth this quarter, demonstrating the resilience of the Company's strategy, even during times of prolonged economic uncertainty. This has been driven by a like-for-like valuation uplift of 0.74% in the Company's portfolio, following the completion of key asset management transactions and the profitable sale of three industrial assets at prices exceeding prior quarter-end valuations. These sales are also expected to be accretive to earnings, once the capital is redeployed, as yields achieved are notably lower than those observed in the Company's investment pipeline. 

The Company continues to make progress in our aim to return towards full dividend cover. Earnings were however, negatively impacted by 0.09 pence per share during the quarter due to an increase in bad debt provision for arrears relating to Wilko Retail at Union Street in Bristol after the tenant appointed CBRE to advise on its portfolio restructuring in June. Despite the route forward being as yet unclear, we have taken the prudent decision to provide for a majority of the outstanding arrears in the quarter but will continue to pursue the tenant's arrears using all appropriate means.

The Company has now committed to pay its market-leading dividend of 2.00 pence per share per quarter for 31 consecutive quarters, with EPS cover from EPRA earnings since IPO amounting to 94%. The remainder of the Company's dividend payments have been funded by the significant sum of profit generated on the NAV accretive sale of assets. Further gains in EPS are expected in the coming quarters as high yielding purchases are completed and the ongoing programme of new lettings provides a boost to income streams." 

Valuation movement

As at 30 June 2023, the Company owned investment properties with a fair value of £196.47 million. The like-for-like valuation increase for the quarter of £1.45 million (0.74%) is broken down as follows by sector:

Sector	Valuation 30 June 2023		Like-for-like valuation movement for the quarter
	£ million	% of portfolio	£ million	%
Industrial	77.29	39.34	1.49	1.97
Retail Warehouses	44.60	22.70	0.70	1.59
High Street Retail	39.32	20.01	(0.58)	(1.45)
Other	20.00	10.18	(0.12)	(0.62)
Office	15.26	7.77	(0.04)	(0.26)
Total	196.47	100.00	1.45	0.74*

* This is the overall weighted average like-for-like valuation increase of the portfolio.

Portfolio Manager's Review

This quarter has seen the culmination of a number of asset management initiatives, highlighting the robust nature of the Company's assets and our ability to actively manage them throughout market cycles. Asset management transactions were completed across all major property sectors, but with a higher concentration in retail, a sector that we have favoured for a number of recent purchases. We completed transactions during the quarter in high street retail, with lettings to Specsavers and Dimension Vintage, and in retail warehousing, with lettings to B&Q, Boots, Oak Furnitureland and Universal Consumer Products. 

At the Company's office asset at Queen Square, Bristol, rental growth was achieved during the quarter following the settlement of the 2021 rent review with tenant, Turley. The completion of this review follows the recent settlement of two other outstanding rent reviews at the building, the outcomes of which were not previously announced, so as not to compromise ongoing negotiations. The combined outcome of this activity sees rental income from these tenants increase by 32%.

Our ability to drive performance through asset management is particularly pertinent in trying times. During the quarter, the Company's tenant Mecca Bingo at the Railway Station Retail Park in Dewsbury announced the closure of the hall, despite having been well progressed in a lease renewal discussion with the Company. Although this is disappointing, we are buoyed by the strong level of interest we have received in the unit from various well-known national retail and leisure occupiers. The lease to Mecca Bingo will end on 25 December 2023. We hope to be able to agree terms for a new letting prior to expiry.

The Company also sold three industrial assets at a premium to their latest valuations. Our portfolio has gradually been reducing its industrial exposure over the past 18 months, and although this may not continue at the same rate going forward, it has allowed us to crystallise profits made in the sector and concurrently recycle the resulting capital into high yielding assets in our pipeline, mostly within other market sectors. We believe that this ability to move nimbly between property sectors in order to extract maximum value from our portfolio is a key strength of our strategy. 

With this in mind, we were pleased to demonstrate in our recent Annual Report that, over the 12-month period to 31 March 2023, the AEWU portfolio had delivered outperformance against the MSCI index in all of the main property sectors. This again demonstrates the varied abilities of our team and we continue to make progress in our business plans across all property sectors. 

Net Asset Value

The Company's unaudited NAV at 30 June 2023 was £169.56 million, or 107.03 pence per share. This reflects an increase of 1.47% compared with the NAV per share at 31 March 2023. The Company's NAV total return, which includes the interim dividend of 2.00 pence per share for the period from 1 January 2023 to 31 March 2023, was 3.36% for the three-month period ended 30 June 2023.

	Pence per share	£ million
NAV at 1 April 2023	105.48	167.10
Gain on sale of investments	1.04	1.65
Portfolio acquisition costs	(0.02)	(0.03)
Capital expenditure	(0.21)	(0.33)
Valuation change in property portfolio	0.99	1.57
Income earned for the period	3.05	4.83
Expenses and net finance costs for the period	(1.30)	(2.06)
Interim dividend paid	(2.00)	(3.17)
NAV at 30 June 2023	107.03	169.56

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards. It incorporates the independent portfolio valuation at 30 June 2023 and income for the period, but does not include a provision for the interim dividend declared for the three-month period to 30 June 2023.

Share price and Discount

The closing ordinary share price at 30 June 2023 was 92.7p. This represents a discount to the NAV per share of 13.39% and an increase of 0.65% compared with the share price of 92.1p at 31 March 2023. The Company's share price total return, which includes the interim dividend of 2.00 pence per share for the period from 1 January 2023 to 31 March 2023, was 2.82% for the three-month period ended 30 June 2023.

Dividend

Dividend declaration

The Company today announces an interim dividend of 2.00 pence per share for the period from 1 April 2023 to 30 June 2023. The dividend payment will be made on 31 August 2023 to shareholders on the register as at 28 July 2023.  The ex-dividend date will be 27 July 2023. The Company operates a Dividend Reinvestment Plan ("DRIP"), which is managed by its registrar, Link Group. For shareholders who wish to receive their dividend in the form of shares, the deadline to elect for the DRIP is 10 August 2023.

The dividend of 2.00 pence per share will be designated 2.00 pence per share as an interim property income distribution ("PID") and 0.00 pence per share as an interim ordinary dividend ("non-PID").

The Company has now paid a 2.00 pence quarterly dividend for 31 consecutive quarters¹, providing high levels of income consistency to our shareholders.

¹For the period 1 November 2017 to 31 December 2017, a pro rata dividend of 1.33 pence per share was paid for this two-month period, following a change in the accounting period end.

Dividend outlook

It remains the Company's intention to continue to pay dividends in line with its dividend policy and this will be kept under review. 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.

Financing

Equity:

The Company's share capital consists of 158,774,746 Ordinary Shares, of which 350,000 are currently held by the Company as treasury shares.

Debt:

The Company has a £60.00 million, five-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% until May 2027.

The loan was fully drawn at 30 June 2023, producing a Loan to NAV ratio of 35.39%.

Headroom on the debt facility's loan to value ("LTV") covenant continues to be conservative. For those properties secured under the loan, a 36.06% fall in valuation would be required before the LTV covenant were breached.

Investment Update

During the quarter the Company completed the following disposals.

Excel 95, Deeside Industrial Estate (industrial) - the Company has completed the sale of its industrial holding in Deeside for £4,750,000, reflecting a capital value of circa £49 per sq ft. The 96,597 sq ft industrial unit, known as Excel 95, was acquired in July 2017 for £4,310,000, reflecting a 7.9% net initial yield. The property was let to Magellan Aerospace until they vacated in July 2022, paying a £250,000 dilapidations settlement. The Company has disposed of the vacant asset to an owner-occupier, with the price reflecting an 8.0% premium to the 31 March 2023 valuation. By disposing of the asset, the Company has also avoided a speculative refurbishment project costing approximately £1,000,0000.   

Euroway Trading Estate, Bradford and Lockwood Court, Leeds (both industrial) - during June, the Company completed the sale of two industrial assets, being Euroway Trading Estate, Bradford and Lockwood Court, Leeds, for combined proceeds of £16,100,000. This reflects a blended net initial yield (NIY) of 6.2% and a weighted average premium to acquisition price of 31.2%.

Euroway Trading Estate was acquired in November 2016 for £4,950,000, reflecting an 8.1% NIY. At acquisition, the property benefitted from a new eight-year lease to Advanced Supply Chain (BFD) Ltd. In December 2019, the Company completed a rent review which resulted in a 9.1% annual rental uplift.

Lockwood Court was acquired in February 2019 for £7,320,000, reflecting a 7.7% NIY. The property was acquired with the benefit of a new 10-year lease to LWS, guaranteed by Harrogate Spring Water. In December 2019, AEWU secured a new 10-year lease to Harrogate Spring Water, following L.W.S. entering into liquidation.

Both sales realise significant profit for AEWU's shareholders. For Euroway Trading Estate and Lockwood Court respectively, their sales prices exceeded their 31 March 2023 valuations by 26.5% and 3.8%, as well as their acquisition prices by 30.3% and 31.8%. Reinvestment of the sales proceeds into comparatively higher yielding pipeline assets will be accretive to the Company's earnings.

No purchases were made during the quarter. Post quarter end, the Company completed the following purchase:

Tanner Row, York (car park) - in July, the Company completed the acquisition of a mixed use asset within York city centre for £10,020,000, reflecting an attractive net initial yield of 9.3%. The site totals 0.8 acres and is well located inside the York City Wall, bounding the historic centre of the city, within the "Micklegate Quarter".

The 99,769 sq ft asset is multi-let to five tenants, with 75% of the income received from National Car Parks Ltd who have a further 9 years remaining. NCP have occupied the 297-space car park since 2005 and the lease benefits from a 2027 rent review which will increase rent payable in line with uncapped Retail Price Index, resulting in a forecast reversionary yield in excess of 10%. A further four tenants occupy ground and first floor retail and office accommodation fronting onto George Hudson Street.

Asset Management Update

The Company completed the following asset management transactions during the quarter:

Central Six Retail Park, Coventry (retail warehousing) - in April, the Company completed a lease renewal with existing tenant, Grahams Baked Potatoes Limited. The tenant has entered into a new four-year lease with rolling mutual break options at a rent of £24,500 per annum, equating to £45 per sq ft.

In May, the Company completed a lease renewal with existing tenant, Oak Furnitureland Group Limited, for Unit 12. The tenant has entered into a new two-year lease with rolling mutual break options at a rent of £25,000 per annum, equating to £2.50 per sq ft. This flexible renewal will facilitate a longer-term transaction to a new tenant, which is currently being negotiated.

In May, the Company also completed a reversionary lease with existing tenant, Boots UK Limited, for Unit 7. The tenant has entered into a new five-year lease with effect from 28 February 2024 at a rent of £259,293 per annum, equating to £14.25 per sq ft. The letting also includes seven and a half months' rent free taken under the existing lease. 

In June, the Company completed the acquisition of the freehold interest in units 1-11, which had previously been held by way of long leasehold from Friargate JV Projects Limited. The acquisition of the freehold interest is expected to increase the liquidity of the asset in case of its future sale and also removes user restrictions within the long lease which are constrictive to lettings. In exchange for the freehold interest, the Company has granted to Friargate JV Projects an option to acquire the Company's long leasehold interest in units 12 A & B over a five-year period, commencing in two years' time.

Post quarter end, the Company completed a new 20-year lease to Aldi Stores Limited, following the completion of the agreement for lease in October 2022. The lease provides an annual rent of £270,166 per annum, reflecting £13 per sq ft, to be reviewed every five years based on compounded annual RPI, collared and capped at 1% and 3% respectively. The lease provides Aldi with a 12-month rent-free incentive and a tenant break option at year 15.

Barnstaple Retail Park, Barnstaple (retail warehousing) - the Company has completed an eight-year reversionary lease with B&Q from 29 September 2024 at the current passing rent of £348,000 per annum (£9.75 per sq ft). In return, the tenant has been granted a six-month rent-free period. 

40 Queens Square, Bristol (office) - after protracted negotiations, the Company has settled three outstanding rent reviews at the building dating back to 2021 and 2022 with the following tenants: Leonard Curtis Recovery Limited, Chapman Taylor LLP, and Turley Associates. The outcome of the reviews will see the annual rent from the three tenant's increase from £213,812 per annum to £281,550, reflecting a 32% uplift.

Arrow Point Retail Park, Shrewsbury (retail warehousing) - the Company has completed a three-year lease to Universal Consumer Products Limited at a rent of £110,000 per annum (£8 per sq ft). The previous passing rent was £95,844 (£7 per sq ft). No lease incentive was given. 

Oak Park, Droitwich (industrial) - the Company has completed a new three-year ex-Act lease on units 266-270 to Roger Dyson at a stepped rent starting at £123,000 per annum in year one, £135,000 per annum in year two and £148,000 per annum in year three. There is a mutual break option on the expiry of the second year. The tenant was granted a one-month rent free period.

The Company has also completed a new three-year ex-Act lease to Adam Hewitt Ltd at units 263 and 265 at a rent of £70,000 per annum. There is a tenant break option after the first year. No rent incentive was given. 

Diamond Business Park, Wakefield (industrial) - in April, the Company completed the settlement of an open market rent review with Tasca Tankers, dating back to June 2022.  The review will see the rent received increase from £209,000 to £229,900 per annum, reflecting an uplift of 9.6%.

Northgate House, Bath (retail) - in June, the Manager completed a new five-year ex-Act lease to Dimension Vintage limited at a rent of £40,000 per annum. Four months' rent-free has been granted.

Commercial Road, Portsmouth (retail) - in June, a new 10-year lease was completed to Specsavers at a rent of £60,000 per annum in vacant accommodation previously let to River Island.  An incentive of nine months' rent free was granted to the tenant, along with a £40,000 capital contribution to improvement works. There will be a tenant only break option after six years on six months' notice.

Sarus Court, Runcorn (industrial) - The Manager has completed three lease renewals with existing tenant CJ Services for their leases at units 1001, 1002 and 1003. The total rent is £276,283 per annum reflecting £6.50 per sq ft, an increase from the previous average passing rent of £5.25 per sq ft. Five-year ex-Act leases were granted, with incentives equal to six months' rent-free.

Glossary of Commonly Used Terms

For assistance with the interpretation of any industry specific terms used in the Company's communications, please refer to our glossary of commonly used terms which can be found on the Company's website in the following location: https://www.aewukreit.com/investors/glossary

AEW UK

Laura Elkin	[e-mail] [phone]
Henry Butt	[e-mail] [phone]
Nicki Gladstone	[e-mail]
	[phone]
Company Secretary
Link Company Matters Limited	[e-mail]
	[phone]
TB Cardew	[e-mail]
Ed Orlebar Tania Wild	[phone] [phone]
Liberum Capital
Darren Vickers / Owen Matthews	[phone]

Notes to Editors

About AEW UK REIT

AEW UK REIT plc (LSE: AEWU) aims to deliver an attractive total return to shareholders by investing predominantly in smaller commercial properties (typically less than £15 million), on shorter occupational leases in strong commercial locations across the United Kingdom. The Company is currently invested in office, retail, industrial and leisure assets, with a focus on active asset management, repositioning the properties and improving the quality of income streams.  AEWU is currently paying an annualised dividend of 8p per share. 

The Company was listed on the Official List of the Financial Conduct Authority and admitted to trading on the Main Market of the London Stock Exchange on 12 May 2015. www.aewukreit.com

LEI: 21380073LDXHV2LP5K50

About AEW

AEW is one of the world's largest real estate asset managers, with €84.3bn of assets under management as at 31 March 2023. AEW has over 880 employees, with its main offices located in Boston, London, Paris and Hong Kong and offers a wide range of real estate investment products including comingled funds, separate accounts and securities mandates across the full spectrum of investment strategies. AEW represents the real estate asset management platform of Natixis Investment Managers, one of the largest asset managers in the world.

As at 31 March 2023, AEW managed €39.2bn of real estate assets in Europe on behalf of a number of funds and separate accounts. AEW has over 480 employees based in 12 locations across Europe and has a long track record of successfully implementing core, value-add and opportunistic investment strategies on behalf of its clients. In the last five years, AEW has invested and divested a total volume of over €22bn of real estate across European markets.

www.aew.com

AEW UK Investment Management LLP is the Investment Manager.  AEW is a group of companies which includes AEW Europe SA and its subsidiaries as well as affiliated company AEW Capital Management, L.P. in North America and its subsidiaries. AEW Europe SA, together with its subsidiaries AEW UK Investment Management LLP, AEW S.à.r.l., AEW Invest GmbH and AEW SAS, is a European real estate investment manager with headquarter offices in Paris and London. AEW Europe SA and AEW Capital Management, L.P. are owned by Natixis Investment Managers. Natixis Investment Managers is an international asset management group based in Paris, France, that is principally owned by Natixis, a French investment banking and financial services firm. Natixis is principally owned by BPCE, France's second largest banking group.

Disclaimer

This communication cannot be relied upon as the basis on which to make a decision to invest in AEWU. This communication does not constitute an invitation or inducement to subscribe to any particular investment. Issued by AEW UK Investment Management LLP, 33 Jermyn Street, London, SW1Y 6DN.
Company number : OC367686 England. Authorised and regulated by the Financial Conduct Authority.

 

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