NAV Update and Dividend Declaration

AEW UK REIT PLC

26 April 2023

 

26 April 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 36 UK commercial property assets, announces its unaudited Net Asset Value ("NAV") as at 31 March 2023 and interim dividend for the three-month period ended 31 March 2023.

Highlights

·    NAV of £167.10 million or 105.48 pence per share as at 31 March 2023 (31 December 2022: £166.24 million or 104.93 pence per share).

·      NAV total return of 2.42% for the quarter (31 December 2022 quarter: -12.26%).

·      0.77% like-for-like valuation increase for the quarter (31 December 2022 quarter decrease: -10.82%).

·      EPRA earnings per share ("EPRA EPS") for the quarter of 1.77 pence (31 December 2022 quarter: 1.34 pence).

·      Interim dividend of 2.00 pence per share for the three months ended 31 March 2023, paid for 30 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 35.91% (31 December 2022: 36.09%).  Significant headroom remains on all loan covenants.

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

·      Acquisition of a freehold retail warehousing unit in Bamber Bridge, Preston for £6.45 million, providing an attractive net initial yield of 9.5%.

·      Disposal of an industrial holding at Clarke Road, Milton Keynes, for £2.75 million, reflecting a 6.6% premium to the December 2022 valuation.

·      Disposal of an office holding on Mark Road, Hemel Hempstead, for £1.65 million, reflecting a 66% premium to the December 2022 valuation.

·      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:

"Following significant asset repricing during Q4 2022 in the UK, it is pleasing to see values hold firm across AEWU's portfolio during Q1 2023. Overall, the portfolio has seen a like-for-like increase of 0.77%. We have seen isolated value movement this quarter as a result of specific asset management initiatives, rather than as a result of any material market or sector movements. Transaction volumes remain below average across the commercial property market, with a lower level of competition and pricing transparency. In this environment, AEWU has been able to find accretive assets that complement its value investment style. An excellent example of this is the Matalan store the Company acquired in Preston during the quarter for a net initial yield of 9.5%. This income yield is in stark contrast to our largest sale during the quarter, where a single-let industrial asset in Milton Keynes achieved a net initial yield of 6.3% and a 6.6% premium to December 2022's valuation. 

Transactions of this nature will prove to be accretive to the Company's income stream as demonstrated by an improvement in earnings per share during the quarter. We will continue to pursue this strategy and look to recycle assets from the portfolio that are deemed to have limited further scope for income or capital return, in comparison to those we see in our pipeline. This strategy is designed to maximise both shareholder value and support the payment of our dividend and we are pleased that this is the 30^th consecutive quarter where the Company will have paid 2p per share."

Valuation movement

As at 31 March 2023, the Company owned investment properties with a fair value of £213.83 million. The like-for-like valuation increase for the quarter of £1.58 million (0.77%) is broken down as follows by sector:

Sector	Valuation 31 March 2023		Like-for-like valuation movement for the quarter
	£ million	%	£ million	%
Industrial	94.60	44.24	1.30	1.39
Retail Warehouses	43.90	20.53	0.15	0.40
High Street Retail	39.90	18.66	(0.30)	(0.75)
Other	20.13	9.41	0.23	1.13
Office	15.30	7.16	0.20	1.32
Total	213.83	100.00	1.58	0.77*

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

Portfolio Manager's Review

Rent collection from our tenants remains strong, with collection levels in excess of 99% having been achieved for the previous quarter. On the whole, we are very happy with ongoing tenant engagement levels with examples this quarter of our tenants not actioning break clauses, as evidenced by The Secretary of State for Communities and Local Government at Cedar House in Gloucester. In addition, tenants committing to our properties by way of lease renewal include Subway at Union Street in Bristol, other prospective tenants are seeking terms to take vacant space in our portfolio.

The retail sector continues to be an area of particular tenant activity, both on the high street and on retail warehousing parks. Following announcements made last quarter in respect of potential new lettings in Coventry, these business plans continue to progress in line with our expectations. A further demonstration of this is a vacant high street retail asset in Sheffield which had been under offer for sale to an owner occupier due to our uncertainty over future occupational demand. We have, in recent weeks, taken the decision to withdraw the sale due to improved occupational interest and the retail units are now under offer to two tenants. Once let, we expect the asset to achieve an income yield against current valuation of circa 13%.

As highlighted by our transactional activity this quarter, we will look to recycle capital, if accretive, into attractive assets that we currently see in our pipeline. We will consider isolated asset sales where we feel that their potential to contribute to AEWU's performance is limited or uncertain. An example of this is the sale of Mark Road in Hemel Hempstead, which completed this quarter.  The asset was chosen for disposal due to the risk of significant future capital expenditure and loss of income if the tenant, who had previously not been forthcoming in negotiations, were to leave. The sale achieved a price exceeding the asset's December 2022 valuation by 66%.

Net Asset Value

The Company's unaudited NAV at 31 March 2023 was £167.10 million, or 105.48 pence per share. This reflects an increase of 0.52% compared with the NAV per share at 31 December 2022. The Company's NAV total return, which includes the interim dividend of 2.00 pence per share for the period from 1 October 2022 to 31 December 2022, was 2.42% for the three-month period ended 31 March 2023.

	Pence per share	£ million
NAV at 1 January 2023	104.93	166.24
Gain on sale of investments	0.45	0.72
Portfolio acquisition costs	(0.31)	(0.49)
Capital expenditure	(0.26)	(0.42)
Valuation change in property portfolio	0.89	1.41
Income earned for the period	3.06	4.84
Expenses and net finance costs for the period	(1.28)	(2.03)
Interim dividend paid	(2.00)	(3.17)
NAV at 31 March 2023	105.48	167.10

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards. It incorporates the independent portfolio valuation at 31 March 2023 and income for the period, but does not include a provision for the interim dividend declared for the three-month period to 31 March 2023.

Share price and Discount

The closing ordinary share price at 31 March 2023 was 92.1p, representing a discount to the NAV per share of 12.68%. This reflects a decrease of 9.35% compared with the share price of 101.6p at 31 December 2022. The Company's share price total return, which includes the interim dividend of 2.00 pence per share for the period from 1 October 2022 to 31 December 2022, was -7.38% for the three-month period ended 31 March 2023.

Dividend

Dividend declaration

The Company today announces an interim dividend of 2.00 pence per share for the period from 1 January 2023 to 31 March 2023. The dividend payment will be made on 7 June 2023 to shareholders on the register as at 5 May 2023.  The ex-dividend date will be 4 May 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 17 May 2023.

The dividend of 2.00 pence per share will be designated 1.50 pence per share as an interim property income distribution ("PID") and 0.50 pence per share as an interim ordinary dividend ("non-PID").

The Company has now paid a 2.00 pence quarterly dividend for 30 consecutive quarters¹, providing 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%.

The loan was fully drawn at 31 March 2023, producing a Loan to NAV ratio of 35.91%.

Headroom on the debt facility's loan to value ("LTV") covenant continues to be conservative. For those properties secured under the loan, a 45.45% fall in valuation would be required before the LTV covenant were breached.

Investment Update

During the quarter the Company completed the following investment transactions:

Purchases:

Matalan, Preston (retail warehouse) - in late March, the Company completed the purchase of a freehold solus retail warehousing unit in Bamber Bridge, Preston for £6,450,000, reflecting a low capital value of circa £110 per sq ft and an attractive net initial yield of 9.5%. The 58,696 sq ft unit is single-let to Matalan Retail Limited and has 9.2 years left on the lease. Matalan is known to trade strongly from the location, with the store being one of its top 10 performers, as well as being the retailer's first ever store in the U.K. The lease benefits from a 2027 rent review to the higher of open market value, or 2.5% per annum compounded, resulting in a minimum reversionary yield of 10.7%. The site totals 4.39 acres, providing a low site cover of approximately 30%. It is well located on Cuerden Way which connects to the A6, half a mile from Junction 1 of the M65. Neighbouring tenants include Aldi and Sainsburys to the south, with predominantly industrial uses to the north. There is the potential to repurpose the unit for trade counter or industrial use, and to extend the accommodation, subject to planning, if required in future. In January, Matalan announced the completion of a refinancing, reducing its gross debt by 43% from £593 million to £336 million. The new debt facility will mature in 2027. The refinancing also provides £100 million for business growth over the next three years, with a return to profitability anticipated by Matalan in FY 2024.

Disposals:

Mark Road, Hemel Hempstead (office) - in late March, the Company completed the sale of its office holding, Vantage Point, on Mark Road, Hemel Hempstead for £1,650,000 (circa £92 per sq ft), reflecting an 11.5% net initial yield. The valuation as at 31 December 2022 was £990,000 (circa £55 per sq ft) with the sale price reflecting a 66.6% premium. Due to a deadlock with the main tenant, Trinity Property Group Limited, regarding their future occupation of the building, and the strong likelihood of there being significant capex for refurbishment if they were to vacate, as well as the potential for long-term vacancy, the Company took the decision to mitigate this risk and dispose of the asset.

Clarke Road, Milton Keynes (industrial) - in mid-March, the Company completed the sale of its industrial holding at Clarke Road, Milton Keynes, for £2,750,000 (circa £91 per sq ft), reflecting a 6.3% net initial yield. The 30,262 sq ft industrial unit was acquired in October 2015 for £1,526,000 (circa £50 per sq ft) at a circa 8.3% net initial yield. Since acquisition, the property has been re-let to FMG Repair Services Limited, with a guarantor from Northgate Vehicle Hire, on a 10-year lease, with a five-year tenant break option. By securing a stronger tenant covenant on a longer lease, the sale realises significant profit, exceeding the 31 December 2022 valuation of £2,580,000 by 6.6%.

Asset Management Update

During the quarter the Company completed the following asset management transactions:

Cedar House, Gloucester (office) - The Secretary of State for Communities and Local Government, who occupy the entire 37,753 sq ft office property, have not actioned their 1 April 2023 tenant break option. Consequently, they will remain in occupation for another five years until 2028. Permitted development rights for conversion to 45 residential units was approved in December 2022, meaning there is now the ability to change the use of the building to residential use, without having to submit a full planning application, until December 2025.  

North Moons Industrial Estate, Redditch (industrial) - the August 2022 annual uncapped RPI rent review has been settled at £269,963 per annum, reflecting an £11,445 per annum / 4.43% increase. The 37,992 sq ft property is entirely let to Carrs Coatings Ltd until August 2028.

15-33 Union Street, Bristol (retail) - the Company has completed a two-year lease renewal with VIRR Ltd, trading as Subway, with a landlord rolling break option. The new lease is at the same rent of £32,500 per annum and is outside the Landlord and Tenant Act, with no tenant incentive given. This short-term renewal makes it possible to let the unit along with the neighbouring unit, let to Kemps, whose lease expires in September, later this year.   

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 €84.9bn of assets under management as at 31 December 2022. AEW has over 850 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 December 2022, AEW managed €38.5bn of real estate assets in Europe on behalf of a number of funds and separate accounts. AEW has over 470 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 €21bn 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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