NAV Update and Dividend Declaration

RNS Number : 9882X

AEW UK REIT PLC

28 February 2017

 

28 February 2017

NAV Update and Dividend Declaration for the three months to 31 January 2017

AEW UK REIT plc (LSE: AEWU) ("the Company"), which owns a diversified portfolio of 28 regional UK commercial property assets, announces its quarterly unaudited Net Asset Value ("NAV") and interim dividend for the three month period ended 31 January 2017.

Highlights

·      Fair value independent valuation of the property portfolio increased by £6.19 million to £132.07 million (31 October 2016: £125.88 million), primarily as a result of a new acquisition. On a like-for-like basis the valuation of the property portfolio increased by 0.98% over the quarter.

·      NAV of £118.24 million or 95.62 pence per share (31 October 2016: £118.05 million or 95.47 pps).

·      EPRA earnings per share for the period of 1.81 pence per share (31 October 2016: 2.29 pence per share).

·      Third interim dividend of 2.0 pence per share announced for the quarter ending 31 January 2017.

·      The Company remains conservatively geared with a gross loan to value ratio of 19.4% (31 October 2016: 19.6%) and net loan to value ratio of 16.3% (31 October 2016: 12.1%).[i]

·      Ongoing portfolio and asset management activity during the period including:

o  Acquisition of a 144,000 sq ft logistics warehouse located just off the M606 in Bradford for £4.95 million, reflecting a net initial yield of 8.1%, reversionary yield of 8.9% and a capital value of £34 per sq ft;

o  Disposal of Castlegate Business Park, Salisbury which has now exchanged, with the sale price exceeding both the prevailing valuation level and also the original acquisition price.  This sale will reduce the overall portfolio vacancy level from 9% to 7% when it completes later this month;

o  Rent review settlement agreed at 25% above ERV on unrefurbished office accommodation at Queen Square, Bristol.

 Alex Short, Portfolio Manager, AEW UK REIT, commented: 

"We continue to see resilience across the commercial property market and robust occupier demand in the regions and are encouraged by a slightly more optimistic economic outlook, with the Bank of England raising its GDP forecast for the coming year to 2%.  MSCI data showed that by the end of last year all main sectors had started to regain their falls in valuation, supported by our own valuation growth of nearly 1% over the quarter. 

"We are also pleased by the continued growth of the Company with the issue of new equity during the second half of last year enabling the acquisition of a logistics warehouse located just off the M606 in Bradford, where the tenant has recently committed to a new eight year lease term.  This property benefits from its accessible location, low passing rent of under £3 per sq ft and lack of surrounding supply, which offers the potential for significant rental growth moving forward.

"The strong tenant demand for space across our portfolio is demonstrated at the Company's Bristol Queen Square office, where we have achieved new lettings above valuer's expectations during the past 12 months, resulting in the settlement of a rent review 25% above ERV.  Despite overall vacancy levels across the portfolio increasing very slightly to 9%, this will fall to 7% following the contracted sale of Salisbury later this month.  Further to this, we are encouraged to see that 30% of the remaining vacancy is still under offer and completion of these lettings should have the effect of reducing void levels to c. 5%.

"The part sale of the Company's holding in the AEW UK Core Property Fund completed in early February and we now have capital available for further investment. We continue to focus our origination efforts in locations that exhibit low levels of supply, with a particular focus on industrial premises, which we will look to acquire at prices close to vacant possession value and which will therefore be less vulnerable to capital erosion.  We have a strong pipeline of assets under consideration and look forward to updating the market in respect of further acquisitions and the Core Fund holding in due course, as we continue to focus on delivering investors an attractive level of dividend."

Net Asset Value 

The Company's unaudited NAV as at 31 January 2017 was £118.24 million, or 95.62 pence per share. This reflects an increase of 0.16% per share compared with the NAV as at 31 October 2016, or a NAV total return including the second interim dividend for the period from 1 August 2016 to 31 October 2016 (of 2.0 pence per share), of 2.30%. As at 31 January 2017, the Company owned investment properties with a fair value of £132.07 million. The Company's investment in the Core Fund is valued at £9.40 million and the Company had a cash balance of £2.73 million available for capital investment.

	Pence per share	£ million
NAV at 1 November 2016	95.47	118.05
Portfolio acquisition costs	(0.25)	(0.31)
Capital expenditure	(0.25)	(0.31)
Valuation change in property portfolio	0.81	1.00
Valuation change in AEW UK Core Property Fund	0.05	0.07
Income earned for the period	2.63	3.25
Expenses and net finance costs for the period	(0.82)	(1.01)
Interim dividend paid	(2.00)	(2.47)
Issue of Equity (net of costs) NAV at 31 January 2017	(0.02) 95.62	(0.03) 118.24

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards and incorporates the independent portfolio valuation as at 31 January 2017 and income for the period, but does not include a provision for the interim dividend for the period to 31 January 2017.

The Company received dividends during the period totalling £0.14 million from its investment in the Core Fund.

Dividend

The Company today announces an interim dividend of 2.0 pence per share for the period from 1 November 2016 to 31 January 2017. The dividend payment will be made on 31 March 2017 to shareholders on the register as at 10 March 2017. The ex-dividend date will be 9 March 2017.

The dividend of 2.0 pence per share will be designated 1.35 pence per share as an interim property income distribution ('PID') and 0.65 pence per share as an interim ordinary dividend ('non-PID').

The EPRA earnings per share for this period were 1.81 pence as a result of increased expenses during the period. The Company is looking to sell down its remaining holding in the Core Fund and reinvest the proceeds, together with existing cash holdings, into direct property holdings which it expects to be incremental to income earned. Furthermore, asset management initiatives, including the letting of vacant space are expected to add to the income stream.  The Board of Directors continue to express confidence in the Company's medium to long term ability to meet the 2 pence per quarter target dividend payment once surplus cash funds have been fully invested in income yielding property assets.

Investors should note that this target is for illustrative purposes only, based on current market conditions and is not intended to be, and should not be taken as, a profit forecast or estimate. Actual returns cannot be predicted and may differ materially from this illustrative figure. There can be no assurance that the target will be met or that any dividend or total return will be achieved.

Financing

Equity

The Company's issued share capital consists of 123,647,250 Ordinary Shares.

Debt

As at 31 January 2017, the Company has utilised £27.51 million of its £40 million facility with RBS International, representing a gross loan to value ratio of 19.4%. The loan attracts interest at LIBOR + 1.4%. To mitigate the interest rate risk that arises as a result of entering into a variable rate linked loan, the Company has entered into interest rate caps on £26.51 million of the total balance of the loan at a strike rate of 2.5%, resulting in the loan being 96% hedged.

Portfolio activity and asset management

Euroway, Bradford

In December, the Company announced the acquisition of a c. 144,000 sq ft logistics warehouse in Bradford for £4.95 million, reflecting a Net Initial Yield of 8.1%, reversionary yield of 8.9% and a capital value of £34 per sq ft. The warehouse, which is located on the established Euroway Trading Estate, is let to Advanced Supply Chain on an eight year lease, at a low passing rent of £2.98 per sq ft, providing opportunities for future income growth.  The site is strategically located near Junction 2 of the M606 and is close to the major conurbations of both Leeds (17km) and Manchester (60km), while also providing good access to the M1 servicing Birmingham and London, as well as the A1 north. A number of distribution operators are located on the Euroway Estate, highlighting the strength of the location, including Marks and Spencer, whose 1.1 million sq ft regional distribution warehouse facility is located directly adjacent.

AEW UK Core Property Fund ("Core Fund")

The valuation of AEW UK Core Property Fund ("Core Fund") holding increased to £9.40 million (31 October 2016: £9.33 million). On 1 February 2017, the Company sold 1.68m units (representing 20.9%) of its holding for a consideration of £1.99m. The Company intends to dispose of the remainder of the holding in the near term in order to free up proceeds to invest directly in its strong pipeline of high-yielding properties.

Castlegate Business Park, Salisbury

Following the departure of the previous tenant in September due to a dispute with a neighbouring land owner, the unconditional sale of the property to an owner occupier has now exchanged, with completion due in February.  The sale price of £2.05m will exceed the both current valuation level and also the original acquisition price of the asset.

Queen Square, Bristol

We have obtained an increase in the passing rent at review with the tenant.  The newly agreed rent averages £83,440 pa over the next five years showing a rate of £21.40 per sq ft against an ERV of £17 per sq ft and equating to an uplift of 25% for this unrefurbished space.  We are hopeful that this review will have a positive effect on the ERV level across the building which has seen vacancy decrease from 46% to 20% during the Company's ownership since December 2015.

Valley Retail Park, Belfast

Planning consent has been granted for the development of two restaurant pods within the existing car park fronting Church Road, the main arterial route.  The Company will seek occupiers for the units which would be developed as tenants are found and pre-let agreements put in place ensuring that any development would be accretive to both income and value.  The addition of leisure units to the park would be expected not only to increase overall visitor numbers but improve dwell times on the park, leading to greater potential for rental growth.

Eastpoint Business Park, Oxford

At Meridian House the Company has agreed a lease renewal on a 5,600 sq ft suite with the existing tenant [Carrier Refrigeration].  The new lease provides three years of additional income at a rent of £14.50 psf in line with ERV expectations.

Barnstaple Retail Park, Barnstaple

Major tenant Sports Direct did not exercise its break option in October 2016 and is now contracted to remain in occupation for a further six years until late 2022.

Enquiries
AEW UK
Laura Elkin	[e-mail]
	[phone]
Nicki Gladstone	[e-mail]
	[phone]
Company Secretary
Benjamin Hanley, Capita Company Secretarial Services	[e-mail]
	T: 01392 477 653
FTI Consulting
Richard Sunderland, Claire Turvey, Richard Gotla	[e-mail]
	T: 020 3727 1000

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 £10 million), on shorter occupational leases, in strong commercial locations across the United Kingdom.

Since its IPO in May 2015, AEWU has the Company has invested over £128 million in 28 properties, including £9.75 million in AEW UK's Core Property Fund. It 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 the income stream. Whilst occupational demand in strategic locations remains, securing tenants on shorter leases allows AEWU to crystallise value through rent reviews and lease re‐gears.

AEWU is currently paying a dividend of 8p per share p.a. and targets a total annual return, over the medium term, in excess of 12% on the IPO issue price, net of all fees.

Real estate investment specialist AEW UK Investment Management LLP is a joint venture between the management team, which together has an average of 25 years of real estate experience, and AEW Europe, which has €48.1 billion of real estate assets under management. AEW UK Investment Management LLP has a strong and expert asset management team, with a proven record of identifying and delivering value from real estate assets across all sectors.

 

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[i] Net loan to value is gross loan to value after consideration of cash balances as at 31 January 2017

 

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