NAV Update and Dividend Declaration

AEW UK REIT PLC

19 October 2023

 

19 October 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 35 UK commercial property assets, announces its unaudited Net Asset Value ("NAV") as at 30 September 2023 and interim dividend for the three-month period ended 30 September 2023.

Highlights

·   NAV of £167.93 million or 106.00 pence per share as at 30 September 2023 (30 June 2023: £169.56 million or 107.03 pence per share).

·      ​NAV total return of 0.91% for the quarter (30 June 2023 quarter: 3.36%).

·      0.70% like-for-like valuation increase for the quarter (30 June 2023 quarter increase: 0.74%).

·      EPRA earnings per share ("EPRA EPS") for the quarter of 1.84 pence (30 June 2023 quarter: 1.75 pence).

·     Interim dividend of 2.00 pence per share for the three months ended 30 September 2023, paid for 32 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 35.73% (30 June 2023: 35.39%).  Loan to GAV ratio at the quarter end was  27.35% (30 June 2023: 30.54%).  Significant headroom remains on all loan covenants.

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

·      Purchase of a car park asset in central York for £10.02 million, reflecting a NIY of 9.3%.

·      Purchase of a mixed-use asset in central Bath for £11.50 million, reflecting a NIY of 8.0%.

·     Post quarter-end disposal of Commercial Road, Portsmouth, for £3.90 million, reflecting a 22% premium to the 30 June 2023 valuation.

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

"We are pleased to report significant progress this quarter towards the Company's strategic objective of reinvesting capital generated from recent sales into higher yielding assets in core urban locations. The purchases of NCP, York, and Cambridge House, Bath, utilised most of the capital available for deployment and have strengthened earnings. Despite the short-term negative impact on NAV of acquisition costs, these purchases are expected to deliver NAV growth over the medium term.

Following the completion of key asset management transactions at a number of the Company's holdings, the Company's portfolio achieved a like-for-like valuation increase of 0.70%, demonstrating the effectiveness of our active asset management strategy in delivering counter cyclical performance.

The Company has committed to pay its market-leading dividend of 2.00 pence per share per quarter for 32 consecutive quarters, funded mainly by EPRA earnings, and supplemented by profit crystallised on the NAV accretive sale of assets, of which the recent Commercial Road disposal is another good example. Further gains in EPS are expected in the coming quarters as the ongoing programme of new lettings should provide a boost to income streams and a reduction in void costs."

Valuation movement

As at 30 September 2023, the Company owned investment properties with a total fair value of £219.36 million, as assessed by the Company's independent valuer, Knight Frank. The like-for-like valuation increase for the quarter of £1.37 million (0.70%) is broken down as follows by sector:

Sector	Valuation 30 September 2023		Like-for-like valuation movement for the quarter
	£ million	% of portfolio	£ million	%
Industrial	78.33	35.71	1.04	1.35
Retail Warehouses	46.25	21.08	1.65	3.70
High Street Retail	38.16	17.40	(1.16)	(2.95)
Other	30.37	13.84	0.35	1.75
Office	26.25	11.97	(0.51)	(3.34)
Total	219.36	100.00	1.37	0.70*

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

Portfolio Manager's Review

This quarter has seen the Company make significant advancements towards achieving full capital deployment through the acquisitions of Tanner Row, York, and Cambridge House, Bath. These purchases demonstrate the effective recycling of proceeds received from the sale of lower yielding assets into higher yielding ones. Critical to these acquisitions were the strong locations of the assets, both of which occupy attractive city centre pitches. Moreover, both assets have robust reversionary potential, each offering yields in excess of 10%, amplifying their potential accretion to earnings over time.

This drive towards increasing earnings was furthered by the Company exchanging on the sale of Commercial Road, Portsmouth, during the quarter. The disposal price of £3,900,000 reflects a notable 22% premium against the valuation preceding exchange.  This disposal was motivated by the deterioration of the asset's location since purchase in 2017, since when the high street retail market has been through considerable structural change. The sale of the asset demonstrates the Company's strategy to, where needed, undertake efficient recycling of capital in to higher-performing pipeline assets. Completion of the sale occurred on 6 October 2023.

Progress on dividend cover was impacted by the demise of Wilko and the closure of its store at the Company's holding in Union Street, Bristol, in early October. The decision has been made to write-off, in full, all historic arrears yet to be provided for, as well as all amounts charged in the quarter, resulting in a 0.22 pence per share deduction to quarterly EPRA EPS. Following the write-off of these historic Wilko arrears, the ongoing constraint to quarterly EPRA EPS caused by its vacant unit will be considerably less. Development of an asset management plan for the unit is underway and the Company is confident it will be able to re-let the unit in the near term, given the attractive location of the store within a vibrant area of a mixed-use development. We will continue to pursue the tenant's arrears using all appropriate means.

We continue to drive performance through a variety of asset management initiatives. At Central Six Retail Park, Coventry, the Company obtained planning permission for the amalgamation of Units 6a and 6b, thus facilitating a letting to The Food Warehouse early next year. This, combined with the post quarter end exchange of agreement for leases with new tenants, Whitecross Dental Care Limited and The Salvation Army, has enhanced the tenant mix and will deliver income growth. Building upon the lettings completed in the prior quarter, a new letting to Warwick Holdings Ltd at Oak Park was completed, meaning this property is now fully let. All of these asset management transactions illustrate the effectiveness of the Company's value-investment principles, despite negative sector-focused macroeconomic headwinds.

The Company's focus for the deployment of capital continues to be on the consideration of further accretive investment opportunities, alongside re-investment into the existing portfolio where capex is needed in order to drive future performance gains.

Net Asset Value

The Company's unaudited NAV at 30 September 2023 was £167.93 million, or 106.00 pence per share. This reflects a decrease of 0.96% compared with the NAV per share at 30 June 2023. The Company's NAV total return, which includes the interim dividend of 2.00 pence per share for the period from 1 April 2023 to 30 June 2023, was 0.91% for the three-month period ended 30 September 2023.

	Pence per share	£ million
NAV at 1 July 2023	107.03	169.56
Portfolio acquisition costs	(1.04)	(1.64)
Capital expenditure	(0.66)	(1.04)
Valuation change in property portfolio	0.83	1.31
Income earned for the period	3.14	4.98
Expenses and net finance costs for the period	(1.30)	(2.07)
Interim dividend paid	(2.00)	(3.17)
NAV at 30 September 2023	106.00	167.93

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

Share price and Discount

The closing ordinary share price at 30 September 2023 was 98.4p. This represents a discount to the NAV per share of 7.17% and an increase of 6.15% compared with the share price of 92.7p at 30 June 2023. The Company's share price total return, which includes the interim dividend of 2.00 pence per share for the period from 1 April 2023 to 30 June 2023, was 8.31% for the three-month period ended 30 September 2023.

Dividend

Dividend declaration

The Company today announces an interim dividend of 2.00 pence per share for the period from 1 July 2023 to 30 September 2023. The dividend payment will be made on 1 December 2023 to shareholders on the register as at 27 October 2023.  The ex-dividend date will be 26 October 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 November 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 32 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 September 2023, producing a Loan to NAV ratio of 35.73%.

Headroom on the debt facility's loan to value ("LTV") covenant continues to be conservative. For those properties secured under the loan, a 48.90% fall in valuation would be required before the LTV covenant were to be breached.

Investment Update

During the quarter the Company completed the following purchases:

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.

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.

Cambridge House, Bath (office) - in early September, the Company completed the acquisition of a freehold, mixed-use asset in Bath city centre for £11,500,000, reflecting an attractive net initial yield of 8.0% and a capital value of £223 per sq ft.

The property comprises a rare freehold island site totalling circa 0.4 acres and is located immediately adjacent to the South Gate Shopping Centre which forms part of the city's core retail provision. Bath Spa Train Station is less than a five-minute walk from the property, with other key tourist attractions such as Bath Cathedral, the Roman Baths and Pulteney Bridge within a short distance.

The 51,632 sq ft asset is multi-let to five tenants across office and retail accommodation. The majority of the building is let to four office tenants at a low average passing rent of circa £22 per sq ft. Income levels are expected to improve via rent reviews in the short-term and through lease renewals and re-lettings over the medium-term. Light refurbishment may also be considered in order to fully capitalise on the building's prime location and prominence. A vacant retail unit, fronting Philip Street and Ham Gardens, is currently under offer to an established local retailer. We expect market conditions to remain favourable in this location given the low level of available and consented supply, coupled with strong demand for well-specified and well-located accommodation.

Post quarter end, the Company completed the following disposal:

Commercial Road, Portsmouth (high-street retail) - earlier in October, the Company completed the sale of its freehold high-street retail holding at 208-220 Commercial Road and 7-13 Crasswell Street, Portsmouth, for £3,900,000, reflecting a net initial yield of 9.9% and a capital value of £251 per sq ft. A sale at this price reflects a circa 22% premium to the 30 June 2023 valuation of £3,200,000.    

Asset Management Update

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

40 Queens Square, Bristol (office) - the Company has recently completed a new five-year ex-Act lease to Environmental Resources Limited with a tenant break option at the end of the third year at a rent of £69,230 per annum (£35 per sq ft). The tenant has the benefit of an initial six-month rent-free period, with a further four months incentive if they do not serve their break option.

Central Six Retail Park, Coventry (retail warehousing) - In September, the Company received formal confirmation of the planning permission for the amalgamation of Unit 6a and Unit 6b and extended delivery hours in order to facilitate the letting to The Food Warehouse.  The letting is expected to complete in February 2024.

Post quarter end, the Company also exchanged an agreement for lease with a new tenant, Salvation Army Trading Company Ltd, for Unit 12. The tenant will enter into a new lease expiring on 2 November 2032 with a tenant only break in year 5 at a rent of £140,000 per annum, reflecting £13.97 per sq ft. The letting includes nine months' rent free. The letting is subject to the landlord securing vacant possession, as the unit is currently occupied by Oak Furnitureland, who are currently paying an annual rent of £25,000, and carrying out Landlord works budgeted at £147,336.

Also, post quarter end, the Company exchanged an agreement for lease with new tenant Whitecross Dental Care Limited, trading as MyDentist, for vacant Unit 4. The tenant will enter into a new 15-year lease with a 10-year tenant break option, at a rent of £145,000 per annum, reflecting £14.29 per sq ft, to be reviewed every five years based on open market value (upward only). The letting includes a £217,500 cash incentive and is subject to the landlord works, at a cost of £237,500.

The Railway Centre, Dewsbury (leisure) - Mecca Bingo, whose lease expires on 24 December 2023, have surrendered their lease early on 29 September 2023, paying all their rent, service charge and insurance to lease expiry. In doing so, the Company has also settled Mecca's dilapidations at £285,000. The full and final combined settlement totals £365,126. The Manager is in the process of agreeing terms with an incoming tenant where landlord enabling works will be required. An early surrender of Mecca's lease will facilitate the new letting completing a quarter earlier than otherwise possible.

Oak Park, Droitwich (industrial) - having completed two new leases in the previous quarter, totalling a rent of £193,000 per annum, the Company has completed a letting at units 272 and 273 to J Warwick Holdings Ltd for a new 15-year term, with rolling tenant break options every three years at a rent of £79,000 per annum. The tenant has the benefit of a six-month rent-free period. The property is now fully let.

Diamond Business Park (industrial) - the Company has settled Compac UK's July 2023 RPI rent review at £53,517 per annum, representing an £11,517 per annum (circa 27%) increase. The unit is still considered under-rented, with an ERV of £4.00 per sq ft, compared to the new passing rent of £3.90 per sq ft.   

The Company has also settled Economy Packaging Ltd's August 2023 open market rent review at £79,065 per annum, representing a £26,565 per annum (circa 50%) increase. This letting equates to £3.75 per sq ft and will provide good evidence for further asset management activity.

Westlands Distribution Park, Weston-Super-Mare (industrial) - the Company has completed a lease renewal with JN Baker who have extended their occupation of Unit 2A for a further two years from April 2023, with a mutual break option exercisable after nine months. The agreed rent is £159,000 per annum inclusive of insurance.

The Company has settled three outstanding April 2022 rent reviews with North Somerset Council at units 2, 5 and 6. The combined rental increase is £35,864 per annum (circa 20%).

Carr Coatings, Redditch (industrial) - the Company has settled Carrs Coatings Ltd's August 2023 annual uncapped RPI rent review at £294,348 per annum (£7.75 per sq ft), representing a £24,385 per annum (circa 9%) increase. The unit is single-let to Carrs Coatings Ltd until August 2028. The lease was entered into as a sale and leaseback in 2008 at an initial starting rent of £170,300 per annum (£4.50 psf).

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 €83.1bn of assets under management as at 30 June 2023. AEW has over 890 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 30 June 2023, AEW managed €39.0bn of real estate assets in Europe on behalf of a number of funds and separate accounts. AEW has over 485 employees based in 10 office 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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