NAV Update and Dividend Declaration

AEW UK REIT PLC

14 May 2024

 

14 May 2024

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 31 March 2024 and interim dividend for the three-month period ending 31 March 2024.

Highlights

·    NAV of £162.75 million or 102.73 pence per share as at 31 March 2024 (31 December 2023: £164.02 million or 103.53 pence per share).

·      NAV total return of 1.16% for the quarter (31 December 2023 quarter: -0.44%).

·      0.41% like-for-like valuation increase for the quarter (31 December 2023 quarter: 1.59% decrease).

·      EPRA earnings per share ("EPRA EPS") for the quarter of 1.88 pence (31 December 2023 quarter: 1.83 pence).

·      Interim dividend of 2.00 pence per share for the three months ended 31 March 2024, paid for 34 consecutive quarters and in line with the targeted annual dividend of 8.00 pence per share. 

·      Loan to GAV ratio at the quarter end was 26.21% (31 December 2023: 26.19%). 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 Pricebusters Building, Blackpool, for £2.20 million, equivalent to the previous quarter's valuation.

·      £535,000 per annum of rental income created from three new lettings at Central Six Retail Park, Coventry.

Henry Butt, Assistant Portfolio Manager, AEW UK REIT, commented:

"We are pleased to report higher earnings this quarter, buoyed by the invoicing of Sports Direct's annual turnover rent at Central Six Retail Park, Coventry. After adjusting for this, earnings are consistent with prior quarters, demonstrating that the Company's programme of ongoing asset management initiatives continue to sustain income streams and mitigate void costs. Earnings have also been bolstered by numerous rent reviews settled during the quarter, several new lettings and a lease regear, most notably at the Company's retail warehousing asset in Coventry.

The Company remains cognisant of the fragile economic backdrop and its cumulative effect on occupational markets and, as a result, retains a cautious cash holding, amounting to £11.40 million at quarter end, much of which is held in an interest-bearing bank account. These funds, as well as sales proceeds from the disposal of the Pricebusters Building, have been committed to future asset management initiatives, which continue to progress well and are advancing their related property valuations. In accordance with the Company's strategy of delivering total return through active asset management, these initiatives are expected to drive further capital and income growth in several of the portfolio's assets.

The Company has committed to pay its dividend of 2.00 pence per share this quarter, which we have now paid for 34 consecutive quarters. This has been largely funded by EPRA earnings, supplemented when necessary by profit realised on the NAV accretive sale of assets in prior quarters."

Valuation movement

As at 31 March 2024, the Company owned investment properties with a total fair value of £210.69 million, as assessed by the Company's independent valuer, Knight Frank. The like-for-like valuation increase for the quarter of £0.85 million (0.41%) is broken down as follows by sector:

Sector	Valuation 31 March 2024		Like-for-like valuation movement for the quarter
	£ million	% of portfolio	£ million	%
Industrial	78.72	37.36	1.20	1.55
Retail Warehouses	46.80	22.21	0.85	1.85
High Street Retail	31.70	15.05	0.05	0.16
Other	28.42	13.49	(0.70)	(2.40)
Office	25.05	11.89	(0.55)	(2.15)
Total	210.69	100.00	0.85	0.41*

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

Portfolio Manager's Review

The Company's portfolio saw a like-for-like valuation increase of 0.41% during the quarter, in contrast to a -0.61% decline over the same period for the UK Quarterly MSCI index. Increases in valuation were principally driven by asset management gains at Central Six Retail Park, Coventry, and ERV growth for several of the Company's industrial assets. ERV growth has predominantly been a by-product of a continued lack of affordable competing industrial space for businesses such as our existing tenants.

Quarterly valuation decline in some of the portfolio's assets has primarily been driven by shortening lease lengths and some tenants vacating. Given the Company's investment philosophy of adding value through active asset management, shortening lease lengths and vacancies present opportunities, as lease renewals and new lettings are a means of driving income and adding value. This is particularly relevant for our office holdings in Bath and Bristol where yield softening because of negative sentiment towards the office sector has stabilised somewhat. We continue to have conviction in these two assets, given they are strongly positioned in terms of location and specification for their respective office markets. The Company's nightclub holding in Cardiff saw a more severe valuation decline this quarter following the tenant, CC STIM UK Tradeco 5 Ltd, trading as Circuit, entering administration on 1 February. The tenant is still in occupation, with the administrator paying the same level of rent, while negotiations for an assignment of the lease to a new tenant progress.   

Asset management continues to drive earnings performance, with the Company completing several transactions during the quarter and immediately post quarter-end, most notably at Central Six Retail Park, Coventry. The Company has completed leases with three new tenants, namely Whitecross Dental Care Limited, trading as MyDentist, Iceland Foods Limited, trading as The Food Warehouse and, post-quarter end, Salvation Army Trading Company Ltd. These three lettings provide a combined £535,000 of new rental income per annum. The Company has also concluded a lease regear with existing tenant TJX UK, trading as TK Maxx,  providing a straight ten-year term at a rent of £234,527 per annum.

We are pleased to have sold our retail holding, The Pricebusters Building, Blackpool, for £2.20 million, a price equal to the previous quarter's valuation. The sales proceeds have been allocated to future asset management initiatives, which include three of the portfolio's void units, where prospective lettings at the former Wilko at Union Street, Bristol; the former Mecca Bingo at The Railway Centre, Dewsbury; and the former Sports Direct at Barnstaple Retail Park continue to progress. The re-letting of these units is expected to complete during the second half of this calendar year, further improving income streams and mitigating the incurrence of void costs, albeit with associated tenant incentives suppressing earnings potential over the short term.

Net Asset Value

The Company's unaudited NAV at 31 March 2024 was £162.75 million, or 102.73 pence per share. This reflects a decrease of 0.77% compared with the NAV per share at 31 December 2023. The Company's NAV total return, which includes the interim dividend of 2.00 pence per share for the period from 1 October 2023 to 31 December 2023, was 1.16% for the three-month period ended 31 March 2024.

	Pence per share	£ million
NAV at 1 January 2024	103.53	164.02
Portfolio acquisition and disposal costs	(0.04)	(0.06)
Loss on sale of investments	(0.07)	(0.11)
Capital expenditure	(0.29)	(0.47)
Valuation change in property portfolio	0.18	0.29
Income earned for the period	3.30	5.22
Expenses and net finance costs for the period	(1.42)	(2.25)
Tax provision	(0.46)	(0.72)
Interim dividend paid	(2.00)	(3.17)
NAV at 31 March 2024	102.73	162.75

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards. It incorporates the independent portfolio valuation at 31 March 2024 and income for the period, but does not include a provision for the interim dividend declared for the three-month period to 31 March 2024.

Tax Provision

During the quarter, the Company identified that certain historic dividends had been declared as ordinary dividends when they should have been declared as Property Income Distributions ("PIDs"). A provision for notional withholding tax has therefore been included in shareholder reserves for the losses it may suffer as a result which has reduced the NAV of the Company by £0.72 million (0.46 pps). The Investment Manager has (without admission of liability) agreed to fully indemnify the Company in return for an assignment of any claims the Company has against other parties. However, the benefit of the indemnity is not reflected in this quarter's net asset value, as it was entered into following the quarter-end and, as such, will be reflected in next quarter's net asset value. Due to the Investment Manager agreeing to indemnify the Company, the Company's NAV will not ultimately be impacted. The Board wishes to thank the Investment Manager for addressing this matter satisfactorily on the Company's and shareholders' behalf.

Share price and Discount

The closing ordinary share price at 31 March 2024 was 86.0p, a decrease of 14.85% compared with the share price of 101.0p at 31 December 2023. The closing share price represents a discount to the NAV per share of 16.29%. The Company's share price total return, which includes the interim dividend of 2.00 pence per share for the period from 1 October 2023 to 31 December 2023, was -12.87% for the three-month period ended 31 March 2024.

Dividend

Dividend declaration

The Company today announces an interim dividend of 2.00 pence per share for the period from 1 January 2024 to 31 March 2024. The dividend payment will be made on 14 June 2024 to shareholders on the register as at 24 May 2024. The ex-dividend date will be 23 May 2024. 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 24 May 2024.

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

The Company has now paid a 2.00 pence quarterly dividend for 34 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 31 March 2024, producing a Loan to GAV ratio of 26.21%.

Headroom on the debt facility's loan to value ("LTV") covenant continues to be conservative. For those properties secured under the loan, a 46.69% fall in valuation would be required before the LTV covenant were to be breached.

Investment Update

During the quarter the Company completed the following disposal:

Pricebusters Building, Blackpool (retail) - On 28 March 2024, the Company completed the sale of its holding on Bank Hey Street in Blackpool for £2.20 million. The decision to sell the property, which was sold at the previous quarter's valuation, followed the service of Sports Direct's break notice, creating approximately 70,000 sq. ft. of vacant space within the building's upper parts from the beginning of April. In addition, the building's condition and unconventional layout became challenging for reletting or alternative uses, especially without significant capital expenditure being incurred. The carrying value of the asset had been written down in previous quarters.  

No purchases were made during the quarter.

Asset Management Update

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

Northgate House, Bath (retail) - Having held over since June 2022, the Company completed Oska Ludlow Limited's lease renewal on a 10-year term with a tenant break in year five. The rent agreed is £40,000 per annum. The renewal included a three-month rent-free incentive.

Cambridge House, Bath (office) - Post quarter end, the Company completed a lease with new tenant, ITX UK Ltd, who will utilise the space for retail storage to support the main Zara store within the nearby Southgate Shopping Centre. The tenant entered a new lease expiring in August 2038, with tenant only break options on the expiry of years two, five and eight, at a rent of £60,000 per annum (£16.22 per sq. ft). The letting includes a six-month rent-free incentive.

Westlands Distribution Park, Weston-Super-Mare (industrial) - The Company settled Ford Fuels Ltd's rent review at £27,500 per annum (£46,600 per acre), representing an increase of £13,600 per annum (circa 41%).

London East Leisure Park, Dagenham (leisure) - The Company completed a rent review with The Original Bowling Company Limited, trading as Hollywood Bowl, with effect from September 2022 at £287,922 per annum (£9.38 per sq. ft.), representing an increase of £27,142 per annum (circa 10%).

Central Six Retail Park, Coventry (retail warehousing) - The Company completed a lease with new tenant, Whitecross Dental Care Limited, trading as MyDentist, for vacant Unit 4. The tenant entered a 15-year lease, with a 10-year tenant break option, at a rent of £145,000 per annum (£14.29 per sq. ft.), to be reviewed every five years based on open market value (upward only).

Having exchanged on an agreement for lease in December 2022, the Company subsequently completed the lease with new tenant, Iceland Foods Limited, trading as The Food Warehouse, for Units 6a & 6b (now combined as one unit). The tenant entered a new 11-year lease at a rent of £250,000 per annum, reflecting £16.51 per sq. ft. The letting includes a three-month rent free period and an £812,500 cash incentive.

The Company completed a lease regear with tenant, TJX UK, trading as TK Maxx, for Unit 1. The tenant entered a new lease, providing a term certain until March 2034, at a rent of £234,527 per annum (£16.37 per sq. ft.), which is to be reviewed in September 2029 at open market value, capped at £269,706 per annum. The renewal includes a 12-month rent free incentive, effective from September 2024.

Post quarter end, the Company completed a lease with new tenant, Salvation Army Trading Company Ltd, for Unit 12. The tenant entered a new lease expiring in November 2032, with a tenant only break option in year five, at a rent of £140,000 per annum (£13.97 per sq. ft.). The letting includes a nine-month rent-free incentive.

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

Henry Butt	[e-mail] [phone]
AEW Investor Relations	[e-mail]
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 €79.2bn of assets under management as at 31 December 2023. AEW has over 910 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 2023, AEW managed €37.0bn of real estate assets in Europe on behalf of a number of funds and separate accounts. AEW has over 515 employees based in 11 offices 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 €19.9bn 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, 8 Bishopsgate, London, EC2N 4BQ.
Company number: OC367686 England. Authorised and regulated by the Financial Conduct Authority.

 

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