NAV Update and Dividend Declaration

AEW UK REIT PLC

25 July 2024

 

25 July 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 32 UK commercial property assets, announces its unaudited Net Asset Value ("NAV") as at 30 June 2024 and interim dividend for the three-month period ending 30 June 2024.

Highlights

·      NAV of £167.79 million or 105.91 pence per share as at 30 June 2024 (31 March 2024: £162.75 million or 102.73 pence per share).

·      NAV total return of 5.04% for the quarter (31 March 2024 quarter: 1.16%).

·      2.41% like-for-like valuation increase for the quarter (31 March 2024 quarter: 0.41% increase).

·      EPRA earnings per share ("EPRA EPS") for the quarter of 2.26 pence (31 March 2024 quarter: 1.88 pence).

·      Interim dividend of 2.00 pence per share for the three months ended 30 June 2024, paid for 35 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 25.66% (31 March 2024: 26.21%). 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 Oak Park, Droitwich, for £6.30 million, reflecting a 33% premium to the 31 March 2024 valuation.

·      New letting and RPI rent review increasing annual contracted rent by £220,462.

Henry Butt, AEW UK REIT, commented:

"We are pleased to report higher earnings for a second consecutive quarter and a return to growth in NAV per share, as the Company's programme of ongoing asset management initiatives continue to generate income growth and mitigate void costs. Since the June 2023 quarter, quarterly earnings have grown from 1.75 to 1.92 pence on an underlying basis, illustrating the Company's progress towards full dividend cover and evidencing the quality and sustainability of the portfolio. The Company has committed to pay its quarterly dividend of 2.00 pence per share, which has been fully funded by EPRA earnings this quarter and has now been paid for 35 consecutive quarters.

Headline quarterly earnings have been boosted by the invoicing of The Original Bowling Company Limited's (trading as Hollywood Bowl) annual turnover rent at London East Leisure Park, Dagenham, and the reversal of previously recognised void service charge write-offs at Union Street, Bristol. Notwithstanding the earnings enhancement caused by these events, underlying earnings are still higher than the previous quarter. Notable underlying earnings-accretive events completed in the quarter were the letting to Salvation Army at Central Six Retail Park, Coventry, and the settlement of Walstead Peterborough Limited's three-yearly RPI rent review at Storey's Bar Road, Peterborough, which have collectively increased the portfolio's annual contracted rent by £220,462 per annum.

The Company continues to monitor macroeconomic headwinds and their cumulative effect on occupational performance. As a result, the Company continues to retain ample cash, amounting to £9.23 million at quarter end, much of which is held in an interest-bearing bank account. These funds, together with sales proceeds from the post quarter-end disposal of Oak Park, Droitwich, have been committed to future asset management initiatives. These continue to progress well and are advancing their related property valuations, as is evidenced by the current quarter's 2.41% like-for-like valuation increase. 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."

Valuation Movement

As at 30 June 2024, the Company owned investment properties with a total fair value of £215.77 million, as assessed by the Company's independent valuer, Knight Frank. The like-for-like valuation increase for the quarter of £5.08 million (2.41%) is broken down as follows by sector:

Sector	Valuation 30 June 2024		Like-for-like valuation movement for the quarter
	£ million	% of portfolio	£ million	%
Industrial	80.50	37.31	1.78	2.26
Retail Warehouses	49.30	22.85	2.50	5.34
High Street Retail	31.70	14.69	-	-
Other	29.07	13.47	0.65	2.29
Office	25.20	11.68	0.15	0.60
Total	215.77	100.00	5.08	2.41*

* 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 2.41% for the quarter, building on the 0.41% increase recorded for the previous quarter. The valuation increase was partly driven by asset management gains at the Company's retail warehouse parks in Coventry, Dewsbury and Barnstaple, where the sector's like-for-like valuation was up 5.34%. This was further amplified by the exchange of an unconditional sale of the Company's multi-let industrial holding in Droitwich, at a price circa 33% ahead of the 31 March 2024 valuation.

Overall, the Company's valuations have been relatively flat, with yield softening no longer being a generic theme of the UK commercial property market. With the General Election concluded, and a rate cut anticipated later this year, we hope for continued valuation improvements going forward, built on what has been a successful period of asset management for the Company. The sale price achieved for Droitwich is encouraging for the Company's other industrial holdings, where the average book value of £43 per sq. ft. as at 30 June 2024 is relatively low, in comparison to the anticipated replacement cost of approximately £100 per sq. ft. (excluding the price of the land).    

Having acquired Central Six Retail Park, Coventry, with circa 24% vacancy in November 2021, the property is now fully let, with the final letting to Salvation Army completed this quarter. Since acquisition, the asset's annual contracted rent has been grown by circa £478,000 per annum. This is the product of an extended period of active asset management, which has also resulted in a further 9.58% valuation increase this quarter. Other asset management initiatives in the Company's retail warehousing holdings continue to advance well, with the reletting of the former Sports Direct unit at Barnstaple progressing and exchanging on a new 25-year agreement for lease to Tenpin Limited at The Railway Centre, Dewsbury. The billing of Hollywood Bowl's turnover rent at London East leisure park is testament to the current popularity of bowling and the corresponding attractiveness of bowling operators as tenants, with bowling being the market leader for experiential leisure spend in the post-Covid era. This activity continues to highlight the significance of ongoing asset management in bolstering the Company's earnings performance.

Although the high street retail and office sectors have had a quieter quarter, we continue to progress asset management initiatives. The reletting of the former Wilko's at Union Street, Bristol, continues to advance, with the space being subdivided for two incoming leisure tenants. At the Company's office holding on Queens Square, Bristol, the refurbishment of the reception and former space leased by Ramboll is due to commence, with the intention of increasing rents further than reported in previous quarters.

Net Asset Value

The Company's unaudited NAV at 30 June 2024 was £167.79 million, or 105.91 pence per share. This reflects an increase of 3.10% compared with the NAV per share at 31 March 2024. The Company's NAV total return, which includes the interim dividend of 2.00 pence per share for the period from 1 January 2024 to 31 March 2024, was 5.04% for the three-month period ended 30 June 2024.

	Pence per share	£ million
NAV at 1 April 2024	102.73	162.75
Capital expenditure	(0.17)	(0.28)
Valuation change in property portfolio	3.08	4.90
Income earned for the period	3.30	5.22
Expenses and net finance costs for the period	(1.03)	(1.63)
Interim dividend paid	(2.00)	(3.17)
NAV at 30 June 2024	105.91	167.79

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards. It incorporates the independent portfolio valuation at 30 June 2024 and income for the period, but does not include a provision for the interim dividend declared for the three-month period to 30 June 2024.

Tax Provision Update

As was detailed in the previous NAV update, 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 was therefore included in shareholder reserves as at 31 March 2024. The Investment Manager has (without admission of liability) agreed to fully indemnify the Company. It was detailed in the previous NAV update that the benefit of the indemnity would be reflected in this quarter's net asset value, however, it is now expected that the indemnity will be recognised in a subsequent quarter when the amount payable has been finalised.   

Share Price and Discount

The closing ordinary share price at 30 June 2024 was 85.3p, a decrease of 0.81% compared with the share price of 86.0p at 31 March 2024. The closing share price represents a discount to the NAV per share of 19.46%. The Company's share price total return, which includes the interim dividend of 2.00 pence per share for the period from 1 January 2024 to 31 March 2024, was 1.75% for the three-month period ended 30 June 2024.

Dividend

Dividend declaration

The Company today announces an interim dividend of 2.00 pence per share for the period from 1 April 2024 to 30 June 2024. The dividend payment will be made on 23 August 2024 to shareholders on the register as at 2 August 2024. The ex-dividend date will be 1 August 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 9 August 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 35 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 financial 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 2024, producing a Loan to GAV ratio of 25.66%.

Headroom on the debt facility's loan to value ("LTV") covenant continues to be conservative. For those properties secured under the loan, a 48.05% fall in valuation would be required before the LTV covenant were to be breached.

Investment Update

Oak Park Industrial Estate, Droitwich (industrial) - On 21 May 2024, the Company exchanged on the sale of Oak Park Industrial Estate for £6.30 million, reflecting a net initial yield of 7.95% and a capital value of £33 per sq. ft. Sale completion occurred post quarter-end on 24 July 2024. A sale at this price represents a circa 33% premium to the 31 March 2024 valuation.    

Following three new lettings, which added £272,000 of annual rental income, the property is fully let. The business plan put in place for the property has been completed, and the decision was made to sell the asset as we believe that value over the medium term has been maximised.

The industrial estate was bought in December 2015 for £5,625,000, reflecting a 10.4% net initial yield and a capital value of £30 per sq. ft. The estate was originally single let to Egbert H Taylor & Co Limited (trading as Taylor Bins), a strong tenant covenant with a WAULT to expiry of approximately seven years. The tenant has since downsized on the estate.

No purchases were made by the Company during the quarter.

Asset Management Update

The Company completed and exchanged on the following asset management transactions during the quarter:

Central Six Retail Park, Coventry (retail warehousing) - 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.

The Railway Centre, Dewsbury (retail warehouse) - The Company exchanged an agreement for lease with leisure operator, Tenpin Limited, to take a new 25-year lease of the former Mecca Bingo space. The lease will be guaranteed for the duration of the term by Tenpin Entertainment Limited, previously Ten Entertainment Group plc who in February 2024 was acquired by US private equity firm, Trive Capital, for £287 million. The lease has a tenant break option in year 17.5, at a rent of £278,470 per annum (£10 per sq. ft.), with five-yearly compounded CPI reviews (1% collar and 3% cap). A £500,000 capital contribution was given as a tenant incentive, with the Company carrying out £590,000 of landlord works (£305,000 net of the Mecca dilapidations settlement). The agreement for lease is subject to planning, which was granted in June, as well as a licencing agreement and landlord works, which are due to complete early in the autumn when the lease should also complete. Tenpin comprises 53 venues across the UK and provides customers with a diverse range of activities including bowling, video arcades, escape rooms, karaoke, laser tag, pool, table tennis, and soft play.

The Company also settled Jysk Limited's August 2021 open market rent review at an increase of £5,428 per annum. The new rent of £70,000 per annum equates to £6.50 per sq. ft.

Storey's Bar, Peterborough (industrial) - The Company settled Walstead Peterborough Limited's three-yearly RPI rent review (2% collar and 4% cap) at £724,861 per annum (£3.94 per sq. ft.), an £80,462 per annum (12.5%) increase on the previous passing rent of £644,399 per annum (£3.50 per sq. ft.). Despite this notable uplift, the single-let industrial unit is still considered under-rented with an ERV greater than £4.00 per sq. ft.

London East Leisure Park, Dagenham (leisure) - Following a protracted exchange of correspondence with The Original Bowling Company Limited (trading as Hollywood Bowl), three years of turnover rent has been billed for 2021, 2022 and 2023 equating to £276,120 (£92,040 per annum).

Pearl House, Nottingham (retail) - The Company completed a lease renewal with MSR Newsgroup, whose lease expired in December 2023. A five-year lease extension was agreed with no incentive at £14,000 per annum, versus an ERV of £12,250 per annum.

Westlands Distribution Park, Weston-Super-Mare (industrial) - The Company completed a lease renewal with a gym operator, The Hench Fish Ltd, at Unit 3. A three-year lease extension was agreed with mutual break options in the first and second year. The new rent agreed is £15,500 per annum, an uplift of £5,500 per annum (55%) on the previous passing rent of £10,000 per annum.

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]
TB Cardew	[e-mail]
Ed Orlebar Tania Wild Henry Crane	[phone] [phone] [phone]
Panmure Liberum
Darren Vickers	[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 €78.8bn of assets under management as at 31 March 2024. AEW has over 920 employees, with its main offices located in Boston, London, Paris and Singapore 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 2024, AEW managed €37.2bn of real estate assets in Europe on behalf of a number of strategies and separate accounts. AEW has over 515 employees based in 11 offices across Europe and has a long track record of 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 €18.5bn 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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