NAV Update and Dividend Declaration

RNS Number : 9544U

AEW UK Long Lease REIT PLC

18 July 2018

 

AEW UK Long Lease REIT plc ("AEWL" or "the Group")

LEI: 213800MPBIJS12Q88F71

18 July 2018

NAV Update and Dividend Declaration for the quarter ended 30 June 2018

AEW UK Long Lease REIT plc (LSE: AEWL) (the "Group"), which directly owns a diversified portfolio of 16 regional UK commercial property assets, announces its unaudited Net Asset Value ('NAV') and interim dividend for the quarter ended 30 June 2018.

Alex Short, portfolio manager, said: "With an inflation linked income stream and valuation gains we feel good progress is being made by the Group as evidenced by a 4.56% or 4.15 pence per share increase in the NAV this quarter.  In all cases, the price paid for our assets has been well underpinned by our assessment of alternative use or vacant possession value, in line with our view that financial security for our investors must be derived from the fundamental strength of each property, as well as long inflation linked income streams.  We are targeting dividends totalling 5.5 pence per share for the year ending 30 June 2019."

Highlights

·      EPRA earnings per share ("EPRA EPS") for the quarter of 1.25 pence per share (quarter to 31 March 2018: 1.01 pence per share).

·      The Group today declares an interim dividend of 1.25 pence per share for the quarter ended 30 June 2018 bringing the total since IPO to 3.25 pence per share.  This dividend is to be paid on 31 August 2018 to shareholders on the register on 27 July 2018.

·      At 30 June 2018, the fair value independent valuation of the property portfolio was £99.09 million (31 March 2018: £93.46 million), following one acquisition during the quarter which cost £2.2 million (see below).  On a like-for-like basis, the valuation of the property portfolio increased by £3.43 million (3.67%) over the quarter (quarter to 31 March 2018: £0.03 million or 0.04%)

·      Unaudited NAV increased to £76.42 million or 94.94 pence per share (31 March 2018: £73.09 million or 90.79 pence per share), an increase of 4.56%

·      A total of £6.48 million of property acquisition costs have been incurred since the inception of the Group. The main element of these acquisition costs relate to stamp duty, and together with agents, legal and other fees, have led to a total reduction in NAV since IPO of 8.05 pence per share.  These costs are standard for direct property transactions.  This reduction in NAV has now been partly offset by the valuation gains arising since the IPO of £3.59 million (4.47 pence per share).

·      Utilisation of £28.64 million of the £30 million loan facility with Canada Life Investments.  The facility has a fixed cost of 3.05% per annum and is repayable on 20 October 2025.

·      Portfolio activity during the period included the acquisition of 500 Chiswick High Road, Chiswick for £2.2 million on 3 April 2018.  This gymnasium is leased to Snap Fitness for a term of 15 years to expiry with no breaks and provides 5 yearly RPI inflation linked reviews. The transaction reflects a net initial yield of 5.5%.

·      The Investment Manager is currently monitoring a strong pipeline of investment opportunities in excess of £50m.  As announced in April, two assets totalling £3.5 million are under offer for acquisition and these are now expected to complete within the next few weeks following a prolonged due diligence process.  These new acquisitions will provide further diversification to the portfolio.

Portfolio Manager's comment

At the end of our first full year we have paid dividends in line with guidance given at IPO and have now seen some significant valuation gains of 3.67% during Q2 2018. The drop in NAV from the IPO, whilst disappointing, is due to the standard costs of investing in direct property and the set up costs of the Group. All of our underlying properties have either maintained their value or increased in value since purchase given the attraction of long inflation linked leases.  Our stated objective remains the provision of an inflation linked income stream along with long term capital growth in line with inflation. We are confident that our careful asset selection and rigorous approval process will continue to provide that security to our shareholders against a backdrop of a conservative risk profile. Property fundamentals remain a critical part of our investment process to ensure both security of income and long term capital value preservation.

Our aim is to retain this focused approach whilst growing the Group at the appropriate time and we are currently seeing a strong and varied pipeline of opportunities due to the team's extensive network of investment contacts.  As well as providing additional sources of opportunity and diversity to our portfolio, growth would allow the Group to achieve economies of scale on its cost base that will benefit our investors.  We remain optimistic about prospects for growth starting from this initial portfolio of assets which has been evidenced by the accretive valuation growth that we have seen from the portfolio this quarter.  Particular areas of growth within the market have been in the residential care home and industrial sectors where we have seen investment yields moving inward and, given the attractive pricing levels that the Group's assets were acquired at, the Group's assets within these sectors have seen the strongest growth. We firmly consider that the inflation linked income growth offered by this strategy continues to look attractive when compared to income growth expectations across the remainder of most commercial property sectors.

Net Asset Value

The Group's unaudited NAV as at 30 June 2018 was £76.42 million, or 94.94 pence per share.  This reflects an increase of 4.56% per share compared with the NAV as at 31 March 2018.  This increase is largely due to the valuation uplift during the quarter.  As at 30 June 2018, the Group owned 16 investment properties with a fair value of £99.09 million.

	Pence per share	£ million
NAV at 31 March 2018	90.79	73.09
Portfolio acquisition costs	(0.37)	(0.29)
Valuation change in property portfolio	4.27	3.43
Income earned for the period	1.98	1.59
Expenses and net finance costs for the period	(0.73)	(0.59)
Interim dividend paid	(1.00)	(0.81)
NAV at 30 June 2018	94.94	76.42

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards as adopted by the European Union and incorporates the Group's individually valued property portfolio as at 30 June 2018 and income for the quarter, but does not include a provision for the interim dividend for the quarter ended 30 June 2018.

Dividend

The Board has today declared an interim dividend of 1.25 pence per share for the period from 1 April 2018 to 30 June 2018.  The dividend payment will be made on 31 August 2018 to shareholders on the register as at 27 July 2018.  The ex-dividend date will be 26 July 2018.

The dividend of 1.25 pence per share will all be designated as a property income distribution ("PID").

The EPRA EPS for the quarter ended 30 June 2018 was 1.25 pence (quarter ended 31 March 2018: 1.01 pence) and is in line with target earnings for this quarter of 1.25 pence per share as set out in the Group's Prospectus. 

Based on target dividends as set out within the Group's Prospectus, the Board is targeting an aggregate dividend of 5.50 pence per share for the year commencing 1 July 2018. 

Investors should note that any dividend targets are 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.

Debt

As at 30 June 2018, the Group had utilised a total of £28.64 million of its £30 million fixed interest loan facility with Canada Life Investments and at that date was geared at a loan to Gross Asset Value ('GAV') of 28.1 %.  Upon full utilisation of the loan facility, it is anticipated that the loan to GAV will be c.30%.  The facility has a fixed interest cost of 3.05% per annum and is repayable on the 20 October 2025.

Given the strength of its current pipeline of acquisition opportunities, the Investment Manager is currently exploring possibilities to increase modestly its debt on terms that would be accretive to the Group's performance.  The Group's prospectus contains maximum exposure to gearing of 40% of GAV.  

Portfolio Activity

Snap Fitness, Chiswick

In early April, the Group announced the acquisition of a gymnasium in Chiswick, West London, for £2.2 million.  The 5,918 sq ft purpose-built gym is situated over two levels and forms part of a larger residential based development at 500 Chiswick High Road. The asset is held on a virtual freehold basis and is leased to Snap Fitness for a term of 15 years to expiry with no breaks and provides 5 yearly inflation linked reviews. The transaction reflects a net initial yield of 5.5%. 

The property benefits from its location in Chiswick, an affluent London suburb approximately 6 miles west of central London. It is situated on the corner of Chiswick High Road and Chiswick Road, a 5 minute walk from both Chiswick Park and Gunnersbury stations, providing access to both the national rail network and London Underground. The surrounding area comprises a mix of high-end residential and retail accommodation.

Inflation linked rent reviews

91% of the portfolio's income stream is reviewed periodically, on an upward only basis, in line with inflation. Of this inflation linked income, 75% is grown in line with the Retail Price Index and 25% in line with the Consumer Price Index.  We consider this to be a strong position for the Group as the Retail Price Index has shown, on average, a 1% per annum premium over the Consumer Price Index over the past 12 months.

Since acquisition, 21% of the Group's current gross income stream has been reviewed upward in line with inflation according to the lease.  Over the coming 12 month period 36% of the Group's gross income will be reviewed upward in line with inflation, with a further 58% benefitting from inflation linked growth within a 5 year period.

The sector weighting, by value, of the property portfolio as at 30 June 2018 was: Hotels 24.0%; Industrial 20.2%; Car showrooms 14.7%; Student accommodation 11.4%; Residential care homes 11.1%; Leisure 9.6%; Power stations 5.0%; and Petrol stations 4.0%.

The Investment Manager has a further 2 assets under offer totalling £3.5 million and therefore expects to make further announcements about these in the coming weeks.  Following these transactions, the Equity raised at IPO will be fully invested and the Group will have utilised the entirety of its £30m debt facility.

Future publications

The Group's June 2018 Quarterly Investment Report will be available on the Group's website on 27 July 2018.

The Group expects to announce its year-end results for the period ending 30 June 2018 in early September 2018.

About AEW UK Long Lease REIT

AEW UK Long Lease REIT plc (LSE: AEWL) aims to generate secure and predictable income return in sustainable real terms, whilst at least maintaining capital values in real terms.  AEWL invests in a diversified portfolio of UK properties, with an attractive entry yield, predominately in alternative and specialist sectors. It invests in a diverse range of sectors that are underrepresented in institutional portfolios including leisure, healthcare, education, hotels, student accommodation, supported living and automotive. At its IPO on June 6 2017, AEWL raised £80.5m from institutional and retail investors. At least 85% of the gross passing rent from the portfolio's leases contain inflation linked rent reviews, and average initial unexpired leases in excess of 18 years at the time of investment.  AEWL's investment manager is AEW UK Investment Management LLP.  Further information on the AEWL is available at: www.aewukllreit.com

About AEW UK Investment Management LLP

AEW UK Investment Management LLP employs a well-resourced team comprising 24 individuals covering investment, asset management, operations and strategy.  The team have a range of funds and segregated accounts for different UK real estate strategies. It is part of AEW Group, one of the world's largest real estate managers, with €59.3 billion of assets under management as at 31 March 2018. AEW Group comprises AEW SA and AEW Capital Management L.P., a U.S. registered investment manager and their respective subsidiaries. In Europe, as at 31 March 2018, AEW Group managed €29.4 billion in value in properties of all types located in 15 countries, with over 390 staff.

For further information contact:

AEW UK
Alex Short	[e-mail] [phone]
Laura Elkin	[e-mail] [phone]
Nicki Gladstone	[e-mail]
	[phone]
Cenkos Securities plc
Tom Scrivens Sapna Shah Company Secretary Link Company Matters Limited	[phone] [phone] [e-mail] [phone]
TB Cardew	[e-mail]
Ed Orlebar Tom Allison Lucy Featherstone	[phone] [phone] [phone]

 

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