Annual Financial Report

AEW UK REIT PLC

02 July 2024

 

2 July 2024

AEW UK REIT plc

Announcement of Full Year Results for the year ended 31 March 2024

AEW UK REIT plc (LSE: AEWU) ("AEWU" or the "Company"), which holds a diversified portfolio of 33 commercial property investments throughout the UK, publishes its full year results for the year ended 31 March 2024.

Mark Burton, Chairman of AEW UK REIT plc, commented:

"We are pleased with the performance of the Company over the past year, which has delivered a NAV total return to shareholders of 4.98% and an outperformance against the previous year on all return and earnings metrics, despite the difficult economic backdrop. It is testament to the Manager's value-focused strategy of investing in mispriced properties, where income can be grown and value created through active asset management, which has enabled the Company to continue to pay its market-leading 8p per share dividend for the ninth consecutive year.

During the year, the Manager sold several lower-yielding assets, crystallising asset management gains, and recycled the resulting capital into higher-yielding, earnings-accretive properties. From an asset management perspective, the Manager has completed new leases and rent reviews that have supported the growth of the Company's rental income. We are encouraged by the portfolio's year-end reversionary yield of 8.8%, which exceeds its initial yield of 8.0%, demonstrating that further rental growth can be pursued in the future.  

The outlook for commercial property values is more positive than it has been for the past year, and we believe that the Company is well positioned to continue to add value for shareholders."

Financial Highlights

·      Net Asset Value ('NAV') of £162.75 million and 102.73 pence per share ('pps') as at 31 March 2024 (31 March 2023: £167.10 million and 105.48 pps).

·      NAV Total Return for the period of 4.98% (31 March 2023: -5.93%).

·      Operating profit before fair value changes of £13.36 million for the year (year ended 31 March 2023: £11.10 million).

·      Profit before tax ('PBT')* of £9.09 million and earnings per share ('EPS') of 5.71 pps for the year (year ended 31 March 2023: loss before tax of £11.33 million and EPS of -7.15 pps). PBT includes a £4.35 million loss arising from changes to the fair values of investment properties in the year (year ended 31 March 2023: £30.00 million loss).

·      EPRA Earnings Per Share ('EPRA EPS')* for the year of 7.29 pps (year ended 31 March 2023: 5.70 pps). See page 108 of the full Annual Report for the calculation of EPRA EPS.

·      Total dividends of 8.00 pps declared for the year (year ended 31 March 2023: 8.00 pps), consistently paid since Q1 2016 (34 consecutive quarters).

·      Shareholder total return* for the year of 1.85% (year ended 31 March 2023: -16.44%).

·      The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 85.80 pps as at 31 March 2024 (31 March 2023: 92.10 pps).

·      As at 31 March 2024, the Company had drawn £60.00 million (31 March 2023: £60.00 million) of a £60.00 million (31 March 2023: £60.00 million) term credit facility with AgFe and was geared to 28.97% of GAV (31 March 2023: 28.06%)***.

·      The Company held cash balances totalling £11.40 million as at 31 March 2024 (31 March 2023: £14.32 million).

Property Highlights

·      As at 31 March 2024, the Company's property portfolio had a valuation of £210.69 million across 33 properties (31 March 2023: £213.83 million across 36 properties) as assessed by the Valuer¹ and a historical cost of £214.66 million (31 March 2023: £224.03 million).

·      Over the year, the Company's portfolio delivered outperformance against the MSCI/AREF PFI Balanced Funds Quarterly Property Index of 7.0%. Outperformance of the Company's assets against the benchmark was also seen in each main property sector.

·      The Company won four awards including Citywire investment trust award in the 'UK Property' category for the fourth successive year, as well as winning the 'Property' category at the Investment Week Investment Company of the Year awards.

·      The Company acquired two properties during the year for a total purchase price of £21.52 million, excluding acquisition costs (year ended 31 March 2023: five properties for a purchase price of £32.05 million).

·      The Company made five disposals during the year with total gross sale proceeds of £26.95 million (year ended 31 March 2023: five disposals with total gross sale proceeds of £44.41 million).

·      The portfolio had an EPRA Vacancy Rate** of 6.38% as at 31 March 2024 (31 March 2023: 7.83%).

·      Rental income generated in the year under review was £19.89 million (year ended 31 March 2023: £17.71 million). The number of tenants as at 31 March 2024 was 133 (31 March 2023: 145).

·      EPRA Net Initial Yield ('NIY')** of 8.02% as at 31 March 2024 (31 March 2023: 7.65%).

·      Weighted Average Unexpired Lease Term ('WAULT')* of 4.27 years to break (31 March 2023: 3.05 years) and 5.60 years to expiry (31 March 2023: 4.33 years).

[1] The valuation figure is reconciled to the fair value under IFRS in note 13.

* See KPIs on pages 14 to 16 of the Annual Report for definition of alternative performance measures.

** See Glossary on pages 150 to 153 of the Annual Report for definition of alternative performance measures.

*** See note 16 on pages 118 and 119 of the Annual Report for further details.

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]
Tania Wild Henry Crane	[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.

Chairman's Statement

Overview

The year to 31 March 2024 was a challenging period for the UK economy, which continued to impact the commercial property investment market. The higher interest rate environment has suppressed investor demand, contributing to downward pressure on valuations. This has been exacerbated by low transaction volumes and distressed sales, leading to a lack of evidence on which valuers can base their valuations. Data from Knight Frank suggests that UK commercial property transaction volumes for 2023 were approximately £38.0 billion, a reduction of 38% from £61.3 billion in 2022, and the weakest year since 2011. This culminated in UK commercial property suffering an average decline in capital value of -4.8% during the year, compared to -0.6% experienced by the Company's portfolio. The expectation is for UK commercial property transaction volumes to remain subdued in the short-term ahead of the General Election on 4 July, but to pick up in tandem with the cooling of the inflationary environment and corresponding rate cuts expected later in the calendar year. 

There are, however, already signs of some green shoots, with commercial property yields across the UK Monthly MSCI index stabilising. In March 2024, 61% of MSCI sector yields were stable on a three-month rolling average basis, the highest proportion of stable yields since April 2022. Meanwhile, 16% of net initial yields in the index were compressing in March 2024, the highest level since December 2023, signalling that the bottom of the market may be behind us.

During the year, the Company delivered an annual NAV total return to its shareholders of 4.98%. Considering this testing backdrop, the Company's relative performance is testament to its value-focused strategy of investing in mispriced assets where our Manager believes income can be grown and value created through active asset management, which continues to be the beating heart of the Company's philosophy.

With market participants deliberating on the timing of long-awaited interest rate cuts, share price weakness amongst listed property companies has persisted. The Company's shares traded at an average discount to NAV of 8.6% during the year, compared to the UK diversified REIT peer group average of 28.9%. Although the Company's shares produced a subdued shareholder total return of 1.85% for the year, they traded at the narrowest average discount among the UK diversified REIT peer group. We expect that the Company's long-term track record of NAV outperformance, coupled with its dividend record, will aid its share price recovery once market sentiment improves.

Subdued markets can present opportunities for the Company's actively managed value strategy. During the first half of the year, three industrial assets were sold at levels that maximised their value over the short to medium term. These sales included two assets in Leeds and Bradford, sold as a package for a blended initial yield of 6.2%, at a weighted average premium to purchase price of 31.2%. The Company was subsequently able to recycle the resulting capital from these sales into two assets in Bath and York at an average purchase yield of 8.6%, with both offering reversionary yields greater than 10%. Accessing these quality assets in core urban locations at such favourable pricing demonstrates the Company's ability to crystallise asset management gains via the sale of lower yielding assets and recycling the capital into earnings-accretive, higher yielding ones. Corresponding capital profits have also been used, where necessary, to supplement the Company's market-leading dividend, which has been maintained for 34 consecutive quarters.

During the year, the Company made good progress in rebuilding its income stream. Active asset management resulted in many leasing transactions that have supported earnings through a combination of void cost mitigation and rental income enhancement. Recently, three new lettings at the Company's retail warehousing holding in Coventry have augmented annual rental income by £535,000, contributing to circa 20% year-on-year rental growth for the property. The Company also settled two office rent reviews at each of its mixed-use assets in Bath, increasing annual rental income by £141,586 per annum, thus demonstrating that counter-cyclical growth can be captured in this testing sector. Occupational activity was present across all sectors in the Company's portfolio, evidencing the Investment Manager's conviction in stock selection and highlighting the effectiveness of its active asset management strategy. Quarterly earnings have increased from 1.75pps in financial Q1 2024 to 1.88 pps in financial Q4 2024, resulting in dividend cover for the year of 91%; a significant increase from the 71% cover in FY 2023. This quarterly earnings growth was particularly encouraging, given the increase in the Company's ongoing charges ratio, which arose due to the ongoing inflationary environment and downward pressure on property valuations. The Company's portfolio retains Further income growth potential, as is evidenced by its year end reversionary yield of 8.8% markedly exceeding its initial yield of 8.0%. Further asset management transactions in the coming quarters are expected to assist realisation of this reversionary potential, thereby continuing to improve earnings performance.

Financial Results Summary

	Year ended 31 March 2024	Year ended 31 March 2023
Operating profit before fair value changes (£'000)	13,363	11,096
Operating profit/(loss) (£'000)	10,861	(9,164)
Profit/(loss) before Tax (£'000)	9,090	(11,325)
Earnings / (loss) Per Share (basic and diluted) (pence)*	5.71	(7.15)
EPRA Earnings Per Share (basic and diluted) (pence)*	7.29	5.70
Ongoing Charges (%)	1.60	1.37
Net Asset Value per share (pence)	102.73	105.48
EPRA Net Tangible Assets per share (pence)*	102.73	105.48

* See note 11 of the financial statements in the full Annual Report for calculation.

Financing

The Company had a £60.00 million loan facility, which was fully drawn as at 31 March 2024 (31 March 2023: £60.00 million facility; fully drawn), producing the following measures of gearing:

	Year ended 31 March 2024 %	Year ended 31 March 2023 %
Loan to NAV	36.87	35.91
Gross Loan to GAV	28.97	28.06
Net Loan to GAV (deducts cash balance from the outstanding loan value)	23.47	21.37

Awards

I am delighted that the Company's performance and business practices were recognised in four awards during the year. The Company has once again been awarded by EPRA, the European Public Real Estate Association, a gold medal for its high standard of financial reporting and a silver medal for standards of sustainability reporting. During the year, the Company won the Citywire investment trust award in the 'UK Property' category, an award given to the trust displaying the highest NAV returns over a three-year period. The Company won this award in 2020, 2021 and 2022, so we are thrilled to receive it for a fourth consecutive year. The Company also won the 'Property' category at the Investment Week Investment Company of the Year awards. We are delighted that these awards and nominations recognise the hard work and dedication put into running the Company by both my colleagues on the Board and the Company's Investment Manager, AEW.

ESG+R

AEW, as Investment Manager of the Company, has committed to abide by the UN Principles for Responsible Investment (PRI), where these are consistent with operating guidelines, as outlined in its Socially Responsible Investment Policy. The Investment Manager continually looks to improve its processes relating to environmental, social, governance and resilience (ESG+R) factors in line with sector best practices as they evolve. As a result, within this Annual Report, the Company provides voluntary reporting against the Task Force on Climate-related Financial Disclosures ('TCFD') for the fourth time. In recent periods, the Investment Manager made progress by improving the integration of ESG+R into its investment, asset management and operations processes. The Company continues to undertake greater analysis and scoring of assets at the time of purchase, along with a more comprehensive assessment of the asset's specific climate resilience.

During 2018, AEW established sustainability targets across its managed portfolio which, comprises service charged assets and vacant accommodation, whose utilities the Company operationally controls. These targets include the reduction of Scope 1 and 2 greenhouse gas emissions and waste disposal. As at December 2023, absolute energy usage had reduced by 26.5% and emissions had reduced by 40.8% versus the 2018 baseline. Waste transferred to landfill had reduced to zero within the managed portfolio. We would like to thank the Company's very committed managing agents, Mapp, for their assistance in achieving these improvements. As a result of the Company's accomplishments against these targets, new targets have been set out within this report against current levels of performance that the Company hopes will lead to further improvement in the sustainability of its activities.

GRESB is a global real estate benchmark that assesses Environmental, Social and Governance performance. The Company achieved two stars out of five in its eighth submission year, maintaining its 2022 score to achieve an overall score of 67 out of 100, versus a peer group average of 65. Much of the GRESB score relates to data coverage and due to the high percentage of assets in the Company's portfolio with tenant-procured utilities, the Company does not score as well as peers given its larger holding of multi-let managed assets.

Minimum Energy Efficiency Standards (MEES)

AEW is committed to ensuring compliance with MEES regulations which first came into effect from April 2018, when it became unlawful to grant new leases of commercial property with an EPC of below an 'E' rating. From 1 April 2023, existing leases certified with an 'F' or 'G' rating also became unlawful, even if the lease was granted prior to the MEES Regulations coming into effect.

As at the end of the period, the Company had five units with draft EPC 'G' ratings, with almost all of the Company's assets being MEES compliant. Three of these five draft G-rated units are anticipated to become MEES compliant once M&E works have been undertaken at a non-material cost to the Company. The remaining two units are currently vacant and are therefore not be in breach of MEES or EPC regulations.

To mitigate future MEES risk, the Company will continue to undertake its gap analysis, identifying assets that fall below the MEES regulations, and will either need an improvement plan implemented to achieve an 'E' rating or better, or an exemption lodged, where applicable.

The Company regards its relatively short WAULT (to break and expiry) as an opportunity to proactively engage with its existing tenants at lease events to improve the energy performance of its assets, as well as in the event of a vacancy.

Succession Planning

As announced previously, I am very pleased to have made the appointments of Mr Robin Archibald and Mrs Liz Peace as independent Non-Executive Directors to the Board of the Company, effective 1 October 2023. As part of orderly succession planning, Robin has been appointed as Chairman-elect and will succeed as Chairman of the Board upon my retirement at the Company's 2024 AGM. I am delighted that Robin and Liz have joined the Board as their experience and range of skills will complement and further strengthen the Board. Their collective extensive knowledge and experience in investment companies has already been of great benefit and I am working closely with Robin to ensure a smooth handover in September 2024.

As also previously announced, Mr Bim Sandhu retired from the Board as Chairman of the Audit Committee on 30 September 2023, having reached the end of his nine-year tenure as a Director of the Company. As first announced on 10 November 2022, Mr Mark Kirkland was appointed as Chairman-designate of the Audit Committee and has now succeeded Mr Sandhu as Audit Committee Chairman. On behalf of the Board, I thank Mr Sandhu for his invaluable contribution since IPO of the Company and wish him well for his future endeavours.

Mrs Katrina Hart will assume the role of Chair of JPMorgan UK Small Cap Growth & Income plc with effect from 27 November 2024. As a result of this additional commitment, it is currently anticipated that she will retire as a Non-Executive Director of the Company at the AGM in September 2025.

Outlook

The Board and Investment Manager believe that the Company is both defensively and opportunistically positioned to take advantage of and withstand the current market conditions. We are pleased by the resilience that the portfolio exhibited during a period of uncertainty versus the performance that was achieved across the commercial property market as a whole. We also believe that the Company's investment strategy is well placed to benefit from current market conditions that allow it to be nimble in making cross sector and often counter-cyclical moves that can deliver optimal value to our shareholders.

Earnings performance will be a continued focus over coming quarters. Lettings currently underway at assets such as Union Street, Bristol, and The Railway Centre, Dewsbury, should enhance earnings in the future. There is also the likelihood of continued capital recycling from sales of select lower yielding assets, or properties where asset management initiatives have been concluded, into higher yielding assets which present stronger potential for value and income enhancement.

There has been considerable corporate activity within the listed property sector recently. The Board and Investment Manager will continue to seek out potential opportunities to grow the Company, but it goes without saying that it is paramount that any opportunity explored must be to the benefit of the Company's existing shareholders.

In the near term, the Board and Investment Manager will continue to take a prudent approach towards the management of the Company, given the ongoing economic uncertainty and upcoming General Election. Although the outlook for commercial property values is now more positive than during the previous 12 months, the Investment Manager and the Board will continue to monitor economic conditions closely.

Mark Burton

Chairman

1 July 2024

Investment Manager's Report

Economic Backdrop and Outlook

The UK continues to navigate a challenging economic climate as it recovers from a technical recession in late 2023. The UK recorded two consecutive quarters of negative growth in Q3 and Q4 of last year, being -0.1% and -0.3% respectively. As a result, GDP growth for the whole of 2023 remained subdued at just 0.1%. Nonetheless, economic activity is expected to pick--up in 2024, as demonstrated by recent monthly GDP data. UK GDP rose by 0.2% month-on-month in February 2024, the highest level since September 2023, with increases in February and March 2024. Therefore, Oxford Economics ("OE") projects UK GDP to increase to 0.6% by 2024 year-end.

Despite this modest growth, disinflation in the UK continues largely due to restrictive monetary policy. Headline inflation fell to 3.2% in March 2024, in part owing to recent declines in energy, food and core goods prices. OE projects inflation to fall further to 2.3% by 2024 year-end. Having receded markedly, markets now expect a sharper fall in interest rates. For now, the Bank of England ("BoE") has kept policy rates unchanged at 5.25%, to ensure inflation returns to its 2% target in a timely manner.

The timing of a potential rate cut is highly dependent on developments in the labour market. This is starting to show some signs of cooling, as the unemployment rate continued to rise to 4.4% in the three months to April 2024. This is primarily due to inactivity and a reduction in vacancies. Whilst strong wage growth, a key factor in determining rate cuts, has slightly weakened, the BoE requires a more meaningful decline before lowering rates. A rate cut would strengthen near-term growth prospects and potentially accelerate a recovery in living standards.

Property Market Backdrop and Outlook

The period was dominated by low investment volumes and less pricing transparency, as macroeconomic headwinds and a consolidation of core capital into thematic sectors, such as prime logistics and residential, suppressed commercial valuation movements across all sectors. Whilst we have seen a pause in the hiking of interest rates, with the BoE's base rate reaching 5.25% in August 2023, the expectation is that rates will remain elevated going into the second half of the calendar year. As debt costs start to reduce, this will eliminate a significant barrier to transactional activity, thus encouraging investment volumes to gradually increase, as well as acting as a catalyst for positive valuation movements. In April 2024, UK commercial real estate rental values increased at the all property level. Low levels of development starts in 2023 and 2024 will put downward pressure on vacancy rates in all sectors, and this will in turn deliver further rental growth and a more sustainable story around occupational markets going forwards.

Industrial

Investment volumes are expected to improve throughout 2024, as stabilised values give buyers and sellers more comfort around new price levels. Deal activity growth, however, will continue to be gradual. The equivalent yield hardened slightly in March 2024, by 1bps, to 6.23%. Over the past year, however, yields have softened 26bps, from 5.97% in March 2023.

The Company completed three sales from the sector over the period, with two of them for a blended net initial yield of 6.2%. Where sales yields can be compressed significantly compared to pipeline assets, select recycling of assets took place.

Average rents continue to grow, with the rate of annual growth in the year to March 2024 being 6.9%. Annual rental growth, however, has been slowing since August 2022 when it reached a peak of 13.2%. While the month-on-month growth can be volatile, the monthly MSCI figures so far this year show an acceleration, with 0.26% in January 2024, followed by 0.33% in February 2024 and 0.54% in March 2024. According to the latest Q1 2024 forecasts from RealFor, UK industrial rents are expected to increase by 4.7% this year. This marks an upward revision from their Q4 2023 forecasts when 4.2% rental growth was anticipated. We believe that the Company's industrial portfolio, with an average passing rent of £3.52 per sq. ft., will be well placed to benefit from this trend. The Company's industrial reversionary yield, as of March 2024, is 8.74%, compared with its initial yield of 7.68%.

The vacancy rate continues to soften due to a combination of development completions and second-hand space returning to the market. Preliminary figures point to a vacancy rate of circa 6.4% at the end of Q1 2024, up from 5.5% at the end of last year. However, development completions are slowing, and this will limit any further softening in vacancy.

The industrial sector is the portfolio's largest sector holding, with 37.4% of the valuation. The Company's industrial holding outperformed the Benchmark, both in terms of income return, with a relative outperformance of 3.1%, and capital growth, with a relative outperformance of 4.3%.

Retail

With a surge in inflation and the cost-of-living crisis eating away at consumers' buying power, UK retail sales volumes remained below their 2019 (pre-Covid) levels throughout 2023. Despite this, 2023 annual sales grew a notable 5.1%, surpassing the 10-year average (+3.5%), demonstrating that subdued consumer spending, which was widely anticipated, failed to materialise. Sales figures are continuing to show signs of improvement, a trend that is forecast to accelerate as 2024 progresses. This is illustrated at the Company's high street asset in Bromley, where an annual turnover top-up rent for the year to 28 September 2023 was agreed with Next at circa 78% higher than what was forecast when the property was purchased in November 2022.

The proportion of retail sales conducted online peaked during the pandemic at 37%, with these now having broadly returned to pre-pandemic levels at around 25%. Profit margins are set to remain under pressure in the year ahead, with occupiers encouraging consumers to utilise their physical store network to maximise profitability, which bodes well for the Company's holdings.

Despite Wilko, one of the Company's retail tenants, entering administration in August, the 2023 calendar year saw the lowest number of stores affected by CVA or administration since 2015. This trend, however, was short-lived, with a spate of distress among well-known brands, such as the Body Shop and Ted Baker in Q1 2024. The Company has made good progress in reletting the former Wilko store, with it currently under offer to two prospective leisure tenants.

Retail warehousing won favour from consumers, operators and investors alike, with fundamentals of affordability, adaptability and accessibility driving performance. The vacancy rate improved for the tenth consecutive quarter in Q1 2024 to reach 7.5%. These trends have been mirrored by the Company's holding in Coventry, where a number of asset management transactions completed during the year, and in its immediate aftermath, have taken the property to full occupancy for the first time since its acquisition.

Retail pricing will remain attractive versus other commercial sectors in the year ahead. We believe that the sector offers select investment opportunities where tenant trade is robust and values are underpinned by alternative uses, such as the Company's acquisition of mixed-use (retail and office) Cambridge House in Bath, which completed in September 2023.

Retail represents the portfolio's second largest sector holding, with 37.3% of the valuation. The Company's retail holding outperformed the Benchmark, both in terms of income return, with a relative outperformance of 1.2%, and capital growth, with a relative outperformance of 2.4%.

Office

Excluding London and the South East, prime office yields registered further softening for the majority of UK cities during Q1 2024, with a year-on-year decline between 75bps and 200bps. Pricing, however, is now much closer to buyer and seller expectations, which should improve transaction values moving forward. With a dearth of investment activity and pricing transparency, mispricing continues to be a theme for the sector, which we see as a potential buying opportunity. An example of this is Cambridge House in Bath which the Company bought on 12 September 2023 for an attractive net initial yield of 8.0% and a capital value of £223 per sq. ft. The Manager subsequently settled an outstanding 2021 rent review at £362,400 per annum, representing an increase of £44,775 per annum (circa 14%).

Occupational uncertainty remains across the sector, as businesses continue to transition to new working patterns. Tenants have also become more discerning in recent years, with occupiers now wishing to benefit from strong sustainability credentials, as well as surrounding amenities and top-quality space. This is particularly the case for large corporate tenants, but it is increasingly becoming a key factor for smaller businesses too.

Across the regions, the limited supply of best-quality stock is creating a supply and demand imbalance. Despite the rising occupier preference for new grade A space, it accounted for only 50% of take-up in the first quarter of 2024, in line with the total of 2023, signalling that further development is necessary to meet the current level of occupier demand. Consequently, we have seen prime rental increases in the sector, with this trend expected to continue in 2024.

In March this year, updated Permitted Development Rights came into effect, providing more flexibility to convert office buildings into residential use. The floorspace threshold of 15,000 sq. ft. and the need to demonstrate vacancy for three months prior to making an application have been removed, thereby promoting conversion. This planning change could prove useful in the event of alternative uses being actively pursued.

Offices are the portfolio's smallest sector holding, with 11.9% of the valuation. The Company's office holding outperformed the Benchmark, both in terms of income return, with a relative outperformance of 1.8%, and capital growth, with a relative outperformance of 4.7%.

Alternatives

Across the alternative sectors, such as leisure, hotels and healthcare, visibility of performance in trading updates is key to investor demand. Where these have remained robust, investment volumes have held up, despite the squeeze on consumer discretionary spend and an increase in operating costs, with Q1 2024 volumes higher (£71m) than the five-year quarterly average (£66m), according to RCA data. Prime leisure park yields stood at 8% at the end of the year, with secondary yields as soft as 15%, according to Knight Frank.

Leisure has historically fared relatively defensively during periods of economic uncertainty. Operators carrying unsustainably high levels of debt are seen as a concern.

Many operators remain in a fragile state, but inflation improvements saw operating challenges ease and site closures moderate, giving grounds for cautious optimism heading into 2024. Barclaycard data showed good year-on-year spending growth across the hospitality and leisure segment, predominantly led by bars, pubs and clubs. This is evidenced by the progress that the Company has made in reletting the former Mecca Bingo, Dewsbury, and the former Wilko, Bristol, to three prospective leisure operators.

We find the sector attractive on a selective basis, particularly for assets that offer a superior income return and occupy larger land holdings, or sites in urban areas that can often be underpinned by alternative use values, most likely residential as evidenced by the Company's acquisition of Tanner Row, a mixed-use asset within York city centre for £10.02 million, reflecting an attractive net initial yield of 9.3%.

Alternatives represent the portfolio's second smallest sector holding, with 13.5% of the valuation. The Company's alternative holdings outperformed the Benchmark in terms of income return, with a relative outperformance of 3.3%, but underperformed the benchmark in capital return terms, with a relative underperformance of 1.1%.

Property Portfolio

Investment update

The Company made two property acquisitions during the year:

Tanner Row, York (mixed)

In July 2023, the Company completed the acquisition of Tanner Row, York, a mixed-use asset within York city centre for £10.02 million, reflecting an attractive net initial yield of 9.3%.

The 99,769 sq ft asset is multi-let to five tenants. 74% of the income is received from National Car Parks Ltd ("NCP"), who have occupied the 297-space car park since 2005 and have a further nine years remaining on their lease. The lease benefits from a 2027 rent review which will increase rent payable in line with the Retail Price Index, uncapped, resulting in a forecast reversionary yield in excess of 10%. NCP is one of the UK's largest car park operators with an estate of approximately 189,000 spaces over 642 sites. Another four tenants occupy the ground and first floor retail and office accommodation fronting onto George Hudson Street.

The site totals 0.8 acres and is located inside the York City Wall, bordering the historic centre of the city, within the Micklegate Quarter. It is situated in a prominent corner position on George Hudson Street and Tanner Row, within a ten-minute walk of key visitor attractions, including York Minster, the Yorkshire Museum and the York Dungeon. York's key retail provisions at Coppergate Shopping Centre, Coney Street, Davygate and Parliament Street are all within a seven-minute walk.

Cambridge House, Bath (office)

In September 2023, the Company acquired Cambridge House, Bath, a mixed-use asset in Bath city centre for £11.50 million, 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 across office and retail accommodation. 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. 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.

The Company made four property disposals during the year:

Excel 95, Deeside (industrial)

In May 2023, the Company completed the sale of its industrial holding in Deeside for £4.75 million, reflecting a capital value of circa £49 per sq ft. The vacant asset was sold to an owner-occupier, with the price reflecting an 8.0% premium to the 31 March 2023 valuation. By disposing of the asset, the Company also avoided a speculative refurbishment project costing approximately £1.00 million.

Lockwood Court, Leeds & Euroway Trading Estate, Bradford (industrial)

In June 2023, the Company completed the sale of two industrial assets, being Euroway Trading Estate, Bradford and Lockwood Court, Leeds, for combined proceeds of £16.10 million, reflecting a blended net initial yield (NIY) of 6.2%.

Both sales realised significant profit for the Company's shareholders. For Euroway Trading Estate and Lockwood Court respectively, their sales prices exceeded the most recent valuation prior to going under offer by 17.3% and 9.7%, as well as their acquisition prices by 30.3% and 31.8%.

Commercial Road, Portsmouth (retail)

In October 2023, the Company completed the sale of its freehold high-street retail holding at 208-220 Commercial Road and 7-13 Crasswell Street, Portsmouth, for £3.90 million, reflecting a net initial yield of 9.9% and a capital value of £251 per sq ft. A sale at this price reflected a 21.9% premium to the 30 June 2023 valuation of £3.20 million.

Following the completion of two new lettings to Kokoro and Specsavers, the property was fully let. This, coupled with the risk of the main tenant, Nationwide Building Society, being significantly overrented, prompted the decision to sell. The value of the asset was likely to deteriorate as Nationwide's lease becomes shorter, with the threat of the tenant leaving on expiry in 2029 creating the possibility of a long-term void.

Pricebusters Building, Blackpool (retail)

In March 2023, the Company completed the sale of its holding on Bank Hey Street in Blackpool for £2.20 million, reflecting a net initial yield of 10.3%. The decision to sell the property followed the service of Sports Direct's break notice which is due to create approximately 70,000 sq. ft. of vacant space within the building's upper parts. In addition, the building's condition and unconventional layout became challenging for reletting or alternative uses, especially without significant capital expenditure being incurred.

Asset Management Update

The Company completed the following material asset management transactions during the year:

Central Six Retail Park, Coventry (retail warehousing) - the Company also completed a reversionary lease with existing tenant, Boots UK Limited, for Unit 7. The tenant entered into a new five-year lease with effect from 28 February 2024 at a rent of £259,293 per annum, equating to £14.25 per sq ft. The letting also includes seven and a half months' rent free taken under the existing lease.

The Company completed the acquisition of the freehold interest in units 1-11, which had previously been held by way of long leasehold from Friargate JV Projects Limited. The acquisition of the freehold interest is expected to increase the liquidity of the asset in case of its future sale and also removes user restrictions within the long lease which are constrictive to lettings. In exchange for the freehold interest, the Company granted to Friargate JV Projects an option to acquire the Company's long leasehold interest in units 12 A & B over a five-year period, commencing in two years' time.

The Company completed a new 20-year lease to Aldi Stores Limited, following the completion of the agreement for lease in October 2022. The lease provides an annual rent of £270,166 per annum, reflecting £13 per sq ft, to be reviewed every five years based on compounded annual RPI, collared and capped at 1% and 3% respectively. The lease provides Aldi with a 12-month rent-free incentive and a tenant break option at year 15.

The Company completed a lease with new tenant, Iceland Foods Limited, trading as The Food Warehouse, for Units 6a & 6b (now combined as one unit). The tenant has 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 a £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.

The Company 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 five 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 (now secured), as the unit was occupied by Oak Furnitureland, who were paying an annual rent of £25,000 per annum, and carrying out Landlord works at a contract cost of £79,178, plus fees. The lease completed post year-end.

The Company completed a 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 landlord works at a contract cost of £213,394, plus fees.

Barnstaple Retail Park, Barnstaple (retail warehousing)- the Company completed an eight-year reversionary lease with B&Q from 29 September 2024 at the current passing rent of £348,000 per annum (£9.75 per sq ft). In return, the tenant has been granted a six-month rent-free period.

40 Queens Square, Bristol (office) - the Company settled three outstanding rent reviews at the building dating back to 2021 and 2022 with the following tenants: Leonard Curtis Recovery Limited, Chapman Taylor LLP and Turley Associates. The outcome of the reviews sees the annual rent from the three tenant's increase from £213,812 per annum to £281,550, reflecting a 32% uplift.

The Company also 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.

Arrow Point Retail Park, Shrewsbury (retail warehousing) - the Company completed a three-year lease to Universal Consumer Products Limited at a rent of £110,000 per annum (£8 per sq ft). The previous passing rent was £95,844 (£7 per sq ft). No lease incentive was given.

Oak Park, Droitwich (industrial) - the Company completed a new three-year ex-Act lease on units 266-270 to Roger Dyson at a stepped rent starting at £123,000 per annum in year one, £135,000 per annum in year two and £148,000 per annum in year three. There is a mutual break option on the expiry of the second year. The tenant was granted a one-month rent free period.

The Company also completed a new three-year ex-Act lease to Adam Hewitt Ltd at units 263 and 265 at a rent of £70,000 per annum. There is a tenant break option after the first year. No rent incentive was given.

Lastly, the Company 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, Wakefield (industrial) - the Company completed the settlement of an open market rent review with Tasca Tankers, dating back to June 2022. The review will see the rent received increase from £209,000 to £229,900 per annum, reflecting an uplift of 10%.

The Company 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 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.

Northgate House, Bath (retail) - the Company completed a new five-year ex-Act lease to Dimension Vintage limited at a rent of £40,000 per annum. Four months' rent-free has been granted.

The Company also settled Bath Northgate House Centre Limited's (The Regus Group) outstanding 2022 rent review at £491,400 per annum (£26.98 per sq ft), representing an increase of £96,811 per annum (circa 25%).

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.

The Railway Centre, Dewsbury (leisure) - Mecca Bingo, whose lease expired on 24 December 2023, surrendered their lease early on 29 September 2023, paying all their rent, service charge and insurance to lease expiry. In doing so, the Company settled Mecca's dilapidations at £285,000. The full and final combined settlement totalled £365,126. The Company is in the process of agreeing terms with an incoming tenant where landlord enabling works will be required.

Westlands Distribution Park, Weston-Super-Mare (industrial) - the Company completed a lease renewal with JN Baker who 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%).

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's, 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%).

Carr Coatings, Redditch (industrial) - the Company 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).

Cambridge House, Bath (office) - following arbitration, the Company settled Novia Financial plc's outstanding 2021 rent review at £362,400 per annum (£21.96 per sq ft), representing an increase of £44,775 per annum (circa 14%).

Post year-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.

Next, Bromley (retail) - the Company agreed Next's annual turnover top-up rent for the year to 28 September 2023 at £195,505, in addition to the base rent of £350,000 per annum. This is £85,505 per annum (circa 78%) higher than what was forecast when the property was purchased in November 2022.

Vacancy

As at year-end, the portfolio's overall vacancy was 6.38%.

Financial Results

The Company's NAV as at March 2024 was £162.75 million or 102.73 pps (31 March 2023: £167.10 million or 105.48 pps). This represents a decrease of 2.75 pps or 2.6% over the 12-month period, with the underlying movement in NAV set out in the chart below:

	Pps
NAV as at 1 April 2023	105.48
Change in fair value of investment property	(1.33)
Portfolio acquisition costs	(1.22)
Gain on disposal of investment property	0.97
Income earned for the period	12.91
Expenses and net finance costs for the period	(5.62)
Tax provision	(0.46)
Dividends paid	(8.00)
NAV as at 31 March 2024	102.73

EPRA EPS for the year was 7.29 pence which, based on dividends paid of 8.00 pps, reflects a dividend cover of 91.13%. The increase in dividend cover compared to the prior 12-month period has largely arisen due to the Company recycling proceeds from the sale of lower yielding properties into higher yielding ones. Earnings have also benefitted from numerous asset management initiatives across the portfolio, most notably at Central Six Retail Park, Coventry.

The focus of the Company's investment strategy continues to be building earnings towards full dividend cover. Income across the tenancy profile has remained robust, despite the challenging macroeconomic environment.

Financing

As at 31 March 2024, the Company has a £60.00 million loan Facility with AgFe, in place until May 2027, the details of which are presented below:

	31 March 2024	31 March 2023
Facility	£60.00 million	£60.00 million
Drawn	£60.00 million	£60.00 million
Gearing (Loan to GAV)	28.97%	28.06%
Gearing (Loan to NAV)	36.87%	35.91%
Interest rate	2.959% fixed	2.959% fixed
Notional Value of Loan Balance Hedged	N/A	N/A

Property Portfolio

The following tables illustrate the composition of the portfolio in relation to its properties, tenants and income streams:

Summary by Sector as at 31 March 2024

						Gross passing	Gross passing				Like-for-like	Like-for-like
	Number  of	Valuation	Area	Vacancy by ERV	WAULT to break	rental income	rental income	ERV	ERV	Rental income	rental growth*	rental growth
Sector	assets	(£m)	(sq ft)	(%)	(years)	(£m)	(£psf)	(£m)	(£psf)	(£m)	(£m)	(%)
Industrial	14	78.72	1,881,201	4.21	3.30	6.63	3.52	7.98	4.24	6.94	0.43	6.86
Retail
Warehouse	5	46.80	444,973	9.18	4.09	3.73	8.38	4.38	9.85	4.16	(0.13)	(3.98)
Standard
Retail	6	31.70	243,960	3.52	3.88	3.23	13.24	3.34	13.69	4.33	(0.01)	(0.54)
Alternatives	5	28.42	197,491	0.00	7.10	3.04	15.39	2.48	12.53	2.72	0.04	2.26
Office	3	25.05	125,318	17.49	2.75	2.06	16.49	2.73	21.79	1.74	0.15	14.56
Portfolio	33	210.69	2,892,943	6.38	4.27	18.69	6.46	20.91	7.23	19.89	0.48	3.39

Summary by Geographical Area as at 31 March 2024

								Gross passing	Gross passing				Like-for-like	Like-for-like
			Number			Vacancy	WAULT	rental	rental			Rental	rental	rental
		Geographical	of	Valuation	Area	by ERV	to break	income	income	ERV	ERV	income	growth*	growth
		area	assets	(£m)	(sq ft)	(%)	(years)	(£m)	(£psf)	(£m)	(£psf)	(£m)	(£m)	(%)
		South West	7	56.10	635,587	13.42	3.40	4.53	7.13	6.19	9.74	5.11	0.16	5.25
		West Midlands	5	44.45	605,465	0.00	3.32	4.00	6.62	3.94	6.51	3.92	0.15	3.98
		Yorkshire and	7	32.37	570,563	13.51	4.26	2.87	5.04	3.60	6.31	2.96	0.22	15.38
		Humberside
		Eastern	4	21.07	326,419	0.82	2.79	1.92	5.87	2.05	6.27	1.75	(0.15)	(7.89)
		North West	3	18.05	235,268	0.00	5.47	1.33	5.65	1.69	7.18	1.95	0.04	4.76
		Wales	2	14.40	319,010	0.00	8.98	1.28	4.00	1.29	4.06	1.25	0.00	0.00
		Rest of London	1	10.35	71,720	0.00	7.89	1.00	13.90	0.78	10.94	1.04	0.06	6.12
		South East	2	8.10	74,351	0.00	1.53	1.13	15.27	0.77	10.32	1.30	0.00	0.00
		East Midlands	1	3.70	28,219	0.00	3.16	0.41	14.56	0.38	13.44	0.40	0.00	0.00
		Scotland	1	2.10	26,341	0.00	4.17	0.22	8.26	0.22	8.26	0.21	0.00	0.00
		Portfolio	33	210.69	2,892,943	6.38	4.27	18.69	6.46	20.91	7.23	19.89	0.48	3.39

* Like-for-like rental growth is for the year ended 31 March 2024.
Source: Knight Frank/AEW, 31 March 2024.

Properties by Market Value as at 31 March 2024

Sector weighting by valuation - high industrial weighting and low exposure to offices

Sector	Percentage
Industrial	37%
Offices	12%
Alternative	14%
Standard Retail	15%
Retail Warehouse	22%

Geographical weighting by valuation - highly diversified across the UK

Region	Percentage
Yorkshire and Humberside	15%
South East	4%
Eastern	10%
South West	27%
West Midlands	21%
East Midlands	2%
North West	8%
Wales	7%
Rest of London	5%
Scotland	1%

 

Properties by Market Value as at 31 March 2024

	Property	Sector	Region	Market Value Range (£m)
	Top 10:
1.	Central Six Retail Park, Coventry	Retail warehouses	West Midlands	20.0 - 25.0
2.	Northgate House, Bath	Standard retail	South West	10.0 - 15.0
3.	Gresford Industrial Estate, Wrexham	Industrial	Wales	10.0 - 15.0
4.	Cambridge House, Bath	Offices	South West	10.0 - 15.0
5.	40 Queen Square, Bristol	Offices	South West	10.0 - 15.0
6.	London East Leisure Park, Dagenham	Other	Rest of London	10.0 - 15.0
7.	Tanner Row, York	Other	Yorkshire and Humberside	10.0 - 15.0
8.	Arrow Point Retail Park, Shrewsbury	Retail warehouses	West Midlands	7.5 - 10.0
9.	Apollo Business Park, Basildon	Industrial	Eastern	5.0 - 7.5
10.	Wyndeham, Peterborough	Industrial	Eastern	5.0 - 7.5

The Company's top ten properties listed above comprise 53.1% of the total value of the portfolio.

	Property	Sector	Region	Market Value Range (£m)
11.	15-33 Union Street, Bristol	Standard retail	South West	5.0 - 7.5
12.	Cuerden Way, Preston	Retail warehouses	North West	5.0 - 7.5
13.	Barnstaple Retail Park, Barnstaple	Retail warehouses	South West	5.0 - 7.5
14.	Units 1001-1004, Sarus Court	Industrial	North West	5.0 - 7.5
15.	Mangham Road, Rotherham	Industrial	Yorkshire and Humberside	5.0 - 7.5
16.	Brockhurst Crescent, Walsall	Industrial	West Midlands	5.0 - 7.5
17.	Westlands Distribution Park, Weston Super Mare	Industrial	South West	5.0 - 7.5
18.	Walkers Lane, St Helens	Industrial	North West	5.0 - 7.5
19.	Diamond Business Park, Wakefield	Industrial	Yorkshire and Humberside	5.0 - 7.5
20.	Next, Bromley	Standard retail	South East	5.0 - 7.5
21.	Oak Park, Droitwich	Industrial	West Midlands	< 5.0
22.	710 Brightside Lane, Sheffield	Industrial	Yorkshire and Humberside	< 5.0
23.	Odeon Cinema, Southend	Other	Eastern	< 5.0
24.	Pearl House, Nottingham	Standard retail	East Midlands	< 5.0
25.	The Railway Centre, Dewsbury	Retail warehouses	Yorkshire and Humberside	< 5.0
26.	Cedar House, Gloucester	Offices	South West	< 5.0
27.	Pipps Hall Industrial Estate, Basildon	Industrial	Eastern	< 5.0
27.	Eagle Road, Redditch	Industrial	West Midlands	< 5.0
28.	69-75 Above Bar Street, Southampton	Standard retail	South East	< 5.0
29.	Eagle Road, Redditch	Industrial	West Midlands	< 5.0
30.	Bridge House, Bradford	Industrial	Yorkshire and Humberside	< 5.0
31.	JD Gyms, Glasgow	Other	Scotland	< 5.0
32.	PRYZM, Cardiff	Other	Wales	< 5.0
33.	11/15 Fargate, Sheffield	Standard retail	Yorkshire and Humberside	< 5.0

Top 10 Tenants as at 31 March 2024

					% of Portfolio
	Tenant	Sector	Property	Passing Rental Income (£'000)	Total Passing Rental Income
1.	Plastipak UK Ltd	Industrial	Gresford Industrial Estate, Wrexham	975	5.2
2.	NCP	Car Park	Tanner Row, York	733	3.9
3.	Next	Retail	Various	697	3.7
4.	Matalan Ltd	Retail	Cuerden Way, Preston	651	3.5
		Warehouse
5.	Wyndeham Peterborough Ltd	Industrial	Wyndeham, Peterborough	644	3.4
6.	TJX UK Ltd	Retail	Various	608	3.3
7.	Mecca Bingo Ltd	Leisure	London East Leisure Park, Dagenham	584	3.1
8.	Odeon Cinemas	Leisure	Odeon Cinema, Southend-on-Sea	535	2.9
9.	Bath Northgate House Centre Ltd	Office	Northgate House, Bath	491	2.6
10.   10	Poundland Ltd	Retail	Various	486	2.6

The Company's top ten tenants, listed above, represent 34.8% or the total passing rental income of the portfolio.

Source: Knight Frank valuation report as at 31 March 2024.

ESG Update

The Company has maintained its two stars Global Real Estate Sustainability Benchmark ('GRESB') rating for 2023 and maintained its score of 67. A large portion of the GRESB score relates to performance data coverage, where, due to the high percentage of single-let assets with tenant procured utilities, the Company does not score as well as Funds with a smaller holding of single-let assets and a higher proportion of multi-let managed assets where the owner is responsible for the utilities and can therefore gather the relevant data.

We continue to implement our plan to improve overall data coverage and data collection for all utilities through increased tenant engagement at our single-let assets and by installing automated meter readers ('AMR') across the portfolio. So far, we are in the process of installing AMRs in several of our multi-let properties. We are also in discussions with the tenants of our top ten single-let FRI assets (in terms of floor area) regarding the installation of AMR.

We endeavour, where the opportunity presents itself through a lease event, to include green clauses in leases, covenanting landlord and tenant to collaborate over the environmental performance of the property. Green clauses seek to improve data coverage by ensuring tenants provide regular and appropriate utility consumption data. Alongside this, the Fund has engaged Perse, a third-party provider, who specialises in data collection from tenant controlled and operated assets in the UK by obtaining data from centralised energy administration platforms. This will be key to ensure the maintenance of GRESB data coverage scores and support external reporting.

We continue to assess and strengthen our reporting and alignment against the framework set out by the TCFD, with further disclosure to be provided in the FY 25 Annual Report and accounts. We are pleased to report that the Company has maintained its EPRA Silver rating for Sustainability Best Practice Recommendations (sBPR) for ESG disclosure and transparency.

Each asset within the Company has an individual Asset Sustainability Action Plan (ASAP). This document tracks ESG initiatives across the portfolio on an asset-by-asset basis for targeted/relevant and specific implementation of ESG improvements. All managed assets and units have been contracted to High Quality Green Tariffs, ensuring the electricity supply is from renewable sources. All void and vacant unit supplies have also been transferred to High Quality Green Tariffs.

We have implemented a number of initiatives across our portfolio, including new landscaping/biodiversity programmes at our retail sites in Barnstaple, Coventry and Dewsbury. This included replacing the existing plants and shrubs with a greater diversity of appropriate species, which in turn will attract a wider variety of insects and wildlife to the property. Our work at Barnstaple earned us a Green Apple award, recognising the improvements made to biodiversity of the local area. Furthermore, we are actively engaging with tenants to seek opportunities to decarbonise the portfolio. This includes ongoing conversations regarding the installation of solar PV at Dewsbury.

Alternative Investment Fund Manager ('AIFM')

AEW UK Investment Management LLP is authorised and regulated by the FCA as a full-scope AIFM and provides its services to the Company.

The Company has appointed Langham Hall UK Depositary LLP ('Langham Hall') to act as the depositary to the Company, responsible for cash monitoring, asset verification and oversight of the Company.

Information Disclosures under the AIFM Directive

Under the AIFM Directive, the Company is required to make disclosures in relation to its leverage under the prescribed methodology of the Directive.

Leverage

The AIFM Directive prescribes two methods for evaluating leverage, namely the 'Gross Method' and the 'Commitment Method'. The Company's maximum and actual leverage levels are as per below:

	31 March 2024		31 March 2023
Leverage Exposure	Gross Method	Commitment     Method	Gross    Method	Commitment    Method
Maximum Limit	140%	140%	140%	140%
Actual	130%	137%	127%	136%

In accordance with the AIFM Directive, leverage is expressed as a percentage of the Company's exposure to its NAV and adjusted in line with the prescribed 'Gross' and 'Commitment' methods. The Gross method is representative of the sum of the Company's positions after deducting cash balances and without taking into account any hedging and netting arrangements. The Commitment method is representative of the sum of the Company's positions without deducting cash balances and taking into account any hedging and netting arrangements. For the purposes of evaluating the methods above, the Company's positions primarily reflect its current borrowings and NAV.

Remuneration

The AIFM has adopted a Remuneration Policy which accords with the principles established by AIFMD. AIFMD Remuneration Code Staff includes the members of the AIFM's Management Committee, those performing Control Functions, Department Heads, Risk Takers and other members of staff that exert material influence on the AIFM's risk profile or the AIFs it manages.

Staff are remunerated in accordance with the key principles of the firm's remuneration policy, which include:

(1)   promoting sound risk management;

(2)   supporting sustainable business plans;

(3)   remuneration being linked to non-financial criteria for Control Function staff;

(4)   incentivising staff performance over long periods of time;

(5)   awarding guaranteed variable remuneration only in exceptional circumstances; and

(6)   having an appropriate balance between fixed and variable remuneration.

As required under section 'Fund 3.3.5.R(5)' of the Investment Fund Sourcebook, the following information is provided in respect of remuneration paid by the AIFM to its staff for the year ended to 31 December 2023.

	Year ended 31 December 2023
Total remuneration paid to employees during financial year:
a) remuneration, including, where relevant, any carried interest paid by the AIFM	£9,371,369
b) the number of beneficiaries	82
The aggregate amount of remuneration of the AIFM Remuneration Code staff, broken down by:
a) senior management	£3,214,604
b) members of staff	£6,156,765

	Fixed remuneration	Variable remuneration	Total remuneration
Senior management	£1,788,918	£1,425,686	£3,214,604
Staff	£5,213,543	£943,222	£6,156,765
Total	£7,002,461	£2,368,908	£9,371,369

Fixed remuneration comprises basic salaries and variable remuneration comprises bonuses.

AEW UK Investment Management LLP

1 July 2024

FURTHER INFORMATION

The financial information does not constitute the Company's financial statements for the periods ended 31 March 2024 or 31 March 2023 but is derived from those financial statements. Financial statements for the year ended 31 March 2023 have been delivered to the Registrar of Companies and those for the year ended 31 March 2024 will be delivered following the Company's Annual General Meeting. The auditor's reports on both the 31 March 2023 or 31 March 2024 financial statements were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

AEW UK REIT PLC's annual report and accounts for the year ended 31 March 2024 (which includes the notice of meeting for the Company's AGM) will be available today on www.aewukreit.com.

It will also be submitted shortly in full unedited text to the Financial Conduct Authority's National Storage Mechanism and will be available for inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism in accordance with DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

LEI: 21380073LDXHV2LP5K50

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