NAV Update and Dividend Declaration

AEW UK REIT PLC

25 January 2024

 

25 January 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 34 UK commercial property assets, announces its unaudited Net Asset Value ("NAV") as at 31 December 2023 and interim dividend for the three-month period ended 31 December 2023.

Highlights

·  NAV of £164.02 million or 103.53 pence per share as at 31 December 2023 (30 September 2023: £167.93 million or 106.00 pence per share).

·      NAV total return of -0.44% for the quarter (30 September 2023 quarter: 0.91%).

·      1.59% like-for-like valuation decrease for the quarter (30 September 2023 quarter: 0.70% increase).

·      EPRA earnings per share ("EPRA EPS") for the quarter of 1.83 pence (30 September 2023 quarter: 1.84 pence).

·    Earnings constrained by 0.28 pence per share due to two tenants entering administration: Wilko at Union Street, Bristol, and CJ Services at Sarus Court, Runcorn.

·    Interim dividend of 2.00 pence per share for the three months ended 31 December 2023, paid for 33 consecutive quarters and in line with the targeted annual dividend of 8.00 pence per share. 

·     Loan to NAV ratio at the quarter end was 36.58% (30 September 2023: 35.73%). 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 Commercial Road, Portsmouth, for £3.90 million.

·      £253,656 of additional income secured from three settled rent reviews, as well as a turnover top-up rent.

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

"We are pleased to report relatively stable earnings for the third consecutive quarter, as the Company's programme of investing capital in high yielding assets in core urban locations, combined with asset management transactions, continues to sustain income streams and mitigate void costs. Earnings have been maintained by several key rent reviews settled during the quarter, most notably at both of the Company's more recently acquired assets in Bath. Upcoming lease events, in particular at Central Six Retail Park in Coventry, should enhance earnings going forward.

EPRA earnings per share have been negatively impacted by 0.28 pence due to two tenants entering administration during the period, without which the Company's dividend would have been fully covered by earnings this quarter. The Company's portfolio saw a like-for-like valuation decrease of 1.59% during the quarter, symptomatic of subdued deal flow in the UK commercial property investment market. Despite our recent asset management achievements, we remain cognisant of the economic backdrop and its cumulative effect on occupational markets.

The Company has committed to pay its market-leading dividend of 2.00 pence per share this quarter, which we have now paid for 33 consecutive quarters. This has been funded largely by EPRA earnings, which continues to be supplemented by profit crystallised on the NAV accretive sale of assets in prior quarters. 

Valuation movement

As at 31 December 2023, the Company owned investment properties with a total fair value of £212.04 million, as assessed by the Company's independent valuer, Knight Frank. The like-for-like valuation decrease for the quarter of £3.42 million (1.59%) is broken down as follows by sector:

Sector	Valuation 31 December 2023		Like-for-like valuation movement for the quarter
	£ million	% of portfolio	£ million	%
Industrial	77.52	36.56	(0.81)	(1.03)
Retail Warehouses	45.95	21.67	(0.30)	(0.65)
High Street Retail	33.85	15.97	(0.41)	(1.20)
Other	29.12	13.73	(1.25)	(6.14)
Office	25.60	12.07	(0.65)	(2.48)
Total	212.04	100.00	(3.42)	(1.59)*

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

Portfolio Manager's Review

Although the Company's portfolio saw a like-for-like valuation decrease of 1.59% during the quarter, this was largely driven by two of the Company's leisure assets, Circuit nightclub in Cardiff and Odeon cinema in Southend, which saw relatively larger valuation falls this quarter as a consequence of the increasing trading pressures associated with the cost-of-living crisis and rises in the price of energy and goods. On 15 January Rekom, the UK holding company of our tenant in Cardiff, announced that it had filed notice of intention to appoint administrators to a number of its companies. Given the recent timing of this announcement, the impact on the Company's asset in Cardiff is yet unknown, however Rekom constituted only 1.6% of the Company's annual contracted rent as at 31 December 2023.

Our industrial holdings, which comprise circa 37% of the portfolio weighting, generally saw yield softening across the board. Valuation declines, however, were mitigated by ERV growth, a biproduct of the strength of the occupational market in this sector. The Company's industrial reversionary yield profile as at 31 December 2023 was 9.39%, compared with an initial yield of 7.82%.   

Equally critical to the earnings performance has been a range of asset management transactions, with the Company settling several rent reviews during the quarter, most significantly at both of its assets in Bath. At Northgate House, the Company settled Bath Northgate House Centre Limited's (The Regus Group) outstanding 2022 rent review at £491,400 per annum, an increase of £96,811 per annum (circa 25%). At Cambridge House, following arbitration, the Company settled Novia Financial plc's outstanding 2021 rent review at £362,400 per annum, an increase of £44,775 per annum (circa 14%). 

Both rent reviews add evidence to the strong reversionary potential of the Company's portfolio. This was further demonstrated by the Company agreeing a £195,505 annual turnover top-up rent for the year to 28 September 2023 for Next in Bromley, in addition to the base rent of £350,000 per annum. This is £85,505 (circa 78%) higher than what was forecast when the property was purchased in November 2022.

Earnings are expected to be bolstered by several upcoming lettings, most notably at Central Six Retail Park, Coventry, where agreements for leases have been signed with: The Food Warehouse (trading as Iceland); Whitecross Dental Ltd (trading as MyDentist); and The Salvation Army Trading Company Ltd. In combination, these lettings are expected to deliver an additional £535,000 of annual contracted rent roll within the next two quarters.

Prospective lettings at three void units: the former Wilko at Union Street, Bristol; the former Mecca Bingo at The Railway Centre, Dewsbury; and the former Sports Direct at Barnstaple Retail Park are advancing well. The re-letting of these units are expected to have completed during the first half of this calendar year, further improving income streams and mitigating the incurrence of void costs, albeit with associated tenant incentives suppressing earnings potential over the short term.

Net Asset Value

The Company's unaudited NAV at 31 December 2023 was £164.02 million, or 103.53 pence per share. This reflects a decrease of 2.33% compared with the NAV per share at 30 September 2023. The Company's NAV total return, which includes the interim dividend of 2.00 pence per share for the period from 1 July 2023 to 30 September 2023, was -0.44% for the three-month period ended 31 December 2023.

	Pence per share	£ million
NAV at 1 October 2023	106.00	167.93
Portfolio acquisition and disposal costs	(0.05)	(0.08)
Capital expenditure	(0.05)	(0.09)
Valuation change in property portfolio	(2.19)	(3.46)
Income earned for the period	3.42	5.42
Expenses and net finance costs for the period	(1.60)	(2.53)
Interim dividend paid	(2.00)	(3.17)
NAV at 31 December 2023	103.53	164.02

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards. It incorporates the independent portfolio valuation at 31 December 2023 and income for the period, but does not include a provision for the interim dividend declared for the three-month period to 31 December 2023.

Share price and Discount

The closing ordinary share price at 31 December 2023 was 101.0p, an increase of 2.64% compared with the share price of 98.4p at 30 September 2023. The closing share price represents a discount to the NAV per share of 2.44%. The Company's share price total return, which includes the interim dividend of 2.00 pence per share for the period from 1 July 2023 to 30 September 2023, was 4.67% for the three-month period ended 31 December 2023.

Dividend

Dividend declaration

The Company today announces an interim dividend of 2.00 pence per share for the period from 1 October 2023 to 31 December 2023. The dividend payment will be made on 1 March 2024 to shareholders on the register as at 2 February 2024.  The ex-dividend date will be 1 February 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 13 February 2024.

The dividend of 2.00 pence per share will be designated 2.00 pence per share as an interim property income distribution ("PID") and 0.00 pence per share as an interim ordinary dividend ("non-PID").

The Company has now paid a 2.00 pence quarterly dividend for 33 consecutive quarters¹, providing high levels of income consistency to our shareholders.

¹For the period 1 November 2017 to 31 December 2017, a pro rata dividend of 1.33 pence per share was paid for this two-month period, following a change in the accounting period end.

Dividend outlook

It remains the Company's intention to continue to pay dividends in line with its dividend policy and this will be kept under review. In determining future dividend payments, regard will be given to the circumstances prevailing at the relevant time, as well as the Company's requirement, as a UK REIT, to distribute at least 90% of its distributable income annually.

Financing

Equity:

The Company's share capital consists of 158,774,746 Ordinary Shares, of which 350,000 are currently held by the Company as treasury shares.

Debt:

The Company has a £60.00 million, five-year term loan facility with AgFe, a leading independent asset manager specialising in debt-based investments. The loan is priced as a fixed rate loan with a total interest cost of 2.959% until May 2027.

The loan was fully drawn at 31 December 2023, producing a Loan to NAV ratio of 36.58%.

Headroom on the debt facility's loan to value ("LTV") covenant continues to be conservative. For those properties secured under the loan, a 46.97% fall in valuation would be required before the LTV covenant were to be breached.

Investment Update

During the quarter the Company completed the following disposal:

Commercial Road, Portsmouth (retail) - in October, the Company completed the sale of its freehold high-street retail holding at 208-220 Commercial Road and 7-13 Crasswell Street, Portsmouth, for £3,900,000, reflecting a net initial yield of 9.9% and a capital value of £251 per sq ft.

No purchases were made during the quarter.

Asset Management Update

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

Northgate House, Bath (retail) - The Company has 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%).

Cambridge House, Bath (office) - Following arbitration, the Company has 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%).

Next, Bromley (retail) - The Company has 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.

Central Six Retail Park, Coventry (retail warehousing) - The Company has exchanged an agreement for lease with a new tenant, Salvation Army Trading Company Ltd, for Unit 12. The tenant will enter into a new lease expiring on 2 November 2032 with a tenant only break in year 5 at a rent of £140,000 per annum, reflecting £13.97 per sq ft. The letting includes nine months' rent free. The letting is subject to the landlord securing vacant possession (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 Company has also exchanged an agreement for lease with new tenant Whitecross Dental Care Limited, trading as MyDentist, for vacant Unit 4. The tenant will enter into a new 15-year lease with a 10-year tenant break option, at a rent of £145,000 per annum, reflecting £14.29 per sq ft, to be reviewed every five years based on open market value (upward only). The letting includes a £217,500 cash incentive and is subject to landlord works at a contract cost of £213,394, plus fees. Post quarter end, the letting subsequently completed.

Diamond Business Park, Wakefield (industrial) - The Company has settled Economy Packaging Ltd's rent review at £79,065 per annum (£3.75 per sq ft), representing an increase of £26,565 per annum (circa 51%).

Glossary of Commonly Used Terms

For assistance with the interpretation of any industry specific terms used in the Company's communications, please refer to our glossary of commonly used terms which can be found on the Company's website in the following location: https://www.aewukreit.com/investors/glossary

AEW UK

Laura Elkin	[e-mail] [phone]
Henry Butt	[e-mail] [phone]
AEW Investor Relations	[e-mail]
Company Secretary
Link Company Matters Limited	[e-mail]
	[phone]
TB Cardew	[e-mail]
Ed Orlebar Tania Wild	[phone] [phone]
Liberum Capital
Darren Vickers / Owen Matthews	[phone]

Notes to Editors

About AEW UK REIT

AEW UK REIT plc (LSE: AEWU) aims to deliver an attractive total return to shareholders by investing predominantly in smaller commercial properties (typically less than £15 million), on shorter occupational leases in strong commercial locations across the United Kingdom. The Company is currently invested in office, retail, industrial and leisure assets, with a focus on active asset management, repositioning the properties and improving the quality of income streams.  AEWU is currently paying an annualised dividend of 8p per share. 

The Company was listed on the Official List of the Financial Conduct Authority and admitted to trading on the Main Market of the London Stock Exchange on 12 May 2015. www.aewukreit.com

LEI: 21380073LDXHV2LP5K50

​About AEW

AEW is one of the world's largest real estate asset managers, with €82.6bn of assets under management as at 30 September 2023. AEW has over 910 employees, with its main offices located in Boston, London, Paris and Hong Kong and offers a wide range of real estate investment products including comingled funds, separate accounts and securities mandates across the full spectrum of investment strategies. AEW represents the real estate asset management platform of Natixis Investment Managers, one of the largest asset managers in the world.

As at 30 September 2023, AEW managed €38.1bn of real estate assets in Europe on behalf of a number of funds and separate accounts. AEW has over 495 employees based in 10 offices across Europe and has a long track record of successfully implementing core, value-add and opportunistic investment strategies on behalf of its clients. In the last five years, AEW has invested and divested a total volume of over €20.9bn of real estate across European markets.

www.aew.com

AEW UK Investment Management LLP is the Investment Manager.  AEW is a group of companies which includes AEW Europe SA and its subsidiaries as well as affiliated company AEW Capital Management, L.P. in North America and its subsidiaries. AEW Europe SA, together with its subsidiaries AEW UK Investment Management LLP, AEW S.à.r.l., AEW Invest GmbH and AEW SAS, is a European real estate investment manager with headquarter offices in Paris and London. AEW Europe SA and AEW Capital Management, L.P. are owned by Natixis Investment Managers. Natixis Investment Managers is an international asset management group based in Paris, France, that is principally owned by Natixis, a French investment banking and financial services firm. Natixis is principally owned by BPCE, France's second largest banking group.

Disclaimer

This communication cannot be relied upon as the basis on which to make a decision to invest in AEWU. This communication does not constitute an invitation or inducement to subscribe to any particular investment. Issued by AEW UK Investment Management LLP, 33 Jermyn Street, London, SW1Y 6DN.
Company number : OC367686 England. Authorised and regulated by the Financial Conduct Authority.

As of 26 February 2024, AEW UK Investment Management LLP's address will be: 8 Bishopsgate, London, EC2N 4BQ

 

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