TIDMAEWU
RNS Number : 4427G
AEW UK REIT PLC
30 May 2017
30 May 2017
NAV Update and Dividend Declaration for the three months to 30
April 2017
AEW UK REIT plc (LSE: AEWU) ("the Company"), which, as at 30 May
2017, owns a diversified portfolio of 30 direct regional UK
commercial property assets, announces its quarterly unaudited Net
Asset Value ("NAV") and interim dividend for the three month period
ended 30 April 2017.
Highlights
-- Fair value independent valuation of the property portfolio
increased by GBP5.75 million to GBP137.82 million (31 January 2017:
GBP132.07 million), primarily as a result of a new acquisition. On
a like-for-like basis the valuation of the property portfolio
increased by 0.85% over the quarter.
-- NAV of GBP118.68 million or 95.98 pence per share (31 January
2017: GBP118.24 million or 95.62 pence per share).
-- EPRA earnings per share for the period of 1.84 pence per
share (31 January 2017: 1.81 pence per share).
-- Final dividend of 2.0 pence per share announced for the quarter ending 30 April 2017.
-- The Company remains conservatively geared with a gross loan
to value ratio of 19.9% (31 January 2017: 19.4%) and net loan to
value ratio of 17.4% (31 January 2017: 16.3%).[i]
-- Ongoing portfolio and asset management activity during the period including:
o Acquisition of a multi-let industrial unit located in
Basildon, Essex for GBP4.55m reflecting a high Net Initial Yield of
7.8% and a low capital value of GBP66 per sq ft, in line with
vacant possession values. Basildon has seen strong rental
performance over the past 18 months, driven by strong demand and
limited levels of supply;
o Acquisition of a 33,000 sq ft single-let industrial building
located on the established Pipps Hill Industrial Estate in
Basildon, let on a new 10 year lease at a passing rent of GBP6 per
sq ft.
o Simultaneous surrender and letting at Unit 1003 Sarus Court.
The transaction, agreed at GBP5.25 per sq ft, not only increased
the length of income at the unit by three years but was agreed
above ERV and without any void period or loss of income to the
Company;
-- Portfolio activity after the period including:
o Disposal of the Company's remaining units in the AEW UK Core
Property Fund (the "Core Fund") for total proceeds of GBP7.62m. The
Company has held an ownership in the Fund since launch in May 2015
for the purpose of expediting its investment period. The units have
now been sold at a price in excess of the Core Fund's latest
published NAV, and the proceeds will be used for direct
investment;
o Acquisition of one further industrial asset for GBP2 million.
This is the final unit at Sarus Court industrial Estate, following
acquisition of the rest of the estate in 2015. The estate provides
well specified, modern industrial units of between 11,000 and
17,000 sq ft, which are let to a number of light-industrial
occupiers on a WAULT of over 4 years.
Alex Short, Portfolio Manager, AEW UK REIT, commented:
"The sectors, locations and lot sizes that underpin our
investment strategy have continued to perform well this quarter.
The Bank of England's GDP forecast remains unchanged and inflation
has increased slightly over the first quarter in 2017. A general
election has been called for 8 June 2017 and so far the market
remains resilient in terms of both pricing and sentiment.
"For the second quarter in a row MSCI data showed that the
market has started to regain the value it lost in the immediate
aftermath of the Brexit vote, and this is evidenced by our own
valuation growth of nearly 1% over the quarter. MSCI saw the
largest increases in value in the industrial and alternative
sectors where higher yields and attractive lease terms are
available. There have been significant levels of investment in
these sectors over and above the larger central London office
market which saw net outflows and, according to Real Capital
Analytics, transaction values down 10% from their end of 2015
peak.
"The Company's portfolio is reaching maturity following its
initial launch in May 2015. It is now well diversified with 30
direct assets, weighted 25.9% in office, 34.6% retail, 35.4%
industrial and 4.1% in other assets. The properties are
predominantly located in strong regional centres in the UK, and the
Company has paid its 2.0p per quarter dividend, its stated strategy
at IPO, for each of the last five quarters. We have completed the
sale of the Company's holding in the Core Fund and proceeds have
been reallocated to direct property investments. In addition, we
are likely to sell a directly held asset in the forthcoming quarter
where asset management initiatives have added approximately 60% to
its value over the hold period, demonstrating our ability to not
only transact but also extract significant value from value-add
assets.
"In the strong regional centres where we focus the Company's
investment activities we still see robust rental growth, with a
number of asset management deals adding to the Company's rental
income during the quarter. The Company's vacancy rate is currently
7.22% (January 2017: 9.01%), following the sale of Castlegate,
Salisbury, and with a further 12,727 sq ft under offer to let, we
anticipate further reductions in the void rate in the near
future.
"The Company's share price for the quarter has been maintained
at a premium to NAV and the team are focussed on growing the REIT
to take advantage of our attractive investment pipeline and to
provide enhanced liquidity to the Company's shareholders.
"We continue to focus our origination efforts in locations that
exhibit low levels of supply, with a particular focus on industrial
premises, which we will look to acquire at values close to vacant
possession value. We are also selectively considering the retail
and alternative sectors where some opportunities look attractively
priced. We have a strong pipeline of assets under consideration and
look forward to updating the market in respect of further
acquisitions and our growth strategy in due course. We continue to
focus on delivering to investors a sustainable and attractive level
of dividend from a well-diversified regional portfolio."
Net Asset Value
The Company's unaudited NAV as at 30 April 2017 was GBP118.68
million, or 95.98 pence per share. This reflects an increase of
0.38% per share compared with the NAV as at 31 January 2017, or a
NAV total return including the second interim dividend for the
period from 1 November 2016 to 31 January 2017 (of 2.0 pence per
share), of 2.52%. As at 30 April 2017, the Company owned investment
properties with a fair value of GBP137.82 million. The Company's
investment in the Core Fund was valued at GBP7.59 million and the
Company had a cash balance of GBP1.31 million available for capital
investment.
Pence per GBP million
share
NAV at 31 January 2017 95.62 118.24
Portfolio acquisition costs (0.30) (0.37)
Realised loss on sale of investments (0.09) (0.11)
Capital expenditure (0.11) (0.14)
Valuation change in property portfolio 1.08 1.34
Valuation change in AEW UK Core (0.02) (0.03)
Property Fund
Valuation change in derivatives (0.04) (0.05)
Income earned for the period 2.79 3.45
Expenses and net finance costs for
the period (0.95) (1.18)
Interim dividend paid (2.00) (2.47)
NAV at 30 April 2017 95.98 118.68
The NAV attributable to the ordinary shares has been calculated
under International Financial Reporting Standards and incorporates
the independent portfolio valuation as at 30 April 2017 and income
for the period, but does not include a provision for the interim
dividend for the period to 30 April 2017.
The Company received dividends during the period totalling
GBP0.11 million from its investment in the Core Fund.
Dividend
The Company today announces an interim dividend of 2.0 pence per
share for the period from 1 February 2017 to 30 April 2017. The
dividend payment will be made on 30 June 2017 to shareholders on
the register as at 9 June 2017. The ex-dividend date will be 8 June
2017.
The dividend of 2.0 pence per share will be designated 2.0 pence
per share as an interim property income distribution ('PID').
The EPRA earnings per share for this period were 1.84 pence.
At the time of the Company's IPO, the Investment Manager
provided guidance that they would assemble a portfolio supporting a
target dividend between 8 to 9 pence per share. The initial
portfolio has now been assembled enabling the Company to pay a 2
pence per share dividend for each quarter since January 2016. The
Board of Directors are of the view that over the medium term this
level of dividend is supportable from earnings on the current
portfolio; accordingly, the Board has resolved to pay a 2 pence per
share dividend for this quarter, as with previous periods. With
this dividend, the Company will have paid 13.5 pence per share
since launch.
Going forward, we have always stated our desire to grow the
Company, which is currently trading strongly in the market.
Accordingly, subject to market conditions, the Company will look to
raise additional capital during 2017. At the time of any
significant fund raise, the Board will review the level of capital
targeted to be raised and the assets likely to be acquired,
together with the existing assets, activity and market prospects at
the time and may issue further dividend guidance at such time, if
appropriate. The Company will continue to focus its investment in
relative value opportunities offered by pricing inefficiencies in
smaller commercial properties let on shorter occupational
leases.
Investors should note that this target is 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.
Financing
Equity
The Company's issued share capital consists of 123,647,250
Ordinary Shares.
Debt
On 24 April 2017, the Company utilised an additional GBP1.5
million of its loan facility with RBS International, thereby
bringing its drawdowns to GBP29.01 million as at 30 April 2017 and
representing a gross loan to value ratio of 19.9%. The loan
attracts interest at LIBOR + 1.4%. To mitigate the interest rate
risk that arises as a result of entering into a variable rate
linked loan, the Company has entered into interest rate caps on
GBP26.51 million of the total balance of the loan at a strike rate
of 2.5%, resulting in the loan being 91% hedged. On 11 May 2017 the
terms of the loan facility with RBS International were amended from
a GBP40 million to a GBP32.5 million facility. The Investment
Manager and the Company will keep the level of gearing under review
and, if appropriate, will look to increase the facility.
Portfolio activity and asset management
Apollo Business Park, Basildon
In April, the Company announced the acquisition of a c. 69,000
sq ft multi-let industrial building in Basildon, Essex, for GBP4.55
million, reflecting an attractive Net Initial Yield of 7.8% and a
capital value of GBP66 per sq ft.
The warehouse, which is located within the established Cranes
Farm Industrial area, fully let to four tenants, provides a WAULT
of just under four years to lease breaks and six years to expiry.
The current lettings show an average passing rent of GBP5.50 per sq
ft which is significantly below the local market average and as
such, the building presents an opportunity for near-term rental
income uplift through asset management. The site is strategically
located adjacent to the A127, which provides quick vehicular access
to Junction 29 of the M25. Basildon has seen strong rental
performance over the past 18 months, driven by a supply demand
imbalance for single-tenant, well-located industrial units, and as
such, prime and secondary rents in the town now sit at GBP8.50 per
sq ft and GBP6.75 per sq ft respectively.
1 Bentalls, Pipps Hill Industrial Estate, Basildon
In April, the Company acquired a 33,000 sq ft single-let
industrial building located on the established Pipps Hill
Industrial Estate, just off the A127, approximately five miles from
Junction 29 of the M25. The purchase price of GBP2.0 million
reflects an attractive net initial yield of 9.3%, a reversionary
yield of 8.8% and a low capital value of GBP64 per sq ft. The
building will be let on a new 10 year lease to Merson Signs Ltd, at
a passing rent of GBP6 per sq ft. The unbroken 10 year lease will
improve the Company's overall income profile; furthermore we
believe that the acquisition pricing is well supported by the
asset's underlying vacant possession value, limiting any downside
risk.
Unit 1005, Sarus Court, Runcorn
Post quarter end in May, the Company acquired Unit 1005 Sarus
Court which completes the Company's acquisition of the whole of the
Sarus Court industrial estate, where the Company already owned five
of the six units following acquisitions in 2015. The estate
provides well specified, modern industrial units of between 11,000
and 17,000 sq ft, which are let to a number of light-industrial
occupiers on a WAULT of over 4 years. Sarus Court forms part of the
wider Manor Park industrial estate, strategically located to the
west of Runcorn and five kilometres from the Mersey Gateway
Project, a new six lane bridge over the River Mersey connecting the
towns of Runcorn and Widnes and linking the M56 to M62. The project
is due for completion in Autumn 2017.
The newly acquired unit, which is let to Dimension Data until
2020, offers significant reversionary potential, with a passing
rent of GBP4.50 per sq ft which is more than 15% lower than a
recent letting at 1003 Sarus Court secured by AEW UK at GBP5.25 per
sq ft. The purchase therefore not only offers rental upside but
brings the whole estate under the Company's ownership, which will
add value from an estate management perspective.
Post period
AEW UK Core Property Fund ("Core Fund")
In May, the Company announced the sale of its remaining units in
the Core Fund for total proceeds of GBP7.62 million.
The Company has held an ownership in the Core Fund since launch
in May 2015 for the purpose of expediting its investment period and
saw a total return of 13% over the hold period. The units have now
been sold at a price in excess of the Core Fund's latest published
NAV, with the proceeds to fund direct investments in the
portfolio.
Unit 1003, Sarus Court, Runcorn
The Company achieved a simultaneous surrender and letting at
Unit 1003 Sarus Court to a group company of an existing tenant on
the estate. The transaction, agreed at GBP5.25 per sq ft, not only
increased the length of income at the unit by 3 years but was
agreed above ERV of GBP5 per sq ft and without any void period
resulting in loss of income to the Company. The new passing rent is
also 15% ahead of the passing rent at the newly acquired Unit 1005
at Sarus Court providing evidence for future rental growth
here.
Queen Square, Bristol
The Company has secured a letting of over 5,000 sq ft of ground
floor office space on a 10 year lease with a tenant break option at
year five, achieved a rental level that is GBP1.50 per sq ft ahead
of the expected ERV at the time of purchase in December 2015. The
building has demonstrated very robust occupational performance
since acquisition with vacancy levels reduced from 46% at
acquisition to the current level of 5%. This highlights the
strength of both the Bristol office market as a whole, but also the
prime nature of this micro- location, which is much sought after by
financial and professional services occupiers.
Pearl House, Nottingham
The Company received consent for the change of use from office
to 36 residential flats under Permitted Development Rights (PDR) on
the upper floors at Pearl House, Wheeler Gate which is centrally
located within the City and located just a short walk away from the
mainline railway station. The company intends however, to keep the
building in its current use as offices for the foreseeable future
and as such signed a letting of the entire third floor with tenant
The Press Association for 5 years showing a rent of GBP13.78 per sq
ft against an ERV of c GBP12 per sq ft when the property was
acquired in May last year.
Enquiries
AEW UK
Alex Short alex.short@aeweurope.com
+44(0) 20 7016 4848
Nicki Gladstone nicki.gladstone-ext@aeweurope.com
+44(0) 20 7016 4880
Company Secretary
Benjamin Hanley, Capita Company Benjamin.Hanley@capita.co.uk
Secretarial Services
T: 01392 477 653
FTI Consulting
Richard Sunderland, Claire aewuk@fticonsulting.com
Turvey, Richard Gotla
T: 020 3727 1000
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 GBP10 million), on
shorter occupational leases, in strong commercial locations across
the United Kingdom. The Company was listed on the Official List of
the UK Listing Authority and admitted to trading on the Main Market
of the London Stock Exchange on 12 May 2015, raising GBP100.5m.
Since IPO it has raised a further GBP23m.
Since its IPO in May 2015, the Company has invested over GBP146
million in 30 assets. It 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 the income stream. Whilst occupational demand in strategic
locations remains, securing tenants on shorter leases allows AEWU
to crystallise value through rent reviews and lease re--gears.
AEWU is currently paying a dividend of 8p per share p.a. and
targets a total annual return, over the medium term, in excess of
12% on the IPO issue price, net of all fees.
Real estate investment specialist AEW UK Investment Management
LLP is a joint venture between the management team, which together
has an average of 25 years of real estate experience, and AEW
Europe, which has EUR19.1 billion of real estate assets under
management. AEW UK Investment Management LLP has a strong and
expert asset management team, with a proven record of identifying
and delivering value from real estate assets across all
sectors.
[i] Net loan to value is gross loan to value after consideration
of cash balances as at 30 April 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
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