TIDMAEWU
RNS Number : 7095P
AEW UK REIT PLC
22 June 2022
AEW UK REIT PLC
Announcement of Full Year Results for the year ended 31 March
2022
AEW UK REIT plc (the 'Company'), which holds a diversified
portfolio of 36 commercial investment properties throughout the UK,
is pleased to publish its full year results for the year ended 31
March 2022.
Mark Burton, Chairman of AEW UK REIT plc, commented :
"We are delighted with the Company's performance over the past
twelve months, which has delivered strong share price total returns
for the year of 53.61% to investors. NAV total returns, which
increased to 29.73%, were the highest recorded by any of the UK's
diversified REITs. These returns have been driven partly by the
removal of pandemic restrictions but also by our Investment
Manager's strategy which combines defensive positioning,
identifying assets with shorter unexpired lease terms that are
often mispriced and active asset management of the portfolio. We
are also pleased the Company has continued to pay its full 8.00p
per share annual dividend for the sixth consecutive year and that
our strong performance has been recognised by industry awards that
also acknowledge the hard work and dedication of the whole AEW UK
REIT team."
Financial Highlights
-- Net Asset Value ('NAV') of GBP191.10 million and 120.63 pence
per share ('pps') as at 31 March 2022 (31 March 2021: GBP157.08
million and 99.15 pps).
-- Operating profit before fair value changes of GBP11.75
million for the year (year ended 31 March 2021: GBP10.73
million).
-- Profit before tax ('PBT')* of GBP46.70 million and earnings
per share ('EPS') of 29.47 pps for the year (year ended 31 March
2021: GBP22.17 million and 13.98 pps).
-- EPRA Earnings Per Share ('EPRA EPS')* for the year of 6.79
pps (year ended 31 March 2021: 6.19 pps). See note 10 in the full
Annual Report for the calculation of EPRA EPS.
-- Total dividends of 8.00 pps declared for the year (year ended
31 March 2021: 8.00 pps).
-- Shareholder total return* for the year of 53.61% (year ended
31 March 2021: 33.72%).
-- The price of the Company's Ordinary Shares on the Main Market
of the London Stock Exchange was 119.80 pps as at 31 March 2022 (31
March 2021: 83.20 pps).
-- As at 31 March 2022, the Company had drawn GBP54.00 million
(31 March 2021: GBP39.50 million) of a GBP60.00 million (31 March
2021: GBP60.00 million) term credit facility with the Royal Bank of
Scotland International Limited ('RBSi') and was geared to 28.26% of
NAV (31 March 2021: 25.15%) (see note 15 in the full Annual Report
for further details).
-- The Company held cash balances totalling GBP6.77 million as
at 31 March 2022 (31 March 2021: GBP17.45 million).
Property Highlights
-- As at 31 March 2022, the Company's property portfolio had a
valuation of GBP240.18 million across 36 properties (31 March 2021:
GBP179.00 million across 34 properties) as assessed by the
Valuer(1) and a historical cost of GBP207.96 million (31 March
2021: GBP173.28 million).
-- The Company acquired four properties during the year for a
total purchase price of GBP38.23 million, excluding acquisition
costs (year ended 31 March 2021: one property for a purchase price
of GBP5.40 million).
-- The Company made two disposals during the year with total
gross sale proceeds of GBP16.71 million (year ended 31 March 2021:
two disposals with total gross sale proceeds of GBP29.30
million).
-- The portfolio had an EPRA Vacancy Rate** of 10.69% as at 31
March 2022 (31 March 2021: 8.96%). Excluding vacancy contributed by
Bath Street, Glasgow, which was exchanged to be sold with the
condition of vacant possession, the vacancy rate was 5.42% (31
March 2021: 5.58%).
-- Rental income generated in the year under review was GBP15.92
million (year ended 31 March 2021: GBP15.71 million). The number of
tenants as at 31 March 2022 was 131 (31 March 2021: 99).
-- EPRA Net Initial Yield ('NIY')** of 5.87% as at 31 March 2022
(31 March 2021: 7.37%).
-- Weighted Average Unexpired Lease Term ('WAULT')* of 3.94
years to break (31 March 2021: 4.43 years) and 5.78 years to expiry
(31 March 2021: 6.71 years).
-- The Company has achieved very high rent collection levels,
which stand at over 98% for each quarter since March 2020
(excluding current quarter where rent continues to be
collected).
* See KPIs in the full Annual Report for definition of
alternative performance measures.
** See Glossary in the full Annual Report for definition of
alternative performance measures.
(1) The valuation figure is reconciled to the fair value under
IFRS in note 12 in the full Annual Report.
Enquiries
AEW UK
L aura Elkin Laura.Elkin@eu.aew.com
Nicki Gladstone Nicki.Gladstone-ext@eu.aew.com
+44(0) 771 140 1021
Liberum Capital Darren.Vickers@liberum.com
Darren Vickers +44 (0)20 3100 2218
TB Cardew AEW@tbcardew.com
Ed Orlebar +44(0) 7738 724 630
Tania Wild +44(0) 7425 536 903
Lucas Bramwell +44(0) 7939 694 437
Chairman's Statement
Overview
This financial year has seen the gradual removal of restrictions
that had been implemented as a result of the COVID-19 pandemic.
This has been a welcome change that has assisted the Company in
producing a strong share price total return for the year of 53.61%
(31 March 2021: 33.72%). This return to normality has been
particularly important for the sectors of the property market that
were hardest hit by the pandemic, most notably leisure and some
parts of the retail market. The Company has continued to take a
cautious approach to cash and debt management, mindful that a
degree of uncertainty remains. As is often the case, uncertainty
has created opportunities, and pragmatic choices have been rewarded
with another year of strong performance for the Company. We are
pleased this has allowed the Company to be the only REIT in its
peer group to continue paying its full 8p per share annual
dividend. Indeed, the Company's dividend of 2p per share per
quarter has now been paid consistently since Q1 2016 for 26
consecutive quarters, with the Company's EPRA earnings covering in
excess of 98% of this amount.
For this financial year, the Company's NAV per share has
increased by 21.66%, providing a NAV total return for the year of
29.73% (31 March 2021: 15.06%). This was the highest NAV total
return recorded by any of the UK diversified REIT's and, as a
result, the Company has been awarded the Citywire award for best
generalist UK property trust for the second consecutive year.
During the year, the Company also received awards from EPRA, the
European Public Real Estate Association, who awarded the Company a
gold medal for the standards of our financial reporting and a
silver medal for the standards of our sustainability reporting. We
are delighted that these awards recognise the hard work and
dedication that is put into the running of the Company by both my
colleagues on the Board, and the Company's Investment Manager,
AEW.
The Company has benefited from its defensively positioned
portfolio which achieved, at property level, a total return of
25.87% over the year, an outperformance of 0.51% relative to the
MSCI Benchmark. This success further builds upon the outperformance
of 10.7% achieved in the prior year. Relatively small lot sizes,
geographical diversification and valuations that are underpinned by
alternative use values have all contributed to the Company's
resilience during a time of protracted economic uncertainty. This
strong performance supports the Company's long-standing strategy of
diversification, benefitting both performance and risk
mitigation.
Exposure to various key sectors of the property market via its
diversified strategy has allowed the Company to maximise
shareholder returns with significant profits crystallised this year
following the sale of two industrial assets that had seen large
valuation uplifts. The Company's industrial assets at Bessemer Road
in Basingstoke and Langthwaite Business Park, South Kirkby, were
sold achieving sale prices 1.7x and 1.9x ahead of their respective
purchase prices.
The proceeds of these industrial sales have now been reinvested
into the retail warehouse and leisure sectors in order to create
opportunities for future income and NAV growth. The Central Six
Retail Park in Coventry was purchased in November 2021 for a price
of GBP16.41 million, producing a net initial yield of circa 11%.
The site occupies a strategic and central location close to
Coventry city centre with an anticipated reversionary yield of
circa 12.5%.
The PRYZM Nightclub in Cardiff was purchased for a price of
GBP3.63 million, reflecting a net initial yield of 7.7%, with an
anticipated reversionary yield of circa 9.2% and a low capital
value of GBP92 per sq ft.
Two further assets were purchased in the year, also in the
leisure and retail warehousing sectors. The first of these was
Arrow Point Retail Park in Shrewsbury which was acquired in May
2021 for a price of GBP8.35 million. Secondly, the Company acquired
15-33 Union Street Bristol in June 2021 for a price of GBP10.19
million, providing a net initial yield of 8.0%.
All of these purchases deliver very attractive levels of income
and contribute immediately to the Company's earnings, as well as
offering further opportunities to manage the assets proactively to
enhance NAV over the long term. Assets such as these form the basis
of an attractive pipeline which the Company is currently pursuing
in order to reinvest the sale proceeds that are due to be received
following the expected sales of assets in 225 Bath Street, Glasgow
and Eastpoint Business Park, Oxford. The Company will continue to
target acquisitions that offer the opportunity to deliver both
strong income and capital performance. The Company's Investment
Manager continues to use its extensive knowledge in both asset
selection and asset management to select each asset on its own
specific merits, rather than being entirely sector driven in its
purchasing strategy.
Active asset management continues to form a major part of the
Company's strategy where key targets are to improve the length and
quality of income streams, as well as maximising rental receipts.
Notable successes within the year include the settlement of the
Company's September 2021 open market rent review at its industrial
holding in Knowles Lane, Bradford, at a level representing a 14%
increase over the three-year period. New high rental tones were
also set at the Company's multi-let industrial assets in Runcorn
and Basildon at GBP6 per sq ft and GBP8 per sq ft, respectively. At
the Company's office holding in Queen Square, Bristol, strong
rental growth has also been observed, with current rents being
GBP30 per sq ft, almost doubling the rental value at
acquisition.
The realisation of some business plans within the portfolio has
led to periods of income volatility with total EPS of 6.79p
achieved over the four quarters of the year. The cause of this has
been multi-faceted, with income subdued by the necessity of service
charge works at Blackpool, the removal of tenants in preparation
for the vacant possession sale of Glasgow and the reinvestment of
proceeds following profitable sales. Once the sale of Glasgow
completes and its sale proceeds are reinvested, EPS is expected to
return to a level in line with the Company's target level of 8p per
annum. Looking forward, the portfolio's future income generation
prospects appear strong as assessed independently by Knight Frank,
the Company's valuer. As at year-end, the portfolio's total
estimated market rental value remained 20% higher than its current
gross income, demonstrating the portfolio's inherent ability to
grow income receipts over the medium term.
Financial Results Summary
Year ended Year ended
31 March 31 March 2021
2022
----------- ---------------
Operating Profit before fair value
changes (GBP'000) 11,752 10,735
Operating Profit (GBP'000) 46,913 23,102
Profit before Tax (GBP'000) 46,695 22,172
Earnings Per Share (basic and diluted)
(pence)* 29.47 13.98
EPRA Earnings Per Share (basic and
diluted) (pence)* 6.79 6.19
Ongoing Charges (%) 1.35 1.36
Net Asset Value per share (pence) 120.63 99.15
* See note 10 of the financial statements in the full Annual
Report for calculation.
Financing
The Company had a GBP60.00 million loan facility, of which it
had drawn a balance of GBP54.00 million as at 31 March 2022 (31
March 2021: GBP60.00 million facility; GBP39.50 million drawn),
producing the following measures of gearing:
Year ended Year ended
31 March 2022 31 March
2021
% %
---------------- -----------
Loan to NAV 28.26 25.15
Gross Loan to GAV 22.48 22.07
Net Loan to GAV (deducts cash balance
from the outstanding loan value) 19.67 12.32
The unexpired term of the facility was 1.6 years as at 31 March
2022 (31 March 2021: 2.6 years). The loan incurred interest at
SONIA +1.4%, which equated to an all-in rate of 2.20% as at 31
March 2022 (31 March 2021: 1.44%).
The Company had in place interest rate caps at the year-end a
notional value of GBP51.50 million (31 March 2021: GBP51.00
million), resulting in the loan being 95% hedged (31 March 2021:
130%). These interest rate caps were effective for the remaining
period of the loan.
As at 31 March 2022, the Company had GBP12.89 million of the
facility available up to the maximum 35.00% Loan to NAV at
drawdown.
Post year-end, the decision was taken to complete the
refinancing of the portfolio, as announced in May 2022. The Company
has secured a new GBP60.00 million, 5-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%. The existing RBSi loan
facility, which was priced at a floating rate according to SONIA,
was due to mature in October 2023 and has been repaid in full by
the new loan facility. Simultaneous to the funding, the Company's
interest rate cap was sold for proceeds of GBP743,000. In the
current inflationary environment, the Company considers it prudent
to fix the loan now, rather than run the risk of further rising
rates. The Company intends to utilise borrowings to enhance returns
over the next five years.
Dividends
The Company has continued to deliver on its target of paying
dividends of 8.00 pps per annum. During the year, the Company
declared and paid four quarterly dividends of 2.00 pence per share,
in line with its target, which were 84.88% covered by the Company's
EPRA EPS of 6.79 pence. It remains the Company's intention to
continue to pay dividends in line with its dividend policy. 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, which will remain a key
consideration.
Outlook
Post year-end, the Company made the announcement that Alex
Short, joint Portfolio Manager, had taken the decision to resign
from her position within the Company's Investment Manager and
therefore also resigned her position in respect of the Company.
Laura Elkin continues as Portfolio Manager of the Company supported
by the wider AEW UK team which remains unchanged. Laura has played
a key role in the portfolio management team since the Company's
launch in 2015 and as such, the Board have confidence in her
abilities to continue to lead the team at AEW. Laura will work
alongside Henry Butt as Assistant Portfolio Manager. All investment
decisions made on behalf of AEW UK require the approval of AEW UK's
Investment Management Committee, which has remained unchanged for
the past 11 years. My colleagues on the Board and I would like to
take the opportunity to thank Alex for her involvement in the
Company to date and wish her the best for future endeavours.
Despite various headwinds facing the UK economy, the Board feels
confident that the asset management opportunities inherent within
the portfolio and the Company's investment pipeline provide a
strong basis for the continuation of attractive returns to the
Company's shareholders. The portfolio's future income generation
prospects appear strong as assessed independently by Knight Frank,
the Company's valuer. As at 31 March 2022, the portfolio's total
estimated market rental value remained 20% higher than its current
gross income, demonstrating Knight Frank's belief in the
portfolio's inherent ability to grow income receipts over the
medium term.
In anticipation of capital receipts from the sale of Glasgow and
Oxford later this year, AEW are pursuing an attractive pipeline of
retail warehousing, leisure and office assets across the UK, which
offer income levels and capital growth opportunities in line with
the existing portfolio. Also, as part of the Company's
re-financing, the remaining GBP6.00m available in the loan facility
was drawn post year-end, which further extends purchasing
capability.
We are pleased to see that the Company's strong performance has
been recognised in the rating of its shares, where demand has
delivered periods of a share price premium to NAV. With an
attractive pipeline of opportunities, we hope the Company will be
in a position to take advantage of continued strong demand for its
shares and grow its capital base in the future.
Mark Burton
Chairman
21 June 2022
Investment Manager's Report
Economic Outlook
Despite COVID-19 restrictions finally being lifted, the
anticipated post-pandemic rebound appears to have slowed as UK GDP
fell by a disappointing 0.1% month-on-month in March 2022. It is
likely this is primarily due to a significant increase in the rate
of inflation with a 30-year high of 9.0% recorded for April 2022.
Russia's invasion of Ukraine, and the consequential sanctions
imposed by the international community, continues to drive up
energy and commodity prices. There is a risk that, as well as
affecting manufacturing industries, this may further damage
consumer and investor sentiment as real income and wealth levels
are reduced. Economic growth is now forecast to slow to 3.8% by
2022 year-end.
(SOURCE - Oxford Economics)
With higher than expected inflation, the Bank of England has
increased interest rates from 0.50% in February 2022 to 1.25% in
June 2022. Despite this backdrop of rising inflation and rising
interest rates, over a five-year period, we consider that bond
yields are likely to remain low with central banks reluctant to
push economies into recession, particularly in times of war.
Property Market Outlook
Industrial
The sector has seen significant growth for a number of years due
to the growth of e-commerce. The COVID-19 pandemic caused an
acceleration of this trend as lockdowns and social distancing
forced changes in shoppers' habits. These trends have positively
impacted values throughout the industrial market from the prime end
to more traditional manufacturing accommodation as older stock has
been redeveloped and low rented accommodation has become
scarcer.
Strong investor demand in the sector has compressed yields and
driven much value growth within the Company's portfolio and, as a
result of a number of the asset values being felt to have been
maximised, two industrial assets were disposed of during the
period. For this reason, we exercise caution when analysing
pipeline assets in the sector.
Attributes which we still find very compelling within the sector
are the historically low levels of availability of accommodation
and continued strong tenant demand. It is these attributes which
continue to drive rental growth and with the portfolio's average
passing rent within the sector being only GBP3.30 per sq ft we
believe that we are ideally placed to be able to benefit from this.
This growth potential has been demonstrated by a number of recent
asset management transactions including the Company's asset in
Bradford where the settlement of a rent review during the period
resulted in a 14% increase in income over a three-year period.
The industrial sector represents the portfolio's largest sector
holding, making up 50.3% of the portfolio's value as at year-end.
The Company's industrial holding delivered a total return of 34.8%
during the year and an income yield of 6.3%. In contrast, benchmark
total return was 46.5%, reflecting the very strong investor demand
seen for prime assets, which delivered a significantly lower income
yield of 3.7%.
Office
Despite numerous lockdowns and work from home mandates during
the pandemic, we have not seen the significant decline in office
occupation that some had predicted. It is certainly the case that
hybrid working has become more commonplace, however it is clear
that at least some exposure to the physical office brings numerous
benefits over its more solitary alternative, including increased
collaboration and higher levels of personal wellbeing.
UK employment levels have also remained robust, rising to
pre-pandemic levels and showing a historic high level.
The office assets within the portfolio have been the subject of
much recent discussion with the proposed sales of the Company's
assets in Glasgow and Oxford both into alternative uses. When
considering office assets for investment, we have often sought to
acquire those showing strong alternative use values and we believe
that this has assisted in delivering the benchmark outperformance
that we have seen from the sector over recent periods.
The investment pipeline for offices focuses on strong, regional
centres and a preference for town or city centres rather than
business park locations where alternative uses may be more
limited.
Our office assets represent the second largest sector holding,
with 18.0% of the valuation. This was the strongest performing
sector relative to the Benchmark, achieving an outperformance of
13.2%, which was largely driven by capital growth outperformance of
13.7% resulting from key asset management transactions.
Alternatives
This is a sector in which AEW as Investment Manager has
significant expertise and has seen a number of compelling
opportunities in the market. The Company's current alternatives
holding comprises assets within the leisure sector that have been
selected due to their defensive, value protection characteristics
as well as their high-income yield.
The leisure sector suffered significant strain during the
pandemic as lockdowns kept customers away for many months. However,
due to the high levels of cost involved in relocation and fit out,
occupiers tend to move accommodation far less than in other
sectors. This has been shown by the fact that, since the lifting of
all social distancing restrictions, headway has been made in
various asset management initiatives within the Company's
portfolio. We also find the sector attractive on a selective basis
going forward, particularly those properties that occupy larger
land holdings or sites in economically active areas such that can
often be underpinned by alternative use values.
Assets held in alternative sectors comprise 7.0% of the 31 March
2022 valuation, all of which is within the leisure sector. The
Company's alternative holdings outperformed the Benchmark, with a
relative outperformance of 7.5%, driven by an income return
outperformance of 8.6%.
Retail
The high street retail sector (referred to as 'Standard Retail')
suffered greatly during the pandemic and experienced an
acceleration of trends already present in consumer habits. Values
in high street retail have now stabilised somewhat and we believe
that the sector is likely to offer opportunities for repurposing to
alternative uses over the medium term.
By contrast, performance in the retail warehousing sector has
generally been significantly stronger than that seen on the high
street due to the ease of parking and open air environments which,
in a post COVID-19 world, have been perceived as more pleasant and
safer places to shop. This effect has been felt quite acutely in
the growing demand for investment properties within the sector and
we expect the Company's recently purchased investments to benefit
accordingly.
We are attracted to assets located within established commercial
locations with low passing rents and particularly where values for
warehousing assets have been surpassed by those within the existing
use.
Retail represents 11.6% of the valuation and our retail assets
have performed weaker than the Benchmark, as Central London retail,
where we have no exposure, props up the Benchmark performance to
some extent.
Property Portfolio
The Company made four acquisitions during the year:
Arrow Point Retail Park, Shrewsbury
In May 2021, the Company acquired Arrow Point Retail Park in
Shrewsbury for a purchase price of GBP8.35 million. The established
retail park is located on a busy commercial estate and is fully
let. The estate provides a net initial yield of 8.7%, with low
passing rents compared with competing locations. It comprises a
modern purpose-built retail park constructed in 2007, arranged
across nine units with 176 car parking spaces, and is prominently
located within the main retail warehouse provision of Shrewsbury,
approximately 2.5 miles north east of the town centre.
Union Street, Bristol
In June 2021, the Company acquired 15-33 Union Street for a
purchase price of GBP10.2 million. 15-33 Union Street occupies a
prominent location in Bristol city centre, opposite The Galleries
Shopping Centre and near Cabot Circus, Bristol's premier retail
destination. Located on a busy thoroughfare for pedestrians, the
65,238 sq ft site experiences high footfall and is ideally suited
for retail or leisure units. Constructed in 2001, the property
currently comprises five purpose built split-level retail or
leisure units over four floors and road access to both Union Street
and Fairfax Street. Four of the five units are let to three
household names and a successful local retailer. The location of
the site has been identified as a major regeneration area and it
offers the ability for further growth through development.
Central Six Retail Park, Coventry
In November 2021, the Company completed the acquisition of the
11.9 acre Central Six Retail Park in Coventry for a purchase price
of GBP16.4 million. The purchase price reflects a net initial yield
of circa 11%, with an anticipated reversionary yield of circa 12.5%
and a capital value per sq ft of GBP110. The site occupies a
strategic and central location, approximately 0.7 miles away from
Coventry city centre and adjacent to Coventry Railway Station and
the Friargate Regeneration area. The retail park is highly
accessible and provides 148,765 sq ft of modern purpose-built
retail space with parking for 635 cars. Site coverage is low at
just 27%. Units are let to TK Maxx, Next, Boots, Sports Direct,
Burger King and Poundland. The site presents opportunities to add
value through active asset management by renewing current tenancies
and securing new tenants on the park. This purchase will be
accretive to the Company's income return and it is anticipated that
asset management initiatives will result in NAV growth over the
medium term.
Greyfriars Road, Cardiff
In February 2022, the Company completed the acquisition of PRYZM
nightclub in Cardiff for a purchase price of GBP3.6 million
reflecting GBP92 per sq ft. The purchase price represents a net
initial yield of 8%, with an anticipated reversionary yield of
circa 9%. The property is prominently located within the leisure
and late-night district of Cardiff city centre near the
Principality Stadium and St David's Shopping Centre. Cardiff
University and the University of Wales are located approximately
300m from the property, contributing to the total student
population of circa 75,000.
The property provides 39,469 sq ft of nightclub and bar
accommodation and is single-let to a subsidiary of Rekom UK
(formerly The Deltic Group), providing over 14 years' unexpired
lease term. Rekom UK is one of the largest specialist late-night
operators in the UK with 46 clubs and bars across a number of
brands. The nightclub trades as "PRYZM" and "Steinbeck &
Shaw".
The Company made two disposals during the year:
Langthwaite Business Park, South Kirkby
During August 2021, a sale of the Company's asset at Langthwaite
Business Park in South Kirkby was completed for a price of GBP10.84
million. The sale price achieved was 87% ahead of the purchase
price paid by the Company for the asset in Q4 2015.
No capital expenditure had been invested into the asset during
its hold period, however the tenant's lease had been extended and
rental levels increased by 13%. Throughout its hold period the
asset remained income producing with a minimum yield of 11% against
the purchase price.
Bessemer Road, Basingstoke
In October 2021, the Company completed on the sale of its
warehouse at Bessemer Road, Basingstoke for a price of GBP5.9
million, a 73% premium above the purchase price of GBP3.4 million
paid in Q1 2016.
No capital expenditure had been invested into the asset during
its hold period, however, prior to the sale, the tenant's lease had
been extended for a period of five years and rental levels
increased by 16%. Throughout its hold period the asset remained
income producing with a minimum yield of 9.8% against the purchase
price.
Asset Management Update
The Company completed the following material asset management
transactions during the period:
- Arrow Point Retail Park, Shrewsbury (retail warehousing) -
During Q2 2021, the Company completed an agreement with tenant
British Heart Foundation to push its November 2021 break option out
to December 2024 in return for four months' rent free. The majority
of the rent free was used to write off rent arrears predating the
Company's ownership.
- Diamond Business Park, Wakefield (industrial) - During Q2
2021, the Company completed a new five year lease at Unit 14
reflecting a rent of GBP3.75 per sq ft. The annual rental of
GBP41,866 pa sits 25% above the independently assessed March 2021
estimated rental value and six months' rent free was given as an
incentive. The lease was agreed outside of the provisions of the
Landlord and Tenant Act 1954 meaning that the Company benefits from
greater flexibility upon expiry of the lease.
- Bristol, 40 Queen Square (office) - During Q2 2021, the
Company completed a new five year lease to Brewin Dolphin at a rent
of GBP103,770 pa reflecting GBP30 per sq ft versus the previous
passing rent of GBP22 per sq ft and the March 2021 ERV of GBP26 per
sq ft. A 12 month rent free incentive was given.
- Vantage Point, Hemel Hempstead (office) - During Q3 2021, the
Company completed a new five-year lease to Netronix Integration
Limited at a rent of GBP33,683 pa reflecting GBP14.50 psf. The
rental level agreed reflects GBP3 per sq ft above valuers, ERV.
Four months' rent free incentive was given to the tenant who also
has the ability to bring the lease to an end at the expiry of three
years.
- Bristol, 40 Queen Square (office) - During Q3 2021, the
Company completed a lease renewal to Candide Limited until February
2025 at a rent of GBP30 psf, GBP116,970 pa. The previous passing
rent reflected GBP22.81 per sq ft and only 1.5 months' rent free
incentive was given.
- Sarus Court, Runcorn (industrial) - During Q3 2021, the
Company completed a 10 year lease renewal with tenant NTT United
Kingdom Limited, trading as Dimension Data. Rental income from the
lease was agreed at GBP5.75 per sq ft as compared to the previous
level of passing rent of GBP5.25 per sq ft. There is a tenant break
option in December 2025. Five months' rent free was given to the
tenant as an incentive.
- 15-33 Union Street, Bristol (Standard Retail) - During Q4
2021, the Company completed a new 15 year lease to Roxy Leisure
Limited, a "competitive social" leisure occupier, at a rent of
GBP181,000 pa reflecting GBP10 per sq ft. The lease provides for
five yearly RPI linked reviews, collared and capped at 1.5% and 4%
respectively. A 12-month rent free period was granted to the tenant
as an incentive along with a GBP300,000 capital contribution to the
tenant's fit out. On acquisition in June 2021, the 18,122 sq ft of
upper floor space was vacant, with the Company benefiting from a
12-month rental guarantee from the vendor of the asset with a value
of GBP190,000.
- Pearl House, Nottingham (Standard Retail) - During Q4 2021,
the Company completed the renewal of Cancer Research's lease for a
term of 5 years with a tenant break in year three, subject to a
break penalty equivalent to three months' rent. The rent agreed is
GBP21,000 pa. Three months' rent-free incentive was given to the
tenant.
- Above Bar Street, Southampton (Standard Retail) - During Q4
2021, the Company completed a new straight five year lease to Shoe
Zone at its property at 69 Above Bar Street. The transaction will
provide the Company with a rental income of GBP80,000 pa with 12
months' rent free incentive given to the tenant. The lease was
agreed outside of the provisions of the Landlord and Tenant Act
1954 meaning that the Company benefits from greater flexibility
upon expiry of the lease. The transaction exchanged during Q3 2021
and was subject to approximately GBP40,000 of landlord works which
have now been completed.
- Walkers Lane, St Helens (industrial) - During Q4 2021, the
Company reached agreement with tenant Kverneland in respect of its
October 2020 open market rent review. The review has been settled
at GBP389,000 pa reflecting GBP4.16 per sq ft and representing a
GBP89,000 pa increase above the prior passing rent.
- Westlands Distribution Park, Weston-Super-Mare (industrial) -
During Q4 2021, the Company completed a new letting to North
Somerset District Council at GBP20,000 pa, rising to GBP30,000 pa
in April 2022. The lease provides for five yearly upwards only rent
reviews to the higher of open market or RPI (capped at 1.5% per
annum) in 2027 and 2032. The lease expires in April 2037 with
mutual rolling break options in 2024, 2027 and 2032.
- Sarus Court, Runcorn (industrial) - During Q4 2021, the
Company completed a new 10 year lease to KMS (Europe) Ltd at a
headline rent of GBP6 per sq ft reflecting an annual rental income
of GBP95,000 pa. The letting set a new high rental tone for the
estate and far exceeds the prior passing rent of GBP4.83 per sq ft.
The incoming tenant was given the benefit of a 12-month rent free
period spread out over the first three years of the lease.
- Knowles Lane, Bradford (industrial) - During March 2022, the
Company settled the September 2021 open market rent review with
tenant, Pilkington United Kingdom Ltd, at our industrial unit in
Bradford. The agreed rent is GBP208,000 per annum reflecting
GBP4.50 per sq ft . The previous passing rent was GBP182,500 per
annum reflecting GBP3.95 per sq ft, representing a 14% increase
over a three-year period.
- Apollo Business Park, Basildon (industrial) - During March
2022, the Company completed a new 10-year letting at Unit 1 Apollo
Business Park, Basildon. The lease provides the tenant with a
five-year break option and offers six months' rent free. The
letting produces annual rental income of GBP240,750 and realises a
new headline rent of GBP8 per sq ft versus an expected market
rental value of GBP7 per sq. ft.
- First Avenue, Deeside (industrial) - In Q4 2021, incumbent
tenant, Magellan Aerospace (UK) Ltd, served notice to bring its
lease to an end on 1 April 2022. Discussions have been ongoing
since the service of the break notice to agree terms for a
short-term lease extension. This agreement has now been signed,
extending the tenant's occupation by six months. Upon completion of
the new lease, the tenant paid to the Company a dilapidations
settlement of GBP250,000, three months' rent up front at a rate of
GBP6 per sq ft (vs market rent value of GBP5.25 per sq ft and
previous passing rent of GBP3.75 per sq ft) and a single lease
premium of GBP50,000. The total capital receipt from the tenant
upon completion was GBP457,400 excluding VAT. The property
continues to be marketed.
- Bath Street, Glasgow (office) - During February 2022, the
Company received confirmation that planning consent had been
granted for the demolition and development of a 527-unit student
accommodation scheme at 225 Bath Street in Glasgow city centre.
This follows the exchange of contracts for the sale of the site
with a subsidiary company of IQ Student Accommodation in October
2020. The sale of 225 Bath Street is expected to complete after the
standard three-month judicial review period.
Once the sale of Bath Street completes, occupancy within the
portfolio is expected to increase by just over 4% with a
corresponding decrease in the Company's costs and associated
increase in income once sale proceeds have been reinvested.
Earnings are then expected to normalise at a level much closer to
the Company's long-term target.
Vacancy
The portfolio's overall vacancy level now sits at 5.42%,
excluding vacancy contributed by the asset at 225 Bath Street,
Glasgow, which as discussed above, has now been exchanged for sale
for alternative use redevelopment. As a condition of the sale
agreement, full vacancy had to be achieved in the building before
the sale could be completed. Including this asset, overall vacancy
is 10.69%.
Financial Results
The Company's Net Asset Value as at 31 March 2022 was GBP191.10
million or 120.63 pps (31 March 2021: GBP157.08 million or 99.15
pps). This is an increase of 21.48 pps or 21.7% over the year, with
the underlying movement in NAV set out in the table below:
Pps
NAV as at 1 April 2021 99.15
Portfolio acquisition costs (1.60)
Profit on sale of investments 1.80
Capital expenditure (0.49)
Valuation changes in property
portfolio 22.49
Valuation change in derivatives 0.48
Income earned for the period 10.87
Expenses for the period (4.07)
Interim dividend paid (8.00)
NAV as at 31 March 2022 120.63
EPRA earnings per share for the period was 6.79 pps which, based
on dividends paid of 8.00 pps, reflects a dividend cover of 84.88%.
The increase in dividend cover compared to the prior 12-month
period has largely arisen due to improvements in rent collection
levels, along with successful legal outcomes that have recovered
significant arrears. Income across the tenancy profile has remained
largely intact. Collection rates have reached 99% for both the
March 2022 and June 2022 quarters, with further payments expected
to be received under longer term payment plans; of the outstanding
arrears, GBP0.76 million has been provided for expected credit
losses.
Financing
As at 31 March 2022, the Company had a GBP60.00 million loan
facility with RBSi, which was due to be in place until October
2023, the details of which are presented below:
31 March 2022 31 March 2021
----------------- -----------------
Facility GBP60.00 million GBP60.00 million
Drawn GBP54.00 million GBP39.50 million
Gearing (Loan to NAV) 28.26% 25.15%
Interest rate 2.20% all-in 1.44% all-in
(SONIA +1.4%) (LIBOR +1.4%)
Notional Value of
Loan Balance Hedged 95% 130.4%
Due to GBP LIBOR ending at the end of 2021, the Company
transitioned to SONIA on 20 July 2021, with a credit adjustment
spread of 0.0981%. Post year-end, the Company secured a new
GBP60.00 million, five-year term loan facility with AgFe. See above
for further detail .
Property Portfolio
Summary by Sector as at 31 March 2022
Gross Gross Like- Like-
WAULT passing passing for-like for-like
Number Vacancy to rental rental Rental rental rental
of Valuation Area by ERV break income income ERV ERV income growth growth
Sector assets (GBPm) (sq ft) (%) (years) (GBPm) (GBPpsf) (GBPm) (GBPpsf) (GBPm) (GBPm) (%)
-------------- -------- ----------- ---------- --------- --------- -------- --------- -------- --------- -------- --------- ---------
Industrial 19 120.75 2,364,571 4.87 3.60 7.80 3.30 9.28 3.92 7.88 0.29 4.16
Office 5 43.28 251,812 31.59 3.88 1.58 6.27 3.64 14.47 1.74 (0.71) (28.89)
Retail
Warehouse 3 34.25 285,704 14.78 2.05 3.11 10.89 3.38 11.82 2.17 (0.01) (1.98)
Standard
Retail 6 24.98 237,792 2.53 5.03 2.58 10.87 2.33 9.79 2.59 (0.06) (3.19)
Alternatives 3 16.92 151,824 0.00 7.67 1.80 11.83 1.59 10.47 1.54 (0.05) (2.98)
-------- ----------- ---------- --------- --------- -------- --------- -------- --------- -------- --------- ---------
Portfolio 36 240.18 3,291,703 10.69 3.94 16.87 5.13 20.22 6.14 15.92 (0.54) (3.91)
-------- ----------- ---------- --------- --------- -------- --------- -------- --------- -------- --------- ---------
Summary by Geographical Area as at 31 March 2022
Gross Gross Like- Like-
WAULT passing passing for-like for-like
Number Vacancy to rental rental Rental rental rental
Geographical of Valuation Area by ERV break income income ERV ERV income growth growth
area assets (GBPm) (sq ft) (%) (years) (GBPm) (GBPpsf) (GBPm) (GBPpsf) (GBPm) (GBPm) (%)
West Midlands 5 42.65 598,405 14.03 2.76 3.73 6.23 4.01 6.69 2.72 (0.12) (9.22)
South West 5 40.08 517,232 6.42 3.28 2.78 5.38 3.48 6.73 2.73 0.26 13.89
Yorkshire and
Humberside 7 38.02 791,858 6.75 2.44 2.23 2.81 3.33 4.20 2.54 (0.22) (8.77)
South East 4 27.90 137,026 5.01 5.06 1.36 9.91 1.72 12.57 1.85 (0.14) (8.07)
Eastern 5 26.90 344,339 0.00 2.19 1.99 5.78 2.12 6.16 1.85 0.19 11.51
Wales 3 23.13 415,607 0.00 7.50 1.76 4.24 1.84 4.43 1.35 0.00 0.12
North West 4 19.15 301,654 0.00 4.33 1.56 5.17 1.43 4.75 1.51 0.16 11.59
Rest of London 1 9.90 71,720 0.00 9.62 0.96 13.40 0.75 10.45 0.96 (0.04) (4.56)
Scotland 1 8.50 85,643 91.85 1.42 0.09 1.10 1.16 13.54 0.01 (0.64) (98.55)*
East Midlands 1 3.95 28,219 0.00 4.67 0.41 14.56 0.38 13.38 0.40 0.01 2.69
--------------- -------- ----------- ---------- --------- --------- -------- --------- -------- --------- -------- --------------- ---------
Portfolio 36 240.18 3,291,703 10.69 3.94 16.87 5.13 20.22 6.14 15.92 (0.54) (3.91)
--------------- -------- ----------- ---------- --------- --------- -------- --------- -------- --------- -------- --------------- ---------
* Excluding the vacancy from 225 Bath Street Glasgow, which has
exchanged to be sold with the condition of vacant possession, the
vacancy rate is 5.42%.
Properties by Market Value as at 31 March 2022
Sector weighting by valuation - high industrial weighting and
low exposure to retail
Sector Percentage
Industrial 50%
Offices 18%
Standard Retail 11%
Alternative 7%
Retail Warehouse 14%
Geographical weighting by valuation - highly diversified across
the UK
Region Percentage
Yorkshire and
Humberside 16%
South East 11%
Eastern 11%
South West 17%
West Midlands 18%
East Midlands 2%
North West 8%
Wales 10%
Rest of London 4%
Scotland 3%
Properties by Market Value as at 31 March 2022
Market Value
Property Sector Region Range (GBPm)
Top 10:
1. Central Six Retail Park, Retail Warehouses West Midlands 15.0 - 20.0
Coventry
2. Eastpoint Business Park, Offices South East 15.0 - 20.0
Oxford
3. Gresford Industrial Estate, Industrial Wales 10.0 - 15.0
Wrexham
4. 40 Queen Square, Bristol Offices South West 10.0 - 15.0
5. Lockwood Court, Leeds Industrial Yorkshire 10.0 - 15.0
and Humberside
6. 15-33 Union Street, Bristol Standard Retail South West 10.0 - 15.0
7. London East Leisure Park, Alternatives Rest of London 7.5 - 10.0
Dagenham
8. Arrow Point Retail Park, Retail Warehouses West Midlands 7.5 - 10.0
Shrewsbury
9. Apollo Business Park, Basildon Industrial Eastern 7.5 - 10.0
10. 225 Bath Street, Glasgow Offices Scotland 7.5 - 10.0
The Company's top 10 properties listed above comprise 49.4%
(2021: 49.7%) of the total value of the portfolio.
Market
Value
Range
Property Sector Region (GBPm)
11. Sarus Court, Runcorn Industrial North West 7.5 - 10.0
12. Storey's Bar Road, Peterborough Industrial Eastern 7.5 - 10.0
13. Euroway Trading Estate, Bradford Industrial Yorkshire 5.0 - 7.5
and Humberside
14. Westlands Distribution Park, Industrial South West 5.0 - 7.5
Weston Super Mare
15. Brockhurst Crescent, Walsall Industrial West Midlands 5.0 - 7.5
16. Barnstaple Retail Park, Barnstaple Retail Warehouses South West 5.0 - 7.5
17. Walkers Lane, St Helens Industrial North West 5.0 - 7.5
18. Deeside Industrial Park, Deeside Industrial Wales 5.0 - 7.5
19. Diamond Business Park, Wakefield Industrial Yorkshire 5.0 - 7.5
and Humberside
20. Mangham Road, Rotherham Industrial Yorkshire < 5.0
and Humberside
21. 710 Brightside Lane, Sheffield Industrial Yorkshire < 5.0
and Humberside
22. Oak Park, Droitwich Industrial West Midlands < 5.0
23. Pipps Hall Industrial Estate, Industrial Eastern < 5.0
Basildon
24. Pearl House, Nottingham Standard Retail East Midlands < 5.0
25. Eagle Road, Redditch Industrial West Midlands < 5.0
26. Cedar House, Gloucester Offices South West < 5.0
27. PRYZM, Cardiff Alternatives Wales < 5.0
28. 69-75 Above Bar Street, Southampton Standard Retail South East < 5.0
29. Clarke Road, Milton Keynes Industrial South East < 5.0
30. Odeon Cinema, Southend-on-Sea Alternatives Eastern < 5.0
31. Bridge House, Bradford Industrial Yorkshire < 5.0
and Humberside
32. Commercial Road, Portsmouth Standard Retail South East < 5.0
33. Pricebusters Building, Blackpool Standard Retail North West < 5.0
34. Vantage Point, Hemel Hempstead Offices Eastern < 5.0
35. Moorside Road, Swinton Industrial North West < 5.0
36. 11/15 Fargate, Sheffield Standard Retail Yorkshire < 5.0
and Humberside
Top 10 Tenants as at 31 March 2022
% of
Portfolio
Passing Total
Rental Passing
Income Rental
Tenant Sector Property (GBP'000) Income
Gresford Industrial
1. Plastipak UK Ltd Industrial Estate, Wrexham 883 5.2
2. Sports Direct Retail Various 678 4.0
3. Wyndeham Group Industrial Wyndeham, Peterborough 644 3.8
4. Poundland Limited Retail Various 631 3.7
London East Leisure
5. Mecca Bingo Ltd Leisure Park, Dagenham 625 3.7
Harrogate Spring
6. Water Limited Industrial Lockwood Court, Leeds 603 3.6
Magellan Aerospace
7. (UK) Ltd Industrial Excel 95, Deeside 580 3.4
8. Odeon Cinemas Leisure Victoria Circus, Southend-on-Sea 535 3.2
15-33 Union Street,
9. Wilko Retail Limited Retail Bristol 481 2.9
Advanced Supply Euroway Trading Estate,
10. Chain (BFD) Ltd Industrial Bradford 467 2.8
The Company's top ten tenants, listed above, represent 36.3%
(2021: 38.8%) of the total passing rental income of the
portfolio.
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 2022 31 March 2021
Commitment Gross Commitment
Leverage Exposure Gross Method Method Method Method
------------------- ------------- ----------- -------- -----------
Maximum Limit 140% 140% 140% 140%
Actual 125% 129% 114% 125%
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 31
December 2021.
Year ended
31 December
2021
-------------
Total remuneration paid to employees during financial
year:
a) remuneration, including, where relevant, any
carried interest paid by the AIFM 2,938,680
b) the number of beneficiaries 30
The aggregate amount of remuneration of the AIFM
Remuneration Code staff, broken down by:
a) senior management GBP753,900
b) members of staff GBP2,184,780
Fixed Variable Total
remuneration remuneration remuneration
-------------- -------------- --------------
Senior management GBP681,900 GBP72,000 GBP753,900
Staff GBP1,615,193 GBP569,587 GBP2,184,780
-------------- -------------- --------------
Total GBP2,297,093 GBP641,587 GBP2,938,680
-------------- -------------- --------------
Fixed remuneration comprises basic salaries and variable
remuneration comprises bonuses.
AEW UK Investment Management LLP
21 June 2022
FURTHER INFORMATION
AEW UK REIT PLC's annual report and accounts for the year ended
31 March 2022 (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
END
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