TIDMAEWU
RNS Number : 8246T
AEW UK REIT PLC
27 July 2022
27 July 2022
AEW UK REIT Plc
NAV Update and Dividend Declaration
AEW UK REIT plc (LSE: AEWU) (the "Company"), which directly owns
a value-focused portfolio of 37 regional UK commercial property
assets, announces its unaudited Net Asset Value ("NAV") and interim
dividend for the three-month period ended 30 June 2022.
Highlights
-- NAV of GBP200.40 million or 126.50 pence per share as at 30
June 2022 (31 March 2022: GBP191.10 million or 120.63 pence per
share).
-- NAV total return of 6.53% for the quarter ( 31 March 2022 quarter: 7.37%).
-- 4.49% like-for-like valuation increase for the quarter (31
March 2022 quarter: 4.74%), driven by a 17.62% like-for-like
increase from the office sector associated with the anticipated
sale of Eastpoint Business Park in Oxford.
-- EPRA earnings per share ("EPRA EPS") for the quarter of 1.50
pence (31 March 2022 quarter: 1.55 pence). This is expected to
return to the Company's target level of 2.00 pence per quarter once
the sales of both Eastpoint Business Park, Oxford and Bath Street,
Glasgow, complete during August and sales proceeds have been
reinvested.
-- Interim dividend of 2.00 pence per share for the three months
ended 30 June 2022, in line with the targeted annual dividend of
8.00 pence per share.
-- New GBP60 million debt facility with AgFe priced at a fixed
total interest cost of 2.959% for five years. Following this
refinancing, the existing RBSi loan facility has been repaid in
full.
-- Loan to NAV ratio at the quarter end was 29.94% ( 31 March
2022 : 28.26%). The Company had a cash balance of GBP4.51 million
and its loan facility was fully drawn.
-- Acquisition of Railway Station Retail Park in Dewsbury for a
purchase price of GBP4.70 million, a capital value of GBP82 per sq.
ft. The price reflects a net initial yield of circa 9.4%.
-- Attractive investment pipeline of value-orientated assets
showing net initial yields between 6.75% and 10% is under
exclusivity.
-- Post quarter end, contractually committed disposal of
Eastpoint Business Park, Oxford for GBP29.0 million, a 16% premium
to the asset's value within the published NAV. Completion of the
sale will take place on 8(th) August 2022. As a result of the
transaction having exchanged post quarter end, a further 2.5p is
expected to be realised in the Company's Net Asset Value per
share.
-- Post quarter end, exchanged contracts for disposal of
Moorside Road, Swinton for GBP1.71 million, at a 58% premium to the
acquisition price, reflecting a net initial yield of circa 6.6% and
a capital value of GBP75 psf. Completion is due to take place prior
to the end of July.
Laura Elkin, Portfolio Manager, AEW UK REIT, commented:
"The portfolio's strong capital performance continues this
quarter, with the majority of the assets demonstrating continued
resilience. The office sector value gains seen in the portfolio of
late, following a period of strong performance by our industrial
assets in previous quarters, demonstrate the benefits of the
strategy's ability to invest across market sectors to maximise
value at different times. It is also an indicator of the positive
NAV impact our proactive approach to portfolio management can have.
In a value portfolio such as this, active asset management can
continue to drive defensive capital performance at times when
values in general may be experiencing increased volatility. Asset
management activity this quarter demonstrates this point, with
value accretive transactions seen in all major market sectors."
Portfolio Manager's Review
Capital growth in the Company's office assets was driven in the
most part this quarter by the Eastpoint Business Park in Oxford
which has now been formally revalued for the first time since being
placed under offer for sale in April. The value of the asset rose
43% during the quarter although, due to the sale having exchanged
post quarter end, further NAV uplift equating to 16% of the 30 June
2022 valuation is expected to follow. This is expected to add a
further 2.5p to the Company's Net Asset Value per share.
Following a refinancing in May, the Company now benefits from a
fixed cost of debt for the next five years, putting it at a
significant advantage to those competitors still paying floating
rates. The Company has been able to lock in a cost of debt below 3%
due to its tactical decision to refinance at this time. Debt
finance is also deployed at a modest level of circa 30%, limiting
risk in future cycles.
The high yielding nature of the AEWU portfolio provides
significant headroom against rising interest rates that have
started to impact prime yields in some sectors. The portfolio's low
capital values also provide a defensive starting point due to their
correlation with replacement costs and optionality for alternative
uses.
Earnings for the quarter of 1.50 pence per share are below
target, predominantly due to the continued impact of vacancy at
Bath Street, Glasgow. Following the completed sales of Glasgow and
Oxford, which are both due during August, earnings are expected to
return to the Company's target level of 2.00 pence per share per
quarter once sales proceeds have been reinvested. The Company's
12-month backward looking dividend cover currently sits at 77% and
total historic dividend cover at 97%.
We have placed a significant pipeline of attractive assets under
exclusivity and endeavour to complete acquisitions promptly in
order to return the portfolio to a fully invested and maximum
income producing position. These pipeline assets have been sourced
based upon the same value investment principles as the existing
portfolio, with net initial yields ranging between 6.75% and 10%.
Further announcements regarding investment transactions are
expected in the coming weeks. Following both of these planned
sales, the Company's office exposure is projected to reduce to 8%
of the portfolio.
As mentioned above, the Manager has completed several value
accretive asset management transactions this quarter. These have
been undertaken across all major property sectors, highlighting
that tenant activity continues where market appropriate levels of
ERV have been applied. This has been particularly reassuring in the
high street retail and leisure sectors where tenants on the whole
remain keen to secure suitable premises to ensure the future of
their businesses, despite the backdrop of a gloomier economic
outlook. From our experience, this applies to both large national
multiples, with whom we are currently engaging in respect of vacant
accommodation, and smaller emerging chains, as demonstrated by the
letting discussed below in Portsmouth to Kokoro which has been
achieved 15% ahead of our independent valuer's estimated rental
value.
Occupational demand also continues to be strong in the
industrial and warehousing sectors, contrary to the turbulence seen
in the share prices of some of the major listed REITs in these
sectors. The portfolio is well placed to benefit from this demand
with an average passing rent psf in the Company's warehousing
portfolio of GBP3.40 psf. The Company has also continued to
crystallise profit in the sector having exchanged contracts for the
sale of Moorside Road in Swinton, the portfolio's smallest
industrial asset, for GBP1.71m, 58% ahead of its purchase price in
2015, post quarter end.
Another excellent outcome for the portfolio this quarter has
been the completion of Konica Minolta's agreement for lease at
Queens Square, Bristol. The letting will secure a new high rent of
GBP40 psf in this building which has already seen significant
rental growth of 29% since its purchase.
In retail warehousing, a lease renewal with Charlie's Stores at
Arrow Point, Shrewsbury has been completed at a level 50% ahead of
estimated rental value. The portfolio's holdings within this sector
are expected to provide an ongoing source of value and income
creation as various key business plans make headway.
Valuation movement
As at 30 June 2022, the Company owned investment properties with
a fair value of GBP255.65 million. The like-for-like valuation
increase for the quarter of GBP10.78 million (4.49%) is broken down
as follows by sector:
Like-for-like
Valuation valuation movement
Sector 30 June 2022 for the quarter
GBP % GBP million %
million
Industrial 122.82 48.04 2.08 1.72
Office 50.90 19.91 7.63 17.62
High Street
Retail 24.70 9.66 (0.28) (1.10)
Retail Warehouses 40.05 15.67 1.10 3.21
Other 17.18 6.72 0.25 1.48
Total 255.65 100.00 10.78 4.49*
* This is the overall weighted average like-for-like valuation
increase of the portfolio.
Net Asset Value
The Company's unaudited NAV at 30 June 2022 was GBP200.40
million, or 126.50 pence per share. This reflects an increase of
4.87% compared with the NAV per share at 31 March 2022. The
Company's NAV total return, which includes the interim dividend of
2.00 pence per share for the period from 1 January 2022 to 31 March
2022, was 6.53% for the three-month period ended 30 June 2022.
Pence per GBP million
share
NAV at 1 April 2022 120.63 191.10
Loss on sale of investments and derivatives (0.06) (0.09)
Portfolio acquisition costs (0.20) (0.33)
Capital expenditure (0.13) (0.20)
Valuation change in property portfolio 6.76 10.71
Income earned for the period 3.15 5.00
Expenses and net finance costs for the
period (1.65) (2.62)
Interim dividend paid (2.00) (3.17)
NAV at 30 June 2022 126.50 200.40
The NAV attributable to the ordinary shares has been calculated
under International Financial Reporting Standards. It incorporates
the independent portfolio valuation at 30 June 2022 and income for
the period, but does not include a provision for the interim
dividend for the three-month period to 30 June 2022.
Rent Collection
The Company has achieved very high rent collection levels, which
stand at over 98% (1) for each quarter since March 2020 (excluding
current quarter where rent continues to be collected).
For the rental quarter commencing on 24 June 2022, approximately
89% of rent has been collected, with 98% expected to be received
prior to quarter end. The remainder of rents owed will continue to
be pursued.
(1) Excluding rent arrears from Outfit Retail Properties
Limited, Central Six Retail Park, Coventry, who are in
administration, with the unit having been vacant since acquisition
(November 2021).
Dividend
Dividend declaration
The Company today announces an interim dividend of 2.00 pence
per share for the period from 1 April 2022 to 30 June 2022. The
dividend payment will be made on 31 August 2022 to shareholders on
the register as at 5 August 2022. The ex-dividend date will be 4
August 2022. 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 9 August 2022.
The dividend of 2.00 pence per share will be designated 1.50
pence per share as an interim property income distribution ("PID")
and 0.50 pence per share as an interim ordinary dividend
("non-PID").
The Company has now paid a 2.00 pence quarterly dividend for 27
consecutive quarters(1) , providing income consistency to our
shareholders.
(1) For 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 completed a refinancing of its debt facility in May
2022. The Company has secured a new GBP60.00 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%. 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.
The Company had borrowings of GBP60.0 million at 30 June 2022,
producing a Loan to NAV ratio of 29.94%. The loan is now fully
drawn.
Investment Update
During the quarter the Company completed the following
investment transaction:
Railway Station Retail Park, Dewsbury (retail warehouse) - In
June, the Company completed the acquisition of a 6.04-acre Railway
Station Retail Park in Dewsbury for a price of GBP4,700,000. The
purchase price reflects a low capital value of GBP82 psf and
provides an attractive net initial yield of 9.4%. The park occupies
a prominent location on the edge of the town centre within an
established retail and leisure area. Neighbouring occupiers include
Sainsburys, Aldi, Matalan, Pets at Home and Iceland, as well as a
council operated library and sports facility. Dewsbury has a tight
supply of retail warehousing stock, with no current vacancies
within the town.
The park is fully let with a low average passing rent of GBP8.28
psf, which the Manager believes provides strong potential for
rental growth. Tenants include Sports Direct, Mecca Bingo,
Fieldrose Ltd, trading as KFC, and the Danish furniture retailer,
Jysk.
Post quarter end, the Company undertook the following investment
transaction:
Eastpoint Business Park, Oxford (office) - During July, the
Company exchanged contracts to sell the Eastpoint Business Park in
Oxford for the price of GBP29 million. The asset was acquired in
May 2015 for GBP8.2 million reflecting a net initial yield of over
9%. The sale price crystallises significant profit, exceeding both
the valuation level immediately prior to the sale by 16% and the
acquisition price by 254%. The asset has delivered an IRR to the
Company in excess of 22% during its hold period.
In 2018, the Company signed a new 25-year lease with specialist
healthcare provider Genesis Care. The lease provided for 5 yearly
rental uplifts in line with RPI which increased the asset's value
by GBP2.0m. As a condition of this letting, the Manager sought
planning consent for change of use away from the asset's existing
office use setting a precedent for healthcare and life science use
in the location.
Since this time, investor demand in the healthcare and life
science sectors has increased and this is reflected in the sale
pricing now achieved. Since announcing an agreed sale price of
GBP37 million on the 25 April, the rising cost of debt combined
with a more uncertain economic outlook impacted the potential
purchasers' assessment of the development risk and required returns
associated with the project, resulting in them withdrawing from the
transaction altogether. The Company received a number of offers for
the asset and accordingly the property went under offer to another
party and ultimately will complete at a reduced price of GBP29
million, with contracts having now been exchanged.
The sale is due to complete on 8 August 2022 and the Company
will receive income from the asset until this date. Subsequent to
this, the Manager intends to reinvest the sale proceeds in assets
producing net initial yields between 6.75% and 10% and has
exclusively secured a pipeline of attractive assets with further
announcements in this regard expected imminently. Due to recent
valuation increases, Oxford is currently producing an income yield
of circa 1.0% and therefore, reinvested proceeds from the sale will
be significantly more accretive to the Company's earnings.
Due to the exchange of the sale post quarter end, a further 2.5p
is expected to be realised in the Company's Net Asset Value per
share.
349 Moorside Road, Swinton (industrial) - Post quarter end, the
Company has exchanged on the sale of the property for GBP1.71
million. A sale at this price reflects a net initial yield of circa
6.6% and a capital value of GBP75 psf. The freehold property
comprises 22,831 sq ft of modern industrial accommodation on a 1.4
acre site. The property was acquired in September 2015 for
GBP1,071,577 reflecting a 9.0% initial yield. A sale at GBP1.7
million represents a 58% premium to the acquisition price.
Completion of the sale is due to take place prior to the end of
July.
Asset Management Update
During the quarter the Company completed the following asset
management transactions:
Arrow Point, Shrewsbury (retail warehouse) - During May, the
Company completed the renewal of Charlie's Stores' lease on
straight 10-year term at a rent of GBP385,000 per annum reflecting
GBP11 psf, versus an ERV of GBP7.50 psf. Charlie's Stores is the
scheme's anchor tenant, so this is an important letting for the
property. Only 9 months' rent-free incentive was given. The
valuation consequently rose by GBP300,000 to GBP10 million, having
already increased by GBP1.35 million on the 2021 purchase price of
GBP8.35 million.
40 Queens Square, Bristol (office) - The Company has completed
an agreement for lease with Konica Minolta Marketing Services Ltd
on the third floor. The tenant will enter into a new 10-year lease
with a five-year tenant break option at a rent of GBP218,840 per
annum reflecting a new high rental tone for the building of GBP40
psf. The letting is subject to the Company undertaking landlord
works comprising a comprehensive Cat A refurbishment and roof, lift
and reception works at a cost of GBP1.07 million plus 11 months'
rent-free incentive. The headline rent demonstrates the strong
location and property fundamentals of the asset.
Commercial Road, Portsmouth (high street retail) - During May,
the Company completed a new 15-year lease to Kokoro UK Limited, a
Japanese-Korean restaurant. The agreed rent is GBP52,500 per annum
versus an ERV of GBP45,750 per annum. The tenant has the benefit of
a 12-month rent free period and a tenant only break option at the
end of the tenth year.
Diamond Business Park, Wakefield (industrial) - During June, the
Company completed a new letting of Units 8 and 9 to Wow Interiors,
an existing tenant on the estate already occupying Unit 7. Wow have
taken a new six-year lease with a tenant break option at the end of
the third year. The commencing rent of GBP3 psf will increase to
GBP3.50 psf in years 2 and 3, and subsequently GBP3.75 psf from
year 4 onwards. In doing so, the Company has also completed a lease
regear on Unit 7, removing Wow's 2022 tenant break option and
agreeing a 3-year reversionary lease with a tenant break option
mirroring Units 8 and 9.
Enquiries
AEW UK
Laura Elkin laura.elkin@eu.aew.com
+44(0) 20 7016 4869
Henry Butt henry.butt@eu.aew.com
+44(0) 20 7016 4869
Nicki Gladstone nicki.gladstone-ext@eu.aew.com
+44(0) 7711 401 021
Company Secretary
Link Company Matters Limited aewu.cosec@linkgroup.co.uk
+44(0) 1392 477 500
TB Cardew AEW@tbcardew.com
Ed Orlebar +44 (0 ) 7738 724 630
Tania Wild +44 (0) 7425 536 903
Liberum Capital
Darren Vickers / Owen Matthews +44 (0) 20 3100 2000
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 GBP15 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 UK Investment Management LLP
AEW UK Investment Management LLP employs a well-resourced team
comprising 26 individuals covering investment, asset management,
operations and strategy. It is part of AEW Group, one of the
world's largest real estate managers, with EUR85.2bn of assets
under management as at 31 March 2022. AEW Group comprises AEW SA
and AEW Capital Management L.P., a U.S. registered investment
manager and their respective subsidiaries. In Europe, as at 31
March 2022, AEW Group managed EUR39.5bn of real estate assets on
behalf of a number of funds and separate accounts with over 470
staff located in 12 locations.
www.aewuk.co.uk
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END
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