TIDMAEWU
RNS Number : 4375D
AEW UK REIT PLC
20 October 2022
20 October 2022
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 35 regional UK
commercial property assets, announces its unaudited Net Asset Value
("NAV") and interim dividend for the three-month period ended 30
September 2022.
Highlights
-- NAV of GBP193.08 million or 121.88 pence per share as at 30
September 2022 (30 June 2022: GBP200.40 million or 126.50pence per
share).
-- NAV total return of -2.07% for the quarter (30 June 2022 quarter: 6.53%).
-- 3.71% like-for-like valuation decrease for the quarter (30
June 2022 quarter increase: 4.49%).
-- EPRA earnings per share ("EPRA EPS") for the quarter of 1.08
pence (30 June 2022 quarter: 1.50 pence).
-- Interim dividend of 2.00 pence per share for the three months
ended 30 September 2022, paid for 28 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 31.07% ( 30 June
2022 : 29.94%). The Company had capital available for deployment of
GBP38.28 million and its loan facility was fully drawn.
-- Cost of debt fixed at 2.959% in May 2022 for the next five years.
-- Share price total return of -16.89% for the quarter (30 June 2022 quarter: -2.86%).
-- Acquisition of JD Gyms, Glasgow, for a purchase price of
GBP2.60 million, representing a capital value of GBP99 per sq. ft.
The price reflects a net initial yield of circa 7.4%.
-- Completed sale of Moorside Road, Swinton, for GBP1.71
million, resulting in a circa 13% IRR over the hold period. The
sales price reflects a net initial yield of circa 6.6% and a
capital value of GBP75 per sq. ft.
-- Completed sale of Bath Street, Glasgow, for GBP9.30 million,
following completion of a long running business plan.
-- Completed sale of Eastpoint Business Park, Oxford, for
GBP29.0 million, producing an IRR in excess of 22%.
-- New ten-year lease to Senior Architectural Systems Ltd at
Mangham Road, Rotherham, providing a rent of GBP410,000 per annum
representing a significant uplift in income against the previous
passing rent of GBP275,000 per annum.
Laura Elkin, Portfolio Manager, AEW UK REIT, commented:
"With its low fixed cost of debt and value investment style, we
believe that the Company's portfolio is robustly positioned to
withstand the challenges presented by current market conditions. We
expect the number and extent of value investment opportunities in
the direct property market to increase against this economic
backdrop. The Company's current high weighting of cash and the fact
that its strategy is unconstrained by sector leave it well placed
to benefit from upcoming investment opportunities. In addition, we
are seeing resilience in occupational demand from the Company's
tenants. Following full investment of capital available for
deployment, the Company's earnings are expected to return to full
cover of its dividend, which has now been paid for 28 consecutive
quarters."
Portfolio Manager's Review
Having taken the opportunity to complete a number of key sales
during the summer, including realising significant profit from the
disposal of Eastpoint Business Park in Oxford, the Company
currently benefits from a high cash weighting, leaving it
advantageously positioned to select assets from the increased
number of investment opportunities that are expected to present in
the near term. We are currently analysing a pipeline of potential
acquisitions, including those assets that the Company had placed
under exclusivity over the summer, albeit these are being
re-evaluated against today's pricing. The focus of the Company's
investment strategy remains to return to full investment and to
full cover of its dividend. We believe that balancing the Company's
upcoming investment rate against current and prospective pipeline
opportunities will be beneficial to shareholder total returns.
The Company's current weighting to cash is reflected in low
earnings for the quarter, which are depressed by lost rental income
from disposals as well as one-off costs associated with improvement
works being undertaken at a number of the portfolio's holdings.
These works include those detailed below in Bristol and Rotherham
which are both associated with new lettings that will be accretive
to the Company's earnings going forward. The Company's prudent
accounting provision for doubtful debtors has also been increased
this quarter, given the deteriorating economic outlook. The Company
will continue to pursue all outstanding arrears. Our prudent
projections indicate a return to full dividend cover during the
third quarter of 2023, following the Company's intended return to
full investment during the first half of the year.
We believe that the Company and its portfolio are defensively
positioned to weather higher interest rates for a number of
reasons. The Company took the prudent decision to complete a full
refinancing of its loan in May 2022, fixing its cost of debt below
3% for the next five years. This will protect the Company from the
impact of rising interest rates on its cost of borrowing. We also
believe that high yielding assets, such as those in the Company's
portfolio, will be more resilient to the valuation impact of rising
interest rates. As yields re-adjust to the current market
conditions, it is those assets at the most prime end of the
spectrum that have suffered more acutely to date. With higher
"starting" yields, the portfolio's current book values are closer
to long term value fundamentals, such as vacant possession values,
alternative use values and replacement cost.
Although the outlook from a capital market perspective is one of
increased volatility, we are not seeing this reflected in the
uptake by tenants of the portfolio's occupational space. Active
asset management is a key driver of value and income resilience
within AEWU and, during the quarter, we agreed terms with three key
tenants to take space, all of which were in line with the rental
estimates of our independent valuer, Knight Frank.
Several of these lettings have been in the portfolio's
industrial assets, including the letting in Rotherham to Senior
Architectural Systems Ltd. This letting will deliver a rental
income to the Company that is 49.09% higher than the previous
tenant had been paying and growth within the lease term is also
ensured by inflation-linked reviews. The letting secured a capital
uplift for the asset of 14.58% during the quarter. This activity
highlights the ongoing demand from industrial occupiers at a time
when the sector's capital values have generally declined. AEWU's
industrial holdings show an average passing rent of GBP3.37 per sq.
ft. and, despite the expectation of some medium-term volatility in
capital values, are expected to continue to deliver growth over the
long term from this low starting point.
Valuation movement
As at 30 September 2022, the Company owned investment properties
with a fair value of GBP214.25 million. The like-for-like valuation
decrease for the quarter of GBP8.15 million (3.71%) is broken down
as follows by sector:
Valuation Like-for-like
30 September valuation movement
Sector 2022 for the quarter
GBP % GBP million %
million
Industrial 113.32 52.89 (7.65) (6.32)
Retail Warehouses 39.70 18.53 (0.35) (0.87)
High Street
Retail 24.70 11.53 - -
Other 19.78 9.23 - -
Office 16.75 7.82 (0.15) (0.96)
Total 214.25 100.00 (8.15) (3.71)*
* This is the overall weighted average like-for-like valuation
decrease of the portfolio.
Net Asset Value
The Company's unaudited NAV at 30 September 2022 was GBP193.08
million, or 121.88 pence per share. This reflects a decrease of
3.65% compared with the NAV per share at 30 June 2022. The
Company's NAV total return, which includes the interim dividend of
2.00 pence per share for the period from 1 April 2022 to 30 June
2022, was -2.07% for the three-month period ended 30 September
2022.
Pence per GBP million
share
NAV at 1 July 2022 126.50 200.40
Gain on sale of investments 6.83 10.83
Portfolio acquisition costs (0.56) (0.89)
Capital expenditure (0.62) (0.99)
Valuation change in property portfolio (9.35) (14.81)
Income earned for the period 2.21 3.50
Expenses and net finance costs for the
period (1.13) (1.79)
Interim dividend paid (2.00) (3.17)
NAV at 30 September 2022 121.88 193.08
The NAV attributable to the ordinary shares has been calculated
under International Financial Reporting Standards. It incorporates
the independent portfolio valuation at 30 September 2022 and income
for the period, but does not include a provision for the interim
dividend for the three-month period to 30 September 2022.
Share price and Discount
The closing share price reflects a decrease of 18.3% compared
with the share price at 30 June 2022. The Company's share price
total return, which includes the interim dividend of 2.00 pence per
share for the period from 1 April 2022 to 30 June 2022, was -16.89%
for the three-month period ended 30 September 2022.
The closing ordinary share price at 30 September represented a
discount to the NAV per share of 23.2%. In line with other
companies in the sector, the Company's discount widened
significantly during volatile market conditions at the end of
September.
Rent Collection
The Company has achieved very high rent collection levels, which
stand at over 98% (1) for each quarter since March 2020 (excluding
the current quarter as rent continues to be collected).
For the rental quarter commencing on 29 September 2022,
approximately 94% of rent demanded 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, which is 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 July 2022 to 30 September 2022. The
dividend payment will be made on 28 November 2022 to shareholders
on the register as at 28 October 2022. The ex-dividend date will be
27 October 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 7 November 2022.
The dividend of 2.00 pence per share will be designated 1.00
pence per share as an interim property income distribution ("PID")
and 1.00 pence per share as an interim ordinary dividend
("non-PID").
The Company has now paid a 2.00 pence quarterly dividend for 28
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 a 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 Company
intends to utilise borrowings to enhance returns over the next five
years.
The Company had borrowings of GBP60.0 million at 30 September
2022, producing a Loan to NAV ratio of 31.07%. The loan is now
fully drawn.
Investment Update
During the quarter the Company completed the following
investment transactions:
Disposals:
Bath Street, Glasgow (office) - Following the expiry of the
three-month planning judicial review period, the Company completed
on the sale of the property for GBP9.30 million (GBP109 per sq.
ft.). The sale realises a long-term change of use strategy for the
asset, with contracts for the sale having been exchanged with a
subsidiary company of IQ Student Accommodation in October 2020. The
sale agreement required AEW to negotiate with tenants to bring the
asset to vacancy and, as a result, following its sale, the
occupancy rate for AEWU's portfolio increased to 92.3% from 87.0%,
as at 30 September 2022. At the time of purchase in 2016, the
Company intended to keep the asset producing income as a multi-let
office however, due to weakening in the occupier market conditions
in this location, an alternative use strategy was then pursued.
Eastpoint Business Park, Oxford (office) - The Company completed
on the sale of the property for GBP29.0 million (GBP388 per sq.
ft.). The property was acquired in May 2015 for GBP8.20 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. Due to prior valuation increases, the
asset was producing an income yield of circa 1.0% and therefore
reinvested proceeds from the sale, in assets producing net initial
yields between 6.75% and 10%, will be significantly accretive to
the Company's earnings.
349 Moorside Road, Swinton (industrial) - The Company completed
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 per sq. ft. 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%
net initial yield. A sale at GBP1.70 million represents a 58%
premium to the acquisition price.
Purchases:
JD Gyms, Glasgow (leisure) - The Company completed the purchase
of a high yielding leisure asset in Glasgow for GBP2.60 million
reflecting a low capital value of GBP99 per sq. ft. and a net
initial yield of 7.4%. The property comprises a standalone leisure
and retail warehousing unit let to JD Sports Gym Ltd, which
operates 74 gyms in the UK and is a subsidiary of JD Sports Fashion
Plc. The lease provides an unexpired lease term of 10.4 years,
benefitting from five-yearly upward-only reviews. The site also
contains a vacant plot of land which may be suitable for
redevelopment over the medium term, subject to planning.
Asset Management Update
During the quarter the Company completed the following asset
management transactions:
40 Queen Square, Bristol (office) - The Company completed an
agreement for lease with existing tenant Konica Minolta Marketing
Services Ltd on the third floor. The tenant will enter into a new
ten-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 per sq. ft. The letting is subject to landlord
refurbishment works including roof, lift and reception upgrades at
a cost of GBP1.07 million plus eleven months' rent-free incentive.
Landlord works commenced during the quarter and are due to complete
before the end of the year.
Mangham Road, Rotherham (industrial) - The Company has completed
a new ten-year ex-Act lease to Senior Architectural Systems Ltd at
a rent of GBP410,000 per annum reflecting a rent of GBP5 per sq.
ft. This shows a significant uplift to the rent paid by previous
tenant, Hydro Components, at GBP275,000 per annum. The lease
provides for five-yearly rent reviews to the higher of open market
rent or RPI, with collar and cap at 2% & 4% per annum,
respectively. There was no rent-free incentive granted to the
tenant, however the landlord undertook works to upgrade the
building at a cost of GBP964,700. These works were completed during
the quarter and are expected to improve the asset's energy
efficiency. The tenant benefits from a break option at the end of
year five.
Bank Hay Street, Blackpool (retail / leisure) - Repair works at
the property which commenced in 2020 have now reached practical
completion. The total cost of these works amounted to circa GBP2.40
million, of which approximately GBP800,000 is expected to be
recovered from tenants. The recoverable elements of this
expenditure have been raised within the service charge budget and
all tenants are up to date with payments.
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 29 individuals covering investment, asset management,
operations and strategy. It is part of AEW Group, one of the
world's largest real estate managers, with EUR87.7bn of assets
under management as at 30 June 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 30 June 2022,
AEW Group managed EUR39.7bn 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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