TIDMAEWU
RNS Number : 5763Q
AEW UK REIT PLC
19 October 2023
19 October 2023
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 UK commercial
property assets, announces its unaudited Net Asset Value ("NAV") as
at 30 September 2023 and interim dividend for the three-month
period ended 30 September 2023.
Highlights
-- NAV of GBP167.93 million or 106.00 pence per share as at 30
September 2023 (30 June 2023: GBP169.56 million or 107.03 pence per
share).
-- NAV total return of 0.91% for the quarter (30 June 2023 quarter: 3.36%).
-- 0.70% like-for-like valuation increase for the quarter (30
June 2023 quarter increase: 0.74%).
-- EPRA earnings per share ("EPRA EPS") for the quarter of 1.84
pence (30 June 2023 quarter: 1.75 pence).
-- Interim dividend of 2.00 pence per share for the three months
ended 30 September 2023, paid for 32 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 35.73% (30 June
2023: 35.39%). Loan to GAV ratio at the quarter end was 27.35% (30
June 2023: 30.54%). Significant headroom remains on all loan
covenants.
-- Company continues to benefit from a low fixed cost of debt of 2.959% until May 2027.
-- Purchase of a car park asset in central York for GBP10.02
million, reflecting a NIY of 9.3%.
-- Purchase of a mixed-use asset in central Bath for GBP11.50
million, reflecting a NIY of 8.0%.
-- Post quarter-end disposal of Commercial Road, Portsmouth, for
GBP3.90 million, reflecting a 22% premium to the 30 June 2023
valuation.
Laura Elkin, Portfolio Manager, AEW UK REIT, commented:
"We are pleased to report significant progress this quarter
towards the Company's strategic objective of reinvesting capital
generated from recent sales into higher yielding assets in core
urban locations. The purchases of NCP, York, and Cambridge House,
Bath, utilised most of the capital available for deployment and
have strengthened earnings. Despite the short-term negative impact
on NAV of acquisition costs, these purchases are expected to
deliver NAV growth over the medium term.
Following the completion of key asset management transactions at
a number of the Company's holdings, the Company's portfolio
achieved a like-for-like valuation increase of 0.70%, demonstrating
the effectiveness of our active asset management strategy in
delivering counter cyclical performance.
The Company has committed to pay its market-leading dividend of
2.00 pence per share per quarter for 32 consecutive quarters,
funded mainly by EPRA earnings, and supplemented by profit
crystallised on the NAV accretive sale of assets, of which the
recent Commercial Road disposal is another good example. Further
gains in EPS are expected in the coming quarters as the ongoing
programme of new lettings should provide a boost to income streams
and a reduction in void costs."
Valuation movement
As at 30 September 2023, the Company owned investment properties
with a total fair value of GBP219.36 million, as assessed by the
Company's independent valuer, Knight Frank. The like-for-like
valuation increase for the quarter of GBP1.37 million (0.70%) is
broken down as follows by sector:
Sector Valuation 30 September Like-for-like valuation
2023 movement for the
quarter
GBP million % of portfolio GBP million %
------------ --------------- ---------------- --------
Industrial 78.33 35.71 1.04 1.35
------------ --------------- ---------------- --------
Retail
Warehouses 46.25 21.08 1.65 3.70
------------ --------------- ---------------- --------
High
Street
Retail 38.16 17.40 (1.16) (2.95)
------------ --------------- ---------------- --------
Other 30.37 13.84 0.35 1.75
------------ --------------- ---------------- --------
Office 26.25 11.97 (0.51) (3.34)
------------ --------------- ---------------- --------
Total 219.36 100.00 1.37 0.70*
------------ --------------- ---------------- --------
* This is the overall weighted average like-for-like valuation
increase of the portfolio.
Portfolio Manager's Review
This quarter has seen the Company make significant advancements
towards achieving full capital deployment through the acquisitions
of Tanner Row, York, and Cambridge House, Bath. These purchases
demonstrate the effective recycling of proceeds received from the
sale of lower yielding assets into higher yielding ones. Critical
to these acquisitions were the strong locations of the assets, both
of which occupy attractive city centre pitches. Moreover, both
assets have robust reversionary potential, each offering yields in
excess of 10%, amplifying their potential accretion to earnings
over time.
This drive towards increasing earnings was furthered by the
Company exchanging on the sale of Commercial Road, Portsmouth,
during the quarter. The disposal price of GBP3,900,000 reflects a
notable 22% premium against the valuation preceding exchange. This
disposal was motivated by the deterioration of the asset's location
since purchase in 2017, since when the high street retail market
has been through considerable structural change. The sale of the
asset demonstrates the Company's strategy to, where needed,
undertake efficient recycling of capital in to higher-performing
pipeline assets. Completion of the sale occurred on 6 October
2023.
Progress on dividend cover was impacted by the demise of Wilko
and the closure of its store at the Company's holding in Union
Street, Bristol, in early October. The decision has been made to
write-off, in full, all historic arrears yet to be provided for, as
well as all amounts charged in the quarter, resulting in a 0.22
pence per share deduction to quarterly EPRA EPS. Following the
write-off of these historic Wilko arrears, the ongoing constraint
to quarterly EPRA EPS caused by its vacant unit will be
considerably less. Development of an asset management plan for the
unit is underway and the Company is confident it will be able to
re-let the unit in the near term, given the attractive location of
the store within a vibrant area of a mixed-use development. We will
continue to pursue the tenant's arrears using all appropriate
means.
We continue to drive performance through a variety of asset
management initiatives. At Central Six Retail Park, Coventry, the
Company obtained planning permission for the amalgamation of Units
6a and 6b, thus facilitating a letting to The Food Warehouse early
next year. This, combined with the post quarter end exchange of
agreement for leases with new tenants, Whitecross Dental Care
Limited and The Salvation Army, has enhanced the tenant mix and
will deliver income growth. Building upon the lettings completed in
the prior quarter, a new letting to Warwick Holdings Ltd at Oak
Park was completed, meaning this property is now fully let. All of
these asset management transactions illustrate the effectiveness of
the Company's value-investment principles, despite negative
sector-focused macroeconomic headwinds.
The Company's focus for the deployment of capital continues to
be on the consideration of further accretive investment
opportunities, alongside re-investment into the existing portfolio
where capex is needed in order to drive future performance
gains.
Net Asset Value
The Company's unaudited NAV at 30 September 2023 was GBP167.93
million, or 106.00 pence per share. This reflects a decrease of
0.96% compared with the NAV per share at 30 June 2023. The
Company's NAV total return, which includes the interim dividend of
2.00 pence per share for the period from 1 April 2023 to 30 June
2023, was 0.91% for the three-month period ended 30 September
2023.
Pence per share GBP million
NAV at 1 July 2023 107.03 169.56
Portfolio acquisition costs (1.04) (1.64)
Capital expenditure (0.66) (1.04)
Valuation change in property portfolio 0.83 1.31
Income earned for the period 3.14 4.98
Expenses and net finance costs for the period (1.30) (2.07)
Interim dividend paid (2.00) (3.17)
NAV at 30 September 2023 106.00 167.93
The NAV attributable to the ordinary shares has been calculated
under International Financial Reporting Standards. It incorporates
the independent portfolio valuation at 30 September 2023 and income
for the period, but does not include a provision for the interim
dividend declared for the three-month period to 30 September
2023.
Share price and Discount
The closing ordinary share price at 30 September 2023 was 98.4p.
This represents a discount to the NAV per share of 7.17% and an
increase of 6.15% compared with the share price of 92.7p at 30 June
2023. The Company's share price total return, which includes the
interim dividend of 2.00 pence per share for the period from 1
April 2023 to 30 June 2023, was 8.31% for the three-month period
ended 30 September 2023.
Dividend
Dividend declaration
The Company today announces an interim dividend of 2.00 pence
per share for the period from 1 July 2023 to 30 September 2023. The
dividend payment will be made on 1 December 2023 to shareholders on
the register as at 27 October 2023. The ex-dividend date will be 26
October 2023. 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 10 November 2023.
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 32
consecutive quarters (1) , providing high levels of 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 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% until May 2027.
The loan was fully drawn at 30 September 2023, producing a Loan
to NAV ratio of 35.73%.
Headroom on the debt facility's loan to value ("LTV") covenant
continues to be conservative. For those properties secured under
the loan, a 48.90% fall in valuation would be required before the
LTV covenant were to be breached.
Investment Update
During the quarter the Company completed the following
purchases:
Tanner Row, York (car park) - in July, the Company completed the
acquisition of a mixed-use asset within York city centre for
GBP10,020,000, reflecting an attractive net initial yield of 9.3%.
The site totals 0.8 acres and is well located inside the York City
Wall, bounding the historic centre of the city.
The 99,769 sq ft asset is multi-let to five tenants, with 75% of
the income received from National Car Parks Ltd who have a further
9 years remaining. NCP have occupied the 297-space car park since
2005 and the lease benefits from a 2027 rent review which will
increase rent payable in line with uncapped Retail Price Index,
resulting in a forecast reversionary yield in excess of 10%. A
further four tenants occupy ground and first floor retail and
office accommodation fronting onto George Hudson Street.
Cambridge House, Bath (office) - in early September, the Company
completed the acquisition of a freehold, mixed-use asset in Bath
city centre for GBP11,500,000, reflecting an attractive net initial
yield of 8.0% and a capital value of GBP223 per sq ft.
The property comprises a rare freehold island site totalling
circa 0.4 acres and is located immediately adjacent to the South
Gate Shopping Centre which forms part of the city's core retail
provision. Bath Spa Train Station is less than a five-minute walk
from the property, with other key tourist attractions such as Bath
Cathedral, the Roman Baths and Pulteney Bridge within a short
distance.
The 51,632 sq ft asset is multi-let to five tenants across
office and retail accommodation. The majority of the building is
let to four office tenants at a low average passing rent of circa
GBP22 per sq ft. Income levels are expected to improve via rent
reviews in the short-term and through lease renewals and
re-lettings over the medium-term. Light refurbishment may also be
considered in order to fully capitalise on the building's prime
location and prominence. A vacant retail unit, fronting Philip
Street and Ham Gardens, is currently under offer to an established
local retailer. We expect market conditions to remain favourable in
this location given the low level of available and consented
supply, coupled with strong demand for well-specified and
well-located accommodation.
Post quarter end, the Company completed the following
disposal:
Commercial Road, Portsmouth (high-street retail) - earlier in
October, the Company completed the sale of its freehold high-street
retail holding at 208-220 Commercial Road and 7-13 Crasswell
Street, Portsmouth, for GBP3,900,000, reflecting a net initial
yield of 9.9% and a capital value of GBP251 per sq ft. A sale at
this price reflects a circa 22% premium to the 30 June 2023
valuation of GBP3,200,000.
Asset Management Update
The Company completed the following asset management
transactions during the quarter:
40 Queens Square, Bristol (office) - the Company has recently
completed a new five-year ex-Act lease to Environmental Resources
Limited with a tenant break option at the end of the third year at
a rent of GBP69,230 per annum (GBP35 per sq ft). The tenant has the
benefit of an initial six-month rent-free period, with a further
four months incentive if they do not serve their break option.
Central Six Retail Park, Coventry (retail warehousing) - In
September, the Company received formal confirmation of the planning
permission for the amalgamation of Unit 6a and Unit 6b and extended
delivery hours in order to facilitate the letting to The Food
Warehouse. The letting is expected to complete in February
2024.
Post quarter end, the Company also exchanged an agreement for
lease with a new tenant, Salvation Army Trading Company Ltd, for
Unit 12. The tenant will enter into a new lease expiring on 2
November 2032 with a tenant only break in year 5 at a rent of
GBP140,000 per annum, reflecting GBP13.97 per sq ft. The letting
includes nine months' rent free. The letting is subject to the
landlord securing vacant possession, as the unit is currently
occupied by Oak Furnitureland, who are currently paying an annual
rent of GBP25,000, and carrying out Landlord works budgeted at
GBP147,336.
Also, post quarter end, the Company exchanged an agreement for
lease with new tenant Whitecross Dental Care Limited, trading as
MyDentist, for vacant Unit 4. The tenant will enter into a new
15-year lease with a 10-year tenant break option, at a rent of
GBP145,000 per annum, reflecting GBP14.29 per sq ft, to be reviewed
every five years based on open market value (upward only). The
letting includes a GBP217,500 cash incentive and is subject to the
landlord works, at a cost of GBP237,500.
The Railway Centre, Dewsbury (leisure) - Mecca Bingo, whose
lease expires on 24 December 2023, have surrendered their lease
early on 29 September 2023, paying all their rent, service charge
and insurance to lease expiry. In doing so, the Company has also
settled Mecca's dilapidations at GBP285,000. The full and final
combined settlement totals GBP365,126. The Manager is in the
process of agreeing terms with an incoming tenant where landlord
enabling works will be required. An early surrender of Mecca's
lease will facilitate the new letting completing a quarter earlier
than otherwise possible.
Oak Park, Droitwich (industrial) - having completed two new
leases in the previous quarter, totalling a rent of GBP193,000 per
annum, the Company has completed a letting at units 272 and 273 to
J Warwick Holdings Ltd for a new 15-year term, with rolling tenant
break options every three years at a rent of GBP79,000 per annum.
The tenant has the benefit of a six-month rent-free period. The
property is now fully let.
Diamond Business Park (industrial) - the Company has settled
Compac UK's July 2023 RPI rent review at GBP53,517 per annum,
representing an GBP11,517 per annum (circa 27%) increase. The unit
is still considered under-rented, with an ERV of GBP4.00 per sq ft,
compared to the new passing rent of GBP3.90 per sq ft.
The Company has also settled Economy Packaging Ltd's August 2023
open market rent review at GBP79,065 per annum, representing a
GBP26,565 per annum (circa 50%) increase. This letting equates to
GBP3.75 per sq ft and will provide good evidence for further asset
management activity.
Westlands Distribution Park, Weston-Super-Mare (industrial) -
the Company has completed a lease renewal with JN Baker who have
extended their occupation of Unit 2A for a further two years from
April 2023, with a mutual break option exercisable after nine
months. The agreed rent is GBP159,000 per annum inclusive of
insurance.
The Company has settled three outstanding April 2022 rent
reviews with North Somerset Council at units 2, 5 and 6. The
combined rental increase is GBP35,864 per annum (circa 20%).
Carr Coatings, Redditch (industrial) - the Company has settled
Carrs Coatings Ltd's August 2023 annual uncapped RPI rent review at
GBP294,348 per annum (GBP7.75 per sq ft), representing a GBP24,385
per annum (circa 9%) increase. The unit is single-let to Carrs
Coatings Ltd until August 2028. The lease was entered into as a
sale and leaseback in 2008 at an initial starting rent of
GBP170,300 per annum (GBP4.50 psf).
Glossary of Commonly Used Terms
For assistance with the interpretation of any industry specific
terms used in the Company's communications, please refer to our
glossary of commonly used terms which can be found on the Company's
website in the following location:
https://www.aewukreit.com/investors/glossary
AEW UK
Laura Elkin 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
AEW is one of the world's largest real estate asset managers,
with EUR83.1bn of assets under management as at 30 June 2023. AEW
has over 890 employees, with its main offices located in Boston,
London, Paris and Hong Kong and offers a wide range of real estate
investment products including comingled funds, separate accounts
and securities mandates across the full spectrum of investment
strategies. AEW represents the real estate asset management
platform of Natixis Investment Managers, one of the largest asset
managers in the world.
As at 30 June 2023, AEW managed EUR39.0bn of real estate assets
in Europe on behalf of a number of funds and separate accounts. AEW
has over 485 employees based in 10 office across Europe and has a
long track record of successfully implementing core, value-add and
opportunistic investment strategies on behalf of its clients. In
the last five years, AEW has invested and divested a total volume
of over EUR21bn of real estate across European markets.
www.aew.com
AEW UK Investment Management LLP is the Investment Manager. AEW
is a group of companies which includes AEW Europe SA and its
subsidiaries as well as affiliated company AEW Capital Management,
L.P. in North America and its subsidiaries. AEW Europe SA, together
with its subsidiaries AEW UK Investment Management LLP, AEW
S.à.r.l., AEW Invest GmbH and AEW SAS, is a European real estate
investment manager with headquarter offices in Paris and London.
AEW Europe SA and AEW Capital Management, L.P. are owned by Natixis
Investment Managers. Natixis Investment Managers is an
international asset management group based in Paris, France, that
is principally owned by Natixis, a French investment banking and
financial services firm. Natixis is principally owned by BPCE,
France's second largest banking group.
Disclaimer
This communication cannot be relied upon as the basis on which
to make a decision to invest in AEWU. This communication does not
constitute an invitation or inducement to subscribe to any
particular investment. Issued by AEW UK Investment Management LLP,
33 Jermyn Street, London, SW1Y 6DN.
Company number : OC367686 England. Authorised and regulated by
the Financial Conduct Authority.
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END
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