AEWU Aew Uk Reit Plc

30 January 2025

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, diversified portfolio of 32 UK commercial property assets, announces its unaudited Net Asset Value ("NAV") at 31 December 2024 and interim dividend for the three-month period ending 31 December 2024.

Highlights

·      NAV of £174.30 million or 110.02 pence per share at 31 December 2024 (30 September 2024: £172.76 million or 109.05 pence per share).

·      NAV total return of 2.73% for the quarter (30 September 2024 quarter: 4.85%).

·      1.22% like-for-like valuation increase for the quarter (30 September 2024 quarter: 2.94% increase).

·      EPRA earnings per share ("EPRA EPS") for the quarter of 2.35 pence (30 September 2024 quarter: 2.68 pence).

·      Interim dividend of 2.00 pence per share for the three months ended 31 December 2024, paid for 37 consecutive quarters and in line with the targeted annual dividend of 8.00 pence per share, representing a dividend yield of 7.9%.

·      Loan to GAV ratio at the quarter end was 25.03% (30 September 2024: 25.04%). Significant headroom on all loan covenants.

·      Company continues to benefit from a low fixed cost of debt of 2.959% until May 2027.

·    Disposal of Units 1-11 of Central Six Retail Park, Coventry, for £26,250,000, reflecting a net initial yield of 7.49% and a capital value of £213 per sq. ft, representing a 60% premium to the purchase price.

Henry Butt, Assistant Portfolio Manager, AEW UK REIT, commented:

"We are pleased with the growth in NAV per share and the dividend being covered by EPRA earnings for a third consecutive quarter, which continues to evidence the earnings accretion produced by the Company's programme of ongoing asset management initiatives through income generation and void cost mitigation. Rental income has been buoyed by the billing of annual turnover rent for Next in Bromley, and Poundland in Coventry, while the Company's 'bottom line' continues to benefit from a stabilised portfolio and tenant base.

The part sale of Central Six Retail Park, Coventry, at a very healthy premium of 60% to the purchase price, means the Company has capital to deploy on a pipeline of attractive investment opportunities, a significant amount of which is already under offer.

The Company has committed to pay its quarterly dividend of 2.00 pence per share, which has now been paid for 37 consecutive quarters."

Valuation Movement

As at 31 December 2024, the Company owned investment properties with a total fair value of £191.96 million, as assessed by the Company's independent valuer, Knight Frank. The like-for-like valuation increase for the quarter of £2.31 million (1.22%) is broken down as follows by sector:

* This is the overall weighted average like-for-like valuation increase of the portfolio.

Portfolio Manager's Review

The Company's portfolio saw a like-for-like valuation increase of 1.22% for the quarter, similar to the valuation gains of the previous three quarters. This consistent valuation growth continues to reflect the effectiveness of the Company's active asset management strategy in driving income and capital growth within the portfolio.

The like-for-like increase in the valuation was chiefly driven by ERV growth and positive news on lease events at several of the Company's industrial assets. The values of the Company's industrial assets, which account for 40% of the portfolio, were up 2.01% for the quarter, having delivered a similar increase of 2.19% in the previous quarter. ERV growth further signifies the reversionary potential of the portfolio, with the Company's industrial assets' net initial yield and reversionary yield being 7.23% and 8.77% respectively. The sector also experienced some mild yield compression in response to a busier quarter of UK investment activity in comparison to the summer months, with investment volumes hitting their highest level since the third quarter of 2022.    

The Company experienced valuation gains in retail, with the high-street retail sector up 2.62% on a like-for-like basis, mainly driven by positive sentiment towards the asset management outlook for two high-street retail assets, being Northgate House, Bath, and 15-33 Union Street, Bristol. The retail warehousing assets had a quieter period compared to the previous two quarters, with a valuation increase of 1.17%. However, during the period, the Company successfully disposed of its largest retail warehouse in Coventry for a substantial 60% premium to the purchase price.*

Despite the more positive outlook on interest rates reported in the previous quarter, with UK gilt yields recently being at their highest level since 2008, we believe the disposal of Coventry could prove to be timely, with the following months being an opportune time to have circa £25 million of cash to deploy on new acquisitions, taking advantage of softening pricing from a stalling investment market as indicated by our pipeline.      

The office sector had another quiet quarter. The refurbishment of vacant space at the Company's office in Bristol is currently underway, with the refurbishment at Cambridge House, Bath, due to commence shortly. Until these projects are nearing practical completion, and marketing fully underway, their valuations are likely to remain muted.

The Company won the 'Property' category at the Investment Company of the Year awards for the second consecutive year, adding to the Citywire and MSCI awards won earlier in the financial year. This award, voted on by an independent panel of investment industry experts, is testament to the consistent performance delivered by the Company.

* The freehold of Units 1-11 Central Six Retail Park, Coventry, were sold. The long leasehold of Units 12, A(1), A(2) and B, known as the 'triangle site', remain in the Company's ownership. Please refer to the Investment Update for full details.  

Net Asset Value

The Company's unaudited NAV at 31 December 2024 was £174.30 million, or 110.02 pence per share. This reflects an increase of 0.89% compared with the NAV per share at 30 September 2024. The Company's NAV total return, which includes the interim dividend of 2.00 pence per share for the period from 1 July 2024 to 30 September 2024, was 2.73% for the three-month period ended 31 December 2024.

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards. It incorporates the independent portfolio valuation at 31 December 2024 and income for the period, but does not include a provision for the interim dividend declared for the three-month period to 31 December 2024.

Share Price and Discount

The closing ordinary share price at 31 December 2024 was 100.4p, an increase of 2.03% compared with the share price of 98.4p at 30 September 2024. The closing share price represents a discount to the NAV per share of 8.75%. The Company's share price total return, which includes the interim dividend of 2.00 pence per share for the period from 1 July 2024 to 30 September 2024, was 4.07% for the three-month period ended 31 December 2024.

Dividend

Dividend declaration

The Company today announces an interim dividend of 2.00 pence per share for the period from 1 October 2024 to 31 December 2024. The dividend payment will be made on 7 March 2025 to shareholders on the register as at 7 February 2025. The ex-dividend date will be 6 February 2025. 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 14 February 2025.

The dividend of 2.00 pence per share will be designated 2.00 pence per share as an interim property income distribution ("PID").

The Company has now paid a 2.00 pence quarterly dividend for 37 consecutive quarters¹, providing high levels of income consistency to our shareholders.

¹For 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. In determining future dividend payments, regard will be given to the financial 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 158,424,746 Ordinary Shares in issue.

Debt:

The Company has a £60.00 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 31 December 2024, producing a Loan to GAV ratio of 25.03%.

Headroom on the debt facility's 60% loan to value ("LTV") covenant continues to be conservative. For those properties secured under the loan, a 40.81% fall in valuation would be required before the LTV covenant were to be breached.

Investment Update

Units 1-11, Central Six Retail Park, Coventry (retail warehouse) - On 13 December 2024, the Company completed the sale of Units 1-11 of Central Six Retail Park for £26,250,000, reflecting a net initial yield of 7.49% and a capital value of £213 per sq. ft. This sale price represents a 60% premium to the purchase price of the entire property which was acquired in November 2021 for £16,411,000 (£110 per sq. ft.), and a 6.7% premium to the 30 June 2024 valuation, being the latest valuation date prior to agreeing Heads of Terms. Excluding the remaining part of the retail park (Units 12, A(1), A(2) and B), known as the 'triangle site', which the Company will retain, the sale delivered an IRR in excess of 16%.

The sale price will be paid in two tranches; the first instalment of £25,900,000 was paid on sale completion. The second instalment, amounting to £350,000, which is currently held in escrow, will be paid on the completion of a new lease of Unit 10 to Superdrug Stores Plc, where an agreement for lease has already exchanged (see Asset Management Update below). The purchaser is also contracted to pay a third instalment of £500,000 to the Company, should it complete a letting to an electric vehicle charging operator within the first 18 months of ownership.

Following the completion of three new lettings to Aldi Stores Limited, Iceland Foods Limited and Whitecross Dental Care Limited, which added £668,000 of annual rental income, the property is now fully let, having had circa 24% vacancy (% of ERV) at the time of acquisition. These three lettings, coupled with lease renewals and regears to Next Group plc, Boots UK Ltd and TJX UK (TK Maxx), have maximised both income and the value of the asset.

In June 2023, the Company completed the acquisition of the freehold interest of Units 1-11, which had previously been held by way of a restrictive long leasehold title from Friargate JV Projects Limited (Friargate). The remainder, known as the 'triangle site', still held on a long leasehold, can be acquired by Friargate at any time for a five-year period from July 2025. This, as well as the completion of the occupational transactions mentioned above, prompted the decision to market the asset for sale. Furthermore, having increased the net operating income by circa 54% since acquisition, the property is no longer considered reversionary, with two of the ten units, where lease renewals are anticipated in 2025, being considered 'over-rented' with a forecast reversionary yield of 6.88%.

No purchases were made by the Company during the quarter.

Asset Management Update

The Company completed and exchanged on the following asset management transactions during the quarter:

Units 1-11, Central Six Retail Park, Coventry (retail warehouse) - On 9 December 2024, the Company simultaneously exchanged an agreement for surrender with TUI UK Retail Limited (TUI) and an agreement for lease with Superdrug Stores Plc (Superdrug) for Unit 10. The agreement for surrender with TUI is conditional on the tenant carrying out works to Unit 10 in line with a pre-agreed specification in preparation of the new letting to Superdrug. The agreement for lease with Superdrug is conditional on the works being carried out by TUI, vacant possession and a capital contribution of £31,000 by the Company. Once the conditions have been satisfied, Superdrug will enter into a new 10-year lease, with a tenant only break option in year five, at a rent of £158,760 per annum (£18 per sq. ft.). The letting includes a 12-month rent-free incentive.

Following a protracted exchange of correspondence with Poundland, three years of turnover rent has been billed for 2022, 2023 and 2024, equating to £57,862 in total.

Units 12, A(1), A(2) and B, (known as the 'triangle site'), Central Six Retail Park, Coventry (retail warehouse) - On 17 December, the Company completed a new lease with TUI UK Retail Limited (TUI) for part of Unit A(2) on a five-year term, with a tenant only break option at the end of year three, at a rent of £75,000 per annum (£43.55 per sq. ft.). The letting includes a six-month rent-free incentive effective from 1 July 2025 and a tenant break option penalty equivalent to 12 months' rent. The Company provided a £174,000 capital contribution, £44,000 for strip-out works of the former American Golf unit and a further £130,000 for subdivision works, creating two units.   

Cambridge House, Bath (mixed-use) - The Company has exchanged an agreement for lease with premium gym operator, Marchon Bath Ltd (Marchon). The tenant will enter a new straight 10-year lease paying a rent of £70,000 per annum subject to the completion of circa £90,000 landlord strip-out works (including professional fees). There will be a five-yearly upwards only rent review to the higher of open market or RPI (2% collar and 4% cap). The tenant has been granted a 12-month rent free period. This will be Marchon's fourth location, including White City, Stratford and Harpenden.  

Northgate House, Bath (high-street retail) - Having exercised their tenant break option, bringing their lease to an end on 25 December 2024, Gaff Trading Co. Ltd have taken a new 10-year lease with a tenant break option at the end of year five at a rent of £39,000 per annum. There will be an upwards only open market rent review on the fifth anniversary. No tenant incentive was given.

Union Street, Bristol (high-street retail) - The Company completed a new letting of 31 Union Street to RS Food Services Ltd, trading as Subway. The tenant has taken a 12-year lease with a tenant break option at the end of year five, at a rent of £32,500 per annum, which is in line with ERV. Four months rent-free has been granted as an incentive, with a further four months should the tenant not exercise their break option.

Westlands Distribution Park, Weston-super-Mare (industrial) - The Company settled North Somerset District Council's outstanding April 2024 open market rent review at £110,000 per annum (£3.61 per sq. ft.), representing a 14% increase on the previous passing rent of £96,423 per annum (£3.15 per sq. ft.) which was agreed in April 2022.

The Company also settled Container Team Limited's outstanding June 2024 open market rent review at £99,000 per annum, representing a 90% increase on the previous passing rent of £52,000 per annum. The increase in rent reflects the current strength of the UK's IOS (industrial outdoor storage) occupational market.

Circuit Nightclub, Cardiff (leisure) - The Company completed an assignment of CC Stim UK Tradeco 5 Ltd's (in administration) lease to newco, Neos 13 Ltd. As a condition of the assignment, there was a simultaneous variation of the lease, revising the rent from £300,000 per annum to a base rent of £175,000 per annum, together with an additional 'top-up' rent equivalent to 10% of turnover where turnover exceeds £1.75m per annum, with an aggregate of the combined base rent and turnover rent to be capped at £300,000 per annum. The variation also provides a mutual break clause allowing either party to exercise a break on 1 February or 1 August in any year after August 2026 upon giving no less than 12 months prior written notice.

Glossary of Commonly Used Terms

Industry specific terms used in the Company's communications are in the glossary of commonly used terms which can be found on the Company's website: https://www.aewukreit.com/investors/glossary

AEW UK

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 £15 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 €77.4bn of assets under management as at 30 September 2024. AEW has over 860 employees, with its main offices located in Boston, London, Paris and Singapore 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 September 2024, AEW managed €37.1bn of real estate assets in Europe on behalf of a number of strategies and separate accounts. AEW has over 510 employees based in 11 offices across Europe and has a long track record of 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 €19.5bn 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, 8 Bishopsgate, London, EC2N 4BQ.
Company number: OC367686 England. Authorised and regulated by the Financial Conduct Authority.