REG - AEW UK REIT PLC - Annual Financial Report
22/06/2022 07:00
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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 £191.10 million and 120.63 pence per share
('pps') as at 31 March 2022 (31 March 2021: £157.08 million and 99.15 pps).
• Operating profit before fair value changes of £11.75 million for the year
(year ended 31 March 2021: £10.73 million).
• Profit before tax ('PBT')* of £46.70 million and earnings per share
('EPS') of 29.47 pps for the year (year ended 31 March 2021: £22.17 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 £54.00 million (31 March 2021:
£39.50 million) of a £60.00 million (31 March 2021: £60.00 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 £6.77 million as at 31 March
2022 (31 March 2021: £17.45 million).
Property Highlights
• As at 31 March 2022, the Company's property portfolio had a valuation of
£240.18 million across 36 properties (31 March 2021: £179.00 million across
34 properties) as assessed by the Valuer(1) and a historical cost of £207.96
million (31 March 2021: £173.28 million).
• The Company acquired four properties during the year for a total purchase
price of £38.23 million, excluding acquisition costs (year ended 31 March
2021: one property for a purchase price of £5.40 million).
• The Company made two disposals during the year with total gross sale
proceeds of £16.71 million (year ended 31 March 2021: two disposals with
total gross sale proceeds of £29.30 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 £15.92 million (year
ended 31 March 2021: £15.71 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
Laura Elkin Laura.Elkin@eu.aew.com (mailto:Laura.Elkin@eu.aew.com)
Nicki Gladstone Nicki.Gladstone-ext@eu.aew.com (mailto:Nicki.Gladstone-ext@eu.aew.com)
+44(0) 771 140 1021
Liberum Capital Darren.Vickers@liberum.com (mailto:Darren.Vickers@liberum.com)
Darren Vickers +44 (0)20 3100 2218
TB Cardew AEW@tbcardew.com (mailto: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 £16.41 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 £3.63 million,
reflecting a net initial yield of 7.7%, with an anticipated reversionary yield
of circa 9.2% and a low capital value of £92 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 £8.35 million.
Secondly, the Company acquired 15-33 Union Street Bristol in June 2021 for a
price of £10.19 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 £6 per sq ft and £8 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 £30 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 2022 31 March 2021
Operating Profit before fair value changes (£'000) 11,752 10,735
Operating Profit (£'000) 46,913 23,102
Profit before Tax (£'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 £60.00 million loan facility, of which it had drawn a
balance of £54.00 million as at 31 March 2022 (31 March 2021: £60.00 million
facility; £39.50 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 £51.50 million (31 March 2021: £51.00 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 £12.89 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 £60.00
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 £743,000. 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 £6.00m 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
£3.30 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 £8.35 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
£10.2 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 £16.4 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
£110. 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 £3.6 million reflecting £92 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 £10.84 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 £5.9 million, a 73% premium above
the purchase price of £3.4 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 £3.75
per sq ft. The annual rental of £41,866 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 £103,770 pa
reflecting £30 per sq ft versus the previous passing rent of £22 per sq ft
and the March 2021 ERV of £26 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 £33,683 pa reflecting £14.50 psf. The rental level agreed reflects
£3 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
£30 psf, £116,970 pa. The previous passing rent reflected £22.81 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 £5.75
per sq ft as compared to the previous level of passing rent of £5.25 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 £181,000 pa reflecting £10 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 £300,000 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 £190,000.
- 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 £21,000 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 £80,000 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 £40,000 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 £389,000 pa reflecting
£4.16 per sq ft and representing a £89,000 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 £20,000 pa, rising to £30,000 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 £6
per sq ft reflecting an annual rental income of £95,000 pa. The letting set a
new high rental tone for the estate and far exceeds the prior passing rent of
£4.83 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 £208,000 per annum reflecting £4.50 per sq ft . The previous passing
rent was £182,500 per annum reflecting £3.95 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
£240,750 and realises a new headline rent of £8 per sq ft versus an expected
market rental value of £7 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
£250,000, three months' rent up front at a rate of £6 per sq ft (vs market
rent value of £5.25 per sq ft and previous passing rent of £3.75 per sq ft)
and a single lease premium of £50,000. The total capital receipt from the
tenant upon completion was £457,400 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 £191.10 million or
120.63 pps (31 March 2021: £157.08 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, £0.76 million
has been provided for expected credit losses.
Financing
As at 31 March 2022, the Company had a £60.00 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 £60.00 million £60.00 million
Drawn £54.00 million £39.50 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 £60.00 million, five-year term loan facility with
AgFe. See above for further detail.
Property Portfolio
Summary by Sector as at 31 March 2022
Gross passing rental income (£m) Gross passing rental income (£psf) ERV Like- Like-
(£psf) Rental for-like for-like
Area Vacancy WAULT to break income rental rental
Number of assets Valuation (sq ft) by ERV (years) (£m) growth growth
(£m) (%) ERV (£m) (£m) (%)
Sector
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 passing rental income (£m) Gross passing rental income (£psf) ERV Like- Like-
(£psf) Rental for-like for-like
Area Vacancy WAULT to break income rental rental
Geographical area Number of assets Valuation (sq ft) by ERV (years) ERV (£m) (£m) growth growth
(£m) (%) (£m) (%)
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
Property Sector Region Market Value
Range (£m)
Top 10:
1. Central Six Retail Park, Coventry Retail Warehouses West Midlands 15.0 - 20.0
2. Eastpoint Business Park, Oxford Offices South East 15.0 - 20.0
3. Gresford Industrial Estate, Wrexham Industrial Wales 10.0 - 15.0
4. 40 Queen Square, Bristol Offices South West 10.0 - 15.0
5. Lockwood Court, Leeds Industrial Yorkshire and Humberside 10.0 - 15.0
6. 15-33 Union Street, Bristol Standard Retail South West 10.0 - 15.0
7. London East Leisure Park, Dagenham Alternatives Rest of London 7.5 - 10.0
8. Arrow Point Retail Park, Shrewsbury Retail Warehouses West Midlands 7.5 - 10.0
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.
Property Sector Region Market Value
Range (£m)
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 and Humberside 5.0 - 7.5
14. Westlands Distribution Park, Weston Super Mare Industrial South West 5.0 - 7.5
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 and Humberside 5.0 - 7.5
20. Mangham Road, Rotherham Industrial Yorkshire and Humberside < 5.0
21. 710 Brightside Lane, Sheffield Industrial Yorkshire and Humberside < 5.0
22. Oak Park, Droitwich Industrial West Midlands < 5.0
23. Pipps Hall Industrial Estate, Basildon Industrial Eastern < 5.0
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 and Humberside < 5.0
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 and Humberside < 5.0
Top 10 Tenants as at 31 March 2022
% of
Portfolio
Passing Total
Rental Passing
Income Rental
Tenant Sector Property (£'000) Income
1. Plastipak UK Ltd Industrial Gresford 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
5. Mecca Bingo Ltd Leisure London East Leisure Park, Dagenham 625 3.7
6. Harrogate Spring Water Limited Industrial Lockwood Court, Leeds 603 3.6
7. Magellan Aerospace (UK) Ltd Industrial Excel 95, Deeside 580 3.4
8. Odeon Cinemas Leisure Victoria Circus, Southend-on-Sea 535 3.2
9. Wilko Retail Limited Retail 15-33 Union Street, Bristol 481 2.9
10. Advanced Supply Chain (BFD) Ltd Industrial Euroway Trading Estate, 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
Leverage Exposure Gross Method Commitment Gross Commitment
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 2,938,680
AIFM
b) the number of beneficiaries 30
The aggregate amount of remuneration of the AIFM Remuneration Code staff,
broken down by:
a) senior management £753,900
b) members of staff £2,184,780
Fixed Variable Total
remuneration remuneration remuneration
Senior management £681,900 £72,000 £753,900
Staff £1,615,193 £569,587 £2,184,780
Total £2,297,093 £641,587 £2,938,680
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
(https://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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