REG - AEW UK REIT PLC - Annual Financial Report
21/06/2023 07:00
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RNS Number : 3623D AEW UK REIT PLC 21 June 2023
AEW UK REIT PLC
Announcement of Full Year Results for the year ended 31 March 2023
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 2023.
Mark Burton, Chairman of AEW UK REIT plc, commented:
"The investment manager has continued to actively manage AEWU's portfolio over
the past year, outperforming the benchmark in all sectors and trading at the
narrowest discount of all UK diversified REITs. The manager's successful asset
management initiatives and timely disposal of five properties during the
period maximised the value of key assets and has crystallised capital growth,
with the sale proceeds being reinvested into more attractive, higher yielding
properties. We are pleased that NAV per share has grown in the latest quarter
and are confident that the Company's track record of outperformance, robust
positioning and the reliable payment of an eight pence annual dividend for the
past seven consecutive years will stand it in good stead once market sentiment
recovers."
Financial Highlights
• Net Asset Value ('NAV') of £167.10 million and 105.48 pence per
share ('pps') as at 31 March 2023 (31 March 2022: £191.10 million and 120.63
pps).
• Operating profit before fair value changes of £11.10 million for
the year (year ended 31 March 2022: £11.75 million).
• Loss before tax ('LBT')* of £11.33 million and earnings per
share ('EPS') of -7.15 pps for the year (year ended 31 March 2022: profit
before tax of £46.70 million and EPS of 29.47 pps). LBT includes a £30.00
million loss arising from changes to the fair values of investment properties
in the period (year ended 31 March 2022: £32.32 million gain).
• EPRA Earnings Per Share ('EPRA EPS')* for the year of 5.70 pps
(year ended 31 March 2022: 6.79 pps). See page 104 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 2022: 8.00 pps).
• Shareholder total return* for the year of -16.44% (year ended 31
March 2022: 53.61%).
• The price of the Company's Ordinary Shares on the Main Market of the
London Stock Exchange was 92.10 pps as at 31 March 2023 (31 March 2022: 119.80
pps).
• The Company secured a new £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%.
• As at 31 March 2023, the Company had drawn £60.00 million (31 March
2022: £54.00 million) of a £60.00 million (31 March 2022: £60.00 million)
term credit facility with AgFe and was geared to 28.06% of GAV (31 March 2022:
22.48%) (see note 15 on pages 113 and 114 in the full Annual Report for
further details).
• The Company held cash balances totalling £14.32 million as at 31
March 2023 (31 March 2022: £6.77 million).
Property Highlights
• As at 31 March 2023, the Company's property portfolio had a
valuation of £213.83 million across 36 properties (31 March 2022: £240.18
million across 36 properties) as assessed by the Valuer1 and a historical cost
of £224.03 million (31 March 2022: £207.96 million).
• Over the period, the Company's portfolio delivered outperformance
against the MSCI/AREF PFI Balanced Funds Quarterly Property Index of 10.9%.
Outperformance of the Company's assets against the benchmark was also seen in
each main property sector.
• The Company won four awards during the period. The Company
received gold and silver awards from EPRA for its high standard of financial
reporting and for standards of sustainability reporting, respectively. The
Company also won the Citywire investment trust award in the 'UK Property'
category, and was named 'Best REIT' at the AJ Bell Shares Magazine awards.
• The Company acquired five properties during the year for a total
purchase price of £32.05 million, excluding acquisition costs (year ended 31
March 2022: four properties for a purchase price of £38.23 million).
• The Company made five disposals during the year with total gross
sale proceeds of £44.41 million (year ended 31 March 2022: two disposals with
total gross sale proceeds of £16.71 million).
• The portfolio had an EPRA Vacancy Rate** of 7.83% as at 31 March
2023 (31 March 2022: 10.69%).
• Rental income generated in the year under review was £17.71
million (year ended 31 March 2022: £15.92 million). The number of tenants as
at 31 March 2023 was 145 (31 March 2022: 131).
• EPRA Net Initial Yield ('NIY')** of 7.65% as at 31 March 2023
(31 March 2022: 5.87%).
• Weighted Average Unexpired Lease Term ('WAULT')* of 3.05 years
to break (31 March 2022: 3.94 years) and 4.33 years to expiry (31 March 2022:
5.78 years).
• The Company has achieved very high rent collection levels, which
stand at over 99% for each quarter since March 2022 (excluding current quarter
where rent continues to be collected).
* See KPIs on pages 13 to 15 in the full Annual Report for definition of
alternative performance measures.
** See Glossary on pages 145 to 148 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.
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 2000
TB Cardew AEW@tbcardew.com (mailto:AEW@tbcardew.com)
Ed Orlebar +44(0) 7738 724 630
Tania Wild +44(0) 7425 536 903
Henry Crane +44 (0)7918 207157
Chairman's Statement
Overview
The year to 31 March 2023 was a tumultuous period on the UK political scene
and for the wider economy. The year saw the end of the very low interest rate
environment that had persisted over the past decade as the Bank of England
base rate increased from 0.75% in March 2022 to 4.25% by the end of March
2023. Interest rates have since increased again to 4.5%. Over this time, the
average cost of debt on commercial property increased from around 3.5% to a
peak in excess of 6.5%. During the period, UK commercial property suffered an
average decline in capital value of -18.1%, compared to -9.2% experienced by
the assets of the Company. As a result, the Company delivered a NAV total
return to its shareholders over the period of -5.8%. This is, of course,
disappointing on an absolute basis but, on a relative basis, is testament to
the defensive nature of the Company's strategy which seeks to acquire assets
at prices that are misaligned with their long-term fundamental values of
vacant possession value and alternative use value. The Investment Manager
actively manages these assets to maximise income as well as capital returns.
We have seen examples during the period where this has led to counter-cyclical
performance.
Expectations of a pricing correction in the commercial property market, which
was mostly concentrated within the last two quarters of 2022 following Liz
Truss's short reign as UK Prime Minister, caused the shares of listed property
companies to be sold off almost indiscriminately in the latter part of the
year. The Company's own shares started the period trading at a negligible
discount to NAV of 0.7%, peaked at a discount of 30.3% in September 2022 and
finished the period trading at a discount of 12.7%. The average discount seen
across the UK diversified REIT peer group at the end of the period was 28.1%,
so despite the Company's shares having recorded a disappointing shareholder
total return for the period of -16.4%, they have traded at the narrowest
discount of our peer group in UK diversified REITs. We hope that this, along
with the Company's track record of outperformance, robust positioning and
reliable dividends will stand its shares in good stead once market sentiment
recovers.
Volatile markets can present significant opportunities for an actively managed
value strategy such as that of the Company. Following a number of timely
disposals which helped to maximise the values of key assets during the summer
of 2022, the Company saw an increase in attractive opportunities in its
investment pipeline during calendar Q4. This enabled the Company to access
quality assets at more favourable pricing than had previously been possible.
This is an opportunity set that has persisted to the current day and as such,
the Company made a further acquisition in March 2023.
The Investment Manager and the Board believe that the Company's ability to
seek value opportunities unconstrained by sector is key to maximising total
return over the long term. This strategy allows the Investment Manager to take
counter-cyclical sector positions, an example of which was the most recent
acquisition of a freehold solus Matalan store in Preston. It was acquired for
£6.45 million, reflecting a low capital value of £110 per sq ft and an
attractive net initial yield of 9.5%.
A major focus for both the Board and the Investment Manager has been the
recovery of the Company's income stream towards its long-term target level
following erosion caused by a period of higher than average vacancies. These
vacancies were predominantly linked to the assets in Oxford and Glasgow and
were required to maximise sale proceeds from developers. The Board took the
decision during this time to continue to pay the Company's dividend based on
its understanding of the Company's potential to generate earnings in future
periods and in the knowledge that the uncovered element has, over this time
period, been funded by profit generated from the asset sales. Since the sale
of these assets, the Company has made progress in building its earnings to a
level that is more supportive of the current dividend. Quarterly earnings
increased to 1.77 pps in Q4 2022, reflecting a divided cover for the quarter
of 89%. Further progress towards the target of full dividend cover is expected
to be made during the next few quarters.
Financial Results Summary
Year ended Year ended
31 March 2023 31 March 2022
Operating profit before fair value changes (£'000) 11,096 11,752
Operating (loss)/profit (£'000) (9,164) 46,913
(Loss)/profit before tax (£'000) (11,325) 46,695
(Loss)/ Earnings Per Share (basic and diluted) (pence)* (7.15) 29.47
EPRA Earnings Per Share (basic and diluted) (pence)* 5.70 6.79
Ongoing Charges (%) 1.37 1.35
Net Asset Value per share (pence) 105.48 120.63
* 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 £60.00 million as at 31 March 2023 (31 March 2022: £60.00 million
facility; £54.00 million drawn), producing the following measures of gearing:
Year ended Year ended
31 March 2023 31 March 2022
% %
Loan to NAV 35.91 28.26
Gross Loan to GAV 28.06 22.48
Net Loan to GAV (deducts cash balance from the outstanding loan value)
21.37 19.67
In May 2022, the Company secured a new £60.00 million, year-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 linked 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 with a residual
accounting loss of £88,000. In the current inflationary environment, the
Company considered it prudent to fix the loan.
Awards
I am delighted that the Company's market leading performance and practices
have been recognised in four awards received during the period. The Company
has once again been awarded by EPRA, the European Public Real Estate
Association, a gold medal for its high standard of financial reporting and a
silver medal for standards of sustainability reporting. During the year, the
Company has won the Citywire investment trust award in the 'UK Property'
category, an award given to the trust displaying the highest NAV returns over
a three-year period. The Company won this award in both 2020 and 2021, so we
are very pleased to receive it for a third consecutive year. During the year,
Company has also been awarded 'Best REIT' at the AJ Bell Shares Magazine
awards, voted for by readers of the publication. We are delighted that these
awards and nominations recognise the hard work and dedication that is put into
running the Company by both my colleagues on the Board and the Company's
Investment Manager, AEW.
ESG+R
AEW, as Investment Manager of the Company, has committed to abide by the UN
Principles for Responsible Investment (PRI), where these are consistent with
operating guidelines, as outlined in its Socially Responsible Investment
Policy. As a result, the Investment Manager looks to continually improve its
processes relating to environmental, social, governance and resilience (ESG+R)
in line with sector best practices as they evolve, on behalf of the Company.
As a result, within this Annual Report, the Company is voluntarily reporting
against the Task Force on Climate-related Financial Disclosures ('TCFD') for
the third time. In recent periods, the Investment Manager has made progress by
improving the integration of ESG+R into its investment, asset management and
operations processes. This has been improved further during the period with
greater analysis and scoring of assets being carried out at the time of
purchase, along with greater analysis at that time in terms of an asset's
specific climate resilience.
During 2018, AEW established sustainability targets across its managed
portfolio. The managed portfolio comprises service charged assets and vacant
accommodation, whose utilities the Company controls. These targets include the
reduction of Scope 1 and 2 greenhouse gas emissions and waste disposal. Since
this time, overall energy usage has reduced by 15%, emissions have been
reduced by 19%, and waste transferred to landfill has been reduced to zero
within the managed portfolio. We would like to thank the Company's very
committed managing agents, Mapp, for their assistance in achieving these
improvements. As a result of the Company's very pleasing performance against
these targets, new targets have been set out within this report against
current levels of performance that the Company hopes will lead to further
improvement in the sustainability of its activities.
GRESB is a global real estate benchmark that assesses Environmental, Social
and Governance performance. AEWU achieved two stars out of five in its seventh
submission year, improving on its 2021 score to achieve an overall score of 67
out of 100 against a peer group average of 65. Much of the GRESB score relates
to data coverage and due to the high percentage of assets in the Company's
portfolio with tenant-procured utilities, the Company does not score as well
as peers with a smaller holding of single-let assets.
Minimum Energy Efficiency Standards (MEES)
AEW are committed to ensuring compliance with MEES regulations which first
came into effect from April 2018, when it became unlawful to grant new leases
of commercial property with an EPC of below an 'E' rating. From 1 April 2023,
all existing leases will become unlawful if the premises are certified with an
'F' or 'G' rating, even if the lease was granted prior to the MEES Regulations
coming into force in 2018.
As at the end of the period, the Company had no assets with a certified EPC
'F' or 'G' rating, with the majority of the Company's assets (approximately
93% based on the portfolio's ERV) being MEES compliant. There are 12 units
across three assets where at the end of the period there was no valid EPC (due
to recent expiries) in place. These units are expected to be 'F' and 'G'
rated, however, all are currently subject to ongoing improvement plans to
achieve MEES compliance.
To mitigate future MEES risk, the Company will continue to undertake its gap
analysis, identifying assets that fall below the MEES regulations, and will
either need an improvement plan implemented to achieve an 'E' rating or
better, or an exemption lodged, where applicable.
The Company regards its relatively short WAULT (to break and expiry) as an
opportunity to proactively engage with its existing tenants at lease events to
improve the energy performance of its assets, as well as in the event of a
vacancy. An example of this is at one of the Company's industrial assets in
Rotherham, where the EPC of the property was improved from C67 rating to B44
rating following the completion of roof works as part of a new letting to an
incoming tenant.
Succession Planning
Both Bim Sandhu and I have been Directors since the Company's IPO in June
2015. In seeking to comply with best corporate governance practice, we both
intend to resign by 2024. In order to stagger our departures, we have
determined that Bim, who chairs the Audit Committee, whilst seeking
re-election at the forthcoming AGM on 14 September 2023 will step down
following the AGM or, if later, following the appointment of a new Chairman
Designate of the Company which we are expecting to make in the last quarter of
2023. I will resign at the AGM in 2024. The Board has also determined that our
successors should have sufficient time to familiarise themselves with the
Company before they formally take over our respective roles. With that in
mind, my fellow board members and I were delighted to welcome Mark Kirkland,
who was appointed to the Board of the Company as Non-Executive Director and
Audit Committee Chairman designate with effect from 9 November 2022. Mark will
take over from Bim following his resignation during the year. Mark brings
extensive corporate experience gained over 30 years, having held numerous
senior roles in public and private companies. Mark's early career was in
corporate finance, predominantly with UBS Limited. He has been CFO of numerous
public and private companies and latterly was CEO of Delin Property, a
pan-European logistics developer, investor and manager. He is currently a
Non-Executive Director and Audit Committee Chairman of Strix Group plc, and an
Advisor to DP World.
With consideration to appointing my own successor, the Board has engaged Trust
Associates, an independent firm specialising in recruiting for the investment
trust sector, to commence this process.
Outlook
The Board and Investment Manager believe that the Company is both defensively
and opportunistically positioned to take advantage of the current market
conditions. We are pleased by the resilience that the portfolio has shown
during a period of significant uncertainty versus the performance that has
been achieved across the commercial property market as a whole. We also
believe that the Company's investment strategy is well placed to benefit from
current market conditions that allow it to be nimble in making cross sector
and often counter-cyclical moves that can deliver optimal value to our
Shareholders.
Earnings growth will be a continued focus over coming quarters as the Company
looks to return to full investment while also undertaking efficient capital
recycling through the sales of select lower yielding assets. The realisation
of income accretive major lettings that are underway at assets such as Central
Six retail park in Coventry will provide further benefit.
In the near term, the Board and Investment Manager will continue to take a
prudent approach towards the management of the Company, given the ongoing
economic uncertainty. Although the outlook for commercial property values is
now significantly more stable than during the previous 12 months, the
Investment Manager and the Board will continue to monitor economic conditions
closely.
Mark Burton
Chairman
20 June 2023
Investment Manager's Report
Economic Outlook
Despite some major political and economic volatility, the UK economy has
performed better than expected since September 2022. UK recession has been
avoided to date with GDP recording modest growth of 0.2% during April
following 0.1% growth in the first quarter. The prospect of lower household
energy bills from July and the impact of the fiscal loosening announced in
March's Budget mean that recovery is expected to gain traction in H2 2023.
Inflation is expected to resume its downward trajectory, albeit slowly with
the Bank of England increasing interest rates to 4.5% in May.
The UK's labour market has remained resilient but, with a slowdown in job
creation seen since the fourth quarter of 2022, the unemployment rate is
projected to increase before the end of 2023, adding to the cost of living
pressure already being acutely felt by many consumers.
As financial markets take stock of recent uncertainties, including the
instability and failure of various US based financial institutions, we expect
the lending environment to remain cautious.
Property Market Outlook
Following the swift repricing of UK commercial property in the second half of
2022 and an improving macro-economic outlook, UK property is expected to offer
healthy return prospects over coming periods. Consensus forecasts show an
expected return to positive rental growth across all major market sectors by
2025 and all UK property total returns to average 5.6% per annum over the next
five years (2023-2027).
Industrial
The industrials sector saw the steepest value declines of all commercial
property sectors in the 12 months to 31 March 2023 after a strong period of
growth up to early 2022.
Due to structurally low levels of stock availability, the sector is expected
to deliver the highest level of rental growth across the commercial property
market over the coming five years, with an average expected growth rate from
consensus forecasts of 2.6% pa. We believe that the Company's industrial
portfolio, with an average passing rent of £3.24 per sq ft, will be well
placed to benefit.
That said, the Company has completed a number of sales from the sector in
recent periods where yield compression can be achieved as a result of vendors'
positive expectations on rental growth. Where sales yields can be compressed
significantly compared to pipeline assets, select recycling of assets has
taken place.
The industrial sector is the portfolio's largest sector holding, with 44.2% of
the valuation. The Company's industrial holding outperformed the Benchmark,
both in terms of income return, with a relative outperformance of 2.0%, and
capital growth, with a relative outperformance of 4.6%.
Retail
The Covid-19 pandemic accelerated trends already present in consumer habits
prior to its onset and this led to a significant structural contraction in
retail markets. However, since this time of turbulence, occupancy levels and
values have now stabilised significantly in robust locations. Online sales
have fallen back from their pandemic peak of 37% and retailer insolvencies and
CVAs are no longer a prevalent theme. We believe that the sector offers select
investment opportunities where tenant trade is robust and values are
underpinned by alternative uses.
By contrast, performance in the retail warehousing sector has generally been
more robust, with capital values buoyed by underpinning from the industrial
sector. The sector has also benefited from improved flexibility in the
planning regime, which allows greater mobility between sectors. Vacancy levels
across the sector have fallen to 4.7%, the lowest level seen since 2018.
Retail represents the portfolio's second largest sector holding, with 39.2% of
the valuation. The Company's retail holding outperformed the Benchmark, both
in terms of income return, with a relative outperformance of 1.8%, and capital
growth, with a relative outperformance of 4.3%.
Office
Office occupancy on the whole had a stronger post-Covid recovery than some may
have expected, with office-based employment growing in 2022. This trend is
expected to reverse during 2023 with a contraction in occupancy that is
expected to be felt more poignantly in regional cities than in London.
As a result of lower occupancy levels and greater choice, the office occupier
has also become more discerning in recent years, a trend that is expected to
continue during 2023. Office occupiers now wish to benefit from strong
sustainability credentials for their accommodation as well as surrounding
amenity and top-quality space. This is particularly the case for large
corporate tenants but is increasingly becoming a key factor for smaller
businesses too.
The assets that provide the highest quality accommodation and sustainability
goals will be best placed to outperform. Alternatively, specific asset
management strategies may drive strong performance from the office sector and
during the period, the sale of the Company's office assets in Glasgow and
Oxford was completed, with both assets being sold to vendors for alternative
use development in order to maximise sales receipts. The profit on these sales
drove significant outperformance against the benchmark during the period.
When considering office assets for investment, we have often sought to acquire
those showing strong alternative use values.
This was the strongest performing sector relative to the Benchmark, achieving
an outperformance of 36.3%, largely driven by capital growth of 35.3%
resulting from the disposal of Eastpoint Business Park, Oxford.
Alternatives
Across the leisure market, where the Company's alternative sector holdings
lie, operators are at various stages of recovery following the Covid-19
pandemic. Visibility of performance in trading updates is key to investor
demand and where this is strong, investment volumes have held up despite their
overall decline. Operators carrying unsustainably high levels of debt are seen
as a concern and are the subject of much press coverage as recently seen with
the uncertainty facing Cineworld.
The squeeze on consumer spend will continue to challenge the profitability of
occupiers, however, leisure has historically fared relatively defensively
during periods of economic uncertainty.
We find the sector attractive on a selective basis going forward, particularly
for assets that offer an attractive income return and occupy larger land
holdings or sites in urban areas and therefore can often be underpinned by
alternative use values, most likely residential.
Assets held in alternative sectors comprise 9.4% of the 31 March 2023
valuation, all of which is within the leisure sector. The Company's
alternatives holding outperformed the Benchmark, both in terms of income
return, with a relative outperformance of 3.7%, and capital growth, with a
relative outperformance of 12.1%.
Property Portfolio
The Company made five acquisitions during the year:
Railway Station Retail Park, Dewsbury (retail warehouse)
In June, the Company completed the acquisition of a 6.04-acre Railway Station
Retail Park in Dewsbury for a price of £4.70 million, reflecting a low
capital value of £82 per sq ft and an attractive net initial yield of 9.4%.
The park occupies a prominent location on the edge of the town centre within
an established retail and leisure area. Neighbouring occupiers include
Sainsburys, Aldi, Matalan, Pets at Home, Iceland and a council operated
library and sports facility. Dewsbury has a tight supply of retail warehousing
stock, with very few current vacancies within the town.
The park is fully let with a low average passing rent of £8.28 per sq ft,
which the Manager believes provides potential for rental growth. Tenants
include Sports Direct, Mecca Bingo, Fieldrose Ltd, trading as KFC, and the
Danish furniture retailer, Jysk.
Craigmont Drive, Glasgow (leisure)
The Company completed the purchase of a high yielding leisure asset in Glasgow
for £2.60 million reflecting a low capital value of £99 per sq ft and a net
initial yield of 7.4%. The property comprises a standalone leisure 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.
High Street, Bromley (retail)
In late November, the Company completed the purchase of a freehold retail
asset in Bromley for £5.30 million, reflecting a low capital value of £101
per sq ft and a net initial yield of 8.7%. The asset is located in a prominent
position on the western side of the pedestrianised Bromley High Street and
provides 54,215 sq ft of accommodation, let in its entirety to Next Holdings
Limited. Next Holdings Limited has occupied the property since 2000 and, in
September 2021, renewed a four-year lease at a rebased level of rent. A
comprehensive store re-fit was undertaken by the tenant at this time,
demonstrating the retailer's commitment to the location.
Northgate House, Bath (retail)
In late November, the Company completed the purchase of a 67,020 sq ft
mixed-use block located in Bath city centre at a price of £13.00 million,
reflecting a low capital value of £194 per sq ft and a net initial yield of
8.5%. The asset provides 48,805 sq ft of retail accommodation fronting on to
Bath's High Street, Upper Borough Walls and Union Passage. The retail
accommodation is let to 11 tenants, anchored by TK Maxx, which has recently
renewed its commitment to the location by agreeing the removal of a tenant
break option. Retail lettings provide a weighted unexpired lease term in
excess of five years. The remaining 18,215 sq ft of accommodation comprises
grade A specification offices recently refurbished by the vendor. The office
accommodation is fully let to a wholly owned subsidiary of Regus Group until
2032, trading as co-working brand, Spaces.
Cuerden Way, Preston (retail warehouse)
In late March, the Company completed the purchase of a freehold solus retail
warehousing unit in Bamber Bridge, Preston for £6.45 million, reflecting a
low capital value of circa £110 per sq ft and an attractive net initial yield
of 9.5%. The 58,696 sq ft unit is single-let to Matalan Retail Limited and has
9.2 years left on the lease. Matalan is known to trade strongly from the
location, with the store being one of its top 10 performers, as well as being
the retailer's first ever store in the U.K. The lease benefits from a 2027
rent review to the higher of open market value, or 2.5% per annum compounded,
resulting in a minimum reversionary yield of 10.7%. The site totals 4.39
acres, providing a low site cover of approximately 30%. It is well located on
Cuerden Way which connects to the A6, half a mile from Junction 1 of the M65.
Neighbouring tenants include Aldi and Sainsburys to the south, with
predominantly industrial uses to the north. There is the potential to
repurpose the unit for trade counter or industrial use, and to extend the
accommodation, subject to planning, if required in future. In January, Matalan
announced the completion of a refinancing, reducing its gross debt by 43% from
£593 million to £336 million. Its new debt facility will mature in 2027. The
refinancing also provides £100 million for business growth over the next
three years, with a return to profitability anticipated by Matalan in FY 2024.
The Company made five disposals during the year:
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 £9.30 million (£109 per sq
ft). The sale realises a long-term change of use strategy for the asset, with
contracts for the sale 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 the Company'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 the sale of the property for £29.00 million (£388 per
sq ft), having acquired the asset in May 2015 for £8.20 million, reflecting a
net initial yield of over 9%. The sale price crystallised significant profit,
exceeding both the value 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 7.5%
and 10%, have been significantly accretive to the Company's earnings.
349 Moorside Road, Swinton (industrial)
The Company completed the sale of the property for £1.71 million. A sale at
this price reflects a net initial yield of circa 6.6% and a capital value of
£75 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 £1.07 million reflecting a 9.0% net initial yield. A sale
at £1.71 million represents a 58% premium to the acquisition price.
Clarke Road, Milton Keynes (industrial)
In mid-March, the Company completed the sale of its industrial holding at
Clarke Road, Milton Keynes, for £2.75 million (circa £91 per sq ft),
reflecting a 6.3% net initial yield. The 30,262 sq ft industrial unit was
acquired in October 2015 for £1.53 million (circa £50 per sq ft) at a circa
8.3% net initial yield. After the Company acquired the asset, it was re-let to
FMG Repair Services Limited, with a guarantor from Northgate Vehicle Hire, on
a 10-year lease, with a five-year tenant break option. By securing a stronger
tenant covenant on a longer lease, the sale realises significant profit,
exceeding the 31 December 2022 valuation of £2.58 million by 6.6%.
Mark Road, Hemel Hempstead (office)
In late March, the Company completed the sale of its office holding, Vantage
Point, on Mark Road, Hemel Hempstead for £1.65 million (circa £92 per sq
ft), reflecting an 11.5% net initial yield. The valuation as at 31 December
2022 was £0.99 million (circa £55 per sq ft) with the sale price reflecting
a 66.6% premium. The Company took the decision to dispose of the asset to
mitigate any risk of long-term vacancy of the property following a deadlock
situation with the main tenant resulting in uncertainty over its future
occupation and the potential requirement for significant refurbishment capex.
Asset Management Update
The Company completed the following material asset management transactions
during the period:
- Arrow Point Retail Park, Shrewsbury (retail warehousing) - During
May, the Company completed the renewal of Charlie's Stores' lease on a
straight ten-year term at a rent of £385,000 per annum reflecting £11 per sq
ft, versus an ERV of £7.50 per sq ft. Charlie's Stores is the scheme's anchor
tenant, so this is an important letting for the property. Only nine months'
rent-free incentive was given. The valuation consequently rose by £0.30
million to £10.00 million, having already increased by £1.35 million on the
2021 purchase price of £8.35 million.
- Commercial Road, Portsmouth (high street retail) - During May, the Company
completed a new 15-year lease to Kokoro UK Limited, a Japanese-Korean
restaurant. The agreed rent is £52,500 per annum versus an ERV of £45,750
per annum. The tenant has the benefit of a 12-month rent free period and a
tenant only break option at the end of the tenth year.
- Diamond Business Park, Wakefield (industrial) - During June, the
Company completed a new letting of Units 8 and 9 to Wow Interiors, an existing
tenant on the estate already occupying Unit 7. Wow have taken a new six-year
lease with a tenant break option at the end of the third year. The commencing
rent of £3 per sq ft will increase to £3.50 per sq ft in years two and
three, and subsequently £3.75 per sq ft from year four onwards. In doing so,
the Company has also completed a lease re-gear on Unit 7, removing Wow's 2022
tenant break option and agreeing a three-year reversionary lease with a tenant
break option mirroring Units 8 and 9.
- Mangham Road, Rotherham (industrial) - The Company completed a new
ten-year ex-Act lease to Senior Architectural Systems Ltd at a rent of
£410,000 per annum reflecting a rent of £5 per sq ft. This shows a
significant uplift to the rent paid by previous tenant, Hydro Components, at
£275,000 per annum. The lease provides for five-yearly rent reviews to the
higher of open market rent or RPI, with a 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
£964,700. These works were completed during the quarter and improved the
property's EPC rating from C67 to B44. The tenant benefits from a break option
at the end of year five.
- Bank Hey Street, Blackpool (retail/leisure) - Repair works at the
property which commenced in 2020 reached practical completion in August 2022.
The total cost of these works amounted to circa £2.89 million, of which
approximately £1.15 million 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.
The Company completed a five-year lease renewal with Sports Direct, whose
lease expired on 4 October 2022. The lease has a tenant rolling break option,
subject to 18 months term certain, and a landlord rolling break option from
the expiry of the third year. The rent is £175,000 per annum, inclusive of
service charge currently running at approximately £40,000 per annum. No
rent-free incentive was given.
- Central Six Retail Park, Coventry (retail/leisure) - In October, the
Company completed an agreement for lease with new tenant, Aldi Stores Limited,
for vacant units 8 & 9. Aldi will enter into a new 20-year lease with a
15-year tenant break option at a rent of £270,166 per annum, reflecting £13
per sq ft, to be reviewed every five years based on compounded annual RPI,
collared and capped at 1% and 3% respectively. The letting is subject to the
landlord securing planning permission for 1) change of use to food use
(achieved in July 2022), 2) external alteration works (achieved in November
2022) and 3) extended delivery hours, as well as landlord works which are
expected to cost £894,212. Lease completion is targeted for July 2023. The
letting also includes a 12-month rent-free incentive.
In November 2022, the Company completed a lease renewal with existing tenant
Next Holdings Limited. The tenant entered into a new five-year lease with a
three-year tenant break option, at a rent of £151,800 per annum, reflecting
£15 per sq ft, with a nine-month rent-free incentive.
In December 2022, the Company completed a lease renewal with existing tenant
Caspian Food Services Limited, trading as Burger King. The tenant entered into
a new ten year lease at a rent of £100,000 per annum, reflecting £40 per sq
ft.
In December 2022, the Company completed an agreement for lease with new tenant
Iceland Foods Limited, trading as The Food Warehouse for units 6a & 6b.
The tenant will enter into a new ten-year lease at a rent of £250,000 per
annum, reflecting £16.51 per sq ft. The letting includes a three-month rent
free and a £812,500 cash incentive which will be paid to the tenant on
completion of the lease which is expected to be in November. The letting is
subject to the landlord securing planning permission for 1) change of use to
food use and 2) extended delivery hours.
- Odeon Cinema, Southend (leisure) - The Company completed a straight
five-year reversionary lease with Odeon Cinemas Ltd at the previous passing
rent of £534,000 per annum. In doing so, a seven-and-a-half-month rent-free
incentive was granted to the tenant, which resulted in a £1.35 million
valuation increase for the property. This has contributed to a valuation
increase for the quarter of £1.35 million.
- 40 Queen Square, Bristol (office) - Having entered into an Agreement
for Lease, subject to landlord refurbishment works, the Company has now
completed on the lease and licence for alterations with existing tenant,
Konica Minolta Marketing Services Ltd, on the third floor. A new ten-year
lease commenced on 19 December at a rent of £218,840 per annum, reflecting a
new high rental tone for the building of £40 per sq ft. There is a five-year
tenant break option. The refurbishment works included roof, lift and reception
upgrades at a cost of £1.07 million plus an eleven-month rent-free incentive.
The works undertaken will provide benefits to all tenants within the building
and are expected to assist with further rental growth at the asset.
- Cedar House, Gloucester (office) - The Secretary of State for
Communities and Local Government, who occupy the entire 37,753 sq ft office
property, have not actioned their 1 April 2023 tenant break option.
Consequently, they will remain in occupation for another five years until
2028. Permitted development rights for conversion to 45 residential units was
approved in December 2022, meaning there is now the ability to change the use
of the building to residential use, without having to submit a full planning
application, until December 2025.
- North Moons Industrial Estate, Redditch (industrial) - the August
2022 annual uncapped RPI rent review has been settled at £269,963 per annum,
reflecting an £29,654 per annum. The 37,992 sq ft property is entirely let to
Carrs Coatings Ltd until August 2028.
- 15-33 Union Street, Bristol (retail) - the Company completed a
two-year lease renewal with VIRR Ltd, trading as Subway, with a landlord
rolling break option. The new lease is at the same rent of £32,500 per annum
and is outside the Landlord and Tenant Act, with no tenant incentive given.
This short-term renewal makes it possible to let the unit along with the
neighbouring unit, let to Kemps, whose lease expires in September 2023.
Vacancy
As at year-end, the portfolio's overall vacancy sat at 6.57% excluding units
where agreements for lease have been completed with incoming tenant's at
Central Six Retail Park in Coventry. Including these units increases the
portfolio's overall vacancy level to 9.00%
Financial Results
The Company's NAV as at 31 March 2023 was £167.10 million or 105.48 pps (31
March 2022: £191.10 million or 120.63 pps). This represents a decrease of
15.15 pps or 12.56% over the 12- month period, with the underlying movement in
NAV set out in the table below:
Pps
NAV as at 1 April 2022 120.63
Change in fair value of investment property (16.60)
Portfolio acquisition costs (1.83)
Capital expenditure (1.63)
Gain on disposal of investment property 7.21
Income earned for the period 11.31
Expenses and net finance costs for the period (5.61)
Dividends paid (8.00)
NAV as at 31 March 2023 105.48
EPRA EPS for the year was 5.70 pence which, based on dividends paid of 8.00
pps, reflects a dividend cover of 71.25%. The decrease in dividend cover
compared to the prior 12-month period has largely arisen due to the Company
completing a number of key sales, leaving it with a high cash weighting and a
resulting loss of rental income in the short term. Earnings have been further
depressed by one-off costs associated with refurbishment works being
undertaken at Queen Square, Bristol and Mangham Road, Rotherham, which will
both be accretive to the Company's earnings in the medium to long term.
The focus of the Company's investment strategy remains to return to full
investment and full dividend cover. Income across the tenancy profile has
remained intact. Collection rates have reached 99% for both the September and
December 2022 quarters, with further payments expected to be received under
longer-term payment plans. Of the outstanding arrears, the Company has made a
£0.97 million expected credit loss provision, given the uncertain economic
outlook. The Company will continue to pursue all outstanding arrears.
Financing
During the period, 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, five-year term loan facility with AgFe, a leading independent asset
manager specialising in debt-based investments. The loan is priced as a fixed
rate loan with a total interest cost of 2.959%. The existing RBSi loan
facility, which was priced at a floating rate relative 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 with a residual accounting loss of £88,000. In the
current inflationary environment, the Company considered it prudent to fix the
loan and interest, rather than run the risk of further interest rate rises
nearer renewal.
As at 31 March 2023, the Company has a £60.00 million loan Facility with
AgFe, in place until May 2027, the details of which are presented below:
31 March 2023 31 March 2022
Facility £60.00million £60.00 million
Drawn £60.00 million £54.00 million
Gearing (Loan to GAV) 28.06% 22.48%
Gearing (Loan to NAV) 35.91% 28.26%
Interest rate 2.959% fixed 2.20% variable (SONIA +1.4%)
Notional Value of Loan Balance Hedged N/A 95%
Property Portfolio
The following tables illustrate the composition of the portfolio in relation
to its properties, tenants and income streams:
Summary by Sector as at 31 March 2023
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 17 94.60 2,308,782 8.74 3.50 7.47 3.24 9.44 4.09 7.68 0.41 5.81
Retail Warehouse 5 43.90 484,033 9.11 3.92 4.34 8.96 4.56 9.43 3.67 0.01 1.67
Standard Retail 8 39.90 357,227 5.84 4.52 4.25 11.88 4.00 11.21 3.11 (0.24) (12.00)
Alternatives 4 20.13 178,165 0.00 8.97 1.44 8.11 1.85 10.38 1.90 (0.03) (2.00)
Office 2 15.30 74,186 13.27 3.93 0.90 12.17 1.49 20.04 1.35 (0.03) (2.83)
Portfolio 36 213.83 3,402,393 7.83 3.05 18.40 5.41 21.34 6.27 17.71 0.12 0.98
Summary by Geographical Area as at 31 March 2023
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) (%)
South West 6 48.35 584,455 9.53 4.02 4.14 7.08 4.89 8.36 3.44 0.07 3.27
West Midlands 5 40.25 597,860 9.97 3.88 3.60 6.02 4.17 6.97 3.77 (0.04) (3.48)
Yorkshire and Humberside 8 36.70 928,903 5.06 2.29 3.18 3.42 4.08 4.39 2.84 0.20 8.85
Eastern 4 21.45 326,419 0.81 2.08 1.38 4.22 2.05 6.30 2.09 0.24 14.46
North West 4 20.95 336,043 0.00 6.04 1.89 5.62 1.90 5.67 1.41 (0.03) (2.17)
Wales 3 19.00 415,607 27.55 9.98 1.27 3.07 1.84 4.43 1.42 (0.19) (14.50)
South East 3 11.65 86,826 5.62 2.52 1.39 15.99 1.07 12.30 1.23 (0.13) (13.83)
Rest of London 1 9.63 71,720 0.00 8.49 0.93 13.04 0.75 10.45 0.98 0.01 1.03
East Midlands 1 3.70 28,219 0.00 3.70 0.41 14.56 0.38 13.38 0.40 (0.01) (2.50)
Scotland 2.15 26,341 0.00 5.05 0.21 7.97 0.21 7.97 0.13 - -
Portfolio 36 213.83 3,402,393 7.83 3.05 18.40 5.41 21.34 6.27 17.71 0.12 0.98
* Like-for-like rental growth is for the year ended 31 March 2023.
Source: Knight Frank/AEW, 31 March 2023.
Properties by Market Value as at 31 March 2023
Sector weighting by valuation - high industrial weighting and low exposure to
offices
Sector Percentage
Industrial 44%
Offices 7%
Alternative 9%
Standard Retail 19%
Retail Warehouse 21%
Geographical weighting by valuation - highly diversified across the UK
Region Percentage
Yorkshire and Humberside 17%
South East 5%
Eastern 10%
South West 23%
West Midlands 19%
East Midlands 2%
North West 10%
Wales 9%
Rest of London 4%
Scotland 1%
Properties by Market Value as at 31 March 2023
Property Sector Region Market Value
Range (£m)
Top 10:
1. Central Six Retail Park, Coventry Retail Warehouses West Midlands 15.0 - 20.0
2. Northgate House, Bath Standard Retail South West 10.0 --- 15.0
3. 40 Queen Square Bristol Offices South West 10.0 - 15.0
4. Gresford Industrial Estate, Wrexham Industrial Wales 10.0 - 15.0
5. London East Leisure Park, Dagenham Other Rest of London 7.5 - 10.0
6. Lockwood Court, Leeds Industrial Yorkshire and Humberside 7.5 - 10.0
7. Arrow Point Retail Park, Shrewsbury Retail Warehouses West Midlands 7.5 - 10.0
8. 15-33 Union Street, Bristol Standard Retail South West 7.5 - 10.0
9. Apollo Business Park, Basildon Industrial Eastern 5.0 - 7.5
10. Units 1001 - 1004 Sarus Court Industrial North West 5.0 - 7.5
The Company's top ten properties listed above comprise 49.2% of the total
value of the portfolio.
Property Sector Region Market Value
Range (£m)
11. Matalan, Preston Retail Warehouses North West 5.0 - 7.5
12. Barnstaple Retail Park, Barnstaple Retail Warehouses South West 5.0 - 7.5
13. Storey's Bar Road, Peterborough Industrial Eastern 5.0 - 7.5
14. Mangham Road, Rotherham Industrial Yorkshire and Humberside 5.0 - 7.5
15. Brockhurst Crescent, Walsall Industrial West Midlands 5.0 - 7.5
16. Westlands Distribution Park, Weston Super Mare Industrial South West 5.0 - 7.5
17. Next, Bromley Standard Retail South East 5.0 - 7.5
18. Walkers Lane, St Helens Industrial North West 5.0 - 7.5
19. Euroway Trading Estate, Bradford Industrial Yorkshire and Humberside 5.0 - 7.5
20. Diamond Business Park, Wakefield Industrial Yorkshire and Humberside 5.0 - 7.5
21. Odeon Cinema, Southend Other Eastern 5.0 - 7.5
22. 710 Brightside Lane, Sheffield Industrial Yorkshire and Humberside < 5.0
23. Deeside Industrial Park, Deeside Industrial Wales < 5.0
24. Oak Park, Droitwich Industrial West Midlands
25. Pearl House, Nottingham Standard Retail East Midlands < 5.0
26. The Railway Centre, Dewsbury Retail Warehouses Yorkshire and Humberside < 5.0
27. Cedar House, Gloucester Offices South West < 5.0
28. PRYZM, Cardiff Other Wales < 5.0
29. Pipps Hall Industrial Estate, Basildon Industrial Eastern < 5.0
30. Commercial Road, Portsmouth Standard Retail South East < 5.0
31. 69-75 Above Bar Street, Southampton Standard Retail South East < 5.0
32. Eagle Road, Redditch Industrial West Midlands < 5.0
33. Bridge House, Bradford Industrial Yorkshire and Humberside < 5.0
34. Pricebusters Building, Blackpool Standard Retail North West < 5.0
35. JD Gyms, Glasgow Other Scotland < 5.0
36. 11/15 Fargate, Sheffield Standard Retail Yorkshire and Humberside < 5.0
Top 10 Tenants as at 31 March 2023
% of
Portfolio
Passing Total
Rental Passing
Income Rental
Tenant Sector Property (£'000) Income
1. Plastipak UK Ltd Industrial Gresford Industrial Estate, Wrexham 975 5.3
2. Mecca Bingo Ltd Leisure Various 806 4.4
3. Matalan Ltd Retail Warehouse Cuerden Way, Preston 651 3.5
4. Wyndeham Peterborough Ltd Industrial Wyndeham, Peterborough 644 3.5
5. Poundland Ltd Retail Various 631 3.4
6. TJX UK Ltd Retail Various 608 3.3
7. Sports Direct Retail Various 604 3.3
8. Harrogate Spring Water Ltd Industrial Lockwood Court, Leeds 603 3.3
9. Wilko Retail Ltd Retail 15-33 Union Street, Bristol 481 2.6
10. Next Holdings Ltd Retail Next, Bromley 478 2.6
The Company's top ten tenants, listed above, represent 35.2% of the total
passing rental income of the portfolio.
Source: Knight Frank valuation report as at 31 March 2023.
ESG Update
The Company has maintained its two stars Global Real Estate Sustainability
Benchmark ('GRESB') rating for 2022 and improved its score to 67 (GRESB Peer
Group Average 65). A large portion of the GRESB score relates to performance
data coverage where, due to the high percentage of single-let assets with
tenant procured utilities, the Company does not score as well as Funds with a
smaller holding of single-let assets and a higher proportion of multi-let
assets where the owner is responsible for the utilities and can therefore
gather the relevant data.
We continue to implement our plan to improve overall data coverage and data
collection for all utilities through increased tenant engagement at our
single-let assets and by installing automated meter readers ('AMR') across the
portfolio. So far, we are in the process of installing AMRs in all of our
multi-let properties. We are also in discussions with the tenants of our top
10 single-let FRI assets (in terms of floor area) regarding the installation
of AMR.
We endeavour, where the opportunity presents itself through a lease event, to
include green clauses in leases, covenanting landlord and tenant to
collaborate over the environmental performance of the property. Green clauses
seek to improve data coverage by ensuring tenants provide regular and
appropriate utility consumption data.
We continue to assess and strengthen our reporting and alignment against the
framework set out by the TCFD with further disclosure to be provided in the
2023 annual report and accounts. We are pleased to report that the Company has
maintained its EPRA Silver rating for Sustainability Best Practice
Recommendations (sBPR) for ESG disclosure and transparency.
Each asset within the Company has an individual Asset Sustainability Action
Plan (ASAP). This document tracks ESG initiatives across the portfolio on an
asset-by-asset basis for targeted/ relevant and specific implementation of ESG
improvements. All managed assets and units have been contracted to High
Quality Green Tariffs, ensuring the electricity supply is from renewable
sources. All void and vacant unit supplies have also been transferred to High
Quality Green Tariffs.
We are underway with implementing a number of initiatives across our
portfolio, including a new landscaping/biodiversity programme at our retail
warehouse in Barnstaple, which we completed during the period, replacing the
existing plants and shrubs with a greater diversity of appropriate species
which in turn will attract a wider variety of insects and wildlife to the
property.
Approximately £3.02 million of the Company's current contracted income stream
is subject to an expiry or break within the 12-month period commencing 1 April
2023. 26.68% (£776,757) of this income is in the industrial sector, where we
anticipate strong occupier demand, low incentives and reversionary rents.
Regarding the remainder, the Company is proactively looking to renew leases or
to complete new lettings.
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 2023 31 March 2022
Leverage Exposure Gross Method Commitment Gross Commitment
Method Method Method
Maximum Limit 140% 140% 140% 140%
Actual 127% 136% 125% 129%
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 2022.
Year ended
31 December 2022
Total remuneration paid to employees during financial year:
a) remuneration, including, where relevant, any carried interest paid by the 3,717,218
AIFM
b) the number of beneficiaries 32
The aggregate amount of remuneration of the AIFM Remuneration Code staff,
broken down by:
a) senior management £512,674
b) members of staff £3,204,543
Fixed Variable Total
remuneration remuneration remuneration
Senior management £362,500 £150,174 £512,674
Staff £2,202,729 £1,001,815 £3,204,544
Total £2,565,229 £1,151,989 £3,717,218
Fixed remuneration comprises basic salaries and variable remuneration
comprises bonuses.
AEW UK Investment Management LLP
20 June 2023
FURTHER INFORMATION
The financial information does not constitute the Company's financial
statements for the periods ended 31 March 2023 or 31 March 2022 but is derived
from those financial statements. Financial statements for the year ended 31
March 2022 have been delivered to the Registrar of Companies and those for the
year ended 31 March 2023 will be delivered following the Company's Annual
General Meeting. The auditor's reports on both the 31 March 2022 or 31 March
2023 financial statements were unqualified; did not draw attention to any
matters by way of emphasis; and did not contain statements under section 498
(2) or (3) of the Companies Act 2006.
AEW UK REIT PLC's annual report and accounts for the year ended 31 March 2023
(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.
END
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