REG - AEW UK REIT PLC - Half Yearly Results
16/11/2022 07:00
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RNS Number : 5221G AEW UK REIT PLC 16 November 2022
16 November 2022
AEW UK REIT PLC
Interim Report and Financial Statements
for the six months ended 30 September 2022
AEW UK REIT PLC ("AEW UK REIT" or the "Company"), which holds a diversified
portfolio of 35 commercial investment properties throughout the UK, is pleased
to publish its Interim Report and Financial Statements for the six months
ended 30 September 2022.
Mark Burton, Chairman of AEW UK REIT, commented: "We are pleased with the
robust performance of the Company during the period, which reported NAV total
return of 4.35%, achieved against a backdrop of economic uncertainty. We
believe that the Company is defensively positioned given its focus on value
and having prudently fixed the cost of debt early in the period. The
Investment Manager's unconstrained sector approach and its active management
style also provide a strong basis for counter-cyclical performance. Given the
market volatility, the Company's high cash weighting makes it very
well-positioned to select assets from the increased number of investment
opportunities that are expected to present in the near future which supports
our focus of returning to full investment and to full cover of the dividend
over the medium term."
Financial Highlights
● Net Asset Value ('NAV') of £193.09 million and of 121.88 pence per share
('pps') as at 30 September 2022 (31 March 2022: £191.10 million and 120.63
pps).
● NAV Total Return for the period of 4.35% (six months ended 30 September 2021:
14.99%).
● Operating profit before fair value changes of £5.25 million for the period
(six months ended 30 September 2021: £5.88 million).
● Profit Before Tax ('PBT')* of £8.32 million and earnings per share ('EPS') of
5.25 pps for the period (six months ended 30 September 2021: £23.55 million
and 14.86 pps). PBT includes a £6.51 million loss arising from changes to the
fair values of investment properties in the period (six months ended 30
September 2021: £16.60 million gain). This change explains the significant
reduction in PBT for the period.
● EPRA Earnings Per Share ('EPRA EPS') for the period of 2.58 pps (six months
ended 30 September 2021: 3.45 pps).
● Total dividends of 4.00 pps declared in relation to the period (six months
ended 30 September 2021: 4.00 pps).
● Shareholder Total Return for the period of -18.53% (six months ended 30
September 2021: 28.37%).
● The price of the Company's Ordinary Shares on the London Stock Exchange was
93.60 pps as at 30 September 2022 (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 30 September 2022, the Company had a balance of £60.00 million drawn
down (31 March 2022: £54.00 million) of its £60.00 million (31 March 2022:
£60.00 million) loan facility with AgFe and was geared to 31.07% of NAV (31
March 2022: 28.26%). See note 14 in the full Half-Yearly Report for further
details.
● The Company held cash balances totalling £38.91 million as at 30 September
2022 (31 March 2022: £6.77 million).
Property Highlights
● As at 30 September 2022, the Company's property portfolio had a valuation of
£214.25 million across 35 properties (31 March 2022: £240.18 million across
36 properties) as assessed by the valuer(1) and a historical cost of £200.10
million (31 March 2022: £214.47 million).
● The Company acquired two properties during the period for a total purchase
price of £7.30 million, excluding acquisition costs (year ended 31 March
2022: four properties for £38.23 million).
● The Company made three disposals during the period for gross sale proceeds of
£40.01 million (year ended 31 March 2022: two properties for gross sale
proceeds of £16.71 million).
● The portfolio had an EPRA vacancy rate** of 8.48% as at 30 September 2022 (31
March 2022: 10.69%).
● Rental income generated during the period was £8.41 million (six months ended
30 September 2021: £7.87 million).
● EPRA Net Initial Yield ('EPRA NIY')** of 7.04% as at 30 September 2022 (31
March 2022: 5.87%).
● Weighted Average Unexpired Lease Term ('WAULT') of 3.58 years to break and
5.66 years to expiry (31 March 2022: 3.94 years to break and 5.87 years to
expiry).
● As at the date of this report, 92% of the rent due for the September 2022
quarter had been collected, 97% for the June 2022 quarter and 98% for the
March 2022 quarter.
( )
(* See KPIs in the full Half-Yearly Report for definition of alternative
performance measures.
** See glossary in the full Half-Yearly Report for definition of alternative
performance measures.
1 The valuation figure is reconciled to the fair value under IFRS in note 11
in the full Half-Yearly 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
Chairman's Statement
Overview
The Company reported a resilient NAV total return of 4.35% for the six-month
period to 30 September 2022. Following a prolonged period of strong capital
performance up to the end of June 2022, which saw the Company report a
three-year annualised NAV total return of 17.7%, the value of the Company's
assets fell marginally in the three months to September, reflecting broader
pricing pressure in the UK commercial property market. This has been seen as a
result of ongoing political and economic instability in the UK, where a
sustained period of high inflation has been exacerbated by the
sanctions-related energy crisis. With a backdrop of an uncertain political
outlook, this has seen costs of borrowing increase rapidly since the start of
2022 and, after early valuation declines in prime assets lower down the yield
spectrum, is now starting to impact across most asset classes.
As a result of this uncertainty, the shares of listed property companies have
sold off almost indiscriminately over the period. The Company's own shares
demonstrate this, having started the six-month period to 30 September trading
at a discount to NAV of 0.68% and finished the period trading at a discount of
23.2%. This has led to a disappointing shareholder total return for the period
of -18.5%, albeit the Company trades at the narrowest discount of its peer
group in UK diversified REIT's. We hope that this, along with the Company's
track record of outperformance and its robust positioning, will stand its
shares in good stead once market sentiment recovers.
Current consensus forecasts show an expectation for the Bank of England base
rate to peak at 4% in early 2023 and for it to remain at that level for more
than a year. The Company took the prudent decision to complete a full
refinancing of its loan in May 2022, leaving it defensively positioned to
weather the current period of high interest rates. In May 2022, the Company
was able to fix its cost of debt at 2.959% for the next five years, protecting
it from the impact of rising interest rates on its cost of borrowing. There is
also significant headroom on both the loan-to-value and debt yield covenants
associated with the loan. Consequently, the outlook for the Company, from a
debt financing perspective, is robust. We also believe that high yielding
assets, such as those in the Company's portfolio, will be more resilient over
the long term to the valuation impact of rising interest rates, albeit further
near-term value decline is expected. With higher "starting" yields, the
portfolio's current book values are closer to long term value fundamentals
such as vacant possession values, alternative use values and replacement cost.
A particular performance highlight during the period was the sale of Eastpoint
Business Park, Oxford, which completed during August 2022 for £29.0 million.
The property was acquired in May 2015 for £8.2 million, providing a net
initial yield of over 9%. The asset sale was realised following the
culmination of a multi-year business plan, which included the signing of a
25-year lease in 2018 with specialist healthcare provider, Genesis Care. The
lease provided for five-yearly compounded rental uplifts in line with RPI,
which increased the asset's value by £2.0m. As a condition of this letting,
the Investment Manager sought planning consent for change of use away from the
asset's existing office use, setting a precedent for healthcare and life
science use in the location. Since the signing of the existing lease, investor
demand in the healthcare and life science sectors has increased considerably
and this is reflected in the sale price, which crystallises significant
profit. The asset delivered an IRR to the Company in excess of 22% during its
hold period, with the sale price exceeding the valuation level immediately
prior to the sale by 16%.
Another key sale during the period was the Company's asset at 225 Bath Street,
Glasgow, for £9.3 million. The sale realises a long-term change of use
strategy for the asset, for which contracts had been exchanged with a
subsidiary company of IQ Student Accommodation in October 2020. Since that
time, the purchaser achieved detailed planning consent for the redevelopment
of a 527-unit student accommodation scheme at the site and the Investment
Manager negotiated with tenants to bring the asset to vacancy. As such, the
sale of the asset led to a reduction in the portfolio's vacancy level and will
lead to a boost in earnings once capital from the sale is reinvested. The
sale demonstrates the Investment Manager's ability to pursue an alternative
use strategy due to weakened occupier market conditions in this location.
Assisted by these notable sales, the Company's office assets saw a total
return of 24.0% during the period. The fact that these returns were achieved
during a period when wider office sector performance was negative points to
the effectiveness of the Company's investment strategy to drive
counter-cyclical returns during periods of wider value decline due to its
value investment fundamentals and active management style. The Investment
Manager and the Board believe that the Company's ability to seek value
opportunities unconstrained by sector is key to the maximisation of total
return over the long term.
The sales of Glasgow and Oxford during the period also form an important step
towards the portfolio's planned return to full cover of its dividend. Despite
dividend cover since IPO being in excess of 90%, earnings have been reduced in
recent quarters, primarily as a result of vacancy in these assets that was
required in order to maximise their sale values to alternative use developers.
Together, the assets had been producing an income yield of circa 1.0% and
therefore reinvested proceeds from the sales of assets producing net initial
yields between 6.75% and 10% will be significantly accretive to the Company's
earnings in future periods.
The Company completed two purchases during the period. In June 2022, the
Company acquired the 6.04 acre Railway Station Retail Park in Dewsbury for a
price of £4.7 million. The purchase price reflects a low capital value of
£82 psf and provides an attractive net initial yield of 9.4%. The park is
fully let and located in an area of low supply with a low average passing rent
of £8.28 psf. The Investment Manager believes this provides strong potential
for rental growth. During August 2022, the Company completed the purchase of a
high yielding leisure asset in Glasgow for a price of £2.6 million,
reflecting a low capital value of £99 per sq. ft. and a net initial yield of
7.4%. The site contains a vacant plot of land which may be suitable for
redevelopment over the medium term, subject to planning.
We believe that balancing the Company's investment rate against expected
pipeline opportunities will be beneficial to our shareholders' total return.
The Company currently benefits from a high cash weighting, leaving it
advantageously positioned to select assets from the increased number of
investment opportunities that are expected to present in the near future. The
Investment Manager is currently analysing a pipeline of investment
opportunities, including those assets that the Company had placed under
exclusivity over the summer, albeit these are being re-evaluated against
current pricing. The focus of the Company's investment strategy remains to
return to full investment and to full cover of its dividend over the medium
term.
Although the outlook from a capital markets perspective is one of increased
volatility, we are not, at this point, seeing this reflected in the uptake by
tenants of the portfolio's occupational space. Active asset management is a
key driver of value and income resilience within AEWU and, during the period
under review, the Investment Manager agreed terms with several key tenants to
take space, the terms of which were agreed in line with the rental estimates
of our expert independent valuer, Knight Frank. Several of these lettings have
been in the portfolio's industrial assets, including the letting in Rotherham
to Senior Architectural Systems Ltd which completed in September 2022. This
letting will deliver a rental income to the Company 49% ahead of the level
paid by the previous tenant and, in addition, income growth during the lease
term is ensured by inflation-linked reviews. This activity highlights ongoing
demand from industrial occupiers. AEWU's industrial holdings show an average
passing rent of £3.37 per sq. ft. and are expected to continue to deliver
growth over the long term from this low starting point.
Other key lettings during the period took place at Arrow Point, Shrewsbury,
where a 10-year lease renewal was completed with Charlie's Stores at a level
46% higher than ERV. At Queen Square, Bristol, a renewal to Konica Minolta at
£40 per sq. ft. set a new high rental tone for the building.
Financial Results
Six months
Six months ended 30 September ended 30 September Year ended 31 March
2022 2021 2022
Operating Profit before fair value changes (£'000) 5,253 5,879 11,752
Operating Profit (£'000) 9,576 23,919 46,913
Profit before Tax (£'000) 8,322 23,547 46,695
Earnings Per Share (basic and diluted) (pence)* 5.25 14.86 29.47
EPRA Earnings Per Share (basic and diluted) (pence)* 2.58 3.45 6.79
Ongoing Charges (%) 1.33 1.31 1.35
Net Asset Value per share (pence) 121.88 110.01 120.63
EPRA (NTA) Net Asset Value per share (pence) 121.88 109.94 120.10
* see note 9 of the Financial Statements for the corresponding calculations.
See the Investment Manager's Report for further explanation of performance in
the period.
Awards
I am delighted that the Company's market leading performance and practices
have been recognised in two awards gained 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. Post period-end, 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. AEWU won this award in both 2021 and 2020 so we are very pleased to
receive it for a third consecutive year. The Company has also been nominated
for '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.
Environmental, Social, Governance + Resilience ('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, during the period, the Company and the Investment Manager
has taken further steps to integrate ESG+R considerations into its investment,
asset management and operations process. This has seen the continuous
development of a number of initiatives, including asset sustainability action
plans across all portfolio assets to inform and drive ESG+R agendas, the
re-assessment of EPC's to prepare for upcoming regulation in relation to
Minimum Energy Efficiency Standards and the integration of increased ESG+R
considerations into the Company's investment process. As Investment Manager of
the Company, AEW will continue to refine and improve its ESG+R policy in line
with new legislation, such as the Task Force on Climate-related Financial
Disclosures ('TCFD') and in line with industry best practices as they evolve.
During 2018, AEW established sustainability targets across its managed
portfolio. The managed portfolio comprises service charged assets and vacant
accommodation, which are those assets at which the Company has control over
utilities. 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 also 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.
GRESB is a global real estate benchmark that assesses Environmental, Social
and Governance performance. AEWU achieved two stars 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 AEWU portfolio with
tenant-procured utilities, the Company does not score as well as peers with a
smaller holding of single-let assets.
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, will resign at the AGM in
September 2023 and 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, in July 2022 the Board appointed Trust Associates, a
firm specialising in recruiting NEDs for the investment trust sector, to
produce a short list of eight candidates who would be suitable for the role of
Audit Chairman. Four of the candidates were interviewed by the Board in
October 2022 and were invited to a separate meeting with the Investment
Manager. Following this extensive search, I am delighted to welcome to the
Board Mark Kirkland, who was appointed as Non-Executive Director and Audit
Committee Chairman designate with effect from 9 November 2022 and will take
over From Bim at the AGM in September 2023. Mark brings extensive corporate
experience gained over 30 years, having held numerous senior roles in public
and private companies. Mark's initial career was in corporate finance,
predominately 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 NED and Audit Committee
Chairman of Strix Group plc, and an Advisor to DP World. We will begin the
process of finding my successor in mid-2023.
Outlook
The Board and Investment Manager believe that the Company is as defensively
positioned as possible against the current challenging backdrop. Whilst
further near-term value decline is expected, the Company's fixed cost of debt
and book values which are closer to long term value fundamentals, such as
alternative use values and replacement cost, provide a robust outlook for the
portfolio over the long term. The portfolio's current high weighting to cash
and value investment style leave it well placed to benefit from upcoming
investment opportunities. The strategy's approach, being unconstrained by
sector, and its active management style of the portfolio provide a strong
basis for counter-cyclical performance. In addition, we are seeing resilience
in occupational demand from the Company's tenants.
Investing the current capital available for deployment will be a key focus of
the Company's Investment Manager over the coming months. The Investment
Manager expects that value investment opportunities will be increasing in
number over this period across all real estate sectors. Following full
investment of capital available for deployment, the Company's earnings are
expected to return to full cover of its 8p annual dividend, which has now been
paid for 28 consecutive quarters.
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. Economic conditions will be monitored closely and it is
hoped that the UK's new Prime Minister, Rishi Sunak, will be able to restore
an element of stability to the UK's financial markets.
Mark Burton
Chairman
15 November 2022
Investment Manager's Report
Economic Outlook
In common with most of Europe, the UK's macroeconomic outlook has been
impacted by the conflict in Ukraine. With winter approaching, the
sanctions-related energy crisis has pushed already high inflation to a record
new high of above 10% in October 2022. This has put further pressure on the
Bank of England to raise base rates. However, the outlook for inflation has
become more uncertain following the fiscal U-turns announced by the new
Chancellor in the third week of October 2022. On the one hand, a much tighter
fiscal stance points to lower inflation in the medium-term. On the other, the
curtailment of the cap on energy bills could push inflation up sharply in the
spring of 2023. As of mid-October 2022, Oxford Economics projects the Bank of
England base rate to peak at 4% in early 2023 and for it to remain at that
level for more than a year. As these government policies and rate hikes will
impact on mortgage interest rates, house prices and consumer spending, Oxford
Economics forecasts, as of mid-October 2022, that GDP growth will be adjusted
downward to 4.5% for the full year of 2022. More importantly, they project a
fall of 0.5% in 2023 before returning to modest 1.8% growth in 2024. Investors
and lenders will need to adjust to the slower economic growth and increased
costs of debt as they might impact on both their acquisition or lending
strategies and any loans coming up for refinancing.
Financial Results
The Company's NAV as at 30 September 2022 was £193.09 million or 121.88 pps
(31 March 2022: £191.10 million or 120.63 pps). This represents an increase
of 1.25 pps or 1.04% over the six-month period.
EPRA EPS for the period was 2.58 pence which, based on dividends paid of 4.00
pps, reflects a dividend cover of 64.50%. The decrease in dividend cover
compared to the prior six-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. A high
cash weighting leaves the Company advantageously positioned to select assets
from the increased number of investment opportunities that are expected to
present in the near 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 March and June 2022 quarters respectively, with further payments
expected to be received under longer-term payment plans. Of the outstanding
arrears, the Company has made a £0.59 million expected credit loss provision,
given the deteriorating 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 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
considered it prudent to fix the loan and interest, rather than run the risk
of further interest rate rises nearer renewal. The Company intends to utilise
borrowings to enhance returns over the next five years.
As at 30 September 2022, the Company has a £60.00 million loan Facility with
AgFe, in place until May 2027, the details of which are presented below
30 September 2022 31 March 2022
Facility £60.00 million £60.00 million
Drawn £60.00 million £54.00 million
Gearing (Loan to NAV) 31.07% 28.26%
Interest rate 2.959% fixed 2.20% variable (SONIA +1.4%)
Notional Value of Loan Balance Hedged N/A 95%
Property Portfolio
During the period, the Company completed three disposals, being: Eastpoint
Business Park, Oxford, for a price of £29.00 million; Bath Street, Glasgow,
for a price of £9.30 million; and Moorside Road, Swinton, for a price of
£1.71 million. The Company made two acquisitions during the period, being:
Dewsbury Railway Station Retail Park, which was acquired in June 2022 for
£4.70 million, and JD Gyms, Glasgow, which was purchased in August 2022 for a
price of £2.60 million.
The following tables illustrate the composition of the portfolio in relation
to its properties, tenants and income streams:
Summary by Sector as at 30 September 2022
Gross Gross Like- Like-
passing passing for-like for-like
Number of Vacancy WAULT to rental rental Rental rental rental
assets Valuation Area by ERV break income income ERV ERV income growth* growth*
Sector (£m) (sq ft) (%) (years) (£m) (£psf) (£m) (£psf) (£m) (£m) %
Industrial 18 113.32 2,340,264 9.52 3.76 7.89 3.37 9.32 3.98 3.72 0.09 2.51
Retail warehouses 4 39.70 425,337 7.10 3.09 3.37 7.92 3.96 9.30 1.73 (0.14) (20.59)
Standard retail 6 24.70 237,792 4.88 3.37 2.57 10.81 2.33 9.78 1.36 (0.03) (2.16)
Alternatives 4 19.78 178,165 0.00 7.05 2.01 11.30 1.85 10.38 0.90 (0.04) (5.19)
Office 3 16.75 91,903 21.16 2.28 1.17 12.72 1.56 17.01 0.70 (0.10) (14.93)
Portfolio 35 214.25 3,273,461 8.48 3.58 17.01 5.20 19.02 5.81 8.41 (0.22) (3.10)
Summary by Geographical Area as at 30 September 2022
Gross Gross Like- Like-
passing passing for-like for-like
Number of Vacancy WAULT to rental rental Rental rental rental
Geographical Area assets Valuation Area by ERV break income income ERV ERV income growth* growth*
(£m) (sq ft) (%) (years) (£m) (£psf) (£m) (£psf) (£m) (£m) %
West Midlands 5 42.22 598,405 8.40 3.76 3.52 5.88 4.09 6.84 1.87 (0.11) (11.70)
Yorkshire and Humberside 8 42.17 931,941 3.23 2.87 3.26 3.50 3.90 4.19 1.26 (0.01) (0.89)
South West 5 40.23 517,232 15.62 3.04 2.83 5.48 3.58 6.92 1.47 (0.05) (3.29)
Eastern 5 24.82 344,339 0.76 1.84 2.11 6.14 2.20 6.38 1.02 0.07 7.37
Wales 3 22.48 415,607 27.55 10.48 1.28 3.07 1.84 4.43 0.78 (0.04) (5.88)
North West 3 16.18 277,347 0.00 2.36 1.44 5.19 1.30 4.71 0.67 (0.03) (4.55)
Rest of London 1 9.90 71,720 0.00 9.15 0.98 13.61 0.75 10.45 0.47 (0.03) (6.00)
South East 3 9.70 62,760 7.84 3.07 0.98 15.62 0.77 12.20 0.64 (0.01) (1.92)
East Midlands 1 3.95 28,219 0.00 4.17 0.41 14.56 0.38 13.38 0.20 (0.01) (3.29)
Scotland 1 2.60 26,341 0.00 5.43 0.20 7.71 0.21 7.97 0.03 - -
Portfolio 35 214.25 3,273,461 8.48 3.58 17.01 5.20 19.02 5.81 8.41 (0.22) (3.10)
*like-for-like rental growth is for the six months ended 30 September 2022.
Source: Knight Frank/AEW, 30 September 2022.
Individual Property Classifications
Market Value
Property Sector Region Range(£m)
1 Central Six Retail Park, Coventry Retail warehouses West Midlands 15.0-20.0
2 Gresford Industrial Estate, Wrexham Industrial Wales 10.0-15.0
3 40 Queen Square, Bristol Offices South West 10.0-15.0
4 15-33 Union Street, Bristol Standard retail South West 10.0-15.0
5 Lockwood Court, Leeds Industrial Yorkshire and Humberside 10.0-15.0
6 London East Leisure Park, Dagenham Other Rest of London 7.5 -10.0
7 Arrow Point Retail Park, Shrewsbury Retail warehouses West Midlands
7.5-10.0
8 Apollo Business Park, Basildon Industrial Eastern 7.5-10.0
9 Storey's Bar Road, Peterborough Industrial Eastern 7.5-10.0
10 Units 1001-1004 Sarus Court Industrial North West 7.5-10.0
The Company's top ten properties listed above comprise 50.0% of the total
value of the portfolio.
Market Value
Property Sector Region Range
(£m)
11 Westlands Distribution Park, Weston Super Mare Industrial South West 5.0-7.5
12 Euroway Trading Estate, Bradford Industrial Yorkshire and Humberside 5.0-7.5
13 Barnstaple Retail Park, Barnstaple Retail warehouses South West 5.0-7.5
14 Brockhurst Crescent, Walsall Industrial West Midlands 5.0-7.5
15 Diamond Business Park, Wakefield Industrial Yorkshire and Humberside 5.0-7.5
16 Deeside Industrial Park, Deeside Industrial Wales 5.0-7.5
17 Walkers Lane, St, Helens Industrial North West 5.0-7.5
18 Mangham Road, Rotherham Industrial Yorkshire and Humberside 5.0-7.5
19 710 Brightside Lane, Sheffield Industrial Yorkshire and Humberside <5.0
20 The Railway Centre, Dewsbury Retail warehouses Yorkshire and Humberside <5.0
21 Oak Park, Droitwich Industrial West Midlands <5.0
22 Pipps Hall Industrial Estate, Basildon Industrial Eastern <5.0
23 Pearl House, Nottingham Standard retail East Midlands <5.0
24 Odeon Cinema, Southend Other Eastern <5.0
25 PRZYM Other Wales <5.0
26 Eagle Road, Redditch lndustrial West Midlands <5.0
27 Cedar House, Gloucester Offices South West <5.0
28 69-75 Above Bar Street, Southampton Standard retail South East <5.0
29 Commercial Road, Portsmouth Standard retail South East <5.0
30 Bridge House, Bradford, Industrial Yorkshire and Humberside <5.0
31 Clarke Road, Milton Keynes Industrial South East <5.0
32 Pricebusters Building, Blackpool Standard retail North West <5.0
33 JD Gyms, Glasgow Other Scotland <5.0
34 Vantage Point, Hemel Hempstead Offices Eastern <5.0
35 11/15 Fargate, Sheffield Standard retail Yorkshire and Humberside <5.0
Sector and Geographical Allocation by Market Value as at 30 September 2022
Sector Allocation
Sector %
Standard retail 11
Retail warehouses 19
Offices 8
Industrial 53
Other 9
Geographical Allocation
Location %
Rest of London 5
South East 4
South West 19
Eastern 12
West Midlands 20
East Midlands 2
North West 7
Yorkshire and Humberside 20
Wales 10
Scotland 1
Source: Knight Frank valuation report as at 30 September 2022.
Top Ten Tenants
Tenant Sector Property Passing % of
Rental Portfolio
Income Total
(£'000) Contracted
Rental
Income
1 Plastipak UK Ltd Industrial Gresford Industrial Estate, Wrexham 975 5.7
2 Wyndeham Group Industrial Wyndeham, Peterborough 644 3.8
3 Mecca Bingo Ltd Leisure London East Leisure Park, Dagenham 625 3.7
4 Harrogate Spring Water Limited Industrial Lockwood Court, Leeds 603 3.5
5 Odeon Cinemas Leisure Odeon Cinema, Southend-on-Sea 535 3.1
6 Wilko Retail Limited Retail 15-33 Union Street, Bristol 481 2.8
7 Advanced Supply Chain (BFD) Ltd Industrial Euroway Trading Estate, Bradford 467 2.7
8 Poundland Limited Retail Pearl House, Nottingham 414 2.4
9 Senior Architectural Systems Ltd Industrial Mangham Road, Rotherham 410 2.4
10 Kvernerland Group UK Limited Industrial Walkers Lane, St. Helens 389 2.3
The Company's top ten tenants, listed above, represent 32.6% of the total
passing rental income of the portfolio.
Source: Knight Frank valuation report as at 30 September 2022.
Asset Management
The Company completed the following material asset management transactions
during the period:
Acquisitions - The Railway Centre, Dewsbury, was acquired in June 2022 for
£4.70 million and is a 6.04-acre railway station retail park, occupying a
prominent location on the edge of the town centre within an established retail
and leisure area. The asset provides an attractive net initial yield of 9.4%.
The second acquisition, JD Gyms, Glasgow, is a high yielding leisure asset,
providing a NIY of 7.4% and a low capital value of £99 per sq. ft. Both of
these assets provide strong and stable income streams from their tenancy
profiles.
Disposals - Sales of Moorside Road, Swinton for £1.71 million; Eastpoint
Business Park, Oxford, for £29.00 million; and Bath Street, Glasgow, for
£9.30 million. The Swinton and Oxford sales prices produced IRRs in excess of
13% and 22%, respectively. The sale of Glasgow realised a long-term change of
use strategy where full vacant possession of the building was achieved.
Following its sale, the occupancy rate for the remaining portfolio increased
by circa 4%, all else being equal. Reinvestment of the sales proceeds is
expected to provide a significant boost to the Company's earnings, due to both
higher levels of anticipated income and lower running costs.
Arrow Point, Shrewsbury - During May 2022, the Company completed the renewal
of Charlie's Stores' lease on a straight 10-year term at a rent of £385,000
per annum reflecting £11 psf, versus an ERV of £7.50 psf. 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.
40 Queen Square, Bristol - The Company completed an agreement for lease with
existing tenant
Konica Minolta Marketing Services Ltd on the third floor. The tenant will
enter into a new ten-year lease with a five-year tenant break option at a rent
of £218,840 per annum, reflecting a new high rental tone for the building of
£40 per sq. ft. The letting is subject to landlord refurbishment works
including roof, lift and reception upgrades at a cost of £1.07 million plus
11 months' rent-free incentive. Landlord works commenced during the period and
are due to complete before the end of the year.
Commercial Road, Portsmouth - During May 2022 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 - During June 2022, 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
psf will increase to £3.50 psf in years 2 and 3, and subsequently £3.75 psf
from year 4 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 - The Company has 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 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 period and are expected to improve the asset's energy
efficiency. The tenant benefits from a break option at the end of year five.
Bank Hay Street, Blackpool - Repair works at the property which commenced in
2020 have now reached practical completion. The total cost of these works
amounted to circa £2.40 million, of which approximately £800,000 is expected
to be recovered from tenants. The recoverable elements of this expenditure
have been raised within the service charge budget and all tenants are up to
date with payments.
Vacancy - The portfolio's overall vacancy level is 8.48%.
Environmental, Social and Governance ('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 sBPR for ESG disclosure and
transparency.
We have an Asset Sustainability Action Plan ('ASAP') initiative, tracking ESG
initiatives across the portfolio on an asset-by-asset basis for
targeted/relevant and specific implementation of ESG improvements. In doing
so, all managed assets and units have recently been contracted to High Quality
Green Tariffs, ensuring that electricity supply is from renewable sources. All
void/vacant unit supplies have also been transferred to High Quality Green
Tariffs.
All managed assets will be moved to 'Green Gas' supplies in 2022.
We are underway with implementing a number of initiatives across our
portfolio, including a new landscaping/biodiversity programme at our retail
warehouse in Barnstaple, 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.
Lease Expiry
Profile
Approximately £2.91 million of the Company's current contracted income stream
is subject to an expiry or break within the 12-month period commencing 1
October 2022. 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, we will proactively manage, looking to unlock
capital upside, whether that be through lease regears/renewals, or through
refurbishment/capex projects and new lettings.
Source: Knight Frank valuation report as at 30 September 2022.
AEW UK Investment Management LLP
15 November 2022
AEW UK REIT PLC's interim report and financial statements for the period ended
30 September 2022 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
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