REG-AEW UK REIT plc NAV Update and Dividend Declaration 31 March 2022
21/04/2022 07:15
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AEW UK REIT plc (AEWU)
NAV Update and Dividend Declaration 31 March 2022
21-Apr-2022 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
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The information contained within this announcement is deemed by the
Company to constitute inside information as stipulated under the Market
Abuse Regulation (EU) No. 596/2014 which forms part of domestic law in the
United Kingdom pursuant to The European Union Withdrawal Act 2018, as
amended by The Market Abuse (Amendment) (EU Exit) Regulations 2019.
21 April 2022
AEW UK REIT Plc
NAV Update and Dividend Declaration
AEW UK REIT plc (LSE: AEWU) (the "Company"), which directly owns a
diversified portfolio of 36 regional UK commercial property assets,
announces its unaudited Net Asset Value ("NAV") and interim dividend for
the three-month period ended 31 March 2022.
Highlights
• NAV of £191.10 million or 120.63 pence per share as at 31 March 2022
(31 December 2021: £180.94 million or 114.21 pence per share).
• NAV total return of 7.37% for the quarter (31 December 2021 quarter:
5.63%).
• 4.74% like-for-like valuation increase for the quarter (31 December
2021 quarter: 3.49%), driven by the office and industrial sectors
(like-for-like increases of 7.32% and 4.65%, respectively).
• EPRA earnings per share ("EPRA EPS") for the quarter of 1.55 pence (31
December 2021 quarter: 1.80 pence). This is expected to return to the
Company's target level of 2 pence per quarter once the sale of Bath
Street, Glasgow, completes later in the year.
• Interim dividend of 2.00 pence per share for the three months ended 31
March 2022, in line with the targeted annual dividend of 8.00 pence
per share.
• Acquisition of PRYZM nightclub in Cardiff for a purchase price
of £3.63 million / £92 per sq. ft. The price reflects a net initial
yield of circa 8%, with an anticipated reversionary yield of circa
9%.
• Loan to NAV ratio at the quarter end was 28.26% (31 December 2021:
29.84%). The Company had a cash balance of £6.77 million and £6.0
million of its loan facility was available to draw up to the maximum
35% Loan to NAV at drawdown.
• Robust rental outlook, with portfolio ERV being 20% higher than
current gross income.
Alex Short and Laura Elkin, Portfolio Managers, AEW UK REIT, commented:
"The portfolio's strong capital performance continues this quarter with a
very pleasing NAV total return of 7.37%. In a change to recent trends, in
which the portfolio's industrial and warehousing assets have provided the
strongest NAV growth, this quarter's growth comes predominantly from the
portfolio's office assets, which have achieved a valuation uplift of
7.3%. This largely reflects the ongoing work undertaken by AEW's active
asset management team, where a number of key value accretive business
plans are nearing fruition. Strong performance from the Company's office
assets this quarter further highlights the benefit to investors of AEWU's
flexible mandate and wealth of expertise, enabling it to take advantage of
value opportunities across all sectors of the property market as they
arise. Strong growth this quarter also comes after 2021 saw AEWU record
its highest total return per annum since launch in 2015. Further ongoing
investment and asset management initiatives show signs of additional
growth to follow later in the year.
With respect to income, EPS this quarter has been temporarily reduced by
implementation of the same asset management initiatives that have provided
significant capital value uplift. A high proportion of the void costs
were incurred at Bath Street, Glasgow, which is contractually committed
for disposal later in the calendar year, with vacancy being a condition of
the sale that, once completed, will be beneficial to the Company's overall
performance. Vacancy costs this quarter had a negative impact on EPS of
0.21pps. Once the sale of Glasgow completes and its sale proceeds are
reinvested, EPS is expected to return to a level in line with the
Company's target level of 8p per annum.
Inevitably, implementing accretive asset management initiatives, realising
profits through sales and reinvesting the proceeds into attractive new
purchases, while providing strong capital returns, will create some
short-term volatility in the Company's earnings and we have seen this in
recent quarters. Nonetheless, the total returns generated by AEWU have
been the strongest in the UK diversified REIT peer group over a one, three
and five-year time horizon. This has been recognised by Citywire which
has for the past two years awarded AEWU its award for Best UK Property
Trust (diversified) based on returns over a three-year period.
We are very pleased to announce that for the 26th consecutive quarter, a
dividend of 2.00p per share will be paid. During this time, dividends
have been covered by the Company's EPRA earnings by over 98% on average
and total property value generation has been in the order of 18 pence per
share. We are pleased to be the only REIT in the UK diversified peer
group not to have reduced or suspended our dividend payment during the
pandemic, demonstrating the resilience of our strategy.
Looking forward, the portfolio's future income generation prospects appear
strong as assessed independently by Knight Frank, the Company's valuer. As
at 31st March 2022, despite strong rental growth performance recorded to
date, the portfolio's total estimated market rental value remained 20%
higher than its current gross income, demonstrating their belief in the
portfolio's inherent ability to grow income receipts over the medium
term. This seems particularly topical in today's inflationary environment
where leases with inflation-linked rent reviews, which are often seen as
protective in such markets, generally have inflation caps and can only
track inflationary growth so far, commonly only up to 3% or 4% pa. The
reality may be that in a high inflation environment, better income
protection may arise from selectively chosen assets with an open market
rent review structure than from leases that have capped levels of
inflationary growth built in. For example, the rent review settled this
quarter for the Company's asset in Bradford resulted in a 14% increase in
income over a three-year period. This is just one example where such
levels of growth have been achieved.
We are pleased to see that the Company's strong performance has been
recognised in the rating of its shares, where demand has continued to
deliver a share price premium to NAV. With an attractive pipeline of
opportunities, we hope the Company will be in a position to take advantage
of continued strong demand for its shares to grow its capital base."
Portfolio Manager's report
The Company's office asset at Eastpoint Business Park in Oxford saw
capital growth in excess of 20% this quarter as a result of initiatives to
move the accommodation's use into the burgeoning life sciences sector.
The asset has been earmarked for sale due to the high cost of completing
this conversion, which should allow the Company to crystallise the benefit
of excellent capital performance seen since the asset's purchase in 2015.
In addition, the confirmation of planning consent being received at the
office on Bath Street in Glasgow, which was reported to the market in
February, pushed this asset's valuation up by 13%. This consent for the
development of 527 student beds paves the way for the sale of Bath Street
to IQ Student Housing, which is expected to complete later in the summer.
The remainder of the portfolio's value uplift seen this quarter was driven
by the now familiar theme of expansion in global warehousing markets and
also by demand within the retail warehousing sector, providing 4.65% and
3.95% valuation uplifts, respectively. In particular, the Company's
industrial asset in Basildon, Apollo Business Park, saw valuation growth
of 22.5% during the quarter following the signing of a new five-year lease
at a rent 15% ahead of valuer's previously estimated levels. In Bradford,
at the industrial asset occupied by Pilkington UK Ltd, the September 2021
open market rent review was settled during the quarter bringing a 14%
increase in income and an 11.7% uplift in capital value. In Rotherham,
terms were finalised with a new tenant to take the 80,000 sq ft space
vacated by Hydro Components in December 2021. As terms stand, once the
10-year lease has been completed later this year, rental income is set to
significantly exceed previous passing levels of £3.35 per sq ft. The value
of the asset increased by 20% on this news.
At the Company's recently acquired retail warehousing park in Coventry,
terms have been agreed with a major national retailer which should assist
in providing significant income and capital growth from this asset in
future periods. The asset was acquired in November 2021, highlighting the
speed at which some business plan elements can be achieved with the
benefit of our well researched plans and asset management expertise.
In anticipation of a capital receipt from the sale of Glasgow later this
year, we are reviewing an attractive pipeline of retail warehousing,
leisure and office assets across the UK which offer income levels and
capital growth opportunities in line with the existing portfolio. We are
currently in discussions with a number of vendors and have three assets
under exclusive discussions, including two assets which are expected to
deliver an element of marriage value due to existing adjoining or
complementary holdings.
The Company's EPRA EPS was 1.55 pence for the quarter, providing a
dividend cover of 78% (31 December 2021: 1.80 pence and 90%).
Valuation movement
As at 31 March 2022, the Company owned investment properties with a fair
value of £240.18 million. The like-for-like valuation increase for the
quarter of £10.72 million (4.74%) is broken down as follows by sector:
Sector Valuation 31 March 2022 Like-for-like valuation
movement for the quarter
£ million % £ million %
Industrial 120.75 50.27 5.37 4.65
Office 43.28 18.02 2.95 7.32
High Street Retail 24.98 10.40 0.35 1.42
Retail Warehouses 34.25 14.26 1.30 3.95
Other 16.92 7.05 0.75 0.06
Total 240.18 100.00 10.72 4.74*
* This is the overall weighted average like-for-like valuation increase of
the portfolio.
Net Asset Value
The Company's unaudited NAV at 31 March 2022 was £191.11 million, or
120.63 pence per share. This reflects an increase of 5.63% compared with
the NAV per share at 31 December 2021. The Company's NAV total return,
which includes the interim dividend of 2.00 pence per share for the period
from 1 October 2021 to 31 December 2021, was 7.37% for the three-month
period ended 31 March 2022.
Pence per share £ million
NAV at 1 January 2022 114.21 180.94
Portfolio acquisition costs (0.16) (0.25)
Capital expenditure (0.07) (0.12)
Valuation change in property portfolio 6.79 10.75
Valuation change in derivatives 0.31 0.49
Income earned for the period 2.81 4.46
Expenses and net finance costs for the period (1.26) (2.00)
Interim dividend paid (2.00) (3.17)
NAV at 31 March 2022 120.63 191.10
The NAV attributable to the ordinary shares has been calculated under
International Financial Reporting Standards. It incorporates the
independent portfolio valuation at 31 March 2022 and income for the
period, but does not include a provision for the interim dividend for the
three-month period to 31 March 2022.
Rent Collection
The Company has achieved very high rent collection levels, which stand at
over 98% for each quarter since March 2020 (excluding current quarter
where rent continues to be collected).
For the rental quarter commencing on 25 March 2022, approximately 87% of
rent has been collected or is expected to be received prior to quarter
end. The remainder of rents owed will continue to be pursued.
Dividend
Dividend declaration
The Company today announces an interim dividend of 2.00 pence per share
for the period from 1 January 2022 to 31 March 2022. The dividend payment
will be made on 31 May 2022 to shareholders on the register as at 29 April
2022. The ex-dividend date will be 28 April 2022. The Company operates a
Dividend Reinvestment Plan ("DRIP"), which is managed by its registrar,
Link Group. For shareholders who wish to receive their dividend in the
form of shares, the deadline to elect for the DRIP is 10 May 2022.
The dividend of 2.00 pence per share will be designated in its entirety as
a 2.00 pence per share interim property income distribution ("PID").
The Company has now paid a 2.00 pence quarterly dividend for 26
consecutive quarters1, providing income consistency to our investors.
1For the period 1 November 2017 to 31 December 2017, a pro rata dividend
of 1.33 pence per share was paid for this two-month period, following a
change in the accounting period end.
Dividend outlook
It remains the Company's intention to continue to pay dividends in line
with its dividend policy and this will be kept under review. In
determining future dividend payments, regard will be given to the
circumstances prevailing at the relevant time, as well as the Company's
requirement, as a UK REIT, to distribute at least 90% of its distributable
income annually.
Financing
Equity
The Company's share capital consists of 158,774,746 Ordinary Shares, of
which 350,000 are currently held by the Company as treasury shares.
Debt
The Company had borrowings of £54.0 million at 31 March 2022, producing a
Loan to NAV ratio of 28.26% and allowing a further £6.0 million of the
remaining facility to be drawn up to the maximum 35% Loan to Value at
drawdown.
The loan attracts interest at SONIA + 1.4% and the Company's all-in
interest rate as at 31 March 2022 was 2.20%.
To mitigate the risk of interest rates rising, the Company has interest
rate caps effective for the remaining term of the loan to 23 October 2023,
capping SONIA interest rate costs at 1.0% on a notional value of £51.50
million.
Investment Update
During the quarter the Company completed the following investment
transaction:
Greyfriars Road, Cardiff - In February, the Company completed the
acquisition of PRYZM nightclub in Cardiff for a purchase price
of £3,625,000 / £92 per sq ft. The purchase price reflects a net initial
yield of 8%, with an anticipated reversionary yield of circa 9%. The
property is prominently located within the leisure and late-night district
of Cardiff city centre near the Principality Stadium and St David's
Shopping Centre. Cardiff University and the University of Wales are
located approximately 300m from the property, contributing to the total
student population of circa 75,000.
The property provides 39,469 sq ft of nightclub and bar accommodation and
is single-let to a subsidiary of Rekom UK (formerly The Deltic Group),
providing over 14 years' unexpired lease term. Rekom UK is one of the
largest specialist late-night operators in the UK with 46 clubs and bars
across a number of brands. The nightclub trades as "PRYZM" and "Steinbeck
& Shaw".
Asset Management Update
During the quarter the Company completed the following asset management
transactions:
Knowles Lane, Bradford (industrial) - During the quarter, the Company
settled the September 2021 open market rent review with tenant, Pilkington
United Kingdom Ltd, at our industrial unit in Bradford. The agreed rent is
£208,000 per annum reflecting £4.50 psf. The previous passing rent was
£182,500 per annum reflecting £3.95 psf, representing a 14% increase over
a three-year period.
Apollo Business Park, Basildon (industrial) - During March, the Company
completed a new 10-year letting at Unit 1 Apollo Business Park, Basildon.
The lease provides the tenant with a five-year break option and offers six
months' rent free. The letting produces annual rental income of £240,750
and realises a new headline rent of £8 per sq ft versus an expected market
rental value of £7 per sq ft.
First Avenue, Deeside (industrial) - In Q4 2021, incumbent tenant,
Magellan Aerospace (UK) Ltd, served notice to bring their lease to an end
on 1 April 2022. Discussions have however been ongoing since the service
of the break notice to agree terms for a short-term lease extension. This
agreement has now been signed, extending the tenant's occupation by six
months. Upon completion of the new lease, the tenant paid to the Company
a dilapidations settlement of £250,000, three months' rent up front at a
rate of £6 per sq ft (vs market rent value of £5.25 per sq ft and previous
passing rent of £3.75 per sq ft) and a single lease premium of £50,000.
The total capital receipt from the tenant upon completion was £457,400
excluding VAT. The property continues to be marketed.
Bath Street, Glasgow (office) - During February, the Company received
confirmation that planning consent had been granted for the demolition and
development of a 527-unit student accommodation scheme at 225 Bath Street
in Glasgow city centre. This follows the exchange of contracts for the
sale of the site with a subsidiary company of IQ Student Accommodation in
October 2020. The sale of 225 Bath Street is expected to complete after
the standard three-month judicial review period.
Once the sale has completed, occupancy within the portfolio is expected to
increase by just over 4% with a corresponding decrease in the Company's
costs and associated increase in income once sale proceeds have been
reinvested. Earnings are then expected to normalise at a level much
closer to the Company's long-term target.
Enquiries
AEW UK
Alex Short 1 alex.short@eu.aew.com
+44(0) 20 7016 4838
2 laura.elkin@eu.aew.com
Laura Elkin
+44(0) 20 7016 4869
Nicki Gladstone 3 nicki.gladstone-ext@eu.aew.com
+44(0) 7711 401 021
Company Secretary
Link Company Matters Limited aewu.cosec@linkgroup.co.uk
+44(0) 1392 477 500
TB Cardew 4 AEW@tbcardew.com
Ed Orlebar +44 (0) 7738 724 630
Tania Wild +44 (0) 7425 536 903
Lucas Bramwell +44 (0) 7939 694 437
Liberum Capital
Darren Vickers / Owen Matthews +44 (0) 20 3100 2000
Notes to Editors
About AEW UK REIT
AEW UK REIT plc (LSE: AEWU) aims to deliver an attractive total return to
shareholders by investing predominantly in smaller commercial properties
(typically less than £15 million), on shorter occupational leases in
strong commercial locations across the United Kingdom. The Company is
currently invested in office, retail, industrial and leisure assets, with
a focus on active asset management, repositioning the properties and
improving the quality of income streams. AEWU is currently paying an
annualised dividend of 8p per share.
The Company was listed on the Official List of the Financial Conduct
Authority and admitted to trading on the Main Market of the London Stock
Exchange on 12 May 2015. 5 www.aewukreit.com
LEI: 21380073LDXHV2LP5K50
About AEW UK Investment Management LLP
AEW UK Investment Management LLP employs a well-resourced team comprising
28 individuals covering investment, asset management, operations and
strategy. It is part of AEW Group, one of the world's largest real estate
managers, with €88.2bn of assets under management as at 31 December 2021.
AEW Group comprises AEW SA and AEW Capital Management L.P., a U.S.
registered investment manager and their respective subsidiaries. In
Europe, as at 31 December 2021, AEW Group managed €38.5bn of real estate
assets on behalf of a number of funds and separate accounts with over 450
staff located in 12 locations. In May 2019, AEW UK Investment Management
LLP was awarded Property Manager of the Year at the Pensions and
Investment Provider Awards.
6 www.aewuk.co.uk
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ISIN: GB00BWD24154
Category Code: ACS
TIDM: AEWU
LEI Code: 21380073LDXHV2LP5K50
OAM Categories: 3.1. Additional regulated information required to be
disclosed under the laws of a Member State
Sequence No.: 156587
EQS News ID: 1331371
End of Announcement EQS News Service
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