REG - AEW UK REIT PLC - NAV Update and Dividend Declaration
20/10/2022 07:00
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RNS Number : 4375D AEW UK REIT PLC 20 October 2022
20 October 2022
AEW UK REIT plc
NAV Update and Dividend Declaration
AEW UK REIT plc (LSE: AEWU) ("AEWU" or the "Company"), which directly owns a
value-focused portfolio of 35 regional UK commercial property assets,
announces its unaudited Net Asset Value ("NAV") and interim dividend for the
three-month period ended 30 September 2022.
Highlights
· NAV of £193.08 million or 121.88 pence per share as at 30 September
2022 (30 June 2022: £200.40 million or 126.50pence per share).
· NAV total return of -2.07% for the quarter (30 June 2022 quarter:
6.53%).
· 3.71% like-for-like valuation decrease for the quarter (30 June
2022 quarter increase: 4.49%).
· EPRA earnings per share ("EPRA EPS") for the quarter of 1.08
pence (30 June 2022 quarter: 1.50 pence).
· Interim dividend of 2.00 pence per share for the three months ended
30 September 2022, paid for 28 consecutive quarters and in line with the
targeted annual dividend of 8.00 pence per share.
· Loan to NAV ratio at the quarter end was 31.07% (30 June 2022:
29.94%). The Company had capital available for deployment of £38.28 million
and its loan facility was fully drawn.
· Cost of debt fixed at 2.959% in May 2022 for the next five years.
· Share price total return of -16.89% for the quarter (30 June 2022
quarter: -2.86%).
· Acquisition of JD Gyms, Glasgow, for a purchase price of £2.60
million, representing a capital value of £99 per sq. ft. The price reflects a
net initial yield of circa 7.4%.
· Completed sale of Moorside Road, Swinton, for £1.71 million,
resulting in a circa 13% IRR over the hold period. The sales price reflects a
net initial yield of circa 6.6% and a capital value of £75 per sq. ft.
· Completed sale of Bath Street, Glasgow, for £9.30 million,
following completion of a long running business plan.
· Completed sale of Eastpoint Business Park, Oxford, for £29.0
million, producing an IRR in excess of 22%.
· New ten-year lease to Senior Architectural Systems Ltd at Mangham
Road, Rotherham, providing a rent of £410,000 per annum representing a
significant uplift in income against the previous passing rent of £275,000
per annum.
Laura Elkin, Portfolio Manager, AEW UK REIT, commented:
"With its low fixed cost of debt and value investment style, we believe that
the Company's portfolio is robustly positioned to withstand the challenges
presented by current market conditions. We expect the number and extent of
value investment opportunities in the direct property market to increase
against this economic backdrop. The Company's current high weighting of cash
and the fact that its strategy is unconstrained by sector leave it well placed
to benefit from upcoming investment opportunities. In addition, we are seeing
resilience in occupational demand from the Company's tenants. Following full
investment of capital available for deployment, the Company's earnings are
expected to return to full cover of its dividend, which has now been paid for
28 consecutive quarters."
Portfolio Manager's Review
Having taken the opportunity to complete a number of key sales during the
summer, including realising significant profit from the disposal of Eastpoint
Business Park in Oxford, 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 term. We are currently analysing a pipeline of potential
acquisitions, including those assets that the Company had placed under
exclusivity over the summer, albeit these are being re-evaluated against
today's pricing. The focus of the Company's investment strategy remains to
return to full investment and to full cover of its dividend. We believe that
balancing the Company's upcoming investment rate against current and
prospective pipeline opportunities will be beneficial to shareholder total
returns.
The Company's current weighting to cash is reflected in low earnings for the
quarter, which are depressed by lost rental income from disposals as well as
one-off costs associated with improvement works being undertaken at a number
of the portfolio's holdings. These works include those detailed below in
Bristol and Rotherham which are both associated with new lettings that will be
accretive to the Company's earnings going forward. The Company's prudent
accounting provision for doubtful debtors has also been increased this
quarter, given the deteriorating economic outlook. The Company will continue
to pursue all outstanding arrears. Our prudent projections indicate a return
to full dividend cover during the third quarter of 2023, following the
Company's intended return to full investment during the first half of the
year.
We believe that the Company and its portfolio are defensively positioned to
weather higher interest rates for a number of reasons. The Company took the
prudent decision to complete a full refinancing of its loan in May 2022,
fixing its cost of debt below 3% for the next five years. This will protect
the Company from the impact of rising interest rates on its cost of borrowing.
We also believe that high yielding assets, such as those in the Company's
portfolio, will be more resilient to the valuation impact of rising interest
rates. As yields re-adjust to the current market conditions, it is those
assets at the most prime end of the spectrum that have suffered more acutely
to date. 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.
Although the outlook from a capital market perspective is one of increased
volatility, we are not 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 quarter, we agreed
terms with three key tenants to take space, all of which were in line with the
rental estimates of our 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. This
letting will deliver a rental income to the Company that is 49.09% higher than
the previous tenant had been paying and growth within the lease term is also
ensured by inflation-linked reviews. The letting secured a capital uplift for
the asset of 14.58% during the quarter. This activity highlights the ongoing
demand from industrial occupiers at a time when the sector's capital values
have generally declined. AEWU's industrial holdings show an average passing
rent of £3.37 per sq. ft. and, despite the expectation of some medium-term
volatility in capital values, are expected to continue to deliver growth over
the long term from this low starting point.
Valuation movement
As at 30 September 2022, the Company owned investment properties with a fair
value of £214.25 million. The like-for-like valuation decrease for the
quarter of £8.15 million (3.71%) is broken down as follows by sector:
Sector Valuation 30 September 2022 Like-for-like valuation movement for the quarter
£ million % £ million %
Industrial 113.32 52.89 (7.65) (6.32)
Retail Warehouses 39.70 18.53 (0.35) (0.87)
High Street Retail 24.70 11.53 - -
Other 19.78 9.23 - -
Office 16.75 7.82 (0.15) (0.96)
Total 214.25 100.00 (8.15) (3.71)*
* This is the overall weighted average like-for-like valuation decrease of the
portfolio.
Net Asset Value
The Company's unaudited NAV at 30 September 2022 was £193.08 million, or
121.88 pence per share. This reflects a decrease of 3.65% compared with the
NAV per share at 30 June 2022. The Company's NAV total return, which includes
the interim dividend of 2.00 pence per share for the period from 1 April 2022
to 30 June 2022, was -2.07% for the three-month period ended 30 September
2022.
Pence per share £ million
NAV at 1 July 2022 126.50 200.40
Gain on sale of investments 6.83 10.83
Portfolio acquisition costs (0.56) (0.89)
Capital expenditure (0.62) (0.99)
Valuation change in property portfolio (9.35) (14.81)
Income earned for the period 2.21 3.50
Expenses and net finance costs for the period (1.13) (1.79)
Interim dividend paid (2.00) (3.17)
NAV at 30 September 2022 121.88 193.08
The NAV attributable to the ordinary shares has been calculated under
International Financial Reporting Standards. It incorporates the independent
portfolio valuation at 30 September 2022 and income for the period, but does
not include a provision for the interim dividend for the three-month period to
30 September 2022.
Share price and Discount
The closing share price reflects a decrease of 18.3% compared with the share
price at 30 June 2022. The Company's share price total return, which includes
the interim dividend of 2.00 pence per share for the period from 1 April 2022
to 30 June 2022, was -16.89% for the three-month period ended 30 September
2022.
The closing ordinary share price at 30 September represented a discount to the
NAV per share of 23.2%. In line with other companies in the sector, the
Company's discount widened significantly during volatile market conditions at
the end of September.
Rent Collection
The Company has achieved very high rent collection levels, which stand at over
98%(1) for each quarter since March 2020 (excluding the current quarter as
rent continues to be collected).
For the rental quarter commencing on 29 September 2022, approximately 94% of
rent demanded has been collected, with 98% expected to be received prior to
quarter end. The remainder of rents owed will continue to be pursued.
(1)Excluding rent arrears from Outfit Retail Properties Limited, Central Six
Retail Park, Coventry, which is in administration, with the unit having been
vacant since acquisition (November 2021).
Dividend
Dividend declaration
The Company today announces an interim dividend of 2.00 pence per share for
the period from 1 July 2022 to 30 September 2022. The dividend payment will be
made on 28 November 2022 to shareholders on the register as at 28 October
2022. The ex-dividend date will be 27 October 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 7 November 2022.
The dividend of 2.00 pence per share will be designated 1.00 pence per share
as an interim property income distribution ("PID") and 1.00 pence per share as
an interim ordinary dividend ("non-PID").
The Company has now paid a 2.00 pence quarterly dividend for 28 consecutive
quarters(1), providing income consistency to our shareholders.
(1)For 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 completed a refinancing of its debt facility in May 2022. The
Company has a £60.00 million, five-year term loan facility with AgFe, a
leading independent asset manager specialising in debt-based investments. The
loan is priced as a fixed rate loan with a total interest cost of 2.959%. The
Company intends to utilise borrowings to enhance returns over the next five
years.
The Company had borrowings of £60.0 million at 30 September 2022, producing a
Loan to NAV ratio of 31.07%. The loan is now fully drawn.
Investment Update
During the quarter the Company completed the following investment
transactions:
Disposals:
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 having been
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
AEWU'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 on the sale
of the property for £29.0 million (£388 per sq. ft.). The property was
acquired in May 2015 for £8.20 million reflecting a net initial yield of
over 9%. The sale price crystallises significant profit, exceeding both the
valuation level 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 6.75% and 10%, will be
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 £1,071,577 reflecting a 9.0% net initial yield. A sale at £1.70
million represents a 58% premium to the acquisition price.
Purchases:
JD Gyms, 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 and retail warehousing 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.
Asset Management Update
During the quarter the Company completed the following asset management
transactions:
40 Queen Square, Bristol (office) - 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 eleven months' rent-free incentive. Landlord works
commenced during the quarter and are due to complete before the end of the
year.
Mangham Road, Rotherham (industrial) - 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 quarter 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 (retail / leisure) - 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.
Enquiries
AEW UK
Laura Elkin laura.elkin@eu.aew.com (mailto:laura.elkin@eu.aew.com)
+44(0) 20 7016 4869
Henry Butt henry.butt@eu.aew.com (mailto:henry.butt@eu.aew.com)
+44(0) 20 7016 4869
Nicki Gladstone nicki.gladstone-ext@eu.aew.com (mailto: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 AEW@tbcardew.com (mailto:AEW@tbcardew.com)
Ed Orlebar +44 (0) 7738 724 630
Tania Wild +44 (0) 7425 536 903
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. www.aewukreit.com (http://www.aewukreit.com/)
LEI: 21380073LDXHV2LP5K50
About AEW UK Investment Management LLP
AEW UK Investment Management LLP employs a well-resourced team comprising 29
individuals covering investment, asset management, operations and strategy. It
is part of AEW Group, one of the world's largest real estate managers, with
€87.7bn of assets under management as at 30 June 2022. 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 30 June 2022, AEW Group
managed €39.7bn of real estate assets on behalf of a number of funds and
separate accounts with over 470 staff located in 12 locations.
www.aewuk.co.uk (http://www.aewuk.co.uk)
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