TIDMAEWU
RNS Number : 9390V
AEW UK REIT PLC
27 July 2018
27 July 2018
NAV Update and Dividend Declaration for the three months to 30
June 2018
AEW UK REIT plc (LSE: AEWU) ("the Company"), which, as at 27
July 2018, 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 30
June 2018.
Highlights
-- At 30 June, the fair value independent valuation of the
property portfolio was GBP191.95 million (31 March 2018: GBP192.34
million), following the part sale of Pearl Assurance House,
Nottingham, during the quarter. On a like-for-like basis the
valuation of the property portfolio increased by GBP3.26 million
(1.73%) over the quarter (31 March 2018: GBP0.74 million and
0.48%).
-- NAV of GBP149.14 million or 98.40 pence per share (31 March
2018: GBP146.03 million or 96.36 pence per share).
-- EPRA earnings per share ("EPRA EPS") for the quarter of 2.04
pence per share (31 March 2018: 1.76 pence per share), in line with
the Company's target annual dividend of 8.00 pence per share. The
increase in earnings compared with the prior quarter reflects a
full quarter's income having been received from the five
acquisitions made during the prior quarter.
-- The Company today announces an interim dividend of 2.00 pence
per share for the three months ended 30 June 2018.
-- NAV total return of 4.28% and shareholder total return of
3.22% for the three months ended 30 June 2018.
-- The Company remains conservatively geared with a gross loan
to value ratio of 26.05% (31 March 2018: 26.00%).
-- At 30 June 2018, the Company held GBP6.72 million cash for investment.
-- Portfolio and asset management activity during the period included:
o The part sale of Pearl Assurance House, Nottingham, for gross
proceeds of GBP3.65 million. The first to ninth floors of the
building were sold on 5 April 2018, reducing the overall vacancy
level of the portfolio by 1.5%.
o The lease renewal with the Secretary of State for Communities
and Local Government at Cedar House, Gloucester, for a ten year
term and an increase in rent from GBP300,000 to GBP321,000 per
annum. The asset has seen an increase in valuation of 20.3% from
the prior quarter as a result.
o The reversionary lease renewal with Ramboll Whitbybird at 40
Queen Square, Bristol. The new lease is due to commence in November
2018 for a ten year term and the rent will increase from GBP66,623
per annum (GBP16.84 per sq ft) to GBP94,500 per annum (GBP23.00 per
sq ft). The tenant will benefit from a break option in year 5.
o Post period-end, the Company has completed a ten year lease
renewal with Greggs Plc at its retail property located on
Commercial Road in Portsmouth. The new rent agreed of GBP20,500 per
annum exceeds the unit's previous ERV by 11%.
Alex Short, Portfolio Manager, AEW UK REIT, commented:
"Following a strong quarter of acquisitions for the Company at
the start of the year, Q2 has seen the portfolio benefit from a
number of asset management transactions and, as we are now entering
our fourth year of investment, the portfolio is looking very well
established with business plans beginning to mature across many of
the assets. As a result of this, we have seen vacancy within the
portfolio fall from 7.1% in Q1 to 5.3% as at the end of Q2. We are
very pleased with this result. This further supports the Company's
ability to pay its target dividend of 8p per share per annum, which
remains the highest in its peer group. We expect the level of
vacancy to decline further during the remainder of 2018.
We have also seen some strong leasing performance over the
quarter with new lettings or lease renewals achieved in Bristol,
Runcorn and Wakefield all showing levels ahead of ERV. Bristol and
Runcorn in particular have benefitted from strong valuation growth,
with Wakefield being a new acquisition showing strong potential for
the future.
In terms of the wider market, we continue to see polarised
performance from the various sectors. Industrial still represents a
strong area for continued growth, both in terms of income and
capital value. We therefore see attractive acquisition
opportunities in this sector, as evidenced by our various
industrial acquisitions over the past 12 months. Conversely, the
retail market outside of major city centres appears to be much less
robust, however all of the assets acquired by the Company over the
past three years have been acquired with this underlying economic
backdrop in mind. As such, they have been made with very
conservative performance assumptions and show low entry values that
will support alternative uses. We are therefore making sure that,
in these cases, downside protection for investors is backed up with
supports such as the ground work required for change of use
consents and redevelopment. As in recent quarters, office
performance remains location dependent, with centres such as
Bristol still showing strong expectations of growth.
To date, the Company's income stream has not been affected by
the myriad of Company Voluntary Arrangements ("CVAs") seen of late
in the retail sector, which can allow for tenants in financial
distress to restructure their rent obligations, often at the
landlord's expense. Only one tenant has been affected and, in this
case, an under tenant was already in place to pay the rent. This
provides further evidence of the Company's effective stock
selection process and the rigorous approach that AEW, as manager,
applies to its acquisition analysis and due diligence. We believe
that this is the best approach to providing our investors with both
strong performance and long term value protection."
Net Asset Value
The Company's unaudited NAV as at 30 June 2018 was GBP149.14
million, or 98.40 pence per share. This reflects an increase of
2.12% compared with the NAV as at 31 March 2018. This increase is
largely due to the increase in fair value of the investment
property portfolio of GBP3.22 million. The Company's NAV total
return, which includes the interim dividend for the period from 1
January 2018 to 31 March 2018 (of 2.00 pence per share), is 4.28%
for the three month period ended 30 June 2018. As at 30 June 2018,
the Company owned investment properties with a fair value of
GBP191.95 million.
Pence per GBP million
share
NAV at 1 April 2018 96.36 146.03
Loss on disposal of investment properties (0.07) (0.10)
Capital expenditure (0.04) (0.06)
Valuation change in property portfolio 2.12 3.22
Valuation change in derivatives (0.01) (0.01)
Income earned for the period 2.77 4.19
Expenses and net finance costs for
the period (0.73) (1.10)
Interim dividend paid (2.00) (3.03)
NAV at 30 June 2018 98.40 149.14
The NAV attributable to the ordinary shares has been calculated
under International Financial Reporting Standards and incorporates
the independent portfolio valuation as at 30 June 2018 and income
for the period, but does not include a provision for the interim
dividend for the three month period to 30 June 2018.
Dividend
The Company today announces an interim dividend of 2.00 pence
per share for the period from 1 April 2018 to 30 June 2018. The
dividend payment will be made on 31 August 2018 to shareholders on
the register as at 10 August 2018. The ex-dividend date will be 9
August 2018.
The dividend of 2.00 pence per share will be designated 2.00
pence per share as an interim property income distribution
("PID").
The EPRA EPS for the three month period to 30 June 2018 was 2.04
pence (31 March 2018: 1.76 pence), exceeding the target 2.00 pence
per share quarterly dividend. The Company has seen an increase in
EPRA EPS during the quarter, having received a full quarter's
income from the five assets acquired during the quarter ended 31
March 2018. Based on the current leasing profile of the portfolio,
the Directors do not foresee any events which would have a
significant negative impact on the portfolio's income streams
during the remainder of the financial year and, with all else being
equal, the current level of earnings is expected to be sustainable.
The disposal of Floors 1-9, Pearl Assurance House, Nottingham, on 5
April 2018 for gross proceeds of GBP3.65 million could provide the
opportunity to increase earnings further through re-investment into
higher yielding assets.
The Directors will declare dividends taking into account the
level of the Company's net income and the Directors' view on the
outlook for sustainable recurring earnings. As such, the level of
dividends paid may increase or decrease from the current annual
dividend of 8.00 pence per share. Based on current market
conditions, the Company expects to pay an annualised dividend of
8.00 pence per share in respect of the financial period ending 31
March 2019.
Investors should note that this target is for illustrative
purposes only, based on current market conditions and is not
intended to be, and should not be taken as, a profit forecast or
estimate. Actual returns cannot be predicted and may differ
materially from this illustrative figure. There can be no assurance
that the target will be met or that any dividend or total return
will be achieved.
Financing
Equity
The Company's issued share capital consists of 151,558,251
Ordinary Shares.
Debt
The Company's borrowings remained at GBP50.00 million throughout
the quarter and at 30 June 2018, the Company was geared at a gross
loan to value of 26.05% and a net loan to value of 21.99%.
The loan continues to attract interest at LIBOR + 1.4%. To
mitigate the interest rate risk that arises as a result of entering
into a variable rate linked loan, the Company has entered into
interest rate caps on GBP36.51 million of the total value of the
loan (GBP26.51 million at 2.5% cap rate and GBP10.00 million at
2.0% cap rate), resulting in the loan being 73% hedged. The
Investment Manager and the Company will keep the levels of gearing
and hedging under review.
Portfolio activity and asset management
Pearl Assurance House, Nottingham
In April the Company completed the part sale of Pearl Assurance
House, which was purchased in 2016 for GBP8.15 million. The sale of
GBP3.65 million comprises the first to the ninth floors of the
building as well as a ground floor reception and car parking
spaces, providing a total area of 41,262 sq ft. The transaction
reflected a net initial yield of 6.9% and reduces the overall
vacancy level in the portfolio by 1.5% (previously reported as
1.9%. This has been diluted with new acquisitions).
The Company will retain the fully let ground floor accommodation
in this busy city centre location, totalling 28,432 sq ft, let to
national retail operators including Costa Coffee, Poundland and
Lakeland. The retained element will provide the Company with an
ongoing yield of 9.5% based on its component value of GBP5.26
million.
Cedar house, Gloucester
In June the Company completed a lease renewal to the Secretary
of State for Communities and Local Government at its Cedar House
office building in Gloucester. The property was acquired in
December with the expectation of achieving a new three year lease
at the passing rent of GBP300,000 per annum and this has been
vastly exceeded with a 10 year lease at a rent of GBP321,000 per
annum. No rent free incentive was offered to the tenant. As a
result of this asset management transaction, the value of the
building as confirmed by Knight Frank has risen by 20.3% over the
quarter.
40 Queen Square, Bristol
In June the Company also completed a reversionary lease renewal
at 40 Queen Square, Bristol, with tenant Ramboll Whitbybird Ltd. A
10 year lease was signed to commence at the expiry of the tenant's
current lease in November, although the tenant has the option to
break at year 5. The letting at a rent of GBP94,500 per annum
proved a new high rental tone for unrefurbished space within the
building at GBP23.00 per sq ft, as compared to a passing rent of
GBP16.84 per sq ft. This shows an increase in rental income of 37%
and the property saw an overall valuation uplift over the quarter
of 9.8%. The property has increased in value by 63% since its
acquisition in December 2015.
Diamond Business Park, Wakefield
During June a new letting was also completed at Diamond Business
Park, Wakefield which was acquired by the Company in February. Unit
7, totalling c. 13,700 sq ft, has been let to Wow Interiors
Yorkshire Ltd for a 6 year term with tenant break options in years
2 and 4. Stepped rental increases have been agreed so that, if the
tenant remains in occupation for the full term, the average rent
received equates to GBP3.30 per sq ft as compared to an ERV of
GBP3.00 per sq ft. The value of the building as confirmed by Knight
Frank rose by 1.8% over the quarter.
Sarus Court, Runcorn
During the quarter the Manager documented two rent reviews with
CJ Services, its largest tenant at Sarus Court, Runcorn. The rent
reviews at Units 1 and 2 date back to January 2017 and show a
combined rate of GBP5.25 per sq ft net effective. This supports a
headline rent of c. GBP5.75 per sq ft which is GBP0.25 ahead of the
property's current ERV. The property has benefitted from valuation
uplift of 28% since its acquisition in 2015.
Commercial Road, Portsmouth
Post period-end, the Company has completed a ten year lease
renewal with Greggs Plc at its retail property located on
Commercial Road in Portsmouth. The new rent agreed of GBP20,500 per
annum exceeds the unit's previous ERV by 11%. Greggs have been in
occupation of the unit for ten years and have the option to break
the lease after the expiry of a further five years.
Enquiries
AEW UK
Alex Short alex.short@eu.aew.com
+44(0) 20 7016 4848
Nicki Gladstone nicki.gladstone-ext@eu.aew.com
+44(0) 20 7016 4880
Company Secretary
Link Company Matters Limited aewu.cosec@linkgroup.co.uk
T: +44(0) 20 7954 9547
TB Cardew
Ed Orlebar ed.orlebar@tbcardew.com
T: 07738 724 630
Lucy Featherstone lucy.featherstone@tbcardew.com
T: +44 (0) 20 7002 1482
M: +44 (0) 7789 374
663
Liberum Capital
Gillian Martin T: +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 GBP15 million), on
shorter occupational leases, in strong commercial locations across
the United Kingdom. The Company was listed on the Official List of
the UK Listing Authority and admitted to trading on the Main Market
of the London Stock Exchange on 12 May 2015.
Since its IPO in May 2015, the Company has invested over GBP190
million in 36 assets. It 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 the income stream. Whilst occupational demand in strategic
locations remains, securing tenants on shorter leases allows AEWU
to crystallise value through rent reviews and lease re--gears.
AEWU is currently paying a dividend of 8.00 pence per share
p.a..
AEW UK Investment Management LLP employs a well-resourced team
comprising 24 individuals covering investment, asset management,
operations and strategy. It is part of AEW Group, one of the
world's largest real estate managers, with EUR59.3 billion of
assets under management as at 31 March 2018. 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 March 2018, AEW Group managed EUR29.4 billion in value in
properties of all types located in 15 countries, with over 390
staff. The Investment Manager is a 50:50 joint venture between the
principals of the Investment Manager and AEW.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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