TIDMAEWU
RNS Number : 1929N
AEW UK REIT PLC
19 January 2023
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.
19 January 2023
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 37 regional UK
commercial property assets, announces its unaudited Net Asset Value
("NAV") as at 31 December 2022 and interim dividend for the
three-month period ended 31 December 2022.
Highlights
-- NAV of GBP166.24 million or 104.93 pence per share as at 31
December 2022 (30 September 2022: GBP193.08 million or 121.88 pence
per share).
-- NAV total return of -12.26% for the quarter (30 September 2022 quarter: -2.07%).
-- -10.82% like-for-like valuation decrease for the quarter (30
September 2022 quarter decrease: -3.71%).
-- Share price total return of 10.68% for the quarter (30 September 2022 quarter: -16.89%).
-- EPRA earnings per share ("EPRA EPS") for the quarter of 1.34
pence (30 September 2022 quarter: 1.08 pence).
-- Interim dividend of 2.00 pence per share for the three months
ended 31 December 2022, paid for 29 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 36.09% ( 30
September 2022 : 31.07%). Significant headroom remains on all loan
covenants.
-- Company will continue to benefit from a fixed cost of debt of 2.959% until May 2027.
-- Acquisition of a freehold retail asset in Bromley for a
purchase price of GBP5.30 million, representing a low capital value
of GBP101 per sq ft and an attractive net initial yield of
8.7%.
-- Acquisition of Northgate House, Bath, for a purchase price of
GBP13.00 million, representing a low capital value of GBP194 per sq
ft and a net initial yield of 8.5%.
-- Central Six Retail Park, Coventry: exchanged agreement for
leases with both Aldi Stores Limited and Iceland Foods Limited. C
ompleted lease renewals with Next Group plc and Caspian Food
Services Limited, trading as Burger King.
-- GBP6.50 million available for deployment on new purchases.
High quality investment pipeline with the expectation that the
supply of value opportunities will continue during the first half
of 2023.
-- 98% of rental income collected during the quarter, consistent
with each quarter since the onset of the COVID pandemic in March
2020.
Laura Elkin, Portfolio Manager, AEW UK REIT, commented:
" Following interest rate rises and the unfolding UK
macro-economic backdrop, real estate valuations across all market
sectors, in particular at the prime end of the industrial and
warehousing sector, fell significantly during the quarter. The
value of the Company's assets has not been immune from this trend
with like-for-like value loss of 10.82% during the quarter ending
31 December. Nevertheless, this compares favourably to wider market
declines with the CBRE monthly index showing capital value falls of
6.8%, 5.5% and 3% for all UK property in October, November and
December respectively. This indicates total value loss in the index
of 14.57% during the quarter. Further narrative on each sector is
provided below.
Volatile markets can present significant opportunities for an
actively managed value strategy such as our own and, following a
number of timely disposals which helped to maximise the values of
key assets during the summer of 2022, we purchased two high-quality
retail assets over the period. During the quarter, vendor
requirements for sale led to valuations moving materially in favour
of purchasers and this has allowed AEWU to access quality locations
at more favourable pricing. This opportunity is also demonstrated
in our investment pipeline where attractive assets in a number of
sectors can currently be bought at income levels that are accretive
to the Company's earnings and at capital values in line with their
long-term fundamentals. Looking forward, we are confident that the
supply of value opportunities will continue during the first half
of 2023 and are excited to progress with some of these using our
available cash resources and capital if it can be efficiently
recycled.
The Company's diversified exposure and active asset management
style help provide investors with counter-cyclical performance from
some assets, with the values of several properties bucking wider
market trends - either gaining or holding value during the quarter
as a result of accretive business plans. The Odeon Cinema in
Southend on Sea increased in value by 37 per cent. during the
period as a result of a completed lease renewal. In addition, four
new leases or agreement for leases were completed at the Central
Six Retail Park in Coventry and the value of the asset remained the
same during the quarter. Further capital and income growth is
expected in future periods as a result of our focus on active asset
management. Reflecting on the strategy's overall performance, we
are comfortable with the Company's position, especially following
the prudent decisions taken on debt refinancing during 2022."
Valuation movement
As at 31 December 2022, the Company owned investment properties
with a fair value of GBP209.37 million. The like-for-like valuation
decrease for the quarter of GBP23.18 million (10.82%) is broken
down as follows by sector:
Valuation Like-for-like
31 December valuation movement
Sector 2022 for the quarter
GBP % GBP million %
million
Industrial 95.88 45.80 (17.45) (15.39)
Retail Warehouses 37.30 17.82 (2.00) (5.71)
High Street
Retail 40.20 19.20 (3.20) (0.11)
Other 19.90 9.50 0.13 0.63
Office 16.09 7.68 (0.66) (0.04)
Total 209.37 100.00 (23.18) (10.82)*
* This is the overall weighted average like-for-like valuation
decrease of the portfolio.
Portfolio Manager's Review
AEWU's industrial portfolio recorded the largest value loss,
experiencing a decline of 15.39%. However, as tenant demand
outstripped supply throughout 2022, the wider sector continued to
provide the strongest level of rental growth, nearing 10 per cent.
With healthy levels of tenant demand expected to continue in
industrial markets, this represents a significant area of
opportunity for improved income generation. From a low starting
average passing rent of GBP3.50 per sq ft, we are still seeing
rental growth in the lease terms being discussed with our tenants
in the sector and we therefore remain confident about the
portfolio's high weighting to industrial. In addition to this, now
that capital values in the sector have fallen, the development
pipeline will be more constrained, which will further bolster
occupational dynamics. The portfolio's industrial assets continue
to represent a long-term value proposition, with book values well
below their replacement cost.
AEWU's office assets have delivered a relatively robust
performance during the quarter, with value decline of only 0.04%.
This resilience demonstrates our strong stock selection compared
with wider market trends. T he CBRE monthly index reported office
capital value loss of 5.1%, 4.5% and 3% in October, November and
December respectively. This indicates total value loss in the
sector of approximately 12.1% during the quarter. In contrast to
the relatively strong position seen in industrial occupier markets,
we do not expect rental growth in the office sector, except in the
very best specified and well-located assets. Occupancy levels
within the sector continue to struggle and our view is that the
Company's future performance will benefit from its low exposure to
the sector, at only 7.68% of the portfolio.
In the retail sector, high street retail has for the first time
in recent periods fared more robustly than retail warehousing, with
both values and rental levels on the high street remaining fairly
stable in AEWU's portfolio. Following more positive than expected
retail sales during December, there is a sense that the sector has
been tested to such an extent in recent years that both values and
tenant operating figures are already bottoming out. That said,
value movements in the wider market since the autumn have opened up
buying opportunities in high quality locations that the Company has
been able to take advantage of. Locations added to AEWU's portfolio
during the quarter, such as Northgate House in central Bath, one of
the UK's top 10 tourist destinations, represent a step change in
the quality profile of retail assets that AEWU has been able to
access in recent months.
It is also in the retail and leisure sectors that some of the
Company's assets have bucked wider market trends this quarter,
experiencing either stable or indeed higher valuations. This is
where the active asset management style that is at the heart of
AEWU's strategy has led to the counter-cyclical performance of some
assets. Of note is the Company's leisure asset in Southend-on-Sea,
where a new lease to Odeon Cinemas has been signed, increasing the
value of the asset by 37% during the quarter. In addition to this,
at Central Six Retail Park in Coventry, a very busy quarter saw
four separate tenant lettings and agreement for leases reach
fruition. As a result, the value of the asset was maintained during
the quarter, with further positive performance expected to follow.
More information on these lettings is provided below.
Other tenant lettings continued this quarter and we completed
leases with Sports Direct in Blackpool and Konica Minolta in
Bristol. Generally, occupier health remains resilient, with a
number of occupiers either choosing not to action lease break
options during the quarter or entering into renewal discussions,
such as in our office holding in Gloucester, where the tenant is
the Secretary of State for Communities and Local Government. We
note that the medium-term outlook for pressure on tenants from
recent energy cost increases is starting to ease with wholesale gas
prices now trading roughly 80% down from their March 2022 peak. We
will, of course, continue to monitor this and its impact on our
tenants.
The Company's EPS for the quarter remains below target. The full
benefit of income earned from recent purchases is yet to be seen
and a further sum of GBP6.50 million remains available for
deployment on new purchases, while retaining sufficient cash for
working capital. As previously stated, our projections indicate a
return to full dividend cover during the third quarter of 2023,
assuming full investment of the Company's cash resources at this
time and with assets such as Coventry benefitting from improved
levels of income as a result of this quarter's letting
activity.
Net Asset Value
The Company's unaudited NAV at 31 December 2022 was GBP166.24
million, or 104.93 pence per share. This reflects a decrease of
13.90% compared with the NAV per share at 30 September 2022. The
Company's NAV total return, which includes the interim dividend of
2.00 pence per share for the period from 1 July 2022 to 30
September 2022, was -12.26% for the three-month period ended 31
December 2022.
Pence per GBP million
share
NAV at 1 October 2022 121.88 193.08
Loss on sale of investments (0.02) (0.02)
Portfolio acquisition costs (0.75) (1.19)
Capital expenditure (0.62) (0.97)
Valuation change in property portfolio (14.90) (23.61)
Income earned for the period 2.88 4.56
Expenses and net finance costs for the
period (1.54) (2.44)
Interim dividend paid (2.00) (3.17)
NAV at 31 December 2022 104.93 166.24
The NAV attributable to the ordinary shares has been calculated
under International Financial Reporting Standards. It incorporates
the independent portfolio valuation at 31 December 2022 and income
for the period, but does not include a provision for the interim
dividend declared for the three-month period to 31 December
2022.
Share price and Discount
The closing ordinary share price at 31 December was 101.6p,
representing a discount to the NAV per share of 3.18%. This
reflects an increase of 8.6% compared with the share price of 93.6p
at 30 September 2022. The Company's share price total return, which
includes the interim dividend of 2.00 pence per share for the
period from 1 July 2022 to 30 September 2022, was 10.68% for the
three-month period ended 31 December 2022.
Dividend
Dividend declaration
The Company today announces an interim dividend of 2.00 pence
per share for the period from 1 October 2022 to 31 December 2022.
The dividend payment will be made on 20 February 2023 to
shareholders on the register as at 27 January 2023. The ex-dividend
date will be 26 January 2023. 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 30 January
2023.
The dividend of 2.00 pence per share will be designated 1.50
pence per share as an interim property income distribution ("PID")
and 0.50 pence per share as an interim ordinary dividend
("non-PID").
The Company has now paid a 2.00 pence quarterly dividend for 29
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 GBP60.00 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 loan was fully drawn at 31 December 2022, producing a Loan
to NAV ratio of 36.09%.
Headroom on the debt facility's loan to value ("LTV") covenant
continues to be conservative. For those properties secured under
the loan, a 45.83% fall in valuation would be required before the
LTV covenant is breached.
Investment Update
During the quarter the Company completed the following
investment transactions:
Purchases:
NEXT, Bromley (retail) - In late November, the Company completed
the purchase of a freehold retail asset in Bromley for GBP5.30
million, reflecting a low capital value of GBP10 per sq ft and a
net initial yield of 8.7%. The asset is located in a prominent
position on the western side of the pedestrianised Bromley High
Street and provides 54,215 sq ft of accommodation, let in its
entirety to Next Holdings Limited. Next Holdings Limited has
occupied the property since 2000 and, in September 2021, renewed on
a four-year lease at a rebased level of rent. A comprehensive store
re-fit was undertaken by the tenant at this time, demonstrating the
retailer's commitment to the location.
Northgate House, Bath (retail) - In late November, the Company
completed the purchase of a 67,020 sq ft mixed-use block located in
Bath city centre at a price of GBP13.00 million, reflecting a low
capital value of GBP194 per sq ft and a net initial yield of 8.5%.
The asset provides 48,805 sq ft of retail accommodation fronting on
to Bath's High Street, Upper Borough Walls and Union Passage. The
retail accommodation is let to 11 tenants, anchored by TK Maxx,
which has recently renewed its commitment to the location by
agreeing the removal of a tenant break option. Retail lettings
provide a weighted unexpired lease term in excess of five years.
The remaining 18,215 sq ft of accommodation comprises grade A
specification offices recently refurbished by the vendor. The
office accommodation is fully let to a wholly owned subsidiary of
Regus Group until 2032, trading as co-working brand, Spaces.
Asset Management Update
During the quarter the Company completed the following asset
management transactions:
Central Six Retail Park, Coventry (retail/leisure) - In October,
the Company completed an agreement for lease with new tenant, Aldi
Stores Limited, for vacant units 8 & 9. Aldi will enter into a
new 20-year lease with a 15-year tenant break option at a rent of
GBP270,166 per annum, reflecting GBP13 per sq ft, to be reviewed
every five years based on compounded annual RPI, collared and
capped at 1% and 3% respectively. The letting is subject to the
landlord securing planning permission for 1) change of use to food
use (achieved in July 2022), 2) external alteration works (achieved
in November 2022) and 3) extended delivery hours, as well as
landlord works which will commence this month, at a cost of
GBP894,212. Lease completion is targeted for July 2023. The letting
also includes a 12-month rent-free incentive.
In November 2022, the Company completed a lease renewal with
existing tenant Next Group Plc. The tenant has entered into a new
five-year lease with a three-year tenant break option, at a rent of
GBP151,800 per annum, reflecting GBP15 per sq ft, with a nine-month
rent-free incentive.
In December 2022, the Company completed a lease renewal with
existing tenant Caspian Food Services Limited, trading as Burger
King. The tenant has entered into a new 10-year lease at a rent of
GBP100,000 per annum, reflecting GBP40 per sq ft.
In December 2022, the Company completed an agreement for lease
with new tenant Iceland Foods Limited, trading as The Food
Warehouse for units 6a & 6b. The tenant will enter into a new
10-year lease at a rent of GBP250,000 per annum, reflecting
GBP16.51 per sq ft. The letting includes a three-month rent free
and a GBP812,500 cash incentive which will be paid to the tenant on
completion of the lease which is expected to be in November. The
letting is subject to the landlord securing planning permission for
1) change of use to food use and 2) extended delivery hours.
Odeon Cinema, Southend (leisure) - The Company has completed a
straight five-year reversionary lease with Odeon Cinemas Ltd at the
previous passing rent of GBP534,000 per annum. In doing so, a seven
and a half month rent-free incentive has been granted to the
tenant. The valuation increase for the quarter was GBP1.35
million.
Pricebusters Building, Blackpool (retail/leisure) - The Company
has completed a five-year lease renewal with Sports Direct, whose
lease expired on 4th October 2022. The lease has a tenant rolling
break option, subject to 18 months term certain, and a landlord
rolling break option from the expiry of the third year. The rent is
GBP175,000 per annum, inclusive of service charge currently running
at approximately GBP40,000 per annum. No rent-free incentive was
given.
40 Queen Square, Bristol (office) - Having entered into an
Agreement for Lease, subject to landlord refurbishment works, the
Company has now completed on the lease and licence for alterations
with existing tenant, Konica Minolta Marketing Services Ltd, on the
third floor. A new 10-year lease commenced on 19th December at a
rent of GBP218,840 per annum, reflecting a new high rental tone for
the building of GBP40 per sq ft. There is a five-year tenant break
option. The refurbishment works included roof, lift and reception
upgrades at a cost of GBP1.07 million plus an eleven-month
rent-free incentive. The works undertaken will provide benefits to
all tenants within the building and are expected to assist with
further rental growth at the asset.
AEW UK
Laura Elkin laura.elkin@eu.aew.com
+44(0) 20 7016 4869
Henry Butt henry.butt@eu.aew.com
+44(0) 20 7016 4869
Nicki Gladstone 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
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 GBP15 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
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 EUR90.8bn of assets
under management as at 30 September 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
September 2022, AEW Group managed EUR39.7bn 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
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