22 October 2020

 

AEW UK REIT Plc (the "Company")

 

NAV Update and Dividend Declaration

 

AEW UK REIT plc (LSE: AEWU) (the "Company"), which, as at 21 October 2020, directly owns a diversified portfolio of 34 regional UK commercial property assets, announces its unaudited Net Asset Value ("NAV") and interim dividend for the three month period ended 30 September 2020.

 

Highlights

 

• Interim dividend of 2.00 pence per share for the three months ended 30 September 2020, in line with the targeted annual dividend of 8.00 pence per share. 
• EPRA earnings per share ("EPRA EPS") for the quarter of 1.60 pence (30 June 2020: 1.81 pence).
• NAV of £147.24 million or 92.73 pence per share as at 30 September 2020 (30 June 2020: £148.24 million or 93.37 pence per share).
• NAV total return of 1.46% for the quarter (30 June 2020: 2.40%).
• For the rental quarter commencing on 29 September 2020, 88% of rent has been collected or is expected to be received under monthly payment plans prior to quarter end. A further 3% of income is expected to be received under agreed, longer term payment plans. 
• The Company remains conservatively geared with a loan to NAV ratio of 26.83% (30 June 2020: 34.74%). As at 30 September 2020, the Company had a cash balance of £13.36 million and during the quarter, the Company repaid £12.00 million of the £60.00 million loan facility. The Company has £12.03 million of the facility available to draw up to the maximum 35% Loan to NAV at drawdown.

 

Alex Short and Laura Elkin, Portfolio Managers, AEW UK REIT, commented:

"We are pleased to report robust NAV performance for the Company again this quarter and to announce an interim dividend of 2 pence per share for the quarter, especially given the backdrop of the ongoing pandemic. This demonstrates the strong fundamentals underlying the Company's portfolio including its high industrial weighting and focus on locations with a depth of tenant demand.  Due to the Company's NAV resilience, high cash weighting and conservative debt exposure, during the quarter we decided to utilise some of the Company's available cash to increase EPS in order to build back towards full dividend cover following the profitable sale of Corby in May for £18.8 million.  Post quarter end, the Company bought back 200,000 of its own Ordinary Shares for gross consideration of £153,000.  In addition, we have identified a pipeline of both NAV and earnings accretive direct purchase opportunities, some of which are well advanced and we expect to make further announcements in this respect during the coming quarter.

The Company's relatively stable NAV performance reflects the fact that many of the portfolio assets benefit from viable alternative use potential which acts as a value stabiliser limiting downside risk and volatility.  Seeking asset purchases where pricing is supported by either a higher or equal alternative use value has always been a feature of our stock selection process, and we expect to see an increasing number of opportunities such as these due to newly introduced changes to the national planning regime which increase flexibility of use.  These changes include the introduction of Use Class E which groups together a number of previously disparately classified commercial property uses such as retail, office, light industrial and gyms, to allow greater ease of movement between them.

Elsewhere in the portfolio, it is encouraging to see our Asset Management team continue to drive value and income growth, having completed further new lettings this quarter, often securing income streams ahead of our independent valuer's estimate of rental value.  Amongst these is a new 5 year lease to existing tenant Vink Holdings at the Apollo Business Park in Basildon, where rental income has been secured 4% ahead of the valuer's previous estimates, and 30% ahead of the previous rental level.  The 6 new lettings completed in the portfolio since the start of UK wide lockdowns in March  have secured rental income at a weighted average of 5% ahead of previous estimates.  This can be attributed in part to both the portfolio's high weighting to the industrial and warehousing sector which has continued to provide opportunities to grow income, as well as the proactive approach taken by our team.  Further new lettings and lease renewals are currently under offer which look set to continue this positive trend into future quarters.  

In terms of rent collection in the portfolio, payment speed for the September quarter has increased from both the June and March quarters' collection rate. This is another encouraging sign for coming quarters and proves that, on the whole, our tenants wish to return to normality as much as they can, including the usual payment of rent."

Valuation movement

As at 30 September 2020, the Company owned investment properties with a fair value of £171.36 million. The like-for-like valuation decrease for the quarter of £0.14 million (0.08%) is broken down as follows by sector:

Sector	Valuation 30 September 2020		Valuation movement for the quarter
	£ million	%	£ million	%
Industrial	90.61	52.9	1.00	1.12
Office	45.85	26.7	(0.40)	(0.86)
Retail	21.90	12.8	(0.59)	(2.60)
Other	13.00	7.6	(0.15)	(1.14)
Total	171.36	100.0	(0.14)	(0.08)

 

Net Asset Value

The Company's unaudited NAV as at 30 September 2020 was £147.24 million, or 92.73 pence per share. This reflects a decrease of 0.68% compared with the NAV per share as at 30 June 2020. The Company's NAV total return, which includes the interim dividend of 2.00 pence per share for the period from 1 April 2020 to 30 June 2020, was 1.46% for the three-month period ended 30 September 2020.

 

 

	Pence per share	£ million
NAV at 1 July 2020	93.37	148.24
Capital expenditure	(0.04)	(0.05)
Valuation change in property portfolio	(0.19)	(0.30)
Valuation change in derivatives	(0.01)	(0.02)
Income earned for the period	2.43	3.86
Expenses and net finance costs for the period	(0.83)	(1.32)
Interim dividend paid	(2.00)	(3.17)
NAV at 30 September 2020	92.73	147.24

 

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards. It incorporates the independent portfolio valuation as at 30 September 2020 and income for the period, but does not include a provision for the interim dividend for the three month period to 30 September 2020.
 

Dividend

 

Dividend declaration

The Company today announces an interim dividend of 2.00 pence per share for the period from 1 July 2020 to 30 September 2020. The dividend payment will be made on 30 November 2020 to shareholders on the register as at 30 October 2020.  The ex-dividend date will be 29 October 2020.

 

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 September 2020 was 1.60 pence (30 June 2020: 1.81 pence).

 

Dividend outlook

It remains the Company's intention to continue to pay dividends in line with its dividend policy, however the outlook remains unclear given the current COVID-19 situation. In determining future dividend payments, regard will be had 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, which will remain a key consideration.

 

Financing

 

Equity and share buy-back

The Company's share capital consists of 158,774,746 Ordinary Shares, of which 200,000 are currently held by the Company as treasury shares. This reflects 200,000 Ordinary Shares having been bought back since the period end for gross consideration of £153,000.

 

Debt

During the quarter, the Company repaid £12.00 million of its loan facility and had borrowings of £39.50 million as at 30 September 2020, producing a Loan to NAV ratio of 26.83%. The Company is able to re-draw this amount and has a total undrawn facility of £20.50 million of which £12.03 million is available as at 30 September 2020 up to the maximum 35% Loan to NAV at drawdown.

 

Whilst the Company passed its banking covenant tests in April and in order to be prudent in the current market environment, the Company obtained consent from its lender, RBS International, to waive the interest cover tests within its loan agreement for July and October with the next proposed test date being January 2021. Irrespective of these waivers, the Company would have passed its interest cover tests for July and October. The lender also conveyed a willingness to review the position again in December based on circumstances then prevailing. The Company is not required to place funds on account or to comply with additional terms in order to qualify for the waiver and, during the period of the waiver, the Company will maintain its usual interest payments on the loan.

 

The loan continues to attract interest at LIBOR + 1.4% and as a result is currently benefitting from the reduction in LIBOR rates. The Company's all in interest rate as at 30 September 2020 was 1.47%.

 

To mitigate the risk of interest rates rising, the Company has interest rate caps effective for the remaining term of the loan, capping LIBOR at 1.0% on a notional value of £51.50 million.

 

Rent Collection

The Company is pleased to report that the speed of payment for rent collection seen in the first 10 days of the September rent quarter exceeded that seen in the June and March quarters' collection by some 5%. As at the date of this announcement, the Company had collected the following rental payments for the rental quarter commencing 29 September 2020, expressed as a percentage of the quarter's total rental income:

Current Position as at 21 October 2020		Q1 2020	Q2 2020	Q3 2020
Received		90%	89%	67%
Monthly Payments Expected Prior to Quarter End		-	-	21%
		90%	89%	88%
Agreed on longer term payment plans Under Negotiation		6% 2%	3% 4%	3% 4%
		99%	96%	95%
Outstanding		1%	4%	5%
Total		100%	100%	100%

 

It should be noted that this is an evolving picture with further payments being received each day.

 

 

Asset Management Update

 

During the quarter the Company completed the following asset management transactions:

Bessemer Road, Basingstoke - During July, the Company completed a 5 year lease renewal at its 58,000 sq ft industrial premises in Basingstoke.  The lease has been granted with no rent free incentive given to the tenant and secures a rental income to the Company 6% ahead of independent valuer's estimated levels.  The tenant has the benefit of a break option in year 3.

Langthwaite Grange Industrial Estate, South Kirkby - During August, a lease renewal was signed with the Company's third largest tenant, Ardagh Glass. Rent payable under the new lease has been agreed 13% ahead of both independent valuer's estimated levels and the previous level of passing rent. The lease is for a five year term and the tenant will benefit from four months' rent free and a tenant break option after three years.

Apollo Business Park, Basildon - During September, the Company completed a 5 year lease renewal on 35,300 sq ft of these multi-let industrial premises in Basildon.  The lease secures a rental income to the Company 4% ahead of independent valuer's estimated levels and 30% ahead of the previous rental level.  The tenant will benefit from 6 months' rent free.

Clarke Road, Milton Keynes and Moorside Road, Swinton - Tenant Nationwide Crash Repair Centres Limited, making up 2% of the Company's rental income, appointed administrators on 3 September although subsequently, on 4 September, the business was acquired by Redde Northgate Plc.  Redde Northgate have confirmed that they intend to operate the Milton Keynes branch, the larger of the two within AEWU ownership, and negotiations are currently underway to extend the terms of this lease which should prove to be value accretive to the Company. Redde Northgate is a substantial and well capitalised business reporting profit before tax of over £60m for the year ending April 2019.  The former Swinton branch of Nationwide Crash Repair Centres, representing 0.8% of the Company's rental income, will not be operated by Redde Northgate on an ongoing basis, however interest has already been received from a prospective new tenant.

Wheeler Gate, Nottingham - In September, a 5 year renewal lease was completed with Costa Coffee on a 1,400 sq ft retail unit located in central Nottingham. The reversionary lease documents the rebasing of Costa's rent from £110,000 to £52,000 per annum in line with its estimated rental value.  The tenant benefits from 9 months' rent free.

 

Bank Hey Street, Blackpool - The Company has begun to undertake remedial works to its property in Blackpool, which include the overhaul and reinstatement of its cathodic protection system, and comprehensive repairs to faience elevations and windows. Works have been budgeted at a total cost to the Company of c. £1.7 million over two years. The nature of these repair works means that as the costs are incurred, they will be expensed to the Company's profit or loss, with a corresponding increase expected to be seen in the revaluation of the property, all else being equal. 

 

Bath Street, Glasgow - Post quarter end the Company exchanged contracts to sell its 85,000 sq ft office holding at 225 Bath Street in Glasgow City Centre to a subsidiary company of IQ Student Accommodation.  The transaction is conditional upon various matters including the grant of planning permission for the development of a 480 bedroom student housing development.  Sale pricing will be determined following the approval of all conditions according to an agreed matrix ranging from £8.55 to £9.30 million.  Transaction pricing reflects 98% of pricing levels being discussed by the parties prior to the onset on the Coronavirus pandemic.

Vacancy - The portfolio's vacancy level now sits at 4.9% (30 June 2020: 4.7%), excluding vacancy contributed by the asset at 225 Bath Street Glasgow (the overall level is 8.2% including this asset). As set out above, this asset has now been exchanged for sale for alternative use redevelopment.  As a condition of the sale agreement, full vacancy must be achieved in the building before the sale can be completed.  Additional vacancy this quarter arises from an industrial unit in Basildon where an agreement was made to surrender the lease of existing tenant Fulfilment Logistics in exchange for full payment of arrears as well as a surrender premium contributing to dilapidations.  The unit is felt to have some reversionary potential and viewings have already been conducted with possible replacement tenants.  Vacancy also increased due to the departure of H Samuel at 15 Fargate in Sheffield.  Again, tenant interest has been seen in this unit but, being in the retail sector, faces obvious head winds.   The portfolio vacancy level (ex Bath St Glasgow) is in line with the Company's target vacancy level of below 5%.

 

 

Enquiries
AEW UK
Alex Short	alex.short@eu.aew.com
	+44(0) 20 7016 4848
Laura Elkin	Laura.elkin@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
Lucas Bramwell	+44 (0) 7939 694 437
Liberum Capital
Gillian Martin/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 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, raising £100.5m. Since IPO it has raised a further £58m.

 

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 the income stream. 

 

AEWU is currently paying an annualised dividend of 8p per share. 

 

www.aewukreit.com 

 

About AEW UK Investment Management LLP

 

AEW UK Investment Management LLP employs a well-resourced team comprising 26 individuals covering investment, asset management, operations and strategy. It is part of AEW Group, one of the world's largest real estate managers, with €70.2bn of assets under management as at 30 June 2020. 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 2020, AEW Group managed €33.6bn of real estate assets on behalf of a number of funds and separate accounts with over 420 staff located in 9 offices. The Investment Manager is a 50:50 joint venture between the principals of the Investment Manager and AEW. In May 2019, AEW UK Investment Management LLP was awarded Property Manager of the Year at the Pensions and Investment Provider Awards.

 

www.aewuk.co.uk