AEW UK REIT plc: NAV Update and Dividend Declaration

25 January 2021

 

AEW UK REIT Plc (the "Company")

 

NAV Update and Dividend Declaration

 

AEW UK REIT plc (LSE: AEWU) (the "Company"), which, as at 25 January 2021, directly owns a diversified portfolio of 35 regional UK commercial property assets, announces its unaudited Net Asset Value ("NAV") and interim dividend for the three month period ended 31 December 2020.

 

Highlights

 

• Interim dividend of 2.00 pence per share for the three months ended 31 December 2020, in line with the targeted annual dividend of 8.00 pence per share. 
• EPRA earnings per share ("EPRA EPS") for the quarter of 1.68 pence (30 September 2020: 1.60 pence).
• NAV of £151.88 million or 95.87 pence per share as at 31 December 2020 (30 September 2020: £147.24 million or 92.73 pence per share).
• NAV total return of 5.53% for the quarter (30 September 2020: 1.46%).
• During the quarter the Company completed the acquisition of the multi-let Westlands Distribution Park in Weston Super Mare for a purchase price of £5.4m.  Contracts were also unconditionally exchanged to dispose of Sandford House, Solihull for consideration 9% above its valuation at £10.5m. Further investment and asset management activity is noted below.
• The Company remains conservatively geared with a loan to NAV ratio of 26.01% (30 September 2020: 26.83%). As at 31 December 2020, the Company had a cash balance of £7.52 million and has £13.66 million of its loan facility available to draw up to the maximum 35% Loan to NAV at drawdown.
• For the rental quarter commencing on 25 December 2020, 90% of rent has been collected or is expected to be received under monthly payment plans prior to quarter end. A further 1% of income is expected to be received under agreed, longer term payment plans.  The remainder of rents owed will continue to be pursued.

 

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

"We are pleased to see some NAV recovery this quarter which is due, in part, to the team's ongoing drive to maximise value from the assets' business plans.  Asset management has always been a key feature of AEW's strategy, and something we have prioritised in uncertain markets such as we experienced in 2020 where gains were more hard-fought.  We announced just prior to Christmas the agreed sale of the portfolio's Solihull office building following the completion of its business plan.  The sale has been achieved at a level 9% ahead of its prevailing valuation at the time of exchange and 94% ahead of its acquisition price with no capital expenditure having been incurred on the property over its hold period. A 15-year lease renewal was signed with the tenant in June 2020, which increased the passing rental income by 30%.  

Strong NAV recovery was also driven by the portfolio's weighting towards warehousing and industrials.  This sector comprises 56% of the portfolio's value and saw a like-for-like valuation increase during the quarter of 7.6%.  Despite this, we consider that the portfolio's overall valuation remains conservative when measured against alternative use values, at a low capital value of only £56 per sq ft.  This is low by design due to our stock selection criteria for the Company having been to seek assets whose alternative use values are expected to exceed current value since its initial ramp up.  We believe that this positions the portfolio both defensively and opportunistically.  

The Company's EPRA EPS for the quarter increased by 0.08 pps although it remains below the dividend level of 2.00 pps. This is partly due to ongoing remedial works at its property in Blackpool, which had a negative impact of 0.13 pps for the quarter. The expenditure is accretive to the value of the property and a corresponding positive effect is expected in the valuation movement. The Company's provision for doubtful debtors has also increased by £0.27 million, which has had a negative impact of 0.17 pence on the EPRA EPS for the quarter. In 2021, we expect to increase the Company's earnings as we look to return to full investment. Based upon our current pipeline, we expect the first half of 2021 to provide some very attractive investment opportunities, a number of which we are already pursuing.  

Features integral to the Company's strategy give us confidence that it is strongly positioned for the current economic conditions, including its conservatively managed debt exposure, its diversified portfolio and its high levels of rent collection."

Valuation movement

As at 31 December 2020, the Company owned investment properties with a fair value of £182.65 million. The like-for-like valuation increase for the quarter of £5.90 million (3.44%) is broken down as follows by sector:

Sector	Valuation 31 December 2020		Like-for-like valuation movement for the quarter
	£ million	%	£ million	%
Industrial	102.90	56.3	6.90	7.61
Office	45.55	24.9	(0.30)	(0.65)
Retail	21.65	11.9	(0.25)	(1.14)
Other	12.55	6.9	(0.45)	(3.46)
Total	182.65	100.0	5.90	3.44

 

 

 

Net Asset Value

The Company's unaudited NAV as at 31 December 2020 was £151.88 million, or 95.87 pence per share. This reflects an increase of 3.15% compared with the NAV per share as at 30 September 2020. The Company's NAV total return, which includes the interim dividend of 2.00 pence per share for the period from 1 July 2020 to 30 September 2020, was 5.53% for the three-month period ended 31 December 2020.

 

	Pence per share	£ million
NAV at 1 October 2020	92.73	147.24
Capital expenditure	(0.02)	(0.03)
Valuation change in property portfolio	3.44	5.46
Valuation change in derivatives	(0.01)	(0.02)
Income earned for the period	2.62	4.15
Expenses and net finance costs for the period	(0.93)	(1.48)
Interim dividend paid	(2.00)	(3.17)
Share buybacks*	0.04	(0.27)
NAV at 31 December 2020	95.87	151.88

*the share buybacks reduce the Company's overall NAV as well as the total number of shares in circulation (refer to equity section below). In these instances, where the price is at a discount to the prevailing NAV per share, the effect is an increase in the Company's NAV per share.

 

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards. It incorporates the independent portfolio valuation as at 31 December 2020 and income for the period, but does not include a provision for the interim dividend for the three month period to 31 December 2020.

 

 

Dividend

 

Dividend declaration

The Company today announces an interim dividend of 2.00 pence per share for the period from 1 October 2020 to 31 December 2020. The dividend payment will be made on 26 February 2021 to shareholders on the register as at 5 February 2021.  The ex-dividend date will be 4 February 2021.

 

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 EPRA EPS for the three-month period to 31 December 2020 was 1.68 pence (30 September 2020: 1.60 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 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, 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 350,000 are currently held by the Company as treasury shares. This reflects the following share buybacks which occurred during the quarter:

Date	Number of Shares	Price (pence)	Gross consideration (£)
14 October 2020	200,000	76.5	153,000
3 November 2020	150,000	73-73.5	109,995

 

Debt

The Company had borrowings of £39.50 million as at 31 December 2020, producing a Loan to NAV ratio of 26.01% and had a total undrawn facility of £20.50 million of which £13.66 million was available as at 31 December 2020 up to the maximum 35% Loan to NAV at drawdown.

 

The loan continues to attract interest at LIBOR + 1.4% and as a result is currently benefitting from lower LIBOR rates. The Company's all-in interest rate as at 31 December 2020 was 1.45%.

 

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

As at the date of this announcement, the Company had collected the following rental payments for the rental quarter commencing 25 December 2020 and for previous quarters since the onset of the covid-19 pandemic, expressed as a percentage of the quarter's total rental income:

 

Current Position as at 25 January 2021		Q1 2020	Q2 2020	Q3 2020	Q4 2020
Received		95%	89%	87%	64%
Monthly Payments Expected Prior to Quarter End		-	-	-	26%
		95%	89%	87%	90%
Agreed on longer term payment plans Under Negotiation		2% 2%	3% 4%	4% 1%	1% 1%
		99%	96%	91%	92%
Outstanding		1%	4%	9%	8%
Total		100%	100%	100%	100%

 

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

 

If collection proceeds as shown above, the Company expects to have collected 92% of total rent owed during 2020 by the end of the current quarter.  For any amounts that remain outstanding that are owed by larger tenant companies who are known to have significant financial resources, the Company shall be pursuing these tenants where legally able to do so.

 

Asset Management Update

 

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

Westlands Distribution Park, Weston Super Mare - During November, the Company announced that it had acquired the multi-let Westlands Distribution Park in Weston-Super-Mare for a purchase price of £5.4m.  The purchase price reflects a low capital value of £175,000 per acre which provides strong potential for future capital value growth based upon nearby comparable land transactions which range between £350,000 and £500,000 per acre for other commercial and residential uses. The estate provides a net initial yield of 6.4% which is expected to increase to at least 7.4% in the medium term.  The average passing rent of £1.50 per sq ft also provides strong potential for rental growth. The established 323,437 sq ft estate is let to 15 tenants including North Somerset District Council which represents 30% of the income stream.  It is located 3 miles from the M5 Motorway and 20 miles south of Bristol city centre.

 

Sandford House, Solihull - During December, the Company announced that it had unconditionally exchanged contracts for the sale of Sandford House, Homer Road, Solihull for £10.5 million.  The sale price crystallises significant profit by exceeding both the valuation level immediately prior to the sale by over 9% and the acquisition price by 94%.  The asset was acquired in August 2015 for £5.4 million and has been fully let to the Secretary of State for Communities and Local Government since this time, producing a net income yield against the purchase price of 9.6%.  The Company invested no further capital in the asset during its hold period.  A new 15-year lease agreement was signed with the tenant in June 2020, which increased the rental income received from the asset by 30%.  The lease also provides for five yearly, open market, rent reviews and a tenant break option at year 10. The tenant intends to carry out a major refurbishment of the property over the coming weeks.  The sale is due to complete on 1 February 2021 and the Company will receive income from the asset until this date.

 

Bath Street, Glasgow - In October 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 granting of planning permission for the development of a 480 bedroom student housing development.

Moorside Road, Swinton - Following the administration of previous tenant, Nationwide Crash Repair Centres Limited on 3 September, a new letting was completed to HB Accident Repair Network Ltd during November.  The letting provides a new 10 year lease with a tenant break after year 5 and 3 months' rent free.  The commencing rent of £122,500 pa exceeds the level of rent paid by the previous tenant by £11,000 pa.  The lease also provides for an RPI-linked review at year 5 if the tenant remains in occupation. 

Sarus Court, Runcorn - A new letting to Di-tec Power Ltd was completed during December on 14,000 sq ft at this multi-let industrial estate.  The new lease provides for a 10 year term and allows the tenant an incentive of 7 months' rent free.  The rental level of £5.65 per sq ft proves a new high tone for the estate and exceeds the asset's previous estimated rental value level of £5.50 per sq ft.

Storeys Bar Road, Peterborough - In November the Company completed a 15 year lease renewal to existing tenant, Wyndeham, achieving a net effective rental uplift from £2.95 per sq ft to £3.50 per sq ft, increasing the annual rent received from the asset by £115,000.  The lease provides for tenant break options at the end of years 3, 6 and 9.  No rent free or other incentive was granted to the tenant.

Brightside Lane, Sheffield - Post quarter end, the Company has documented the settlement of a rent review dated April 2020 at these 120,000 sq ft industrial premises.  The new rent has been set at £374,000 pa equating to £3 per sq ft which represents an increase of 7% above both the current rent and valuer's estimated rental value.

 

 

 

Enquiries
AEW UK
Alex Short	[email protected]
	+44(0) 20 7016 4848
Laura Elkin	[email protected] +44(0) 20 7016 4869
Nicki Gladstone	[email protected]
	+44(0) 7711 401 021
Company Secretary
Link Company Matters Limited	[email protected]
	+44(0) 1392 477 500
TB Cardew	[email protected]
Ed Orlebar Tania Wild	+44 (0) 7738 724 630 +44 (0) 7425 536 903
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 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 UK Listing 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 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 €69.0bn of assets under management as at 30 September 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 September 2020, AEW Group managed €32.9bn 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