TIDMAEWU
RNS Number : 2051U
AEW UK REIT PLC
22 November 2023
22 November 2023
AEW UK REIT PLC
Interim Report and Financial Statements
for the six months ended 30 September 2023
AEW UK REIT PLC ("AEW UK REIT" or the "Company"), which holds a
diversified portfolio of 35 commercial investment properties
throughout the UK, is pleased to publish its Interim Report and
Financial Statements for the six months ended 30 September
2023.
Mark Burton, Chairman of AEW UK REIT, commented : "We have been
encouraged by the Company's performance this period with NAV total
return of 4.30%. All sectors of the Company's portfolio
outperformed the MSCI index, demonstrating the benefits of our
active asset management style in delivering performance throughout
market cycles. I am pleased to report significant progress towards
the Company's strategic objective of reinvesting surplus capital
into higher yielding assets which are expected to deliver NAV
growth over time. The purchases of NCP, York, and Cambridge House,
Bath, have returned the portfolio to being materially fully
invested, with EPRA earnings growing accordingly. NAV grew by
0.49%, driven by two successive quarters of positive valuation
movement and accretive asset sales, where values were felt to have
been maximised over the medium term. This momentum in activity has
helped to create a healthy near-term outlook and we are pleased to
have confirmed continued payment of the Company's market-leading 2p
quarterly dividend, which has now been paid for 32 consecutive
quarters."
Financial Highlights
-- Net Asset Value ('NAV') of GBP167.93 million and of 106.00
pence per share ('pps') as at 30 September 2023 (31 March
2023: GBP167.10 million and 105.48 pps).
-- NAV Total Return for the period of 4.30% (six months ended
30 September 2022: 4.35%).
-- Operating profit before fair value changes of GBP6.63
million for the period (six months ended 30 September
2022: GBP5.25 million).
-- Profit Before Tax ('PBT')* of GBP7.16 million and earnings
per share ('EPS') of 4.52 pps for the period (six months
ended 30 September 2022: GBP8.32 million and 5.25 pps).
PBT includes a GBP0.16 million loss arising from changes
to the fair values of investment properties in the period
(six months ended 30 September 2022: GBP6.51 million loss)
and GBP1.65 million realised gains on disposal of investment
properties (six months ended 30 September 2022: GBP10.83
million gains).
-- EPRA Earnings Per Share ('EPRA EPS') for the period of
3.58 pps (six months ended 30 September 2022: 2.58 pps).
See the full Half Year Report for the calculation of EPRA
EPS.
-- Total dividends* of 4.00 pps declared in relation to the
period (six months ended 30 September 2022: 4.00 pps).
-- Shareholder Total Return* for the period of 11.00% (six
months ended 30 September 2022: -18.53%).
-- The price of the Company's Ordinary Shares on the London
Stock Exchange was 98.43 pps as at 30 September 2023 (31
March 2023: 92.10 pps).
-- As at 30 September 2023, the Company had drawn GBP60.00
million (31 March 2023: GBP60.00 million) of its GBP60.00
million (31 March 2023: GBP60.00 million) loan facility
with AgFe and was geared to 27.35% of GAV (31 March 2023:
28.06%). See note 15 in the full Half Year Report for
further detail.
-- The Company held cash balances totalling GBP6.44 million
as at 30 September 2023 (31 March 2023: GBP14.32 million).
Property Highlights
-- As at 30 September 2023, the Company's property portfolio
had a valuation of GBP219.36 million across 35 properties
(31 March 2023: GBP213.83 million across 36 properties)
as assessed by the valuer(1) and a historical cost of
GBP231.38 million (31 March 2023: GBP224.03 million).
-- The Company acquired two properties during the period
for a total purchase price of GBP21.52 million, excluding
acquisition costs (year ended 31 March 2023: five properties
for GBP32.05 million).
-- The Company made three disposals during the period for
gross sale proceeds of GBP20.85 million (year ended 31
March 2023: five properties for gross sale proceeds of
GBP44.41 million).
-- The portfolio had an EPRA vacancy rate** of 6.98% as at
30 September 2023 (31 March 2023: 7.83%).
-- Rental income generated during the period was GBP9.43
million (six months ended 30 September 2022: GBP8.41 million).
-- EPRA Net Initial Yield ('EPRA NIY')** of 7.85% as at 30
September 2023 (31 March 2023: 7.65%).
-- Weighted Average Unexpired Lease Term ('WAULT')* of 4.45
years to break and 5.72 years to expiry (31 March 2023:
3.05 years to break and 4.33 years to expiry).
(*) See KPIs in the full Half Year Report for definition of
alternative performance measures. (**) See glossary in the full
Half Year Report for definition of alternative performance
measures. (1) The valuation figure is reconciled to the fair value
under IFRS in note 12.
Enquiries
AEW UK
L aura Elkin Laura.Elkin@eu.aew.com
Nicki Gladstone Nicki.Gladstone-ext@eu.aew.com
+44(0) 771 140 1021
Liberum Capital Darren.Vickers@liberum.com
Darren Vickers +44 (0)20 3100 2218
TB Cardew AEW@tbcardew.com
Ed Orlebar +44(0) 7738 724 630
Tania Wild +44(0) 7425 536 903
Chairman's Statement
Overview
Despite the lacklustre economic headlines, we were encouraged to
see the portfolio's performance return to positive territory in the
first half of the year, following a tumultuous period for UK
property valuations. During the period, the Company achieved NAV
growth of 0.49%, with two successive quarters of positive valuation
movements and numerous NAV accretive sales having been completed.
Positive like-for-like valuation movement was seen in all sectors
of the Company's portfolio, with the exception of offices, which
are still stabilising. All sectors of the Company's portfolio
outperformed the MSCI index during the period, demonstrating the
benefits of an actively managed portfolio. Quarterly EPRA earnings
per share ('EPS') grew by 4% during the period, with EPS reaching
1.84pps for the quarter ending 30 September 2023. Further growth in
earnings and NAV are expected in the near term.
The commercial property investment market remained subdued
during the period, with transaction volumes in all sectors well
below historic averages. Despite the depressed transactional
activity, the Company has identified plentiful pipeline
opportunities. Less direct competition and a greater prevalence of
mispricing have resulted in value investment opportunities being
more numerous.
To exploit these opportunities, the Company has undertaken a
strategy of selective capital recycling, in order to benefit from
the attractive locations and advantageous pricing in its pipeline.
Assets have been sold where their values have been maximised over
the medium term and their earnings are below those seen in the
Company's pipeline. During the period, the Company undertook three
sales where offers had been received at levels that maximised asset
value over the short to medium term. These sales included two
industrial assets in Leeds and Bradford, sold as a package for a
blended net initial yield of 6.2%, far below the Company's achieved
average purchase yield during the period of 8.6%, demonstrating the
Company's ability to crystallise asset management gains by selling
out of lower yielding assets and recycling them into higher
yielding assets, thereby enhancing earnings. The sale prices
exceeded the assets' valuations prior to disposal by an average of
14%. The third sale was of an industrial property in Deeside, which
was sold vacant for an 8% premium to the prior valuation. The asset
was sold in order to avoid a costly refurbishment programme. These
sales added to the Company's existing strong track record of
crystallising net gains on disposal. The resulting capital profit
will be utilised, where needed, to supplement earnings in the
payment of the Company's market leading dividend, which has now
been paid for 32 consecutive quarters.
I am pleased to report significant progress towards the
Company's strategic objective of reinvesting capital generated from
sales into higher yielding assets in core urban locations. The
purchases of NCP, York, and Cambridge House, Bath, utilised most of
the capital available for deployment and have strengthened earnings
with a combined initial yield of 8.6%. Both assets have robust
reversionary potential, each offering yields in excess of 10%, thus
furthering their potential accretion to earnings over time. Despite
the short-term negative impact on NAV of acquisition costs, these
purchases are expected to deliver NAV growth over the medium term.
Critical to these acquisitions were the strong locations of the
assets, both of which occupy attractive central pitches in cities
with a tight supply of land.
This has been a fruitful period for the Company's active asset
management capabilities, with high numbers of leasing transactions
completing that have fuelled earnings growth and bolstered NAV. The
Company's portfolio has seen robust occupational activity across
all major market sectors, with a particular concentration of
activity in retail sectors, where the Company has focused much of
its recent purchases. This activity is testament to the Investment
Manager's expertise in stock selection and proactive asset
management, both of which have driven the strong total return
performance achieved by the portfolio's assets.
Further benefits to earnings and values from asset management
transactions are expected to be realised over coming periods, with
a number of key negotiations ongoing. As at the period end, the
Company had a reversionary yield of 8.72%, as independently
assessed by the valuer, Knight Frank, versus an initial yield of
7.31%. This is a measure of the inherent potential for future
income growth that the current portfolio provides. Given the
portfolio retains a low average passing rent of GBP6.29 per sq ft,
this represents a conservative starting point for value protection
and income growth.
Financial Results
Six months Six months Year ended
ended 30 September ended 30 September 31 March
2023 2022 2023
Operating profit before fair value
changes (GBP'000) 6,627 5,253 11,096
Operating profit/(loss) (GBP'000) 8,110 9,576 (9,164)
Profit/(loss) before tax (GBP'000) 7,162 8,322 (11,325)
Earnings/(loss) per share (basic
and diluted) (pence)* 4.52 5.25 (7.15)
EPRA Earnings per share (basic
and diluted) (pence)* 3.58 2.58 5.70
Ongoing Charges (%) 1.50 1.33 1.37
Net Asset Value per share (pence)* 106.00 121.88 105.48
EPRA Net Tangible Assets per share
(pence)* 106.00 121.88 105.48
* see note 10 of the Financial Statements for the corresponding
calculations. See the Investment Manager's Report for further
explanation of performance in the period.
Awards
I am delighted that the Company's performance and practices have
been recognised in four awards received during the period. The
Company has once again been awarded a gold medal by EPRA, the
European Public Real Estate Association, for its high standard of
financial reporting and a silver medal for standards of
sustainability reporting. These awards are testament to the
Company's robust governance and transparency.
The Company also won the Citywire investment trust award in the
'UK Property' category for the fourth successive year, as well as
winning the 'Property' category at the Investment Week Investment
Company of the Year awards.
Board Changes
As announced previously, I am very pleased to confirm the
appointments of Mr Robin Archibald and Mrs Liz Peace as independent
Non-Executive Directors to the Board of the Company, effective 1
October 2023. As part of orderly succession planning, Robin has
been appointed as Chairman-elect and will succeed as Chairman of
the Board upon my retirement at the Company's 2024 AGM. I am
delighted that Robin and Liz are joining the Board and I am
confident that their experience and range of skills will complement
and further strengthen the existing Board for many years to come.
Their collective extensive knowledge and experience in property and
investment companies will be of great benefit. I look forward to
working closely with Robin to ensure a smooth handover until
September 2024.
On 30 September 2023, Mr Bim Sandhu retired from the Board as
Chairman of the Audit Committee, having reached the end of his
nine-year tenure as a Director of the Company. As first announced
on 10 November 2022, Mr Mark Kirkland was appointed as
Chairman-designate of the Audit Committee and has now succeeded Mr
Sandhu as Audit Committee Chairman. On behalf of the Board, I thank
Bim for his invaluable contribution since the IPO of the Company,
and wish him well for his future endeavours.
Outlook
We are pleased by the Company's progress in continuing to invest
capital into attractive pipeline assets, where market conditions
have enabled attractive pricing levels. These purchases have
returned the Company's portfolio to being materially fully invested
and as a result, income levels have grown accordingly. We are
reassured by the occupational resilience that the portfolio has
shown during a period of ongoing uncertainty. The quantum of asset
management activity completed during the period is testament to the
Investment Manager's proactive approach and to the quality of
assets held in the portfolio. This activity has also boosted
earnings and creates a healthy near-term outlook for further
growth.
The Board believes that the ongoing relevance of the Company's
strategy is highlighted by its consistent outperformance of the
MSCI benchmark, with a five-year annualised outperformance of
6.66%. The Company has identified a plentiful pipeline, which has
presented excellent opportunities for a diversified, value-focused
investment strategy that is nimble in making cross-sector and
often, counter-cyclical moves, thereby delivering optimal value to
Shareholders. We believe that the relevance of this strategy is
highlighted by the robustness of the Company's share rating, whose
discount to NAV has consistently been the narrowest of its peers in
the UK diversified peer group.
The Board and Investment Manager will continue to take a prudent
approach to the ongoing management of the Company, alongside
considering opportunities for investment, growth and capital
recycling, as they arise.
Mark Burton
Chairman
21 November 2023
Investment Manager's Report
Property Market Outlook
Despite uncertainty remaining in the wider economy, values in UK
commercial property largely stabilised during the six months to 30
September 2023. UK property is expected to offer healthy return
prospects over the coming periods, with consensus forecasts showing
an expected return to positive rental growth across all major
market sectors by 2025, and all UK property total returns to
average 5.6% per annum over the next five years (2023-2027).
Industrial
During the period, the industrials sector remained robust having
been the sector which saw the steepest value declines at the end of
2023. Supported by resilient levels of occupational demand, the
sector has continued to see the highest levels of rental growth and
although this is expected to slow in coming years, it is expected
to remain in positive territory, showing expected average annual
growth of 3.3% between 2023 and 2027. We believe that the Company's
industrial portfolio, with a low average passing rent of GBP3.60
per sq ft, will be well placed to benefit. The Company has
completed several sales from the sector during the period, where
sales yields have compressed significantly compared to pipeline
assets, due to vendors' positive expectations on rental growth.
Retail
Values in the retail sector also faired robustly during the
period, buoyed by positive sector indicators. Retail sales volumes
increased 0.3% over the three months to August 2023 and the
proportion of online retail sales fell marginally in the month to
August. These figures, however, mask a divergence in performance of
the underlying retail sectors, with retail warehousing remaining
more robust on a total return basis than its high street
equivalent. Vacancy levels across retail warehousing have fallen to
4.7%, the lowest level seen since 2018. Performance on the high
street remains significantly polarised from town to town, with the
top tiers remaining robust and those now deemed to be lower quality
struggling, both for occupational and investor demand.
The period saw the failure of Wilko, which affected both high
street and retail warehousing locations. Tenant failures and CVAs
have not been as common as compared to the more regular occurrence
seen during the Covid pandemic, however we remain cautious of
further distress in the sector.
Office
The Office sector saw a stronger post-Covid recovery in 2022
than some may have expected, with office-based employment growing
in 2022. This trend started to reverse during 2023, resulting in
negative capital growth seen across most locations. Occupational
uncertainty remains across the sector, as businesses continue to
transition to new working patterns. Tenants have also become more
discerning in recent years, with occupiers now wishing to benefit
from strong sustainability credentials as well as surrounding
amenities and top-quality space. This is particularly the case for
large corporate tenants, but it is increasingly becoming a key
factor for smaller businesses too. As a result of all these
factors, we have seen investor demand for the sector remain light,
with investors further deterred by the high costs associated with
delivery.
Alternatives
Across alternative sectors, visibility of performance in trading
updates is key to investor demand and where these have remained
robust, despite the squeeze on consumer discretionary spend,
investment volumes have held up. Generally, leisure has
historically fared relatively defensively during periods of
economic uncertainty. Operators carrying unsustainably high levels
of debt are seen as a concern, however. We find the sector
attractive on a selective basis, particularly for assets that offer
a superior income return and occupy larger land holdings, or sites
in urban areas that can often be underpinned by alternative use
values, most likely residential.
Financial Results
The Company's NAV as at 30 September 2023 was GBP167.93 million
or 106.00 pps (31 March 2023: GBP167.10 million or 105.48 pps).
This represents an increase of 0.52 pps or 0.49% over the six-month
period, with the underlying movement in NAV set out in the table
below:
NAV Reconciliation
NAV as at 1 April 2023 105.48
Change in fair value of investment
property 1.82
Portfolio acquisition costs (1.06)
Capital expenditure (0.87)
Gain on disposal of investment
property 1.04
Income earned for the period 6.19
Expenses and net finance costs
for the period (2.60)
Dividends paid (4.00)
NAV as at 30 September 2023 106.00
EPRA EPS for the period was 3.58 pence which, based on dividends
paid of 4.00 pps, reflects a dividend cover of 89.50%. The increase
in dividend cover compared to the prior six-month period has
largely arisen due to the completion of key asset management
transactions. Our portfolio has gradually been reducing its
industrial exposure over the past 18 months, and although this may
not continue at the same rate going forward, it has allowed us to
crystallise profits made in the sector and concurrently recycle the
resulting capital into high yielding assets in our pipeline, mostly
within other market sectors. We believe that this ability to move
nimbly between property sectors in order to extract maximum value
from our portfolio is a key strength of our strategy.
Further gains in EPS are expected in the coming quarters as the
ongoing programme of new lettings should provide a boost to income
streams and a reduction in void costs. The Company's focus for the
deployment of capital continues to be further accretive investment
opportunities, alongside re-investment into the existing portfolio
where capex is needed in order to drive future performance
gains.
Rent collection rates have reached 99% for both the March 2023
and June 2023 quarters respectively, with further payments expected
to be received under longer-term payment plans. Of the outstanding
arrears, the Company has made a GBP1.27 million expected credit
loss provision, given the challenging economic outlook. The Company
will continue to pursue all outstanding arrears.
The ongoing charges ratio has increased during the period as a
result of the decline in the valuation of the portfolio rather than
an increase in the Company's underlying cost base.
Financing
The Company holds a GBP60.00 million five-year term loan
facility, maturing in May 2027. The loan is held with AgFe, a
leading independent asset manager specialising in debt-based
investments. It is priced as a fixed rate loan with a total
interest cost of 2.959%. In the current inflationary environment,
the Company considered it prudent to fix the loan and interest,
rather than run the risk of further interest rate rises during the
loan term.
The details of the loan facility are as follows:
30 September 2023 31 March 2023
------------------ -----------------
Facility GBP60.00 million GBP60.00 million
Drawn GBP60.00 million GBP60.00 million
Gearing (Loan to GAV) 27.35% 28.06%
Interest rate 2.959% fixed 2.959% fixed
Property Portfolio
In the year to 30 September 2023, the Company outperformed the
benchmark in total return terms across all property sectors,
demonstrating the benefits of an actively managed portfolio. This
was driven by capital growth outperformance in all sectors aside
from retail, and income return outperformance in all sectors aside
from offices.
The following tables illustrate the composition of the portfolio
in relation to its properties, tenants and income streams:
Summary by Sector as at 30 September 2023
Gross Gross Like- Like-
passing passing for-like for-like
Number Vacancy WAULT rental rental Rental rental rental
of Valuation Area by ERV to income income ERV ERV income growth* growth*
Sector assets (GBPm) (sq ft) (%) break (GBPm) (GBPpsf) (GBPm) (GBPpsf) (GBPm) (GBPm) %
(years)
Industrial 14 78.33 1,880,794 4.35 3.80 6.78 3.60 7.71 4.10 3.51 (0.08) (2.31)
Retail
warehouses 5 46.25 484,033 18.14 5.25 3.40 7.03 4.32 8.93 2.07 (0.19) (9.67)
Standard
retail 8 38.16 357,227 3.16 4.89 3.89 10.90 3.98 11.13 2.03 0.03 1.98
Alternatives 5 30.37 197,491 0.00 7.54 2.98 15.08 2.75 13.95 1.16 (0.04) (3.91)
Office 3 26.25 125,318 9.34 2.96 2.10 16.74 2.73 21.75 0.66 0.05 8.14
-------- ----------- ---------- --------- --------- -------- --------- -------- ---------- -------- --------- ---------
Portfolio 35 219.36 3,044,863 6.98 4.45 19.15 6.29 21.49 7.06 9.43 (0.23) (2.89)
-------- ----------- ---------- --------- --------- -------- --------- -------- ---------- -------- --------- ---------
Summary by Geographical Area as at 30 September 2023
Gross Gross Like- Like-
passing passing for-like for-like
Number Vacancy WAULT rental rental Rental rental rental
Geographical of Valuation Area by ERV to income income ERV ERV income growth* growth*
Area assets (GBPm) (sq ft) (%) break (GBPm) (GBPpsf) (GBPm) (GBPpsf) (GBPm) (GBPm) %
(years)
South West 7 57.35 635,587 9.65 3.96 4.58 7.20 6.15 9.68 2.33 0.10 6.51
West Midlands 5 43.00 597,860 10.24 4.22 3.60 6.03 3.86 6.46 1.81 (0.09) (4.62)
Yorkshire and
Humberside 7 32.43 616,838 13.81 4.85 2.92 4.74 3.57 5.79 1.48 (0.02) (1.57)
Eastern 4 22.08 326,419 0.80 3.29 1.92 5.87 2.10 6.44 0.83 (0.15) (15.61)
North West 4 21.60 336,043 0.00 6.05 1.90 5.67 2.00 5.95 0.98 (0.07) (9.75)
Wales 2 14.90 319,010 0.00 9.48 1.28 4.00 1.38 4.34 0.61 (0.03) (5.37)
South East 3 12.15 86,826 0.00 2.67 1.39 16.06 1.05 12.07 0.62 0.07 17.96
Rest of London 1 10.00 71,720 0.00 8.01 0.94 13.04 0.79 10.94 0.49 (0.02) (4.62)
East Midlands 1 3.70 28,219 0.00 3.62 0.41 14.56 0.38 13.38 0.18 (0.02) (10.37)
Scotland 1 2.15 26,341 0.00 4.54 0.21 7.97 0.21 7.97 0.10 - 1.89
-------- ----------- ---------- --------- --------- -------- --------- -------- ---------- -------- --------- ---------
Portfolio 35 219.36 3,044,863 6.98 4.45 19.15 6.29 21.49 7.06 9.43 (0.23) (2.89)
-------- ----------- ---------- --------- --------- -------- --------- -------- ---------- -------- --------- ---------
*like-for-like rental growth is for the six months ended 30
September 2023.
Source: Knight Frank/AEW, 30 September 2023.
Individual Property Classifications
Market Value
Property - Top 10 Sector Region Range (GBPm)
---------------------- ------------------ ------------------------- -------------
1 Central Six Retail Retail warehouses West Midlands 20.0-25.0
Park, Coventry
2 Northgate House, Standard retail South West 10.0-15.0
Bath
3 Gresford Industrial Industrial Wales 10.0-15.0
Estate, Wrexham
4 Cambridge House, Offices South West 10.0-15.0
Bath
5 40 Queen Square, Offices South West 10.0-15.0
Bristol
6 Tanner Row, York Other Yorkshire and Humberside 10.0-15.0
7 London East Leisure Other Rest of London 10.0-15.0
Park, Dagenham
8 Arrow Point Retail Retail warehouses West Midlands 7.5-10.0
Park, Shrewsbury
9 Units 1001-1004, Industrial North West 5.0-7.5
Sarus Court, Runcorn
10 Apollo Business Park, Industrial Eastern 5.0-7.5
Basildon
The Company's top ten properties listed above comprise 51.1% of
the total value of the portfolio.
Market Value
Property Sector Region Range (GBPm)
11 Cuerden Way, Preston Retail warehouses North West 5.0 - 7.5
12 Storey's Bar Road, Industrial Eastern 5.0 - 7.5
Peterborough
13 Barnstaple Retail Retail warehouses South West 5.0 - 7.5
Park, Barnstaple
14 15-33 Union Street, Standard retail South West 5.0 - 7.5
Bristol
15 Mangham Road, Rotherham Industrial Yorkshire and Humberside 5.0 - 7.5
16 Westlands Distribution Industrial South West 5.0 - 7.5
Park, Weston Super
Mare
17 Brockhurst Crescent, Industrial West Midlands 5.0 - 7.5
Walsall
18 Walkers Lane, St Industrial North West 5.0 - 7.5
Helens
19 Diamond Business Industrial Yorkshire and Humberside 5.0 - 7.5
Park, Wakefield
20 Odeon Cinema, Southend Other Eastern 5.0 - 7.5
21 Next, Bromley Standard retail South East 5.0 - 7.5
22 710 Brightside Lane, Industrial Yorkshire and Humberside < 5.0
Sheffield
23 Oak Park, Droitwich Industrial West Midlands < 5.0
24 Commercial Road, Standard retail South East < 5.0
Portsmouth
25 Pearl House, Nottingham Standard retail East Midlands < 5.0
26 The Railway Centre, Retail warehouses Yorkshire and Humberside < 5.0
Dewsbury
27 Cedar House, Gloucester Offices South West < 5.0
28 Pipps Hall Industrial Industrial Eastern < 5.0
Estate, Basildon
29 69-75 Above Bar Standard retail South East < 5.0
Street, Southampton
30 Eagle Road, Redditch Industrial West Midlands < 5.0
31 Circuit, Cardiff Other Wales < 5.0
32 Bridge House, Bradford Industrial Yorkshire and Humberside < 5.0
33 Pricebusters Building, Standard retail North West < 5.0
Blackpool
34 JD Gyms, Glasgow Other Scotland < 5.0
35 11/15 Fargate, Sheffield Standard retail Yorkshire and Humberside < 5.0
Sector and Geographical Allocation by Market Value as at 30
September 2023
Sector Allocation
Sector %
------------------- ---
Industrial 36
Retail warehouses 21
Standard retail 17
Alternative 14
Offices 12
Geographical Allocation
Location %
-------------------------- ---
South West 26
West Midlands 20
Yorkshire and Humberside 15
Eastern 10
North West 10
Wales 7
South East 5
Rest of London 4
East Midlands 2
Scotland 1
Source: Knight Frank valuation report as at 30 September
2023.
Top Ten Tenants
% of
Portfolio
Passing Total
Rental Contracted
Income Rental
Tenant Sector Property (GBP'000) Income
------------------ ----------------- ------------------------------ ----------- ------------
Plastipak UK Gresford Industrial
1 Limited Industrial Estate, Wrexham 975 5.1
2 NCP Other Tanner Row, York 733 3.8
3 Matalan Retail warehouse Matalan, Preston 651 3.4
4 Wyndeham Group Industrial Wyndeham, Peterborough 644 3.4
5 Poundland Limited Retail Various 631 3.3
6 Next Retail Next, Bromley 630 3.3
7 TJX UK Ltd Retail Various 608 3.2
London East Leisure
8 Mecca Bingo Ltd Other Park, Dagenham 584 3.1
9 Odeon Cinemas Other Odeon Cinema, Southend-on-Sea 535 2.8
Bath Northgate
House Centre Northgate House,
10 Ltd Retail Bath 491 2.5
The Company's top ten tenants, listed above, represent 33.9% of
the total passing rental income of the portfolio.
Source: Knight Frank valuation report as at 30 September
2023.
Investment Update
The Company completed the following material asset management
transactions during the period:
Acquisitions - In July 2023, the Company completed the
acquisition of Tanner Row, York, a mixed-use asset within York city
centre for GBP10.02 million, reflecting an attractive net initial
yield of 9.3%.
In September 2023, the Company acquired Cambridge House, Bath, a
mixed-use asset in Bath city centre for GBP11.50 million,
reflecting an attractive net initial yield of 8.0% and a capital
value of GBP223 per sq ft.
Disposals - In May 2023, the Company completed the sale of its
industrial holding in Deeside for GBP4.75 million, reflecting a
capital value of circa GBP49 per sq ft. The vacant asset was sold
to an owner-occupier, with the price reflecting an 8.0% premium to
the 31 March 2023 valuation. By disposing of the asset, the Company
also avoided a speculative refurbishment project costing
approximately GBP1.00 million.
In June 2023, the Company completed the sale of two industrial
assets, being Euroway Trading Estate, Bradford and Lockwood Court,
Leeds, for combined proceeds of GBP16.10 million. This reflected a
blended net initial yield (NIY) of 6.2% and a weighted average
premium to acquisition price of 31.2%. Both sales realised
significant profit for AEWU's shareholders. For Euroway Trading
Estate and Lockwood Court respectively, their sales prices exceeded
their 31 March 2023 valuations by 26.5% and 3.8%, as well as their
acquisition prices by 30.3% and 31.8%.
Asset Management Update
Central Six Retail Park, Coventry (retail warehousing) - in
April 2023, the Company completed a lease renewal with existing
tenant, Grahams Baked Potatoes Limited. The tenant has entered into
a new four-year lease with rolling mutual break options at a rent
of GBP24,500 per annum, equating to GBP45 per sq ft.
In May 2023, the Company completed a lease renewal with existing
tenant, Oak Furnitureland Group Limited, for Unit 12. The tenant
has entered into a new two-year lease with rolling mutual break
options at a rent of GBP25,000 per annum, equating to GBP2.50 per
sq ft.
In May 2023, the Company also completed a reversionary lease
with existing tenant, Boots UK Limited, for Unit 7. The tenant has
entered into a new five-year lease with effect from 28 February
2024 at a rent of GBP259,293 per annum, equating to GBP14.25 per sq
ft. The letting also includes seven and a half months' rent free
taken under the existing lease.
In June 2023, the Company completed the acquisition of the
freehold interest in units 1-11, which had previously been held by
way of long leasehold from Friargate JV Projects Limited. The
acquisition of the freehold interest is expected to increase the
liquidity of the asset in case of its future sale and also removes
user restrictions within the long lease which are constrictive to
lettings. In exchange for the freehold interest, the Company has
granted to Friargate JV Projects an option to acquire the Company's
long leasehold interest in units 12 A & B over a five-year
period, commencing in two years' time.
The Company completed a new 20-year lease to Aldi Stores
Limited, following the completion of the agreement for lease in
October 2022. The lease provides an annual 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 lease provides Aldi with a 12-month rent-free
incentive and a tenant break option at year 15.
In September 2023, the Company received formal confirmation of
the planning permission for the amalgamation of Unit 6a and Unit 6b
and extended delivery hours in order to facilitate the letting to
The Food Warehouse. The letting is expected to complete in February
2024.
Barnstaple Retail Park, Barnstaple (retail warehousing) - the
Company has completed an eight-year reversionary lease with B&Q
from 29 September 2024 at the current passing rent of GBP348,000
per annum (GBP9.75 per sq ft). In return, the tenant has been
granted a six-month rent-free period.
40 Queens Square, Bristol (office) - after protracted
negotiations, the Company has settled three outstanding rent
reviews at the building dating back to 2021 and 2022 with the
following tenants: Leonard Curtis Recovery Limited, Chapman Taylor
LLP and Turley Associates. The outcome of the reviews will see the
annual rent from the three tenant's increase from GBP213,812 per
annum to GBP281,550, reflecting a 32% uplift.
The Company has also recently completed a new five-year ex-Act
lease to Environmental Resources Limited with a tenant break option
at the end of the third year at a rent of GBP69,230 per annum
(GBP35 per sq ft). The tenant has the benefit of an initial
six-month rent-free period, with a further four months incentive if
they do not serve their break option.
Arrow Point Retail Park, Shrewsbury (retail warehousing) - the
Company has completed a three-year lease to Universal Consumer
Products Limited at a rent of GBP110,000 per annum (GBP8 per sq
ft). The previous passing rent was GBP95,844 (GBP7 per sq ft). No
lease incentive was given.
Oak Park, Droitwich (industrial) - the Company has completed a
new three-year ex-Act lease on units 266-270 to Roger Dyson at a
stepped rent starting at GBP123,000 per annum in year one,
GBP135,000 per annum in year two and GBP148,000 per annum in year
three. There is a mutual break option on the expiry of the second
year. The tenant was granted a one-month rent free period.
The Company has also completed a new three-year ex-Act lease to
Adam Hewitt Ltd at units 263 and 265 at a rent of GBP70,000 per
annum. There is a tenant break option after the first year. No rent
incentive was given.
Lastly, the Company has completed a letting at units 272 and 273
to J Warwick Holdings Ltd for a new 15-year term, with rolling
tenant break options every three years at a rent of GBP79,000 per
annum. The tenant has the benefit of a six-month rent-free period.
The property is now fully let.
Diamond Business Park, Wakefield (industrial) - in April 2023,
the Company completed the settlement of an open market rent review
with Tasca Tankers, dating back to June 2022. The review will see
the rent received increase from GBP209,000 to GBP229,900 per annum,
reflecting an uplift of 9.6%.
The Company has settled Compac UK's July 2023 RPI rent review at
GBP53,517 per annum, representing an GBP11,517 per annum (circa
27%) increase. The unit is still considered under-rented, with an
ERV of GBP4.00 per sq ft, compared to the new passing rent of
GBP3.90 per sq ft.
The Company has also settled Economy Packaging Ltd's August 2023
open market rent review at GBP79,065 per annum, representing a
GBP26,565 per annum (circa 50%) increase. This letting equates to
GBP3.75 per sq ft and will provide good evidence for further asset
management activity.
Northgate House, Bath (retail) - in June 2023, the Manager
completed a new five-year ex-Act lease to Dimension Vintage limited
at a rent of GBP40,000 per annum. Four months' rent-free has been
granted.
Commercial Road, Portsmouth (retail) - in June 2023, a new
10-year lease was completed to Specsavers at a rent of GBP60,000
per annum in vacant accommodation previously let to River Island.
An incentive of nine months' rent free was granted to the tenant,
along with a GBP40,000 capital contribution to improvement works.
There will be a tenant only break option after six years on six
months' notice.
Sarus Court, Runcorn (industrial) - The Manager has completed
three lease renewals with existing tenant, CJ Services, for their
leases at units 1001, 1002 and 1003. The total rent is GBP276,283
per annum reflecting GBP6.50 per sq ft, an increase from the
previous average passing rent of GBP5.25 per sq ft. Five-year
ex-Act leases were granted, with incentives equal to six months'
rent-free.
The Railway Centre, Dewsbury (leisure) - Mecca Bingo, whose
lease expires on 24 December 2023, have surrendered their lease
early on 29 September 2023, paying all their rent, service charge
and insurance to lease expiry. In doing so, the Company has also
settled Mecca's dilapidations at GBP285,000. The full and final
combined settlement totals GBP365,126. The Manager is in the
process of agreeing terms with an incoming tenant where landlord
enabling works will be required. An early surrender of Mecca's
lease will facilitate the new letting completing a quarter earlier
than otherwise possible.
Westlands Distribution Park, Weston-Super-Mare (industrial) -
the Company has completed a lease renewal with JN Baker who have
extended their occupation of Unit 2A for a further two years from
April 2023, with a mutual break option exercisable after nine
months. The agreed rent is GBP159,000 per annum, inclusive of
insurance.
The Company has settled three outstanding April 2022 rent
reviews with North Somerset Council at units 2, 5 and 6. The
combined rental increase is GBP35,864 per annum (circa 20%).
Carr Coatings, Redditch (industrial) - the Company has settled
Carrs Coatings Ltd's August 2023 annual uncapped RPI rent review at
GBP294,348 per annum (GBP7.75 per sq ft), representing a GBP24,385
per annum (circa 9%) increase. The unit is single-let to Carrs
Coatings Ltd until August 2028. The lease was entered into as a
sale and leaseback in 2008 at an initial starting rent of
GBP170,300 per annum (GBP4.50 psf).
Vacancy - The portfolio's overall vacancy level is 6.98%.
ESG Update
The Company has maintained its two stars Global Real Estate
Sustainability Benchmark ('GRESB') rating for 2023, as well as
maintaining its score of 67 (GRESB Peer Group Average-65). A large
portion of the GRESB score relates to performance data coverage
where, due to the high percentage of single-let assets with tenant
procured utilities, the Company does not score as well as Funds
with a smaller holding of single-let assets and a higher proportion
of multi-let assets where the owner is responsible for the
utilities and can therefore gather the relevant data.
We continue to implement our plan to improve overall data
coverage and data collection for all utilities through increased
tenant engagement at our single-let assets and by installing
automated meter readers ('AMR') across the portfolio. We currently
have thirteen AMR installation projects ongoing, including at
single lets and multi-lets such as Central Six Retail Park. Several
other AMR installations will be executed during 2024.
We endeavour, where the opportunity presents itself through a
lease event, to include green clauses in leases, covenanting
landlord and tenant to collaborate over the environmental
performance of the property. Green clauses seek to improve data
coverage by ensuring tenants provide regular and appropriate
utility consumption data.
We continue to assess and strengthen our reporting and alignment
against the framework set out by the TCFD with further disclosure
provided in the 2023 annual report and accounts. We are pleased to
report that the Company has maintained its EPRA Silver rating for
EPRA Sustainability Best Practices Recommendations ('sBPR') for ESG
disclosure and transparency.
We have an Asset Sustainability Action Plan ('ASAP') initiative,
tracking ESG initiatives across the portfolio on an asset-by-asset
basis for targeted implementation of ESG improvements. In doing so,
we ensure all possible sustainability initiatives are considered
and implemented where physically and economically viable.
Following a significant emissions reduction from assets within
the portfolio during 2022 (-33.8% vs. the 2018 baseline), we took
the decision to increase the reduction target from 15% to 40% by
2030, equating to a planned saving of roughly 76 extra tonnes of
carbon. All managed assets and units have been contracted to High
Quality Green Tariffs, ensuring that electricity supply is from
renewable sources and contributing to the continued reduction in
emissions. All void/vacant unit supplies have also been transferred
to High Quality Green Tariffs, while gas capping exercises have
been undertaken where possible, including several units at Diamond
Business Park.
We are currently implementing several biodiversity initiatives
across our portfolio, including significant biodiversity
improvements to the Railway Centre, Dewsbury. This includes the
installation of 20 bird boxes, 10 insect towers & hotels, a
hedgehog house, a wildflower meadow and replanting of bushes across
the site. Other notable projects include the installation of EV
chargers at Central Six and a solar PV feasibility study at London
East Leisure Park.
Lease Expiry Profile
Approximately GBP2.40 million of the Company's current
contracted income stream is subject to an expiry or break within
the 12-month period commencing 1 October 2023. We will proactively
manage these leases nearing expiry, looking to unlock capital
upside, whether that be through lease regears/renewals, or through
refurbishment/capex projects and new lettings.
Source: Knight Frank valuation report as at 30 September
2023.
AEW UK Investment Management LLP
21 November 2023
AEW UK REIT PLC's interim report and financial statements for
the period ended 30 September 2023 will be
available today on www .aewukreit.com.
It will also be submitted shortly in full unedited text to the
Financial Conduct Authority's National Storage Mechanism and will
be available for inspection at
data.fca.org.uk/#/nsm/nationalstoragemechanism in accordance with
DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure
Guidance and Transparency Rules.
LEI: 21380073LDXHV2LP5K50
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END
IR FFFVILDLLFIV
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November 22, 2023 02:00 ET (07:00 GMT)
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