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AEW UK REIT plc (AEWU)
22 April 2021
AEW UK REIT Plc (the "Company")
NAV Update and Dividend Declaration
AEW UK REIT plc (LSE: AEWU) (the "Company"), which, as at 22 April 2021, 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 31 March 2021.
Alex Short, Portfolio Manager, AEW UK REIT, commented:
"We are pleased to see continued NAV recovery during the quarter, driven by the strong performance of the Company's industrial properties which saw a like-for-like valuation increase of 5.78%. Changing consumer habits and the resulting improved sentiment towards the industrial sector have been accelerated somewhat by the pandemic and, as the general economic outlook begins to improve with the effective rollout of vaccines and the easing of lockdown measures, we are beginning to see this reflected in valuations. In this respect, the Company benefits from its high weighting towards industrials, which was 60.8% of the portfolio valuation (excluding cash) as at 31 March 2021. Weightings in the retail and leisure sectors, which have been most negatively affected by the pandemic, remain low at 11.6% and 7.0% respectively.
The Company also saw a steep like-for-like valuation increase of its business park in Oxford, increasing 19% to a value of £13.15 million. This reflects the investment market's strong appetite for properties and locations associated with life sciences and the medical industry.
Stock selection and active asset management continue to be key features of the Company's strategy and drivers of performance. During the quarter, the Company completed the sale of Sandford House, Solihull, for gross proceeds of £10.5 million. The asset was acquired in August 2015 for £5.4 million and the Company invested no further capital in the asset during its hold period. Significant value was gained from the completion of a 15-year lease agreement in July 2020 with the existing tenant, the Secretary of State for Communities and Local Government, and the asset delivered an IRR in excess of 20% over the hold period. This demonstrates how shorter income assets in strong locations can be used to create value for shareholders.
The Company's EPRA EPS was 1.10 pps for the quarter, providing dividend cover of 55.0% (31 December 2020: 1.68 pence and 84.0%). This fall in earnings is partly due to the Company's prudent doubtful debt provision policy, which reduced EPRA EPS by £0.52 million or 0.33 pps this quarter. While rent collection rates have remained high throughout the pandemic, there remain certain tenants who appear able, but unwilling, to pay. These tenants are being pursued and the ability to recover their rent arrears will be subject to a decision by the Court imminently.
The Company's income also fell following the disposal of Sandford House, Solihull, on 1 February 2021, amounting to a loss of income of c. £0.11 million (0.07 pps) during the quarter. As at 31 March 2021, the Company had a cash balance of £17.45 million and has £15.53 million of its loan facility available to draw up to the maximum 35% Loan to NAV at drawdown. As the economic backdrop improves, this spending power puts the Company in a good position to take advantage of attractive opportunities coming to the market and it is our aim over the coming months to return the Company to a position of being fully invested and increase EPRA EPS to its target of 8 pps per annum.
Ongoing remedial works at the Company's property in Blackpool, which amounted to 0.13 pps for the quarter, and a high level of vacancy at its property in Glasgow, which has exchanged to be sold subject to achieving planning for student accommodation and vacant possession, are also temporarily restricting the Company's earnings potential. Both are expected to be complete by early 2022.
We are encouraged that the Company's defensive strategy and diversification has allowed it to manage its risk profile during this turbulent economic period, while maintaining its target dividend of 8 pps per share per annum and increasing its NAV per share in comparison with the pre-pandemic level. As lockdown measures begin to ease, and the economic outlook improves, we believe the Company is well positioned to take advantage of opportunities in the market and our short term focus will be to optimise shareholder value from the deployment of available cash and debt, with a view to restoring earnings to target levels."
As at 31 March 2021, the Company owned investment properties with a fair value of £179.00 million. The like-for-like valuation increase for the quarter of £6.85 million (3.98%) is broken down as follows by sector:
Net Asset Value
The Company's unaudited NAV as at 31 March 2021 was £157.08 million, or 99.15 pence per share. This reflects an increase of 3.43% compared with the NAV per share as at 31 December 2020. The Company's NAV total return, which includes the interim dividend of 2.00 pence per share for the period from 1 October 2020 to 31 December 2020, was 5.51% for the three-month period ended 31 March 2021.
The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards. It incorporates the independent portfolio valuation as at 31 March 2021 and income for the period, but does not include a provision for the interim dividend for the three month period to 31 March 2021.
The Company today announces an interim dividend of 2.00 pence per share for the period from 1 January 2021 to 31 March 2021. The dividend payment will be made on 28 May 2021 to shareholders on the register as at 30 April 2021. The ex-dividend date will be 29 April 2021.
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 31 March 2021 was 1.10 pence (31 December 2020: 1.68 pence).
It remains the Company's intention to continue to pay dividends in line with its dividend policy and this will be kept under review 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.
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.
The Company had borrowings of £39.50 million as at 31 March 2021, producing a Loan to NAV ratio of 25.15% and had a total undrawn facility of £20.50 million of which £15.48 million was available as at 31 March 2021 up to the maximum 35% Loan to NAV at drawdown.
The loan continues to attract interest at LIBOR + 1.4% and the Company's all-in interest rate as at 31 March 2021 was 1.44%.
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.
As at the date of this announcement, the Company had collected the following rental payments for the rental quarter commencing 25 March 2021 and for previous quarters since the onset of the COVID-19 pandemic, expressed as a percentage of the quarter's total rental income:
Further payments expected prior to March 2021 quarter end total £693,741 (including VAT). Aggregate amounts outstanding under longer term payment plans total £308,390 and those currently under negotiation total £539,777. Of the remaining £1,693,676 outstanding since March 2020, £1,022,535 has been provided for as at 22 April 2021. All sums are inclusive of VAT.
It should be noted that this is an evolving picture with further payments being received each week.
For any amounts that remain outstanding that are owed by tenant companies who are known to have the ability to pay, the Company is pursuing these tenants.
Asset Management Update
During the quarter the Company completed the following asset management and investment transactions:
Sandford House, Solihull - On 1 February 2021 the Company completed 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.
Land off Chester Road, Gresford - The Company has exchanged contracts on the acquisition of a 2.76 acre plot of land adjacent to its existing industrial holding at Wrexham for a price of £60,200. The freehold vacant land, being sold by administrators in auction, has rights over the Company's existing ownership, therefore the purchase of this land prevents any risks from third parties demanding access. Plastipak, the tenant of the existing property is potentially interested in expanding into this newly acquired piece of land.
Clarke Road, Milton Keynes - Following the administration of the previous tenant, Nationwide Crash Repair Centres Limited on 3 September 2020, a new letting has been completed to Run My Car Ltd with a parent company guarantor provided by Northgate Vehicle Hire Limited. The letting provides for a new 10 year lease with a tenant break at the end of the fifth year, subject to a 3 month rent penalty being paid by the tenant if exercised. The commencing rent of £185,000 pa equates to £5 per sq ft, with an open market rent review at the end of the fifth year. Only three months' rent free incentive was given and the administrator paid all the rent due up to lease completion. In completing this letting we have let the unit to a stronger tenant and now have the benefit of a parent company guarantee.
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
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 €69.8bn of assets under management as at 31 December 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 31 December 2020, AEW Group managed €34.6bn of real estate assets on behalf of a number of funds and separate accounts with over 430 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.
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