TIDMAEWU
RNS Number : 2272P
AEW UK REIT PLC
15 November 2016
15 November 2016
NAV Update and Dividend Declaration for the three months to 31
October 2016
AEW UK REIT plc (LSE: AEWU) ("the Company"), which owns a
diversified portfolio of 27 regional UK commercial property assets,
announces its quarterly unaudited Net Asset Value ("NAV") and
interim dividend for the period ended 31 October 2016.
Key points
-- Fair value independent valuation of the property portfolio
increased to GBP125.88 million (31 July 2016: GBP125.48 million).
On a like-for-like basis the valuation of the property portfolio
increased by 0.33% over the quarter, inclusive of GBP0.78 million
portfolio capital expenditure.
-- AEW UK Core Property Fund valuation of GBP9.33 million (31 July 2016: GBP8.65 million)
o The value of the Company's interest in the AEW UK Core
Property Fund (the "Core Fund") as at 31 October 2016 has been
amended to value the holding in the Core Fund at its 31 October
2016 NAV. The Directors, in consultation with the Company's
professional advisers, have adopted the amended valuation
methodology as at 31 October 2016 in order to provide a better
reflection of fair value of the Company's holding in the Core Fund.
The 31 July 2016 comparative figure above is based on the old
valuation methodology and would have been GBP9.24 million based on
the new valuation methodology.
-- First interim dividend of 2.0 pence per share declared on 15
August 2016, paid on 30 September 2016 reflecting a dividend yield
of 7.6% based on the share price as at 31 October 2016.
-- NAV per share of 95.47 pence (31 July 2016: 94.57 pence).
-- Tap issues raised GBP5.99 million (before costs and
expenses), issuing 6,137,250 new Ordinary Shares.
-- Earnings per share (excluding revaluation gains and losses on
fair value of investments and calculated on weighted average of
shares in issue) for the three month period ending 31 October 2016
increased by 13.5% to 2.29 pence per share (31 July: 1.98 pence per
share).
-- Gross Loan to Value of 19.6% (31 July 2016: 19.8%) and Net
Loan to Value of 12.1% (31 July 2016: 16.7%).[i]
-- Ongoing portfolio and asset management activity during the period including:
o An uplift of GBP30,000 per annum from the outstanding 2012
rent review at Odeon Cinema, Southend
o Disposal of the vacant upper parts (250 year-long leasehold)
at the office building on 11-15 Fargate, Sheffield, for a price of
GBP710,000 vs a median sale estimation at the time of acquisition
in September 2015 of GBP250,000
o A 15 year lease secured with Smyths Toys on units 5 & 6 at
Valley Retail Park, Belfast, at GBP200,000 p.a.
Alex Short, Portfolio Manager, AEW UK REIT, commented:
"We have now seen two valuation dates since the referendum
result in June and are encouraged by how the value of the portfolio
has stabilised and also by its resilience to market uncertainty.
Since July our valuers have removed their caveat reflecting a lack
of post-Brexit transactional evidence from our valuations and have
also applied a modest level of post-Brexit capital growth. Trading
in the Company's shares has also been stable over the last quarter
with a consistent premium being maintained which has allowed us to
raise GBP6m in new equity from tap issues. The net proceeds of the
share issues, and debt facility up to 20% loan to GAV, are under
offer on new acquisitions in the industrial sector.
Across the portfolio we continue to see the occupier market
remaining active, with robust levels of tenant demand. As a result,
40% of the portfolio's current vacancy is now under offer including
units in Oxford, Sheffield and Salisbury. Once completed, these
lettings, with an income stream totalling over GBP400,000 pa, will
reduce the current portfolio vacancy from 8.70% of ERV to 3.5%. In
locations where this occupier demand is coupled with a shortage of
good quality supply we are seeing rental value uplift which gives
confidence in the portfolio and has been additive to value.
Examples of this include Queen Square in Bristol where new lettings
have been achieved above the valuer's estimate of rental value.
Also at Fargate in Sheffield, highlighting the success of our
strategy to invest only in major retail centres, we have seen some
significant rental value growth due to nearby recent lettings which
is contrary to the national trend.
Conscious of an uncertain global economic backdrop, defensive
downside protection remains a focus of our stock selection process
with a focus on investment values that are underwritten by
replacement cost, vacant possession and alternative use values and
therefore less exposed to capital erosion. In addition to this we
are looking to lengthen income steams where possible and we are
currently in negotiation with the portfolio's largest tenant
occupying a distribution warehouse close to the M1 who has lease
events both this year and next; supply in this location is tight
due to a lack of development and we believe the tenant in question
is wedded to the surrounding area. We are also seeing many examples
where a less proactive approach is required due to tenants not
operating break clauses or remaining in occupation post expiry,
again often due to a lack of supply highlighted by AEW at
acquisition. The portfolio's second largest tenant, The Secretary
of State for Communities and Local Government, did not option a
break in June and during the last quarter Wella, the portfolio's
fifth largest tenant, removed a break clause from their lease in
Basingstoke.
As a precursor to a more stable view on pricing, the Investment
market has seen a healthy level of activity since the end of the
summer and is currently showing a strong pipeline of opportunities
suitable for the future growth of the strategy. With this in mind,
approval has been given by the Board of Directors to sell down the
Company's Core Fund holding (at NAV or better) at an appropriate
time now that pricing has returned to offer. Although this holding
was particularly accretive to performance during the ramp-up phase,
with a more mature portfolio the holding is now less relevant to
the Company's strategy and the intention will be to reinvest the
proceeds from any sale as quickly as possible back into direct
property holdings".
Net Asset Value
The Company's unaudited NAV as at 31 October 2016 was GBP118.05
million, or 95.47 pence per share. This reflects an increase of
0.95% per share compared with the NAV as at 31 July 2016, or a NAV
total return, including the first interim dividend for the period
from 1 May 2016 to 31 July 2016 of 2.0 pence per share, of 3.13%.
As at 31 October 2016, the Company owned investment properties with
a fair value of GBP125.88 million. The Company's investment in the
Core Fund is valued at GBP9.33 million and the Company had cash
balances of GBP10.21 million, of which GBP7.33 million is available
for capital investment.
Pence per GBP million
share
NAV at 1 August 2016 94.57 111.13
Portfolio capital expenditure (0.65) (0.78)
Valuation change in property portfolio 0.57 0.69
Valuation change in AEW UK Core
Property Fund 0.57 0.69
Valuation change in derivatives 0.03 0.03
Gain on disposal 0.35 0.41
Income earned for the period 2.72 3.26
Expenses and net finance costs for
the period (0.77) (0.93)
First interim dividend paid (2.00) (2.35)
Issue of Equity (net of costs) 0.08 5.90
NAV at 31 October 2016 95.47 118.05
The NAV attributable to the ordinary shares has been calculated
under International Financial Reporting Standards and incorporates
the independent portfolio valuation as at 31 October 2016 and
income for the period, but does not include a provision for the
interim dividend for the period to 31 October 2016.
The Company received dividends during the period totalling
GBP0.32 million from its investment in the Core Fund.
On 28 July 2016, in the interest of treating investors fairly,
the Authorised Corporate Director of the Core Fund exercised its
powers to swing the Core Fund's pricing basis to a bid basis with a
fair value dilution reduction of 5%, representing an overall
discount to the Core Fund NAV of 6.4%. This decision to change the
pricing basis led to a revaluation of the Company's Core Fund
holding as at 31 July 2016 to GBP8.65 million, from GBP10.11
million as at 30 April 2016 (being 1.25p per share). On 30
September 2016, the decision to implement the change in pricing
basis and fair value dilution reduction was lifted.
In order to provide a better reflection of fair value than the
single swinging price in current market conditions, a
recommendation by the Investment Manager to adopt an amended
valuation methodology for the Core Fund to a NAV basis was accepted
by the Directors. The Company's holding was valued at GBP9.33
million as at 31 October 2016.
Dividend
The Company today announces an interim dividend of 2.0 pence per
share for the period from 1 August 2016 to 31 October 2016. The
dividend payment will be made on 31 December 2016 to shareholders
on the register as at 25 November 2016. The ex-dividend date will
be 24 November 2016.
The dividend of 2.0 pence per share will be designated 1.60
pence per share as an interim property income distribution ('PID')
and 0.40 pence per share as an interim ordinary dividend
('non-PID').
The actual earnings per share for this period were 1.95 pence as
a result of a reduction in the dividend received from the Core
Fund. As noted above, the Company will look to sell down its
holding in the Core Fund and reinvest the proceeds from any sale
into direct property holdings. The Board of Directors continues to
express confidence in the Company's continued ability to meet the
2.0 pence per quarter target dividend payment from property income
based upon the existing assets. In addition, asset management
initiatives continue to add to the Company's income stream.
Investors should note that this target is for illustrative purposes
only, based on current market conditions and is not intended to be,
and should not be taken as, a profit forecast or estimate. Actual
returns cannot be predicted and may differ materially from this
illustrative figure. There can be no assurance that the target will
be met or that any dividend or total return will be achieved.
Financing
Equity
The Company's issued share capital consists of 123,647,250
Ordinary Shares.
The Company issued the following shares in the three months to
31 October 2016:
Date of Issue Number of Shares Issue Price per Gross Proceeds
Share
---------------- ----------------- ---------------- ----------------
12 September
2016 2,450,000 97.00 p GBP2.38 million
---------------- ----------------- ---------------- ----------------
3 October 2016 2,612,250 98.25 p GBP2.57 million
---------------- ----------------- ---------------- ----------------
4 October 2016 825,000 98.25 p GBP0.81 million
---------------- ----------------- ---------------- ----------------
5 October 2016 250,000 98.25 p GBP0.25 million
---------------- ----------------- ---------------- ----------------
Debt
As at 31 October 2016, the Company has utilised GBP26.51 million
from its GBP40 million facility with RBS International,
representing 19.6% of Gross Loan to Value. The loan attracts
interest at LIBOR + 1.4%. To mitigate the interest rate risk that
arises as a result of entering into a variable rate linked loan,
the Company has entered into interest rate caps on the entire
balance of the loan at a strike rate of 2.5% and continues to be
100% hedged.
Portfolio activity and asset management
Cranbourne House, Basingstoke
In return for receiving the landlord's consent to assign the
lease to parent company HFC Prestige Manufacturing Limited, Wella
Holdings Limited contracted to remove its 2017 break clause giving
the Company two years of additional income to 2019, at GBP410,000
p.a, plus a 6 months rental guarantee. The tenant is now also
carrying out refurbishment works to the building, further
demonstrating its commitment to the location.
Odeon Cinema, Southend
We have obtained an uplift of GBP30,000 per annum for the
outstanding 2012 rent review from GBP505,000 to GBP535,000,
backdated to 29 September 2012. Negotiations have commenced on the
2017 rent review.
11-15 Fargate, Sheffield
The Company has completed the leasehold disposal of vacant upper
parts above prime retail units for a price of GBP710,000, against
an assumed acquisition value of GBP250,000. The vacant uppers were
held at nil cost to the Company due to a 12 month guarantee from
the vendor of the property covering rent, rates and service charge.
The retained retail units fronting the prime pedestrianised pitch
of Fargate provide good potential for rental value growth going
forward due to a higher rental level that has recently been
documented in new lettings on the pitch directly opposite.
Valley Retail Park, Belfast
A 15 year lease was completed with national retailer Smyths Toys
at units 5 & 6 Valley Retail Park producing additional income
of GBP200,000 p.a. As a result of this letting the scheme is now
fully let and, due to asset management initiatives completed over
the past 12 months, is showing a weighted average unexpired lease
term to breaks of 10 years, as compared to 3 years at acquisition.
The value of the asset has increased by over 40% since acquisition
in September 2015.
Sandford House, Solihull
The portfolios second largest tenant did not exercise its break
option in 2017 and is now contracted to stay in occupation for a
further 2 years until 2019. We are looking at various long term
options for this central Solihull property including residential,
retail or a second office building.
Research Personnel
Alan Patterson has joined the AEW UK team as Research Consultant
following former Head of Research Sam Martin's decision to return
to his native New Zealand earlier in the year. He is a leading real
estate researcher and land economist, having served as the Chairman
of the IPF Research Steering Group until 2015. He has predominantly
worked as a head of direct property research, previously in
commercial agents Hillier Parker (predecessor to CBRE) and most
recently in AXA Real Estate Investment Managers. Alan will provide
a valuable input to the business on both macro-economic issues and
expected property industry trends.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014. Upon the
publication of this announcement via Regulatory Information Service
this inside information is now considered to be in the public
domain.
Enquiries
AEW UK
Laura Elkin laura.elkin@aeweurope.com
+44(0) 20 7016 4880
Nicki Gladstone nicki.gladstone-ext@aeweurope.com
+44(0) 20 7016 4880
Company Secretary
Benjamin Hanley, Capita Company Benjamin.Hanley@capita.co.uk
Secretarial Services
T: 01392 477 653
FTI Consulting
Richard Sunderland, Claire aewuk@fticonsulting.com
Turvey, Richard Gotla
T: 020 3727 1000
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 GBP10 million), on
shorter occupational leases, in strong commercial locations across
the United Kingdom.
Since its IPO in May 2015, AEWU has the Company has invested
just over GBP123 million in 27 properties, including GBP9.75
million in AEW UK's Core Property Fund. It 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. Whilst occupational demand in
strategic locations remains, securing tenants on shorter leases
allows AEWU to crystallise value through rent reviews and lease
re--gears.
AEWU is currently paying a dividend of 8p per share p.a. and
targets a total annual return, over the medium term, in excess of
12% on the IPO issue price, net of all fees.
Real estate investment specialist AEW UK Investment Management
LLP is a joint venture between the management team, which together
has an average of 25 years of real estate experience, and AEW
Europe, which has EUR48.1 billion of real estate assets under
management. AEW UK Investment Management LLP has a strong and
expert asset management team, with a proven record of identifying
and delivering value from real estate assets across all
sectors.
[i] Net Loan to Value is Gross Loan to Value after consideration
of cash balances as at 31 October 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
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