AEW UK REIT plc: Sale announcement and update statement (1053989)
26 May 2020 - 4:00PM
UK Regulatory
AEW UK REIT plc (AEWU)
AEW UK REIT plc: Sale announcement and update statement
26-May-2020 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
26 May 2020
AEW UK REIT Plc (the "Company")
Sale announcement and update statement
Further to its announcement on 20 April 2020, the Company today provides a
further update in respect of recent activity.
Sales and Asset Management Update
The Investment Manager's active management approach continues to be a major
feature of the Company's strategy and, notwithstanding the current uncertain
situation relating to COVID-19, it is pursuing a number of potentially
accretive negotiations.
Most notably, it has now completed the sale of its asset at Geddington Road,
Corby, for a price of GBP18.8 million. The asset was acquired in February 2018
for GBP12.4 million and has been fully let to Gefco UK Limited since this time
producing net income yield against the purchase price of 10%. The 35 acre
site, which due to its specialist use has been held within the Company's
allocation to 'Other' sectors, has been the Company's largest asset by value
with a valuation level as reported in the Company's half year report for the
period ended 30 September 2019 in the region of GBP10-15 million. The lease to
Gefco had an unexpired term of just over 1 year at the date of sale. The
Company has not invested any capital expenditure in the asset during its
hold period.
Alex Short, Portfolio Manager, AEW UK REIT, commented: "The completion of
this sale will deliver to the Company an IRR in excess of 30% which,
particularly at the current time, highlights the defensive nature of the
Company's strategy. Seeking mispriced assets and those that have higher
alternative use values as well as high levels of income, has been a feature
of the strategy since IPO. As the portfolio matures these assets create
opportunities for significant value to be added and, as evidenced by the
Corby disposal, we are now seeing a number of these positions reach
fruition".
Following completion of the above sale, the Company holds cash of c GBP27
million and reports an estimated loan to value ratio of 25.6%, including
cash (31 March 2020: 26.0%). As a further result of the sale, the Company's
annual rental income will fall by GBP1.32 million until further investments
are made. The Investment Manager's fee will also reduce proportionately as
management fees are not charged by AEW on amounts held in cash. The Board,
in conjunction with the Manager, is evaluating the optimum use of cash
balances in the current environment. The Investment Manager continues to
monitor opportunities for investment and believes that market conditions may
facilitate an increased number of attractive pipeline opportunities. In the
meantime, the Company's high cash weighting reflects its conservative
approach to the current situation and provides it with increased
flexibility.
The Company also reports the following asset management transactions that
have completed so far in 2020:
Bath Street, Glasgow - in January 2020, the Company completed a new letting
of 6,700 sq ft to SPS Doorguard Ltd. The lease provides a 10 year term with
a tenant break option at year 5 and a rent of GBP92,250 per annum. The unit
had been vacant prior to letting.
Queen Square, Bristol - During February 2020 a new letting of 1,300 sq ft
was completed. The letting of the un-refurbished suite proves a new high
rental tone for the building of GBP27.14 per sq ft, 55% higher than the
previous level of passing rent. The new letting provides annual income of
GBP17,250.
Oak Park, Droitwich - In March 2020, the Company completed a lease renewal
with tenant Egbert Taylor on two industrial units. The renewal takes the
tenant's weighted average unexpired lease term from 2.7 years to 4.7 years
but also reduces its demised accommodation from 190,000 sq ft to 100,000 sq
ft. Total income received on the asset has fallen from GBP600,000 to GBP500,000
per annum but rental value per sq ft has increased by 57%. The Investment
Manager is exploring potential for higher value alternative uses on the
remainder of the site.
Pearl Assurance House, Nottingham - in March 2020, a reversionary lease was
completed with Lakeland Ltd on a 4,300 sq ft retail unit providing an
unexpired lease term of c 6 years. The reversionary lease documents the
rebasing of Lakeland's rent from GBP155,000 to GBP90,000 per annum in line with
its estimated rental value.
Bank Hey Street, Blackpool - During May 2020, the Company signed a
reversionary lease with existing tenant JD Wetherspoon. This documents the
removal of the tenant's break option in 2025 and provides an additional 10
year lease term taking the earliest expiry from 2025 to 2050. The annual
rent payable by the tenant has reduced from GBP96,750 to GBP90,000 but the lease
now provides five yearly fixed increases reflecting 1% per annum.
Financing
Whilst the Company passed its banking covenant tests with significant
headroom in April, in order to be prudent in the current market environment,
the Company has 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. 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. During the period of the waiver, the Company expects to maintain its
usual interest payments on the loan.
The Company also confirms that it has traded down it's 2% interest rate cap,
using the embedded value to buy an interest rate cap with nominal amount
GBP51.5 million, being the entirety of its drawn loan amount. The new strike
rate is 1% and the term remains October 2023, the expiry of the current
facility. The new interest rate cap provides protection against interest
rate rises at a 1% lower rate each year for a one-off cost of GBP63k equating
to 4 bps per year.
Rent Collection Update
The Investment Manager has continued to maintain close contact with all
tenants over recent weeks. At the date of this announcement, 75% of rent has
so far been collected, expressed as a percentage of the March quarter's
total rental income; however, this figure is expected to increase to 87%
once payments have been received both from tenants making monthly payments
and those on longer term payment plans which have not yet fallen due.
Subject to the agreement of potential asset management transactions, this
would increase to 90%. Amounts that remain outstanding as at the date of
this announcement (i.e. those which have fallen due but have not yet been
paid) are being pursued by the Company and are subject to ongoing engagement
between the Manager and the tenant. There are some tenants who are
experiencing difficulties in the current environment and the Company is
sympathetic to their situation. Unfortunately, there are a few larger
tenants who have significant financial resources and the ability to pay who
are refusing to do so or even to enter into dialogue. The Company shall be
pursuing these tenants when legally able to do so and charging the full
default interest rate allowed within their lease agreements.
Current Position As at 22 May 2020 As at 22 May 2019
Received 75% 96%
Monthly Payments Expected 5% 3%
Prior to Quarter End - 23
June
Longer term payment plan 7% 0%
agreed
87% 99%
Under Negotiation - 2% 0%
pending the agreement of
potential asset management
transactions
90% 99%
Outstanding 10% 1%
Total 100% 100%
It should be noted that the figures above reflect an evolving picture with
further payments being received each day.
In addition to the above the Manager reports that none of the Company's
tenants have filed for administration at the date of this announcement.
For further information, please contact:
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 GBP15 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 GBP100.5m.
Since IPO it has raised a further GBP58m.
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 [1] [2]
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 EUR69.5bn of assets under management as at 31December 2019. 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 2019, AEW Group managed EUR33bn of real estate assets on behalf of
a number of funds and separate accounts with over 400 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 [3]
LEI: 21380073LDXHV2LP5K50
ISIN: GB00BWD24154
Category Code: MSCH
TIDM: AEWU
LEI Code: 21380073LDXHV2LP5K50
OAM Categories: 3.1. Additional regulated information required to be
disclosed under the laws of a Member State
Sequence No.: 65656
EQS News ID: 1053989
End of Announcement EQS News Service
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