TIDMAEWU
RNS Number : 5221G
AEW UK REIT PLC
16 November 2022
16 November 2022
AEW UK REIT PLC
Interim Report and Financial Statements
for the six months ended 30 September 2022
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
2022.
Mark Burton, Chairman of AEW UK REIT, commented : "We are
pleased with the robust performance of the Company during the
period, which reported NAV total return of 4.35%, achieved against
a backdrop of economic uncertainty. We believe that the Company is
defensively positioned given its focus on value and having
prudently fixed the cost of debt early in the period. The
Investment Manager's unconstrained sector approach and its active
management style also provide a strong basis for counter-cyclical
performance. Given the market volatility, the Company's high cash
weighting makes it very well-positioned to select assets from the
increased number of investment opportunities that are expected to
present in the near future which supports our focus of returning to
full investment and to full cover of the dividend over the medium
term."
Financial Highlights
-- Net Asset Value ('NAV') of GBP193.09 million and of 121.88
pence per share ('pps') as at 30 September 2022 (31 March
2022: GBP191.10 million and 120.63 pps).
-- NAV Total Return for the period of 4.35% (six months ended
30 September 2021: 14.99%).
-- Operating profit before fair value changes of GBP5.25
million for the period (six months ended 30 September
2021: GBP5.88 million).
-- Profit Before Tax ('PBT')* of GBP8.32 million and earnings
per share ('EPS') of 5.25 pps for the period (six months
ended 30 September 2021: GBP23.55 million and 14.86 pps).
PBT includes a GBP6.51 million loss arising from changes
to the fair values of investment properties in the period
(six months ended 30 September 2021: GBP16.60 million
gain). This change explains the significant reduction
in PBT for the period.
-- EPRA Earnings Per Share ('EPRA EPS') for the period of
2.58 pps (six months ended 30 September 2021: 3.45 pps).
-- Total dividends of 4.00 pps declared in relation to the
period (six months ended 30 September 2021: 4.00 pps).
-- Shareholder Total Return for the period of -18.53% (six
months ended 30 September 2021: 28.37%).
-- The price of the Company's Ordinary Shares on the London
Stock Exchange was 93.60 pps as at 30 September 2022 (31
March 2022: 119.80 pps).
-- The Company secured a new GBP60.00 million, five-year
term loan facility with AgFe, a leading independent asset
manager specialising in debt-based investments. The loan
is priced as a fixed rate loan with a total interest cost
of 2.959%.
-- As at 30 September 2022, the Company had a balance of
GBP60.00 million drawn down (31 March 2022: GBP54.00 million)
of its GBP60.00 million (31 March 2022: GBP60.00 million)
loan facility with AgFe and was geared to 31.07% of NAV
(31 March 2022: 28.26%). See note 14 in the full Half-Yearly
Report for further details.
-- The Company held cash balances totalling GBP38.91 million
as at 30 September 2022 (31 March 2022: GBP6.77 million).
Property Highlights
-- As at 30 September 2022, the Company's property portfolio
had a valuation of GBP214.25 million across 35 properties
(31 March 2022: GBP240.18 million across 36 properties)
as assessed by the valuer(1) and a historical cost of
GBP200.10 million (31 March 2022: GBP214.47 million).
-- The Company acquired two properties during the period
for a total purchase price of GBP7.30 million, excluding
acquisition costs (year ended 31 March 2022: four properties
for GBP38.23 million).
-- The Company made three disposals during the period for
gross sale proceeds of GBP40.01 million (year ended 31
March 2022: two properties for gross sale proceeds of
GBP16.71 million).
-- The portfolio had an EPRA vacancy rate** of 8.48% as at
30 September 2022 (31 March 2022: 10.69%).
-- Rental income generated during the period was GBP8.41
million (six months ended 30 September 2021: GBP7.87 million).
-- EPRA Net Initial Yield ('EPRA NIY')** of 7.04% as at 30
September 2022 (31 March 2022: 5.87%).
-- Weighted Average Unexpired Lease Term ('WAULT') of 3.58
years to break and 5.66 years to expiry (31 March 2022:
3.94 years to break and 5.87 years to expiry).
-- As at the date of this report, 92% of the rent due for
the September 2022 quarter had been collected, 97% for
the June 2022 quarter and 98% for the March 2022 quarter.
(* See KPIs in the full Half-Yearly Report for definition of
alternative performance measures. ** See glossary in the full
Half-Yearly Report for definition of alternative performance
measures. 1 The valuation figure is reconciled to the fair value
under IFRS in note 11 in the full Half-Yearly Report.)
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
The Company reported a resilient NAV total return of 4.35% for
the six-month period to 30 September 2022. Following a prolonged
period of strong capital performance up to the end of June 2022,
which saw the Company report a three-year annualised NAV total
return of 17.7%, the value of the Company's assets fell marginally
in the three months to September, reflecting broader pricing
pressure in the UK commercial property market. This has been seen
as a result of ongoing political and economic instability in the
UK, where a sustained period of high inflation has been exacerbated
by the sanctions-related energy crisis. With a backdrop of an
uncertain political outlook, this has seen costs of borrowing
increase rapidly since the start of 2022 and, after early valuation
declines in prime assets lower down the yield spectrum, is now
starting to impact across most asset classes.
As a result of this uncertainty, the shares of listed property
companies have sold off almost indiscriminately over the period.
The Company's own shares demonstrate this, having started the
six-month period to 30 September trading at a discount to NAV of
0.68% and finished the period trading at a discount of 23.2%. This
has led to a disappointing shareholder total return for the period
of -18.5%, albeit the Company trades at the narrowest discount of
its peer group in UK diversified REIT's. We hope that this, along
with the Company's track record of outperformance and its robust
positioning, will stand its shares in good stead once market
sentiment recovers.
Current consensus forecasts show an expectation for the Bank of
England base rate to peak at 4% in early 2023 and for it to remain
at that level for more than a year. The Company took the prudent
decision to complete a full refinancing of its loan in May 2022,
leaving it defensively positioned to weather the current period of
high interest rates. In May 2022, the Company was able to fix its
cost of debt at 2.959% for the next five years, protecting it from
the impact of rising interest rates on its cost of borrowing. There
is also significant headroom on both the loan-to-value and debt
yield covenants associated with the loan. Consequently, the outlook
for the Company, from a debt financing perspective, is robust. We
also believe that high yielding assets, such as those in the
Company's portfolio, will be more resilient over the long term to
the valuation impact of rising interest rates, albeit further
near-term value decline is expected. With higher "starting" yields,
the portfolio's current book values are closer to long term value
fundamentals such as vacant possession values, alternative use
values and replacement cost.
A particular performance highlight during the period was the
sale of Eastpoint Business Park, Oxford, which completed during
August 2022 for GBP29.0 million. The property was acquired in May
2015 for GBP8.2 million, providing a net initial yield of over 9%.
The asset sale was realised following the culmination of a
multi-year business plan, which included the signing of a 25-year
lease in 2018 with specialist healthcare provider, Genesis Care.
The lease provided for five-yearly compounded rental uplifts in
line with RPI, which increased the asset's value by GBP2.0m. As a
condition of this letting, the Investment Manager sought planning
consent for change of use away from the asset's existing office
use, setting a precedent for healthcare and life science use in the
location. Since the signing of the existing lease, investor demand
in the healthcare and life science sectors has increased
considerably and this is reflected in the sale price, which
crystallises significant profit. The asset delivered an IRR to the
Company in excess of 22% during its hold period, with the sale
price exceeding the valuation level immediately prior to the sale
by 16%.
Another key sale during the period was the Company's asset at
225 Bath Street, Glasgow, for GBP9.3 million. The sale realises a
long-term change of use strategy for the asset, for which contracts
had been exchanged with a subsidiary company of IQ Student
Accommodation in October 2020. Since that time, the purchaser
achieved detailed planning consent for the redevelopment of a
527-unit student accommodation scheme at the site and the
Investment Manager negotiated with tenants to bring the asset to
vacancy. As such, the sale of the asset led to a reduction in the
portfolio's vacancy level and will lead to a boost in earnings once
capital from the sale is reinvested. The sale demonstrates the
Investment Manager's ability to pursue an alternative use strategy
due to weakened occupier market conditions in this location.
Assisted by these notable sales, the Company's office assets saw
a total return of 24.0% during the period. The fact that these
returns were achieved during a period when wider office sector
performance was negative points to the effectiveness of the
Company's investment strategy to drive counter-cyclical returns
during periods of wider value decline due to its value investment
fundamentals and active management style. The Investment Manager
and the Board believe that the Company's ability to seek value
opportunities unconstrained by sector is key to the maximisation of
total return over the long term.
The sales of Glasgow and Oxford during the period also form an
important step towards the portfolio's planned return to full cover
of its dividend. Despite dividend cover since IPO being in excess
of 90%, earnings have been reduced in recent quarters, primarily as
a result of vacancy in these assets that was required in order to
maximise their sale values to alternative use developers. Together,
the assets had been producing an income yield of circa 1.0% and
therefore reinvested proceeds from the sales of assets producing
net initial yields between 6.75% and 10% will be significantly
accretive to the Company's earnings in future periods.
The Company completed two purchases during the period. In June
2022, the Company acquired the 6.04 acre Railway Station Retail
Park in Dewsbury for a price of GBP4.7 million. The purchase price
reflects a low capital value of GBP82 psf and provides an
attractive net initial yield of 9.4%. The park is fully let and
located in an area of low supply with a low average passing rent of
GBP8.28 psf. The Investment Manager believes this provides strong
potential for rental growth. During August 2022, the Company
completed the purchase of a high yielding leisure asset in Glasgow
for a price of GBP2.6 million, reflecting a low capital value of
GBP99 per sq. ft. and a net initial yield of 7.4%. The site
contains a vacant plot of land which may be suitable for
redevelopment over the medium term, subject to planning.
We believe that balancing the Company's investment rate against
expected pipeline opportunities will be beneficial to our
shareholders' total return. The Company currently benefits from a
high cash weighting, leaving it advantageously positioned to select
assets from the increased number of investment opportunities that
are expected to present in the near future. The Investment Manager
is currently analysing a pipeline of investment opportunities,
including those assets that the Company had placed under
exclusivity over the summer, albeit these are being re-evaluated
against current pricing. The focus of the Company's investment
strategy remains to return to full investment and to full cover of
its dividend over the medium term.
Although the outlook from a capital markets perspective is one
of increased volatility, we are not, at this point, seeing this
reflected in the uptake by tenants of the portfolio's occupational
space. Active asset management is a key driver of value and income
resilience within AEWU and, during the period under review, the
Investment Manager agreed terms with several key tenants to take
space, the terms of which were agreed in line with the rental
estimates of our expert independent valuer, Knight Frank. Several
of these lettings have been in the portfolio's industrial assets,
including the letting in Rotherham to Senior Architectural Systems
Ltd which completed in September 2022. This letting will deliver a
rental income to the Company 49% ahead of the level paid by the
previous tenant and, in addition, income growth during the lease
term is ensured by inflation-linked reviews. This activity
highlights ongoing demand from industrial occupiers. AEWU's
industrial holdings show an average passing rent of GBP3.37 per sq.
ft. and are expected to continue to deliver growth over the long
term from this low starting point.
Other key lettings during the period took place at Arrow Point,
Shrewsbury, where a 10-year lease renewal was completed with
Charlie's Stores at a level 46% higher than ERV. At Queen Square,
Bristol, a renewal to Konica Minolta at GBP40 per sq. ft. set a new
high rental tone for the building.
Financial Results
Six months
Six months ended 30 Year ended
ended 30 September September 31 March
2022 2021 2022
Operating Profit before fair value
changes (GBP'000) 5,253 5,879 11,752
Operating Profit (GBP'000) 9,576 23,919 46,913
Profit before Tax (GBP'000) 8,322 23,547 46,695
Earnings Per Share (basic and
diluted) (pence)* 5.25 14.86 29.47
EPRA Earnings Per Share (basic
and diluted) (pence)* 2.58 3.45 6.79
Ongoing Charges (%) 1.33 1.31 1.35
Net Asset Value per share (pence) 121.88 110.01 120.63
EPRA (NTA) Net Asset Value per
share (pence) 121.88 109.94 120.10
* see note 9 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 market leading performance and
practices have been recognised in two awards gained during the
period. The Company has once again been awarded by EPRA, the
European Public Real Estate Association, a gold medal for its high
standard of financial reporting and a silver medal for standards of
sustainability reporting. Post period-end, the Company has won the
Citywire investment trust award in the 'UK Property' category, an
award given to the trust displaying the highest NAV returns over a
three-year period. AEWU won this award in both 2021 and 2020 so we
are very pleased to receive it for a third consecutive year. The
Company has also been nominated for 'Best REIT' at the AJ Bell
Shares Magazine awards, voted for by readers of the publication. We
are delighted that these awards and nominations recognise the hard
work and dedication that is put into running the Company by both my
colleagues on the Board and the Company's Investment Manager,
AEW.
Environmental, Social, Governance + Resilience ('ESG+R')
AEW, as Investment Manager of the Company, has committed to
abide by the UN Principles for Responsible Investment (PRI), where
these are consistent with operating guidelines, as outlined in its
Socially Responsible Investment Policy. As a result, during the
period, the Company and the Investment Manager has taken further
steps to integrate ESG+R considerations into its investment, asset
management and operations process. This has seen the continuous
development of a number of initiatives, including asset
sustainability action plans across all portfolio assets to inform
and drive ESG+R agendas, the re-assessment of EPC's to prepare for
upcoming regulation in relation to Minimum Energy Efficiency
Standards and the integration of increased ESG+R considerations
into the Company's investment process. As Investment Manager of the
Company, AEW will continue to refine and improve its ESG+R policy
in line with new legislation, such as the Task Force on
Climate-related Financial Disclosures ('TCFD') and in line with
industry best practices as they evolve.
During 2018, AEW established sustainability targets across its
managed portfolio. The managed portfolio comprises service charged
assets and vacant accommodation, which are those assets at which
the Company has control over utilities. These targets include the
reduction of Scope 1 and 2 greenhouse gas emissions and waste
disposal. Since this time, overall energy usage has reduced by 15%,
emissions have been reduced by 19%, and waste transferred to
landfill has also been reduced to zero within the managed
portfolio. We would like to thank the Company's very committed
managing agents, Mapp, for their assistance in achieving these
improvements.
GRESB is a global real estate benchmark that assesses
Environmental, Social and Governance performance. AEWU achieved two
stars in its seventh submission year, improving on its 2021 score
to achieve an overall score of 67 out of 100 against a peer group
average of 65. Much of the GRESB score relates to data coverage and
due to the high percentage of assets in the AEWU portfolio with
tenant-procured utilities, the Company does not score as well as
peers with a smaller holding of single-let assets.
Succession Planning
Both Bim Sandhu and I have been Directors since the Company's
IPO in June 2015. In seeking to comply with best corporate
governance practice, we both intend to resign by 2024. In order to
stagger our departures, we have determined that Bim, who chairs the
Audit Committee, will resign at the AGM in September 2023 and I
will resign at the AGM in 2024. The Board has also determined that
our successors should have sufficient time to familiarise
themselves with the Company before they formally take over our
respective roles. With that in mind, in July 2022 the Board
appointed Trust Associates, a firm specialising in recruiting NEDs
for the investment trust sector, to produce a short list of eight
candidates who would be suitable for the role of Audit Chairman.
Four of the candidates were interviewed by the Board in October
2022 and were invited to a separate meeting with the Investment
Manager. Following this extensive search, I am delighted to welcome
to the Board Mark Kirkland, who was appointed as Non-Executive
Director and Audit Committee Chairman designate with effect from 9
November 2022 and will take over From Bim at the AGM in September
2023. Mark brings extensive corporate experience gained over 30
years, having held numerous senior roles in public and private
companies. Mark's initial career was in corporate finance,
predominately with UBS Limited. He has been CFO of numerous public
and private companies and latterly was CEO of Delin Property, a
pan-European logistics developer, investor and manager. He is
currently a NED and Audit Committee Chairman of Strix Group plc,
and an Advisor to DP World. We will begin the process of finding my
successor in mid-2023.
Outlook
The Board and Investment Manager believe that the Company is as
defensively positioned as possible against the current challenging
backdrop. Whilst further near-term value decline is expected, the
Company's fixed cost of debt and book values which are closer to
long term value fundamentals, such as alternative use values and
replacement cost, provide a robust outlook for the portfolio over
the long term. The portfolio's current high weighting to cash and
value investment style leave it well placed to benefit from
upcoming investment opportunities. The strategy's approach, being
unconstrained by sector, and its active management style of the
portfolio provide a strong basis for counter-cyclical performance.
In addition, we are seeing resilience in occupational demand from
the Company's tenants.
Investing the current capital available for deployment will be a
key focus of the Company's Investment Manager over the coming
months. The Investment Manager expects that value investment
opportunities will be increasing in number over this period across
all real estate sectors. Following full investment of capital
available for deployment, the Company's earnings are expected to
return to full cover of its 8p annual dividend, which has now been
paid for 28 consecutive quarters.
In the near term, the Board and Investment Manager will continue
to take a prudent approach towards the management of the Company,
given the ongoing economic uncertainty. Economic conditions will be
monitored closely and it is hoped that the UK's new Prime Minister,
Rishi Sunak, will be able to restore an element of stability to the
UK's financial markets.
Mark Burton
Chairman
15 November 2022
Investment Manager's Report
Economic Outlook
In common with most of Europe, the UK's macroeconomic outlook
has been impacted by the conflict in Ukraine. With winter
approaching, the sanctions-related energy crisis has pushed already
high inflation to a record new high of above 10% in October 2022.
This has put further pressure on the Bank of England to raise base
rates. However, the outlook for inflation has become more uncertain
following the fiscal U-turns announced by the new Chancellor in the
third week of October 2022. On the one hand, a much tighter fiscal
stance points to lower inflation in the medium-term. On the other,
the curtailment of the cap on energy bills could push inflation up
sharply in the spring of 2023. As of mid-October 2022, Oxford
Economics projects the Bank of England base rate to peak at 4% in
early 2023 and for it to remain at that level for more than a year.
As these government policies and rate hikes will impact on mortgage
interest rates, house prices and consumer spending, Oxford
Economics forecasts, as of mid-October 2022, that GDP growth will
be adjusted downward to 4.5% for the full year of 2022. More
importantly, they project a fall of 0.5% in 2023 before returning
to modest 1.8% growth in 2024. Investors and lenders will need to
adjust to the slower economic growth and increased costs of debt as
they might impact on both their acquisition or lending strategies
and any loans coming up for refinancing.
Financial Results
The Company's NAV as at 30 September 2022 was GBP193.09 million
or 121.88 pps (31 March 2022: GBP191.10 million or 120.63 pps).
This represents an increase of 1.25 pps or 1.04% over the six-month
period.
EPRA EPS for the period was 2.58 pence which, based on dividends
paid of 4.00 pps, reflects a dividend cover of 64.50%. The decrease
in dividend cover compared to the prior six-month period has
largely arisen due to the Company completing a number of key sales,
leaving it with a high cash weighting and a resulting loss of
rental income in the short term. Earnings have been further
depressed by one-off costs associated with refurbishment works
being undertaken at Queen Square, Bristol and Mangham Road,
Rotherham, which will both be accretive to the Company's earnings
in the medium to long term. A high cash weighting leaves the
Company advantageously positioned to select assets from the
increased number of investment opportunities that are expected to
present in the near term. The focus of the Company's investment
strategy remains to return to full investment and full dividend
cover. Income across the tenancy profile has remained intact.
Collection rates have reached 99% for both the March and June 2022
quarters respectively, with further payments expected to be
received under longer-term payment plans. Of the outstanding
arrears, the Company has made a GBP0.59 million expected credit
loss provision, given the deteriorating economic outlook. The
Company will continue to pursue all outstanding arrears.
Financing
During the period, the decision was taken to complete the
refinancing of the portfolio, as announced in May 2022. The Company
has secured a new GBP60.00 million, five-year term loan facility
with AgFe, a leading independent asset manager specialising in
debt-based investments. The loan is priced as a fixed rate loan
with a total interest cost of 2.959%. The existing RBSi loan
facility, which was priced at a floating rate according to SONIA,
was due to mature in October 2023 and has been repaid in full by
the new loan facility. Simultaneous to the funding, the Company's
interest rate cap was sold for proceeds of GBP743,000. 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 nearer renewal. The Company intends to utilise
borrowings to enhance returns over the next five years.
As at 30 September 2022, the Company has a GBP60.00 million loan
Facility with AgFe, in place until May 2027, the details of which
are presented below
30 September 2022 31 March 2022
------------------ -----------------
Facility GBP60.00 million GBP60.00 million
Drawn GBP60.00 million GBP54.00 million
Gearing (Loan to NAV) 31.07% 28.26%
Interest rate 2.959% fixed 2.20% variable
(SONIA +1.4%)
Notional Value of Loan Balance
Hedged N/A 95%
Property Portfolio
During the period, the Company completed three disposals, being:
Eastpoint Business Park, Oxford, for a price of GBP29.00 million;
Bath Street, Glasgow, for a price of GBP9.30 million; and Moorside
Road, Swinton, for a price of GBP1.71 million. The Company made two
acquisitions during the period, being: Dewsbury Railway Station
Retail Park, which was acquired in June 2022 for GBP4.70 million,
and JD Gyms, Glasgow, which was purchased in August 2022 for a
price of GBP2.60 million.
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 2022
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 18 113.32 2,340,264 9.52 3.76 7.89 3.37 9.32 3.98 3.72 0.09 2.51
Retail
warehouses 4 39.70 425,337 7.10 3.09 3.37 7.92 3.96 9.30 1.73 (0.14) (20.59)
Standard
retail 6 24.70 237,792 4.88 3.37 2.57 10.81 2.33 9.78 1.36 (0.03) (2.16)
Alternatives 4 19.78 178,165 0.00 7.05 2.01 11.30 1.85 10.38 0.90 (0.04) (5.19)
Office 3 16.75 91,903 21.16 2.28 1.17 12.72 1.56 17.01 0.70 (0.10) (14.93)
-------- ----------- ---------- --------- --------- --------- ---------- -------- ---------- -------- ---------- ----------
Portfolio 35 214.25 3,273,461 8.48 3.58 17.01 5.20 19.02 5.81 8.41 (0.22) (3.10)
-------- ----------- ---------- --------- --------- --------- ---------- -------- ---------- -------- ---------- ----------
Summary by Geographical Area as at 30 September 2022
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)
West Midlands 5 42.22 598,405 8.40 3.76 3.52 5.88 4.09 6.84 1.87 (0.11) (11.70)
Yorkshire and
Humberside 8 42.17 931,941 3.23 2.87 3.26 3.50 3.90 4.19 1.26 (0.01) (0.89)
South West 5 40.23 517,232 15.62 3.04 2.83 5.48 3.58 6.92 1.47 (0.05) (3.29)
Eastern 5 24.82 344,339 0.76 1.84 2.11 6.14 2.20 6.38 1.02 0.07 7.37
Wales 3 22.48 415,607 27.55 10.48 1.28 3.07 1.84 4.43 0.78 (0.04) (5.88)
North West 3 16.18 277,347 0.00 2.36 1.44 5.19 1.30 4.71 0.67 (0.03) (4.55)
Rest of London 1 9.90 71,720 0.00 9.15 0.98 13.61 0.75 10.45 0.47 (0.03) (6.00)
South East 3 9.70 62,760 7.84 3.07 0.98 15.62 0.77 12.20 0.64 (0.01) (1.92)
East Midlands 1 3.95 28,219 0.00 4.17 0.41 14.56 0.38 13.38 0.20 (0.01) (3.29)
Scotland 1 2.60 26,341 0.00 5.43 0.20 7.71 0.21 7.97 0.03 - -
-------- ----------- ---------- --------- --------- --------- ---------- -------- ---------- -------- ---------- ----------
Portfolio 35 214.25 3,273,461 8.48 3.58 17.01 5.20 19.02 5.81 8.41 (0.22) (3.10)
-------- ----------- ---------- --------- --------- --------- ---------- -------- ---------- -------- ---------- ----------
*like-for-like rental growth is for the six months ended 30
September 2022.
Source: Knight Frank/AEW, 30 September 2022.
Individual Property Classifications
Market Value
Property Sector Region Range(GBPm)
-------------------- ------------------ ------------------------- ---------------
1 Central Six Retail
Park, Coventry Retail warehouses West Midlands 15.0-20.0
2 Gresford Industrial
Estate, Wrexham Industrial Wales 10.0-15.0
3 40 Queen Square,
Bristol Offices South West 10.0-15.0
4 15-33 Union Street,
Bristol Standard retail South West 10.0-15.0
5 Lockwood Court,
Leeds Industrial Yorkshire and Humberside 10.0-15.0
6 London East Leisure
Park, Dagenham Other Rest of London 7.5 -10.0
7 Arrow Point Retail
Park, Shrewsbury Retail warehouses West Midlands 7.5-10.0
8 Apollo Business
Park, Basildon Industrial Eastern 7.5-10.0
9 Storey's Bar Road,
Peterborough Industrial Eastern 7.5-10.0
10 Units 1001-1004
Sarus Court Industrial North West 7.5-10.0
The Company's top ten properties listed above comprise 50.0% of
the total value of the portfolio.
Market
Value
Range
Property Sector Region (GBPm)
--- ------------------------- ------------------ ------------------------- --------
11 Westlands Distribution Industrial South West 5.0-7.5
Park, Weston Super
Mare
12 Euroway Trading Industrial Yorkshire and Humberside 5.0-7.5
Estate, Bradford
13 Barnstaple Retail Retail warehouses South West 5.0-7.5
Park, Barnstaple
14 Brockhurst Crescent, Industrial West Midlands 5.0-7.5
Walsall
15 Diamond Business Industrial Yorkshire and Humberside 5.0-7.5
Park, Wakefield
16 Deeside Industrial Industrial Wales 5.0-7.5
Park, Deeside
17 Walkers Lane, St, Industrial North West 5.0-7.5
Helens
18 Mangham Road, Rotherham Industrial Yorkshire and Humberside 5.0-7.5
19 710 Brightside Lane, Industrial Yorkshire and Humberside <5.0
Sheffield
20 The Railway Centre, Retail warehouses Yorkshire and Humberside <5.0
Dewsbury
21 Oak Park, Droitwich Industrial West Midlands <5.0
22 Pipps Hall Industrial Industrial Eastern <5.0
Estate, Basildon
23 Pearl House, Nottingham Standard retail East Midlands <5.0
24 Odeon Cinema, Southend Other Eastern <5.0
25 PRZYM Other Wales <5.0
26 Eagle Road, Redditch lndustrial West Midlands <5.0
27 Cedar House, Gloucester Offices South West <5.0
28 69-75 Above Bar Standard retail South East <5.0
Street, Southampton
29 Commercial Road, Standard retail South East <5.0
Portsmouth
30 Bridge House, Bradford, Industrial Yorkshire and Humberside <5.0
31 Clarke Road, Milton Industrial South East <5.0
Keynes
32 Pricebusters Building, Standard retail North West <5.0
Blackpool
33 JD Gyms, Glasgow Other Scotland <5.0
34 Vantage Point, Hemel Offices Eastern <5.0
Hempstead
35 11/15 Fargate, Sheffield Standard retail Yorkshire and Humberside <5.0
Sector and Geographical Allocation by Market Value as at 30
September 2022
Sector Allocation
Sector %
------------------- ---
Standard retail 11
Retail warehouses 19
Offices 8
Industrial 53
Other 9
Geographical Allocation
Location %
-------------------------- ---
Rest of London 5
South East 4
South West 19
Eastern 12
West Midlands 20
East Midlands 2
North West 7
Yorkshire and Humberside 20
Wales 10
Scotland 1
Source: Knight Frank valuation report as at 30 September
2022.
Top Ten Tenants
% of
Portfolio
Passing Total
Rental Contracted
Income Rental
Tenant Sector Property (GBP'000) Income
--------------------- ----------- ------------------------------ ----------- ------------
Plastipak UK Gresford Industrial
1 Ltd Industrial Estate, Wrexham 975 5.7
2 Wyndeham Group Industrial Wyndeham, Peterborough 644 3.8
Mecca Bingo London East Leisure
3 Ltd Leisure Park, Dagenham 625 3.7
Harrogate Spring
4 Water Limited Industrial Lockwood Court, Leeds 603 3.5
5 Odeon Cinemas Leisure Odeon Cinema, Southend-on-Sea 535 3.1
Wilko Retail 15-33 Union Street,
6 Limited Retail Bristol 481 2.8
Advanced Supply
Chain (BFD) Euroway Trading Estate,
7 Ltd Industrial Bradford 467 2.7
8 Poundland Limited Retail Pearl House, Nottingham 414 2.4
Senior Architectural
9 Systems Ltd Industrial Mangham Road, Rotherham 410 2.4
Kvernerland Walkers Lane, St.
10 Group UK Limited Industrial Helens 389 2.3
The Company's top ten tenants, listed above, represent 32.6% of
the total passing rental income of the portfolio.
Source: Knight Frank valuation report as at 30 September
2022.
Asset Management
The Company completed the following material asset management
transactions during the period:
Acquisitions - The Railway Centre, Dewsbury, was acquired in
June 2022 for GBP4.70 million and is a 6.04-acre railway station
retail park, occupying a prominent location on the edge of the town
centre within an established retail and leisure area. The asset
provides an attractive net initial yield of 9.4%. The second
acquisition, JD Gyms, Glasgow, is a high yielding leisure asset,
providing a NIY of 7.4% and a low capital value of GBP99 per sq.
ft. Both of these assets provide strong and stable income streams
from their tenancy profiles.
Disposals - Sales of Moorside Road, Swinton for GBP1.71 million;
Eastpoint Business Park, Oxford, for GBP29.00 million; and Bath
Street, Glasgow, for GBP9.30 million. The Swinton and Oxford sales
prices produced IRRs in excess of 13% and 22%, respectively. The
sale of Glasgow realised a long-term change of use strategy where
full vacant possession of the building was achieved. Following its
sale, the occupancy rate for the remaining portfolio increased by
circa 4%, all else being equal. Reinvestment of the sales proceeds
is expected to provide a significant boost to the Company's
earnings, due to both higher levels of anticipated income and lower
running costs.
Arrow Point, Shrewsbury - During May 2022, the Company completed
the renewal of Charlie's Stores' lease on a straight 10-year term
at a rent of GBP385,000 per annum reflecting GBP11 psf, versus an
ERV of GBP7.50 psf. Charlie's Stores is the scheme's anchor tenant,
so this is an important letting for the property. Only nine months'
rent-free incentive was given.
40 Queen Square, Bristol - The Company completed an agreement
for lease with existing tenant
Konica Minolta Marketing Services Ltd on the third floor. The
tenant will enter into a new ten-year lease with a five-year tenant
break option at a rent of GBP218,840 per annum, reflecting a new
high rental tone for the building of GBP40 per sq. ft. The letting
is subject to landlord refurbishment works including roof, lift and
reception upgrades at a cost of GBP1.07 million plus 11 months'
rent-free incentive. Landlord works commenced during the period and
are due to complete before the end of the year.
Commercial Road, Portsmouth - During May 2022 the Company
completed a new 15-year lease to Kokoro UK Limited, a
Japanese-Korean restaurant. The agreed rent is GBP52,500 per annum
versus an ERV of GBP45,750 per annum. The tenant has the benefit of
a 12-month rent free period and a tenant only break option at the
end of the tenth year.
Diamond Business Park, Wakefield - During June 2022, the Company
completed a new letting of Units 8 and 9 to Wow Interiors, an
existing tenant on the estate already occupying Unit 7. Wow have
taken a new six-year lease with a tenant break option at the end of
the third year. The commencing rent of GBP3 psf will increase to
GBP3.50 psf in years 2 and 3, and subsequently GBP3.75 psf from
year 4 onwards. In doing so, the Company has also completed a lease
re-gear on Unit 7, removing Wow's 2022 tenant break option and
agreeing a three-year reversionary lease with a tenant break option
mirroring Units 8 and 9.
Mangham Road, Rotherham - The Company has completed a new
ten-year ex-Act lease to Senior Architectural Systems Ltd at a rent
of GBP410,000 per annum, reflecting a rent of GBP5 per sq. ft. This
shows a significant uplift to the rent paid by previous tenant,
Hydro Components, at GBP275,000 per annum. The lease provides for
five-yearly rent reviews to the higher of open market rent or RPI,
with collar and cap at 2% & 4% per annum, respectively. There
was no rent-free incentive granted to the tenant, however the
landlord undertook works to upgrade the building at a cost of
GBP964,700. These works were completed during the period and are
expected to improve the asset's energy efficiency. The tenant
benefits from a break option at the end of year five.
Bank Hay Street, Blackpool - Repair works at the property which
commenced in 2020 have now reached practical completion. The total
cost of these works amounted to circa GBP2.40 million, of which
approximately GBP800,000 is expected to be recovered from tenants.
The recoverable elements of this expenditure have been raised
within the service charge budget and all tenants are up to date
with payments.
Vacancy - The portfolio's overall vacancy level is 8.48%.
Environmental, Social and Governance ('ESG') Update
The Company has maintained its two stars Global Real Estate
Sustainability Benchmark ('GRESB') rating for 2022 and improved its
score to 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. So far, we
are in the process of installing AMRs in all of our multi-let
properties. We are also in discussions with the tenants of our top
10 single-let FRI assets (in terms of floor area) regarding the
installation of AMR.
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
to be provided in the 2023 annual report and accounts. We are
pleased to report that the Company has maintained its EPRA Silver
rating for 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/relevant and specific implementation of ESG
improvements. In doing so, all managed assets and units have
recently been contracted to High Quality Green Tariffs, ensuring
that electricity supply is from renewable sources. All void/vacant
unit supplies have also been transferred to High Quality Green
Tariffs.
All managed assets will be moved to 'Green Gas' supplies in
2022.
We are underway with implementing a number of initiatives across
our portfolio, including a new landscaping/biodiversity programme
at our retail warehouse in Barnstaple, replacing the existing
plants and shrubs with a greater diversity of appropriate species
which in turn will attract a wider variety of insects and wildlife
to the property.
Lease Expiry Profile
Approximately GBP2.91 million of the Company's current
contracted income stream is subject to an expiry or break within
the 12-month period commencing 1 October 2022. 26.68% (GBP776,757)
of this income is in the industrial sector, where we anticipate
strong occupier demand, low incentives and reversionary rents.
Regarding the remainder, we will proactively manage, 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
2022.
AEW UK Investment Management LLP
15 November 2022
AEW UK REIT PLC's interim report and financial statements for
the period ended 30 September 2022 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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