 AEWU pops up in The Telegraph's Questor column this morning!(apologies for formatting)
The prospect of further interest rate cuts by the Bank of England as inflation falls, lifting the pressure on businesses and consumers, has sparked a recovery in real estate investment trusts (Reits).
This makes it a good time to review our tip of AEW UK Reit, which we first recommended in July 2020 when shares in the top-performing commercial property fund languished 22pc below asset value in the first coronavirus lockdown, and offered an attractive 11pc dividend yield.
Our timing was good and the shares have gained 28pc since then as we correctly bet the company – now on an 11pc discount and still offering a high 9pc yield – would continue to pay shareholders 2p a share each quarter.
AEW UK has delivered its 8p annual payout for nearly nine years. This is an impressive feat given the dividend cuts and suspensions some Reits were forced into, either during the pandemic when many tenants couldn’t pay rents, or when borrowing costs soared as the Bank hiked base rate from nearly zero in December 2021 to 5.25pc 20 months later.
However, it’s not been a smooth ride for shareholders in the portfolio of 33 offices, shops, retail warehouses and industrial parks. The shares have tumbled 22pc since we last assessed them two years ago, shortly after they peaked at 128.6p in April 2022.
Bounce-back after Covid
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Bounce-back after Covid
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The decline to 93p today largely reflects the indiscriminate selling of listed property funds in 2022 and the mark-down of real estate as the yields on benchmark government bonds rose in response to rising interest rates.
In AEW’s case there was also concern about whether the dividend could survive intact, as for a few years there wasn’t sufficient rental income to fully cover the payments.
The uncovered dividend was mostly a byproduct of the trust’s buy-low, sell-high investment approach. Henry Butt, Assistant fund manager, says he and lead manager Laura Elkin are value investors who buy smaller commercial properties at low prices and high yields on comparatively short leases of four to six years. They then refurbish them and sell at higher prices when their rental values improve.
Because it can be easier to sell properties unlet and because it can also take time to reinvest the proceeds of property sales, this strategy can lead to periods when quarterly earnings per share slip below 2p.
Concerns about the dividend cover were heightened last year when a couple of tenants, including hardware retailer Wilko, fell into administration. This is why we didn’t include AEW UK in our roundup of generalist Reits in June when we picked Picton Property Income, up 10pc since we recommended it on a 30pc discount.
Happily, an update in July saw AEW UK take a big step towards restoring dividend cover with underlying quarterly earnings rising from 1.75p to 1.92p per share. A 2.4pc increase in its properties following a meagre 0.4pc rise in the previous three months provided evidence that commercial real estate had bottomed out.
AEW UK key facts
Market value: £147m
Year of listing: 2015
Discount: 11.7pc
Ave discount over past year: 11.1pc
Yield: 8.6pc
Most recent year’s dividend: 8p
Gearing: 35.8pc
Annual charge: 1.6pc
News of the £6.3m sale of an industrial estate in Worcestershire for 33pc more than its valuation in March also showed an improving market and highlighted the fund managers’ successful record in locking in good gains.
Over five years, the trust’s net asset value has grown 61.9pc, well ahead of the 10.8pc average of its rivals. Despite the setback of the past two years, the shares have largely passed on this growth with a total return of 55.2pc.
With further rental growth in prospect and £8.3m of cash on hand to buy or upgrade properties, this trust continues to be a good way to capture the recovery in commercial property. With two other Reits, Balanced Commercial Property and Tritax Eurobox, falling to bids this week, it’s possible predators will eye AEW UK Reit which we continue to rate a “hold”.
Questor says: Hold
Ticker: AEWU
Share price at close: 93.2p |
Hoping to buy a few more at sub-90p ex dividend but not sure I'll get the chance. |
Indeed they are as good as (think underlying was just shy of the 2p).So a solid as good as dammit 9% covered yield...that'll do me nicely thank you very much! |
Unusual to get a NAV increase these days and there is a bit flattery from reversals but also good up lift on retail pks (EPIC board take note). Henry seems to have a plan for all the cash on the books now but on asset management initiatives. Despite Lauras absence the halo over AEWU is still burning bright. |
Dividend now covered by earnings |
Highlights
· NAV of £167.79 million or 105.91 pence per share as at 30 June 2024 (31 March 2024: £162.75 million or 102.73 pence per share).
· NAV total return of 5.04% for the quarter (31 March 2024 quarter: 1.16%).
· 2.41% like-for-like valuation increase for the quarter (31 March 2024 quarter: 0.41% increase).
· EPRA earnings per share ("EPRA EPS") for the quarter of 2.26 pence (31 March 2024 quarter: 1.88 pence).
· Interim dividend of 2.00 pence per share for the three months ended 30 June 2024, paid for 35 consecutive quarters and in line with the targeted annual dividend of 8.00 pence per share.
· Loan to GAV ratio at the quarter end was 25.66% (31 March 2024: 26.21%). Significant headroom remains on all loan covenants.
· Company continues to benefit from a low fixed cost of debt of 2.959% until May 2027.
· Disposal of Oak Park, Droitwich, for £6.30 million, reflecting a 33% premium to the 31 March 2024 valuation.
· New letting and RPI rent review increasing annual contracted rent by £220,462. |
@WC104 it is but valuers should assess reversion possibilities as well surely. Anyhow another excellent recycling operation although that means even more cash in the bank which needs a new home. Not a year ago they they showed several slides worth of acquisition targets they would like if they had the cash but now seem slow in crystallising any which means they can't pick them up on the cheap anymore which of course is a good indicator for wider mkt. |
They did leases after the last valuation, so that likely accounts for most of the premium to book Valuation is only ever an educated guess and it's historic |
Interesting premium to valuation!
Do they seem to be calling the top of this multi let market in this location at least?
Do we know who the valuers were and more importantly who else they work for? 33% profit to be made somewhere?
I'll have a scout around at weekend |
Adds 1.0p to NAV |
And as if by magic there is another sale. While the price achieved is not exactly brilliant compared to the purchase cost it's a whopping 33% above latest carry value.Which makes you wonder just how the valuers got this wrong by so much and what else they might be grossly underestimating here and in other property vehicles! |
@kibes they've been running that cautionary statement for over four years but have had the midas touch in recycling the portfolio to generate plenty of surplus to cover the shortfall. That strategy has served them well but gone a bit quiet recently but generally out of the blue they dispose of something at a decent premia. |
Financial statements look generally OK to me but it depends rather on forward performance. The dividend is not currently covered by earnings and there are cagey comments about 'reviewing it depending on circumstances'. Some of their more recent purchases are a bit off the wall, a nightclub in Cardiff for example? (Which has gone into administration). Nightclubs have a track record of sometimes doing well but more often going bust. I would quite like to top up here but will wait for their next NAV statement. Their company structure which has no Executive Directors or staff and relies on AEW (a separate listed company) to manage their portfolio is also a bit strange although it seems to have worked so far. What does AEW get out of it? |
Someone with more clout them me has finally woken them up and uploaded it although the financial narrative is pretty thin.
Anyhow a good uplift in NRI over the year and reduced operating costs, before provision for bad debts (Wilko), shows they are closing in on divi cover which I'd say is good as the magic of churning the portfolio has dropped back this year. Looking ahead the lease expires/breaks this year are the highest for several years ahead and have the biggest opportunity on ERV to finally close the divi cover gap. They also have 16m (incl latest disposal) available for acquisitions and in past presentations they've shown they had plenty of targets. |
Or here :- |
Ah - I understand and it looks like the website link has the same information - perhaps an email or call to :-
Henry Butt
henry.butt@eu.aew.com
+44(0) 20 7016 4869
AEW Investor Relations
investor_relations@eu.aew.com |
@skinny thats the abstracts not the full financials that most usually include in the RNS release but AEWU aren't the only ones recently who have gone down this path. They refer to specific page numbers of the report in the RNS but then don't upload it. Presumably they aren't required to include full financials if they don't want to? |
Results today but only half the story on the RNS and say refer to website for full report which has the full financials in it but still isn't uploaded!! |
simon Thompson IC
A lowly geared Reit trades on an 18 per cent discount even though its portfolio is outperforming peers.
In the fourth quarter to 31 March 2024, a like-for-like valuation gain of 0.4 per cent comfortably outpaced the 0.6 per cent decline in the UK Quarterly MSCI index and helped AEW deliver a NAV quarterly total return of 1.16 per cent. After the payment of the quarterly 2p a share dividend, NAV dipped slightly to £165mn (102.7p) but that was only due to a tax provision which will be reversed in the next quarter.
outperforming peers |
ST gives this another push in the I/C : Lock in this secure 9 1/2 % yield |
@SKY
Yep it is attractive as stands. Any other upside (narrowing of discount with NAV same or increasing or least likely dividend increase) should be seen as a bonus. i have added some more this morning. |
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