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AEWU Aew Uk Reit Plc

-1.10 (-1.27%)
13 Jun 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Aew Uk Reit Plc LSE:AEWU London Ordinary Share GB00BWD24154 ORD GBP0.01
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -1.10 -1.27% 85.80 85.70 86.70 86.20 85.30 86.20 103,661 16:35:23
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Real Estate Investment Trust 20.72M -11.33M -0.0715 -11.99 135.77M

AEW UK REIT PLC Half Yearly Results (2051U)

22/11/2023 7:00am

UK Regulatory

Aew Uk Reit (LSE:AEWU)
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RNS Number : 2051U


22 November 2023

22 November 2023


Interim Report and Financial Statements

for the six months ended 30 September 2023

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 2023.

Mark Burton, Chairman of AEW UK REIT, commented : "We have been encouraged by the Company's performance this period with NAV total return of 4.30%. All sectors of the Company's portfolio outperformed the MSCI index, demonstrating the benefits of our active asset management style in delivering performance throughout market cycles. I am pleased to report significant progress towards the Company's strategic objective of reinvesting surplus capital into higher yielding assets which are expected to deliver NAV growth over time. The purchases of NCP, York, and Cambridge House, Bath, have returned the portfolio to being materially fully invested, with EPRA earnings growing accordingly. NAV grew by 0.49%, driven by two successive quarters of positive valuation movement and accretive asset sales, where values were felt to have been maximised over the medium term. This momentum in activity has helped to create a healthy near-term outlook and we are pleased to have confirmed continued payment of the Company's market-leading 2p quarterly dividend, which has now been paid for 32 consecutive quarters."

Financial Highlights

    --   Net Asset Value ('NAV') of GBP167.93 million and of 106.00 
          pence per share ('pps') as at 30 September 2023 (31 March 
          2023: GBP167.10 million and 105.48 pps). 
    --   NAV Total Return for the period of 4.30% (six months ended 
          30 September 2022: 4.35%). 
    --   Operating profit before fair value changes of GBP6.63 
          million for the period (six months ended 30 September 
          2022: GBP5.25 million). 
    --   Profit Before Tax ('PBT')* of GBP7.16 million and earnings 
          per share ('EPS') of 4.52 pps for the period (six months 
          ended 30 September 2022: GBP8.32 million and 5.25 pps). 
          PBT includes a GBP0.16 million loss arising from changes 
          to the fair values of investment properties in the period 
          (six months ended 30 September 2022: GBP6.51 million loss) 
          and GBP1.65 million realised gains on disposal of investment 
          properties (six months ended 30 September 2022: GBP10.83 
          million gains). 
  --     EPRA Earnings Per Share ('EPRA EPS') for the period of 
          3.58 pps (six months ended 30 September 2022: 2.58 pps). 
          See the full Half Year Report for the calculation of EPRA 
    --   Total dividends* of 4.00 pps declared in relation to the 
          period (six months ended 30 September 2022: 4.00 pps). 
    --   Shareholder Total Return* for the period of 11.00% (six 
          months ended 30 September 2022: -18.53%). 
    --   The price of the Company's Ordinary Shares on the London 
          Stock Exchange was 98.43 pps as at 30 September 2023 (31 
          March 2023: 92.10 pps). 
    --   As at 30 September 2023, the Company had drawn GBP60.00 
          million (31 March 2023: GBP60.00 million) of its GBP60.00 
          million (31 March 2023: GBP60.00 million) loan facility 
          with AgFe and was geared to 27.35% of GAV (31 March 2023: 
          28.06%). See note 15 in the full Half Year Report for 
          further detail. 
    --   The Company held cash balances totalling GBP6.44 million 
          as at 30 September 2023 (31 March 2023: GBP14.32 million). 

Property Highlights

    --   As at 30 September 2023, the Company's property portfolio 
          had a valuation of GBP219.36 million across 35 properties 
          (31 March 2023: GBP213.83 million across 36 properties) 
          as assessed by the valuer(1) and a historical cost of 
          GBP231.38 million (31 March 2023: GBP224.03 million). 
    --   The Company acquired two properties during the period 
          for a total purchase price of GBP21.52 million, excluding 
          acquisition costs (year ended 31 March 2023: five properties 
          for GBP32.05 million). 
    --   The Company made three disposals during the period for 
          gross sale proceeds of GBP20.85 million (year ended 31 
          March 2023: five properties for gross sale proceeds of 
          GBP44.41 million). 
    --   The portfolio had an EPRA vacancy rate** of 6.98% as at 
          30 September 2023 (31 March 2023: 7.83%). 
    --   Rental income generated during the period was GBP9.43 
          million (six months ended 30 September 2022: GBP8.41 million). 
    --   EPRA Net Initial Yield ('EPRA NIY')** of 7.85% as at 30 
          September 2023 (31 March 2023: 7.65%). 
  --     Weighted Average Unexpired Lease Term ('WAULT')* of 4.45 
          years to break and 5.72 years to expiry (31 March 2023: 
          3.05 years to break and 4.33 years to expiry). 

(*) See KPIs in the full Half Year Report for definition of alternative performance measures. (**) See glossary in the full Half Year Report for definition of alternative performance measures. (1) The valuation figure is reconciled to the fair value under IFRS in note 12.

 L aura Elkin 
Nicki Gladstone 
                    +44(0) 771 140 1021 
  Liberum Capital 
  Darren Vickers     +44 (0)20 3100 2218 
TB Cardew  
 Ed Orlebar          +44(0) 7738 724 630 
 Tania Wild          +44(0) 7425 536 903 

Chairman's Statement


Despite the lacklustre economic headlines, we were encouraged to see the portfolio's performance return to positive territory in the first half of the year, following a tumultuous period for UK property valuations. During the period, the Company achieved NAV growth of 0.49%, with two successive quarters of positive valuation movements and numerous NAV accretive sales having been completed. Positive like-for-like valuation movement was seen in all sectors of the Company's portfolio, with the exception of offices, which are still stabilising. All sectors of the Company's portfolio outperformed the MSCI index during the period, demonstrating the benefits of an actively managed portfolio. Quarterly EPRA earnings per share ('EPS') grew by 4% during the period, with EPS reaching 1.84pps for the quarter ending 30 September 2023. Further growth in earnings and NAV are expected in the near term.

The commercial property investment market remained subdued during the period, with transaction volumes in all sectors well below historic averages. Despite the depressed transactional activity, the Company has identified plentiful pipeline opportunities. Less direct competition and a greater prevalence of mispricing have resulted in value investment opportunities being more numerous.

To exploit these opportunities, the Company has undertaken a strategy of selective capital recycling, in order to benefit from the attractive locations and advantageous pricing in its pipeline. Assets have been sold where their values have been maximised over the medium term and their earnings are below those seen in the Company's pipeline. During the period, the Company undertook three sales where offers had been received at levels that maximised asset value over the short to medium term. These sales included two industrial assets in Leeds and Bradford, sold as a package for a blended net initial yield of 6.2%, far below the Company's achieved average purchase yield during the period of 8.6%, demonstrating the Company's ability to crystallise asset management gains by selling out of lower yielding assets and recycling them into higher yielding assets, thereby enhancing earnings. The sale prices exceeded the assets' valuations prior to disposal by an average of 14%. The third sale was of an industrial property in Deeside, which was sold vacant for an 8% premium to the prior valuation. The asset was sold in order to avoid a costly refurbishment programme. These sales added to the Company's existing strong track record of crystallising net gains on disposal. The resulting capital profit will be utilised, where needed, to supplement earnings in the payment of the Company's market leading dividend, which has now been paid for 32 consecutive quarters.

I am pleased to report significant progress towards the Company's strategic objective of reinvesting capital generated from sales into higher yielding assets in core urban locations. The purchases of NCP, York, and Cambridge House, Bath, utilised most of the capital available for deployment and have strengthened earnings with a combined initial yield of 8.6%. Both assets have robust reversionary potential, each offering yields in excess of 10%, thus furthering their potential accretion to earnings over time. Despite the short-term negative impact on NAV of acquisition costs, these purchases are expected to deliver NAV growth over the medium term. Critical to these acquisitions were the strong locations of the assets, both of which occupy attractive central pitches in cities with a tight supply of land.

This has been a fruitful period for the Company's active asset management capabilities, with high numbers of leasing transactions completing that have fuelled earnings growth and bolstered NAV. The Company's portfolio has seen robust occupational activity across all major market sectors, with a particular concentration of activity in retail sectors, where the Company has focused much of its recent purchases. This activity is testament to the Investment Manager's expertise in stock selection and proactive asset management, both of which have driven the strong total return performance achieved by the portfolio's assets.

Further benefits to earnings and values from asset management transactions are expected to be realised over coming periods, with a number of key negotiations ongoing. As at the period end, the Company had a reversionary yield of 8.72%, as independently assessed by the valuer, Knight Frank, versus an initial yield of 7.31%. This is a measure of the inherent potential for future income growth that the current portfolio provides. Given the portfolio retains a low average passing rent of GBP6.29 per sq ft, this represents a conservative starting point for value protection and income growth.

Financial Results

                                                Six months            Six months   Year ended 
                                        ended 30 September    ended 30 September     31 March 
                                                      2023                  2022         2023 
 Operating profit before fair value 
  changes (GBP'000)                                  6,627                 5,253       11,096 
 Operating profit/(loss) (GBP'000)                   8,110                 9,576      (9,164) 
 Profit/(loss) before tax (GBP'000)                  7,162                 8,322     (11,325) 
 Earnings/(loss) per share (basic 
  and diluted) (pence)*                               4.52                  5.25       (7.15) 
 EPRA Earnings per share (basic 
  and diluted) (pence)*                               3.58                  2.58         5.70 
 Ongoing Charges (%)                                  1.50                  1.33         1.37 
 Net Asset Value per share (pence)*                 106.00                121.88       105.48 
 EPRA Net Tangible Assets per share 
  (pence)*                                          106.00                121.88       105.48 

* see note 10 of the Financial Statements for the corresponding calculations. See the Investment Manager's Report for further explanation of performance in the period.


I am delighted that the Company's performance and practices have been recognised in four awards received during the period. The Company has once again been awarded a gold medal by EPRA, the European Public Real Estate Association, for its high standard of financial reporting and a silver medal for standards of sustainability reporting. These awards are testament to the Company's robust governance and transparency.

The Company also won the Citywire investment trust award in the 'UK Property' category for the fourth successive year, as well as winning the 'Property' category at the Investment Week Investment Company of the Year awards.

Board Changes

As announced previously, I am very pleased to confirm the appointments of Mr Robin Archibald and Mrs Liz Peace as independent Non-Executive Directors to the Board of the Company, effective 1 October 2023. As part of orderly succession planning, Robin has been appointed as Chairman-elect and will succeed as Chairman of the Board upon my retirement at the Company's 2024 AGM. I am delighted that Robin and Liz are joining the Board and I am confident that their experience and range of skills will complement and further strengthen the existing Board for many years to come. Their collective extensive knowledge and experience in property and investment companies will be of great benefit. I look forward to working closely with Robin to ensure a smooth handover until September 2024.

On 30 September 2023, Mr Bim Sandhu retired from the Board as Chairman of the Audit Committee, having reached the end of his nine-year tenure as a Director of the Company. As first announced on 10 November 2022, Mr Mark Kirkland was appointed as Chairman-designate of the Audit Committee and has now succeeded Mr Sandhu as Audit Committee Chairman. On behalf of the Board, I thank Bim for his invaluable contribution since the IPO of the Company, and wish him well for his future endeavours.


We are pleased by the Company's progress in continuing to invest capital into attractive pipeline assets, where market conditions have enabled attractive pricing levels. These purchases have returned the Company's portfolio to being materially fully invested and as a result, income levels have grown accordingly. We are reassured by the occupational resilience that the portfolio has shown during a period of ongoing uncertainty. The quantum of asset management activity completed during the period is testament to the Investment Manager's proactive approach and to the quality of assets held in the portfolio. This activity has also boosted earnings and creates a healthy near-term outlook for further growth.

The Board believes that the ongoing relevance of the Company's strategy is highlighted by its consistent outperformance of the MSCI benchmark, with a five-year annualised outperformance of 6.66%. The Company has identified a plentiful pipeline, which has presented excellent opportunities for a diversified, value-focused investment strategy that is nimble in making cross-sector and often, counter-cyclical moves, thereby delivering optimal value to Shareholders. We believe that the relevance of this strategy is highlighted by the robustness of the Company's share rating, whose discount to NAV has consistently been the narrowest of its peers in the UK diversified peer group.

The Board and Investment Manager will continue to take a prudent approach to the ongoing management of the Company, alongside considering opportunities for investment, growth and capital recycling, as they arise.

Mark Burton


21 November 2023

Investment Manager's Report

Property Market Outlook

Despite uncertainty remaining in the wider economy, values in UK commercial property largely stabilised during the six months to 30 September 2023. UK property is expected to offer healthy return prospects over the coming periods, with consensus forecasts showing an expected return to positive rental growth across all major market sectors by 2025, and all UK property total returns to average 5.6% per annum over the next five years (2023-2027).


During the period, the industrials sector remained robust having been the sector which saw the steepest value declines at the end of 2023. Supported by resilient levels of occupational demand, the sector has continued to see the highest levels of rental growth and although this is expected to slow in coming years, it is expected to remain in positive territory, showing expected average annual growth of 3.3% between 2023 and 2027. We believe that the Company's industrial portfolio, with a low average passing rent of GBP3.60 per sq ft, will be well placed to benefit. The Company has completed several sales from the sector during the period, where sales yields have compressed significantly compared to pipeline assets, due to vendors' positive expectations on rental growth.


Values in the retail sector also faired robustly during the period, buoyed by positive sector indicators. Retail sales volumes increased 0.3% over the three months to August 2023 and the proportion of online retail sales fell marginally in the month to August. These figures, however, mask a divergence in performance of the underlying retail sectors, with retail warehousing remaining more robust on a total return basis than its high street equivalent. Vacancy levels across retail warehousing have fallen to 4.7%, the lowest level seen since 2018. Performance on the high street remains significantly polarised from town to town, with the top tiers remaining robust and those now deemed to be lower quality struggling, both for occupational and investor demand.

The period saw the failure of Wilko, which affected both high street and retail warehousing locations. Tenant failures and CVAs have not been as common as compared to the more regular occurrence seen during the Covid pandemic, however we remain cautious of further distress in the sector.


The Office sector saw a stronger post-Covid recovery in 2022 than some may have expected, with office-based employment growing in 2022. This trend started to reverse during 2023, resulting in negative capital growth seen across most locations. Occupational uncertainty remains across the sector, as businesses continue to transition to new working patterns. Tenants have also become more discerning in recent years, with occupiers now wishing to benefit from strong sustainability credentials as well as surrounding amenities and top-quality space. This is particularly the case for large corporate tenants, but it is increasingly becoming a key factor for smaller businesses too. As a result of all these factors, we have seen investor demand for the sector remain light, with investors further deterred by the high costs associated with delivery.


Across alternative sectors, visibility of performance in trading updates is key to investor demand and where these have remained robust, despite the squeeze on consumer discretionary spend, investment volumes have held up. Generally, leisure has historically fared relatively defensively during periods of economic uncertainty. Operators carrying unsustainably high levels of debt are seen as a concern, however. We find the sector attractive on a selective basis, particularly for assets that offer a superior income return and occupy larger land holdings, or sites in urban areas that can often be underpinned by alternative use values, most likely residential.

Financial Results

The Company's NAV as at 30 September 2023 was GBP167.93 million or 106.00 pps (31 March 2023: GBP167.10 million or 105.48 pps). This represents an increase of 0.52 pps or 0.49% over the six-month period, with the underlying movement in NAV set out in the table below:

              NAV Reconciliation 
 NAV as at 1 April 2023                105.48 
 Change in fair value of investment 
  property                               1.82 
 Portfolio acquisition costs           (1.06) 
 Capital expenditure                   (0.87) 
 Gain on disposal of investment 
  property                               1.04 
 Income earned for the period            6.19 
 Expenses and net finance costs 
  for the period                       (2.60) 
 Dividends paid                        (4.00) 
 NAV as at 30 September 2023           106.00 

EPRA EPS for the period was 3.58 pence which, based on dividends paid of 4.00 pps, reflects a dividend cover of 89.50%. The increase in dividend cover compared to the prior six-month period has largely arisen due to the completion of key asset management transactions. Our portfolio has gradually been reducing its industrial exposure over the past 18 months, and although this may not continue at the same rate going forward, it has allowed us to crystallise profits made in the sector and concurrently recycle the resulting capital into high yielding assets in our pipeline, mostly within other market sectors. We believe that this ability to move nimbly between property sectors in order to extract maximum value from our portfolio is a key strength of our strategy.

Further gains in EPS are expected in the coming quarters as the ongoing programme of new lettings should provide a boost to income streams and a reduction in void costs. The Company's focus for the deployment of capital continues to be further accretive investment opportunities, alongside re-investment into the existing portfolio where capex is needed in order to drive future performance gains.

Rent collection rates have reached 99% for both the March 2023 and June 2023 quarters respectively, with further payments expected to be received under longer-term payment plans. Of the outstanding arrears, the Company has made a GBP1.27 million expected credit loss provision, given the challenging economic outlook. The Company will continue to pursue all outstanding arrears.

The ongoing charges ratio has increased during the period as a result of the decline in the valuation of the portfolio rather than an increase in the Company's underlying cost base.


The Company holds a GBP60.00 million five-year term loan facility, maturing in May 2027. The loan is held with AgFe, a leading independent asset manager specialising in debt-based investments. It is priced as a fixed rate loan with a total interest cost of 2.959%. 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 during the loan term.

The details of the loan facility are as follows:

                          30 September 2023      31 March 2023 
                         ------------------  ----------------- 
 Facility                  GBP60.00 million   GBP60.00 million 
 Drawn                     GBP60.00 million   GBP60.00 million 
 Gearing (Loan to GAV)               27.35%             28.06% 
 Interest rate                 2.959% fixed       2.959% fixed 

Property Portfolio

In the year to 30 September 2023, the Company outperformed the benchmark in total return terms across all property sectors, demonstrating the benefits of an actively managed portfolio. This was driven by capital growth outperformance in all sectors aside from retail, and income return outperformance in all sectors aside from offices.

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 2023

                                                                            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)          % 
 Industrial           14        78.33   1,880,794       4.35       3.80      6.78       3.60      7.71        4.10      3.51     (0.08)     (2.31) 
  warehouses           5        46.25     484,033      18.14       5.25      3.40       7.03      4.32        8.93      2.07     (0.19)     (9.67) 
  retail               8        38.16     357,227       3.16       4.89      3.89      10.90      3.98       11.13      2.03       0.03       1.98 
 Alternatives          5        30.37     197,491       0.00       7.54      2.98      15.08      2.75       13.95      1.16     (0.04)     (3.91) 
 Office                3        26.25     125,318       9.34       2.96      2.10      16.74      2.73       21.75      0.66       0.05       8.14 
                --------  -----------  ----------  ---------  ---------  --------  ---------  --------  ----------  --------  ---------  --------- 
 Portfolio            35       219.36   3,044,863       6.98       4.45     19.15       6.29     21.49        7.06      9.43     (0.23)     (2.89) 
                --------  -----------  ----------  ---------  ---------  --------  ---------  --------  ----------  --------  ---------  --------- 

Summary by Geographical Area as at 30 September 2023

                                                                             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)          % 
 South West             7        57.35     635,587       9.65       3.96      4.58       7.20      6.15        9.68      2.33       0.10       6.51 
 West Midlands          5        43.00     597,860      10.24       4.22      3.60       6.03      3.86        6.46      1.81     (0.09)     (4.62) 
 Yorkshire and 
  Humberside            7        32.43     616,838      13.81       4.85      2.92       4.74      3.57        5.79      1.48     (0.02)     (1.57) 
 Eastern                4        22.08     326,419       0.80       3.29      1.92       5.87      2.10        6.44      0.83     (0.15)    (15.61) 
 North West             4        21.60     336,043       0.00       6.05      1.90       5.67      2.00        5.95      0.98     (0.07)     (9.75) 
 Wales                  2        14.90     319,010       0.00       9.48      1.28       4.00      1.38        4.34      0.61     (0.03)     (5.37) 
 South East             3        12.15      86,826       0.00       2.67      1.39      16.06      1.05       12.07      0.62       0.07      17.96 
 Rest of London         1        10.00      71,720       0.00       8.01      0.94      13.04      0.79       10.94      0.49     (0.02)     (4.62) 
 East Midlands          1         3.70      28,219       0.00       3.62      0.41      14.56      0.38       13.38      0.18     (0.02)    (10.37) 
 Scotland               1         2.15      26,341       0.00       4.54      0.21       7.97      0.21        7.97      0.10          -       1.89 
                 --------  -----------  ----------  ---------  ---------  --------  ---------  --------  ----------  --------  ---------  --------- 
 Portfolio             35       219.36   3,044,863       6.98       4.45     19.15       6.29    21.49         7.06      9.43     (0.23)     (2.89) 
                 --------  -----------  ----------  ---------  ---------  --------  ---------  --------  ----------  --------  ---------  --------- 

*like-for-like rental growth is for the six months ended 30 September 2023.

Source: Knight Frank/AEW, 30 September 2023.

Individual Property Classifications

                                                                             Market Value 
      Property - Top 10       Sector              Region                     Range (GBPm) 
     ----------------------  ------------------  -------------------------  ------------- 
 1    Central Six Retail      Retail warehouses   West Midlands                 20.0-25.0 
       Park, Coventry 
 2    Northgate House,        Standard retail     South West                    10.0-15.0 
 3    Gresford Industrial     Industrial          Wales                         10.0-15.0 
       Estate, Wrexham 
 4    Cambridge House,        Offices             South West                    10.0-15.0 
 5    40 Queen Square,        Offices             South West                    10.0-15.0 
 6    Tanner Row, York        Other               Yorkshire and Humberside      10.0-15.0 
 7    London East Leisure     Other               Rest of London                10.0-15.0 
       Park, Dagenham 
 8    Arrow Point Retail      Retail warehouses   West Midlands                  7.5-10.0 
       Park, Shrewsbury 
 9    Units 1001-1004,        Industrial          North West                      5.0-7.5 
       Sarus Court, Runcorn 
 10   Apollo Business Park,   Industrial          Eastern                         5.0-7.5 

The Company's top ten properties listed above comprise 51.1% of the total value of the portfolio.

                                                                                Market Value 
      Property                   Sector              Region                     Range (GBPm) 
 11   Cuerden Way, Preston       Retail warehouses   North West                    5.0 - 7.5 
 12   Storey's Bar Road,         Industrial          Eastern                       5.0 - 7.5 
 13   Barnstaple Retail          Retail warehouses   South West                    5.0 - 7.5 
       Park, Barnstaple 
 14   15-33 Union Street,        Standard retail     South West                    5.0 - 7.5 
 15   Mangham Road, Rotherham    Industrial          Yorkshire and Humberside      5.0 - 7.5 
 16   Westlands Distribution     Industrial          South West                    5.0 - 7.5 
       Park, Weston Super 
 17   Brockhurst Crescent,       Industrial          West Midlands                 5.0 - 7.5 
 18   Walkers Lane, St           Industrial          North West                    5.0 - 7.5 
 19   Diamond Business           Industrial          Yorkshire and Humberside      5.0 - 7.5 
       Park, Wakefield 
 20   Odeon Cinema, Southend     Other               Eastern                       5.0 - 7.5 
 21   Next, Bromley              Standard retail     South East                    5.0 - 7.5 
 22   710 Brightside Lane,       Industrial          Yorkshire and Humberside          < 5.0 
 23   Oak Park, Droitwich        Industrial          West Midlands                     < 5.0 
 24   Commercial Road,           Standard retail     South East                        < 5.0 
 25   Pearl House, Nottingham    Standard retail     East Midlands                     < 5.0 
 26   The Railway Centre,        Retail warehouses   Yorkshire and Humberside          < 5.0 
 27   Cedar House, Gloucester    Offices             South West                        < 5.0 
 28   Pipps Hall Industrial      Industrial          Eastern                           < 5.0 
       Estate, Basildon 
 29   69-75 Above Bar            Standard retail     South East                        < 5.0 
       Street, Southampton 
 30   Eagle Road, Redditch       Industrial          West Midlands                     < 5.0 
 31   Circuit, Cardiff           Other               Wales                             < 5.0 
 32   Bridge House, Bradford     Industrial          Yorkshire and Humberside          < 5.0 
 33   Pricebusters Building,     Standard retail     North West                        < 5.0 
 34   JD Gyms, Glasgow           Other               Scotland                          < 5.0 
 35   11/15 Fargate, Sheffield   Standard retail     Yorkshire and Humberside          < 5.0 

Sector and Geographical Allocation by Market Value as at 30 September 2023

Sector Allocation

 Sector                % 
-------------------  --- 
 Industrial           36 
 Retail warehouses    21 
 Standard retail      17 
 Alternative          14 
 Offices              12 

Geographical Allocation

 Location                     % 
--------------------------  --- 
 South West                  26 
 West Midlands               20 
 Yorkshire and Humberside    15 
 Eastern                     10 
 North West                  10 
 Wales                        7 
 South East                   5 
 Rest of London               4 
 East Midlands                2 
 Scotland                     1 

Source: Knight Frank valuation report as at 30 September 2023.

Top Ten Tenants

                                                                                                 % of 
                                                                                Passing         Total 
                                                                                 Rental    Contracted 
                                                                                 Income        Rental 
      Tenant              Sector             Property                         (GBP'000)        Income 
     ------------------  -----------------  ------------------------------  -----------  ------------ 
      Plastipak UK                           Gresford Industrial 
 1     Limited            Industrial          Estate, Wrexham                       975           5.1 
 2    NCP                 Other              Tanner Row, York                       733           3.8 
 3    Matalan             Retail warehouse   Matalan, Preston                       651           3.4 
 4    Wyndeham Group      Industrial         Wyndeham, Peterborough                 644           3.4 
 5    Poundland Limited   Retail             Various                                631           3.3 
 6    Next                Retail             Next, Bromley                          630           3.3 
 7    TJX UK Ltd          Retail             Various                                608           3.2 
                                             London East Leisure 
 8    Mecca Bingo Ltd     Other               Park, Dagenham                        584           3.1 
 9    Odeon Cinemas       Other              Odeon Cinema, Southend-on-Sea          535           2.8 
      Bath Northgate 
       House Centre                          Northgate House, 
 10    Ltd                Retail              Bath                                  491           2.5 

The Company's top ten tenants, listed above, represent 33.9% of the total passing rental income of the portfolio.

Source: Knight Frank valuation report as at 30 September 2023.

Investment Update

The Company completed the following material asset management transactions during the period:

Acquisitions - In July 2023, the Company completed the acquisition of Tanner Row, York, a mixed-use asset within York city centre for GBP10.02 million, reflecting an attractive net initial yield of 9.3%.

In September 2023, the Company acquired Cambridge House, Bath, a mixed-use asset in Bath city centre for GBP11.50 million, reflecting an attractive net initial yield of 8.0% and a capital value of GBP223 per sq ft.

Disposals - In May 2023, the Company completed the sale of its industrial holding in Deeside for GBP4.75 million, reflecting a capital value of circa GBP49 per sq ft. The vacant asset was sold to an owner-occupier, with the price reflecting an 8.0% premium to the 31 March 2023 valuation. By disposing of the asset, the Company also avoided a speculative refurbishment project costing approximately GBP1.00 million.

In June 2023, the Company completed the sale of two industrial assets, being Euroway Trading Estate, Bradford and Lockwood Court, Leeds, for combined proceeds of GBP16.10 million. This reflected a blended net initial yield (NIY) of 6.2% and a weighted average premium to acquisition price of 31.2%. Both sales realised significant profit for AEWU's shareholders. For Euroway Trading Estate and Lockwood Court respectively, their sales prices exceeded their 31 March 2023 valuations by 26.5% and 3.8%, as well as their acquisition prices by 30.3% and 31.8%.

Asset Management Update

Central Six Retail Park, Coventry (retail warehousing) - in April 2023, the Company completed a lease renewal with existing tenant, Grahams Baked Potatoes Limited. The tenant has entered into a new four-year lease with rolling mutual break options at a rent of GBP24,500 per annum, equating to GBP45 per sq ft.

In May 2023, the Company completed a lease renewal with existing tenant, Oak Furnitureland Group Limited, for Unit 12. The tenant has entered into a new two-year lease with rolling mutual break options at a rent of GBP25,000 per annum, equating to GBP2.50 per sq ft.

In May 2023, the Company also completed a reversionary lease with existing tenant, Boots UK Limited, for Unit 7. The tenant has entered into a new five-year lease with effect from 28 February 2024 at a rent of GBP259,293 per annum, equating to GBP14.25 per sq ft. The letting also includes seven and a half months' rent free taken under the existing lease.

In June 2023, the Company completed the acquisition of the freehold interest in units 1-11, which had previously been held by way of long leasehold from Friargate JV Projects Limited. The acquisition of the freehold interest is expected to increase the liquidity of the asset in case of its future sale and also removes user restrictions within the long lease which are constrictive to lettings. In exchange for the freehold interest, the Company has granted to Friargate JV Projects an option to acquire the Company's long leasehold interest in units 12 A & B over a five-year period, commencing in two years' time.

The Company completed a new 20-year lease to Aldi Stores Limited, following the completion of the agreement for lease in October 2022. The lease provides an annual rent of GBP270,166 per annum, reflecting GBP13 per sq ft, to be reviewed every five years based on compounded annual RPI, collared and capped at 1% and 3% respectively. The lease provides Aldi with a 12-month rent-free incentive and a tenant break option at year 15.

In September 2023, the Company received formal confirmation of the planning permission for the amalgamation of Unit 6a and Unit 6b and extended delivery hours in order to facilitate the letting to The Food Warehouse. The letting is expected to complete in February 2024.

Barnstaple Retail Park, Barnstaple (retail warehousing) - the Company has completed an eight-year reversionary lease with B&Q from 29 September 2024 at the current passing rent of GBP348,000 per annum (GBP9.75 per sq ft). In return, the tenant has been granted a six-month rent-free period.

40 Queens Square, Bristol (office) - after protracted negotiations, the Company has settled three outstanding rent reviews at the building dating back to 2021 and 2022 with the following tenants: Leonard Curtis Recovery Limited, Chapman Taylor LLP and Turley Associates. The outcome of the reviews will see the annual rent from the three tenant's increase from GBP213,812 per annum to GBP281,550, reflecting a 32% uplift.

The Company has also recently completed a new five-year ex-Act lease to Environmental Resources Limited with a tenant break option at the end of the third year at a rent of GBP69,230 per annum (GBP35 per sq ft). The tenant has the benefit of an initial six-month rent-free period, with a further four months incentive if they do not serve their break option.

Arrow Point Retail Park, Shrewsbury (retail warehousing) - the Company has completed a three-year lease to Universal Consumer Products Limited at a rent of GBP110,000 per annum (GBP8 per sq ft). The previous passing rent was GBP95,844 (GBP7 per sq ft). No lease incentive was given.

Oak Park, Droitwich (industrial) - the Company has completed a new three-year ex-Act lease on units 266-270 to Roger Dyson at a stepped rent starting at GBP123,000 per annum in year one, GBP135,000 per annum in year two and GBP148,000 per annum in year three. There is a mutual break option on the expiry of the second year. The tenant was granted a one-month rent free period.

The Company has also completed a new three-year ex-Act lease to Adam Hewitt Ltd at units 263 and 265 at a rent of GBP70,000 per annum. There is a tenant break option after the first year. No rent incentive was given.

Lastly, the Company has completed a letting at units 272 and 273 to J Warwick Holdings Ltd for a new 15-year term, with rolling tenant break options every three years at a rent of GBP79,000 per annum. The tenant has the benefit of a six-month rent-free period. The property is now fully let.

Diamond Business Park, Wakefield (industrial) - in April 2023, the Company completed the settlement of an open market rent review with Tasca Tankers, dating back to June 2022. The review will see the rent received increase from GBP209,000 to GBP229,900 per annum, reflecting an uplift of 9.6%.

The Company has settled Compac UK's July 2023 RPI rent review at GBP53,517 per annum, representing an GBP11,517 per annum (circa 27%) increase. The unit is still considered under-rented, with an ERV of GBP4.00 per sq ft, compared to the new passing rent of GBP3.90 per sq ft.

The Company has also settled Economy Packaging Ltd's August 2023 open market rent review at GBP79,065 per annum, representing a GBP26,565 per annum (circa 50%) increase. This letting equates to GBP3.75 per sq ft and will provide good evidence for further asset management activity.

Northgate House, Bath (retail) - in June 2023, the Manager completed a new five-year ex-Act lease to Dimension Vintage limited at a rent of GBP40,000 per annum. Four months' rent-free has been granted.

Commercial Road, Portsmouth (retail) - in June 2023, a new 10-year lease was completed to Specsavers at a rent of GBP60,000 per annum in vacant accommodation previously let to River Island. An incentive of nine months' rent free was granted to the tenant, along with a GBP40,000 capital contribution to improvement works. There will be a tenant only break option after six years on six months' notice.

Sarus Court, Runcorn (industrial) - The Manager has completed three lease renewals with existing tenant, CJ Services, for their leases at units 1001, 1002 and 1003. The total rent is GBP276,283 per annum reflecting GBP6.50 per sq ft, an increase from the previous average passing rent of GBP5.25 per sq ft. Five-year ex-Act leases were granted, with incentives equal to six months' rent-free.

The Railway Centre, Dewsbury (leisure) - Mecca Bingo, whose lease expires on 24 December 2023, have surrendered their lease early on 29 September 2023, paying all their rent, service charge and insurance to lease expiry. In doing so, the Company has also settled Mecca's dilapidations at GBP285,000. The full and final combined settlement totals GBP365,126. The Manager is in the process of agreeing terms with an incoming tenant where landlord enabling works will be required. An early surrender of Mecca's lease will facilitate the new letting completing a quarter earlier than otherwise possible.

Westlands Distribution Park, Weston-Super-Mare (industrial) - the Company has completed a lease renewal with JN Baker who have extended their occupation of Unit 2A for a further two years from April 2023, with a mutual break option exercisable after nine months. The agreed rent is GBP159,000 per annum, inclusive of insurance.

The Company has settled three outstanding April 2022 rent reviews with North Somerset Council at units 2, 5 and 6. The combined rental increase is GBP35,864 per annum (circa 20%).

Carr Coatings, Redditch (industrial) - the Company has settled Carrs Coatings Ltd's August 2023 annual uncapped RPI rent review at GBP294,348 per annum (GBP7.75 per sq ft), representing a GBP24,385 per annum (circa 9%) increase. The unit is single-let to Carrs Coatings Ltd until August 2028. The lease was entered into as a sale and leaseback in 2008 at an initial starting rent of GBP170,300 per annum (GBP4.50 psf).

Vacancy - The portfolio's overall vacancy level is 6.98%.

ESG Update

The Company has maintained its two stars Global Real Estate Sustainability Benchmark ('GRESB') rating for 2023, as well as maintaining its score of 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. We currently have thirteen AMR installation projects ongoing, including at single lets and multi-lets such as Central Six Retail Park. Several other AMR installations will be executed during 2024.

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 provided in the 2023 annual report and accounts. We are pleased to report that the Company has maintained its EPRA Silver rating for EPRA Sustainability Best Practices Recommendations ('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 implementation of ESG improvements. In doing so, we ensure all possible sustainability initiatives are considered and implemented where physically and economically viable.

Following a significant emissions reduction from assets within the portfolio during 2022 (-33.8% vs. the 2018 baseline), we took the decision to increase the reduction target from 15% to 40% by 2030, equating to a planned saving of roughly 76 extra tonnes of carbon. All managed assets and units have been contracted to High Quality Green Tariffs, ensuring that electricity supply is from renewable sources and contributing to the continued reduction in emissions. All void/vacant unit supplies have also been transferred to High Quality Green Tariffs, while gas capping exercises have been undertaken where possible, including several units at Diamond Business Park.

We are currently implementing several biodiversity initiatives across our portfolio, including significant biodiversity improvements to the Railway Centre, Dewsbury. This includes the installation of 20 bird boxes, 10 insect towers & hotels, a hedgehog house, a wildflower meadow and replanting of bushes across the site. Other notable projects include the installation of EV chargers at Central Six and a solar PV feasibility study at London East Leisure Park.

Lease Expiry Profile

Approximately GBP2.40 million of the Company's current contracted income stream is subject to an expiry or break within the 12-month period commencing 1 October 2023. We will proactively manage these leases nearing expiry, 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 2023.

AEW UK Investment Management LLP

21 November 2023

AEW UK REIT PLC's interim report and financial statements for the period ended 30 September 2023 will be

available today on   www 

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 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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